Page 8 - NorthAmOil Week 34

NorthAmOil INVESTMENT NorthAmOil
Pembina makes
oil sands bet with
purchase of Kinder
Morgan assets
NORTH AMERICA
CANADA’S Pembina Pipeline has struck a deal to buy Kinder Morgan’s Canadian subsidiary and the US portion of the Cochin pipeline for a total of CAD4.35bn ($3.29bn). e deal will boost Pembina’s oil storage holdings, giving the company 10mn barrels of capacity near Edmon- ton, Alberta. It comes as oil sands producers in the region are struggling with a lack of takeaway capacity – a trend that has driven up demand for oil storage. Terminals in British Columbia are also included in the transaction.
e transaction values Kinder Morgan Can- ada at around CAD2.3bn ($1.7bn), or CAD15.02 ($11.35) per share, and the US portion of Cochin at roughly CAD2.05bn ($1.55bn), Pembina said in an August 21 statement.
e company noted that Cochin mainline is a fully contracted cross-border pipeline system that links Pembina’s assets in the Channahon, Bakken and Edmonton areas. e system is con- nected to markets in Mont Belvieu and Conway in the US and Edmonton in Canada.
Cochin can carry 95,000 barrels per day (bpd) of condensate – an ultra-light crude – from the US to Alberta. is represents another bet on the oil sands industry by Pembina, as condensate is used by oil sands producers to dilute their heavy crude so it can be shipped in pipelines. However, Pembina’s CEO, Mick Dilger, said the company might also consider reversing the direction of ows on the pipeline, as this could ease mid- stream bottlenecks in Canada.
Dilger said the deal would increase Pembina’s vertical integration, diversifying its o erings to oil sands customers and enhancing the compa- ny’s resilience in a business environment that remains uncertain.
A Raymond James analyst, Chris Cox, said in a note that the takeover also would give Pembina additional integration opportunities.
“The acquisition further strengthens the quality of the company’s integrated value chain, improves the quality of the company’s cash ows and adds a new compelling business line with the Edmonton storage business,” Cox wrote.
The deal comes in the same month that another Canadian midstream operator, Inter Pipeline, revealed that it had received an unso- licited takeover bid. e company said it was not in talks over a sale, but the move illustrates a
growing interest in looking to midstream opera- tions as insulation against oil price volatility.
However, the Pembina deal also marks another international player’s exit from Can- ada. In May, Kinder Morgan Canada said it had explored options for a sale, but had decided to continue as a standalone entity. Its subsequent exit may not come as a great surprise, though, a er Kinder Morgan sold its Trans Mountain pipeline and proposed expansion to the Cana- dian government for CAD4.5bn ($3.4bn) last year. e deal was struck amid ongoing delays to the expansion project, with Ottawa determined to save it from being scrapped altogether. Indeed, Dilger said last week that while the Trans Moun- tain system would t neatly into Pembina’s busi- ness, he would not want to take on the “noise” associated with the expansion plan.
“Could we successfully own and operate that asset? I can say we’re uniquely quali ed to do that, but we’ve got a lot of other things that are going our way and we don’t want to subject our entire organisation and reputation to all the noise that that entails,” he said on a conference call. “But strategically, for sure, it’s in scope.”
Pembina has also said it may opt to o oad some of the assets it will acquire as part of the Kinder Morgan Canada transaction if they are not found to t the company’s business. is could include facilities to load trains with crude in Edmonton that are co-owned by Imperial Oil.
“We’ll have a hard look at it,” Dilger said. “If either immediately or two years from now that doesn’t make sense for us, then we’ll do the right thing.”
Pembina expects the cash consideration for the Cochin deal to be initially funded through debt.™
The deal will boost Pembina’s oil storage holdings.
The Pembina deal also marks another international player’s exit from Canada.
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w w w . N E W S B A S E . c o m Week 34
27•August•2019