Canada's midstream space becomes a little more Canadian, as Kinder Morgan divests remaining assets north of the border

Canada's midstream space becomes a little more Canadian, as Kinder Morgan divests remaining assets north of the border

Kinder Morgan announced the sale of its Canadian subsidiary, Kinder Morgan Canada (KML), to Pembina Pipeline (PPL) for $2.3 billion in stock.

Pembina is offering KML shareholders 0.31 PPL shares for each KML share owned, representing a 38% premium to the previous day's close. Parent company Kinder Morgan, who owns a 70% stake in KML, and inherit roughly 25 million PPL shares, or 5% of the company.  Kinder Morgan says it plans to eventually sell those shares "in an opportunistic and non-disruptive manner."

CANADA’S ENERGY PATCH GETS A LITTLE MORE CANADIAN

KML's assets consist mainly of its crude storage and rail terminals in Edmonton, the Vancouver Wharves Terminal and the Canadian section of the Cochin pipeline. The company's Base Line and Alberta Crude Terminals are owned jointly with Keyera, while the Edmonton Rail Terminal is a 50/50 joint venture with Imperial Oil. Pembina CEO Mick Dilger says he will take a "hard look" at the crude-by-rail business, and may divest the asset if it doesn't fit.

KML divested its Trans Mountain assets, including the existing pipeline, several storage terminals in BC, the Westridge Marine Terminal and Trans Mountain Expansion Project, to the federal government for $4.5 billion in 2018.

Once the deal closes, Kinder Morgan becomes the latest US corporation to exit Canada.

PEMBINA ALSO EXPANDS DILUENT BUSINESS

In addition to the Canadian portion of Cochin, Pembina also agreed to buy the US portion of the pipeline for $2.05 billion (US$1.55 billion) in cash. 

Cochin runs 1,810 miles from a Kinder Morgan terminal in Illinois, to Fort Saskatchewan. The pipeline transported about 90,000 bbl/day of condensate into Alberta last year, but has a rated capacity of up to 110,000 bbl/day. Condensate is used primarily to reduce the viscosity of bitumen produced in the oil sands in order to meet pipeline specifications. Pembina already owns and operates the Canadian Diluent Hub, which ships condensate to oil sands producers via the Access, Cold Lake, Fort Saskatchewan and Polaris pipelines.

Pembina calls the Cochin pipeline acquisition "highly strategic," as it connects to existing assets in Illinois, North Dakota and Edmonton. The company says there is room to connect the eastern leg of Cochin to Pembina's other assets in Sarnia, Ontario.

 

THE NEW PEMBINA, INCLUDING KINDER MORGAN CANADA ASSETS (COURTESY PEMBINA PIPELINE)

 

NO INTEREST IN TRANS MOUNTAIN

When asked about the Trans Mountain assets, which are also currently up for sale, Dilger says the pipeline would be a good fit for the company, but he doesn't want all the "noise" that comes with the controversial expansion project.

PEMBINA ALSO BOOSTS DIVIDEND

As a bonus to its shareholders, Pembina also committed to boosting its monthly dividend by $0.01 per share, or about 5%, once the Kinder Morgan Canada deal closes. 

The transaction is subject to approval by at least two-thirds of KML and PPL shareholders. The deal is expected to close either late this year or the first half of 2020.

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