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Kinder Morgan closes deal to exit Canada
CANADA
Kinder Morgan sold the Trans Mountain project to the Canadian government last year.
HOUSTON-BASED pipeline operator Kinder Morgan has closed a deal worth over $2.5bn to sell its Kinder Morgan Canada and cross-border Cochin Pipeline subsidiaries to Calgary-based Pembina Pipeline. The closing of the deal marks Kinder Morgan’s exit from the Canadian market.
Pembina reimbursed Kinder Morgan more than $1.5bn in cash for its Alberta-to-Michigan oil sands crude pipeline, paying for Kinder Mor- gan Canada in stock currently valued at $935mn.
Kinder Morgan’s exit from Canada comes after a turbulent period in the company’s opera- tions there. Kinder Morgan previously operated the Trans Mountain pipeline from Alberta to the British Columbia coast and had long been proposing an expansion project to nearly tri- ple capacity on the system to 890,000 barrels per day (bpd). However, the expansion project encountered numerous hurdles in the form of regulatory delays, legal challenges and escalating costs, among others. Last year, Canada’s federal government bought the entire Trans Mountain system, including the proposed expansion, from
Kinder Morgan for CAD4.5bn ($3.4bn) on fears that the company would scrap the project. Ottawa ultimately intends to sell the project back to the private sector once the expansion is built.
Kinder Morgan has said it intends to use the proceeds from the Pembina transactions to pay down debt – creating roughly $1.2bn of balance sheet/borrowing flexibility in 2020. The company added that it could either retain that financial flexibility or use some or all of it to repurchase shares or invest in attractive projects.
Pembina said this week it anticipated achiev- ing adjusted earnings of CAD3.25-3.55bn ($2.48-2.71bn) in 2020. The company noted that its guidance reflected the closing of the Kinder Morgan transaction, as well as new projects recently brought into service.
“We are pleased to have closed the highly strategic Kinder Morgan transaction earlier than originally expected, which will allow us to real- ise a full year of contribution from these assets in 2020,” Pembina’s president and CEO, Mick Dilger, said in a statement.™
INVESTMENT
WPX buying Permian player Felix for $2.5bn
PERMIAN BASIN
OKLAHOMA-BASED WPX Energy is expand- ing its Permian Basin footprint with the purchase of Felix Energy for $2.5bn, which the company announced on December 16.
Felix is focused on the Permian’s Delaware sub-basin, where it has roughly 1,500 gross undeveloped locations and 58,500 net acres (237 square km) in “an over-pressured, oily por- tion of the basin with six productive benches”, WPX said. Indeed, WPX described Felix as “one of the highest-quality Delaware Basin opera- tors”. Felix’s assets are predicted to be producing roughly 60,000 barrels of oil equivalent per day (boepd) by the time the transaction closes, antic- ipated early in the second quarter of 2020.
WPX will pay $900mn cash and $1.6bn in WPX stock issued to Felix. WPX said in a state- ment it was planning to fund the cash portion of the purchase through the issuance of $900mn of senior notes. In addition, the company said it had obtained committed financing from Bar- clays in connection with the transaction and had full access to a $1.5bn revolving credit facility.
The stock portion of the purchase price com- prises roughly 153mn WPX shares, based on the 10-day volume-weighted average price as of December 13, 2019.
“The transaction we’ve announced this morning checks all the boxes for us,” WPX’s CEO, Richard Muncrief, said on a conference
call this week.
The market responded positively to the deal,
with WPX’s shares rising by more than 9% fol- lowing the announcement of the deal.
Piper Jaffray analysts said that overall, the deal “looks favourable for WPX at first blush”, with the company increasing scale in the Delaware Basin at an “attractive” valuation and gradually pivoting away from the more mature Williston Basin. Inventory in the Williston, which contains the Bakken play, is anticipated to be exhausted more quickly during the coming years at the cur- rent pace of activity.
WPX expects its production to rise above 240,000 boepd, with oil accounting for about 64%, after the deal closes.™
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w w w . N E W S B A S E . c o m Week 50 18•December•2019