Pembina to Buy Kinder Morgan Oil Assets

(Bloomberg) -- Pembina Pipeline Corp. increased its bet on the future of Canada’s turbulent oil-sands industry, agreeing to buy Kinder Morgan Inc.’s Canadian unit and the U.S. portion of a key pipeline for about C$4.35 billion ($3.3 billion).
The deal makes Pembina a major player in the oil-storage business, giving it 10 million barrels of capacity in the crude complex near Edmonton, Alberta, a key hub for oil-sands producers. With the takeover of Kinder’s Cochin Pipeline system, Pembina also becomes a key provider of the condensate that oil-sands companies need to blend with their thick crude to enable it to flow through pipelines.
The acquisition is a major bet on the future of the oil sands at a time when delays to key export pipelines have hampered the industry’s ability to expand and forced the Alberta government to support Western Canadian heavy crude prices with unprecedented production limits, which it extended for another year on Tuesday. The deal also continues a flight of international capital out of the oil sands, following major divestitures from ConocoPhillips and Royal Dutch Shell Plc in recent years.
Pembina Chief Executive Officer Mick Dilger said the deal increases its vertical integration, diversifying its offerings to its oil-sands customers and enhancing the company’s resilience in an uncertain environment. The takeover also gives Pembina additional integration opportunities, and those benefits are reflected in the premium it paid for the assets, Chris Cox, an analyst at Raymond James, said in a note.
“The acquisition further strengthens the quality of the company’s integrated value chain, improves the quality of the company’s cash flows and adds a new compelling business line with the Edmonton storage business,” Cox said.
For Kinder Morgan, the agreement comes more than three months after the Canadian unit said it would continue as a standalone company. It held two bidding rounds, “but ultimately concluded that a transaction on satisfactory terms was not available at the current time,” Steve Kean, CEO of both Kinder Morgan and the Canadian unit, told investors on a May conference call.
The transaction values Kinder Morgan Canada Ltd. at about C$2.3 billion, or C$15.02 per share, based on an all-share exchange ratio of 0.3068 of a common share of Pembina per Kinder Canada security, according to a statement. That’s about 37% more than the stock’s closing price on Tuesday. It values the U.S. portion of the Cochin pipeline at about C$2.05 billion for cash consideration.
Pembina fell as much as 1.8% to C$48.37 on Wednesday before paring losses. Kinder Morgan Canada jumped as much as 35% to C$14.84.
Before the deals were announced early Wednesday, there was speculation that Kinder Morgan Canada could be a potential buyer for the Trans Mountain pipeline that runs from Alberta to Vancouver. The government bought the line from Kinder last year and has promised to sell the conduit back to a private company after it completes a long-delayed expansion project. Multiple indigenous groups in Canada have expressed interest in buying a stake in the line, and analysts have said the line also might be a good fit for pension funds.
Pembina’s Dilger said on the conference call that the Trans Mountain line would fit into the company’s strategy of serving western Canadian oil producers but that the company doesn’t want to take on the baggage that comes along with the project, which has faced opposition and legal challenges from environmentalists, indigenous groups and British Columbia’s government.
Though Pembina is “uniquely qualified” to operate Trans Mountain, “we don’t want to submerge our entire management team and subject our entire organization and reputation to all the noise that entails,” Dilger said on a conference call to discuss the transaction.
Pembina also confirmed that another party has a right of first refusal on one of the assets it acquired. The company wouldn’t disclose the party or the asset, but Dilger said on a call to discuss the deal that if that right of first refusal were to be exercised, it would shrink the size of the assets Pembina is buying “a little bit” but would not be “devastating.”
--With assistance from Brian Eckhouse.
To contact the reporter on this story:
Kevin Orland in Calgary at korland@bloomberg.net
To contact the editors responsible for this story:
James Herron at jherron9@bloomberg.net
Christine Buurma, Carlos Caminada
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Top Headlines: USA Navy and Iran Corps Clash in Strait of Hormuz and More
- USA Energy Sec Leads Meeting with 7 Major Oil Companies
- Russian Oil Isn't Dead Yet
- US Gas Production Up 2 Pct In Q2, S&P Global Platts Says
- Sunak Stands Firm on UK Oil Windfall Tax
- Recession Talk Reigns Supreme
- Coretrax Completes Expandable Technology Project In USA
- Oil Dive Will Not Bring Any Immediate Relief on Inflation
- OGDCL Makes Oil and Gas Discoveries
- ABB Systems Chosen For Northern Lights CCS Project
- USA Navy and Iran Corps Clash in Strait of Hormuz
- Russian Oil Disappears as Tankers Go Dark
- Top Headlines: USA Navy and Iran Corps Clash in Strait of Hormuz and More
- Diesel Price Shock Imminent As Reserves Drop, Refining Lags
- USA Refinery Capacity Drops
- USA Gasoline Price Falls
- ConocoPhillips Makes Norway Gas Discovery
- USA Energy Sec Leads Meeting with 7 Major Oil Companies
- These Are the Largest Energy Companies by Market Cap Right Now
- Oil and Gas Lease Sales in Wyoming, Colorado, New Mexico Pushed Back
- USA Navy and Iran Corps Clash in Strait of Hormuz
- Oil Industry Responds to Biden Letter
- Rapidly Decaying Supertanker Could Explode at Any Time
- Oil Nosedives on Fed Inflation Actions
- Top Headlines: ADNOC Announces 650MM Barrel Oil Find and More
- Biden To Restart Idle Refineries To Tame Fuel Prices
- Top Headlines: Oil Industry Responds to Biden Letter and More
- Iran Seizes 2 Greek Tankers
- Too Early To Speculate on ExxonMobil Refinery Fire Cause
- Fitch Solutions Reveals Latest Oil Price Forecast