Kinder Morgan has become the latest globally ranked energy giant to seek a foothold in the Alberta oil sands with its C$6.9 billion takeover bid for Terasen, the Vancouver-based oil and gas utility.
The Houston-based company launched the cash, shares and debt offer Aug. 1 by offering Terasen shareholders C$35.25 cash per share, a 20 percent premium over the average closing price in the three weeks ended July 29.
Subject to shareholder and regulatory approval, the transaction is expected to close by the end of the year. It needs 75 percent approval from shareholders at a special meeting which must be held before Oct. 31.
If Terasen becomes part of the Kinder Morgan family, the combined company will have assets include 43,000 miles of petroleum and gas pipelines, more than 1.1 million gas distribution customers (875,000 of them in British Columbia), 150 terminals, storage for 80 million tons of coal and 72 million barrels of petroleum products annually, 9,000 employees and a market value of US$35 billion.
It will “create a premier energy company in North America with a bright future,” said Kinder Morgan Chairman and Chief Executive Officer Richard Kinder, who is ranked as one of the 400 richest people in the world and has close ties with the White House.
He said Terasen offers a stable business and allows his company to “dramatically broaden our footprint into Canada,” notably the oil sands.
“There is a definite need for additional pipeline infrastructure from the Alberta oil sands and we have a great opportunity to use the capital strength of the combined company — along with out expertise in building and operating pipelines — to increase capacity on Terasen’s existing pipeline system and help meet the growing demand of an oil-starved world,” Kinder said.
Terasen: bid a ‘validation’
Terasen President and Chief Executive Officer John Reid said the combined entity gives Terasen the “scale, resources and access to capital we need to accelerate our business strategy and lead the development of world-class infrastructure across Western Canada.”
He said the transaction is a “validation” of what Terasen is attempting to accomplish in its ambitious program to expand pipelines out of Alberta to the United States and possibly to open up tanker links to Asia.
Reid said Kinder Morgan is “one of the largest and most respected transportation and storage companies in the United States, is the market leader in most of its businesses and has produced outstanding returns for its shareholders.”
Although Terasen is embarked on an aggressive expansion of its existing Trans Mountain pipeline and its connections within Alberta, it has been seen as lagging behind Enbridge in the race to build a system carrying upwards of 400,000 barrels per day from the oil sands to a deepwater port at either Prince Rupert or Kitimat.
Kinder Morgan established in ‘96
The Kinder Morgan bid is the second major foray into British Columbia by a U.S.-based company in recent years, following the takeover by Duke Energy of Westcoast Energy, which operated the gas pipeline infrastructure in the province and had other energy interests across Canada.
Having left Enron in 1996 because of his reported unhappiness with Enron strategies, Richard Kinder and a college classmate built Kinder Morgan after acquiring the liquids gas pipeline operations of Enron.
The magnetic pull of the oil sands has grown this year, with three of China’s state-owned companies entering the picture in their search for greater security of supply.
Over the short-term oil sands production is expected to double to 2 million barrels per day between 2010 and 2012 and, in the latest high-flying-prediction, FirstEnergy Capital analyst Steven Paget set a target of 11 million bpd in the 2040s.
