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Shuffling Canadian midstream: Kinder Morgan unloads assets
Gary Park for Petroleum News
Just 27 months after launching a successful C$1.75 billion initial public offering, the Canadian unit of Kinder Morgan is heading for the exit door in Canada to rejoin its 70%, Houston-based parent.
Having sold the Trans Mountain pipeline assets and planned expansion to the Canadian government for C$4.4 billion, the company unloaded the balance of its Canadian assets and the U.S. portion of the Cochin pipeline to Pembina Pipeline for C$4.35 billion.
The latest deal gives Pembina transport and storage operations across Canada, including pipeline and rail terminals, that are connected with both conventional and oil sands regions and Vancouver Wharves, a bulk storage and export-import businesses.
The 1,750-mile Cochin system linking Edmonton and Chicago is a major source of condensate that is blended with oil sands bitumen so it can flow in pipelines out of Alberta. It has design capacity of 110,000 barrels per day.
Midstream has been bright spot The midstream business has been a bright spot in the Canadian energy industry that has been under severe pressure because of capacity constraints to move oil and gas to markets outside Canada.
“This acquisition represents an excellent opportunity to continue to build our low-risk, long-term fee-for-service businesses while also extending our reach into the U.S. through a highly desirable cross border pipeline,” Mick Dilger, Pembina’s chief executive officer, told analysts.
Steve Kean, chief executive officer of both Kinder Morgan and its Canadian unit, said the assets “will be a great fit with Pembina’s business” while giving Kinder Morgan’s public shareholders “the opportunity to participate in a larger and growing platform of North American midstream energy assets.”
Pembina said the acquisition will immediately boost its cash flow, allowing it to increase its dividend.
Chris Cox, an analyst with Raymond James, said that what likely clinched the deal after an unsuccessful formal sale offer was the inclusion of Cochin’s U.S. portion.
The only potential snag involves one of the oil terminals known as Base Line, which is jointly owned with Calgary-based Keyera, which could exercise a right of refusal on selling the facility.
Trans Mountain idea dampened But any thoughts that Pembina might consider buying Trans Mountain from the federal government were dampened by Dilger.
“Could we successfully own and operate that asset? I can say we’re uniquely qualified 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 organization and reputation to all the noise (that acquiring Trans Mountain) entails, though strategically, for sure, it’s in scope,” he said.
Dilger said Trans Mountain would fit well with Pembina’s strategy of getting its customers’ products to market, though he said Pembina is wary of the prolonged controversy that would likely accompany taking over the C$7.4 billion expansion of Trans Mountain.
Separately, Trans Mountain said on Aug. 21, that construction would restart on the Trans Mountain expansion within a month, though there are still First Nations and environmental leaders who are determined to take whatever legal steps they can to stall that undertaking.
The Kinder Morgan-Pembina deal came on the heels of another transaction to move Canadian supplies to the U.S.
Inter Pipeline Ltd., a rival of Pembina, said it has been approached by an unnamed suitor with an offer valued at C$12.4 billion, although it denied that any talks are underway.
- GARY PARK
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