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    Pembina, KKR to combine in Canadian gas midstream JV

Summary

The C$11.4bn JV will have the capacity to process a third of western Canadian natural gas production.

by: Dale Lunan

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Pembina, KKR to combine in Canadian gas midstream JV

Pembina Pipeline, a major western Canadian energy infrastructure company, and global investment platform KKR said March 1 they had entered into a definitive agreement to combine their respective western Canadian natural gas processing assets into a single joint venture company.

The JV, which will be known as Newco until the combination is complete, will be owned 60% by Pembina (which will be the operator) and 40% by funds managed by KKR, and will control capacity capable of processing 5bn ft3/day of natural gas – about a third of all western Canadian natural gas production.

Included in the transaction, which is valued at about C$11.4bn (US$9bn), are Pembina’s field-based natural gas processing assets, the Veresen Midstream business (currently owned 55% by funds managed by KKR and 45% by Pembina) and the business carried on as Energy Transfer Canada (ETC), which is owned 49% by funds managed by KKR.

Concurrent with closing of the JV transaction, Newco will acquire the other 51% of ETC from Energy Transfer LP, a C$1.6bn transaction that Energy Transfer said would generate cash proceeds of about C$340mn.

“Pembina has enjoyed a strong relationship with KKR as a partner in Veresen Midstream over the past four years,” Pembina CEO Scott Burrows said. “We work well together and share a mutual desire to invest capital and generate attractive returns. The formation of this new joint venture is a natural extension of our relationship, unlocks value for Pembina and creates another growth platform.”

Pembina will receive cash proceeds of about C$700mn when the transaction closes, of which about C$550mn will be deployed for debt repayment and the balance for additional share repurchases, Pembina said.

The JV will bring together three complementary platforms of gas processing capabilities throughout the western Canadian Montney and Duvernay fairways. Pembina has 2bn ft3/day of processing capacity at 15 field facilities and 650 km of gas gathering and transportation pipelines, Veresen Midstream adds 1.7bn ft3/day of processing capacity at five facilities and 1,300 km of gathering and transportation pipelines and ETC contributes 1.3bn ft3/day of processing capacity at five facilities and 1,400 km of gathering and transportation pipelines.

The JV company will have an estimated 2022 EBITDA of C$950mn.

“The industrial logic of combining these three complementary businesses in a fully-aligned partnership is compelling,” KKR director Paul Workman said. “We believe that a well-capitalised, customer-oriented private partnership between KKR and one of Canada’s leading infrastructure companies is incredibly well-positioned to create value for our investors, customers and the communities in which we operate.”

Completion of the transaction is subject to approval under the Competition Act (Canada), concurrent closing of the acquisition of the remaining 51% interest in ETC and other customary closing conditions. Closing is expected to occur in late Q2 2022 or early Q3 2022.