Calgary-based Pembina Pipeline Corp. has agreed to purchase Kinder Morgan Canada Ltd. and the U.S. portion of the Cochin Pipeline system from Kinder Morgan Inc. for approximately $4.35 billion.
The transaction, announced Aug. 21, values Kinder Morgan Canada at approximately $2.3 billion and the Cochin Pipeline at approximately $2.05 billion.
Subject to closing of the transaction, Pembina’s board of directors has also approved a $0.01 per common share, or approximately 5 percent, increase to its monthly common share dividend rate.
Through the transaction, Pembina will acquire strategically located assets including the Cochin Pipeline system, the Edmonton storage and terminal business and Vancouver Wharves, a bulk storage and export and import business. Upon closing, the transaction immediately provides Pembina with well-established business platforms and substantial opportunities for growth.
The Cochin mainline system represents a fully contracted cross-border pipeline system that connects Pembina’s Channahon, Bakken and Edmonton area assets and is connected to markets in Mont Belvieu, Conway and Edmonton, Alberta. Furthermore, there is future potential to connect the eastern leg of the Cochin Pipeline to Pembina’s assets and markets in Sarnia, Ontario.
In addition, the corporate acquisition includes a significant crude oil storage and terminalling business in Western Canada’s key energy complex, which connects Pembina’s conventional and oil sands pipelines to all major export pipelines, providing increased flexibility and greater egress options to customers.
Finally, there is potential for further integration of Vancouver Wharves assets into the Pembina value chain.
“This acquisition is highly strategic for Pembina, providing enhanced integration with our existing franchise, entrance into exciting new businesses and clear visibility to creating long-term value for our shareholders,” said Mick Dilger, Pembina president and CEO. “It represents an ideal opportunity to continue building on our low-risk, long-term, fee-for-service business model while extending our reach into the U.S. through a highly desirable cross-border pipeline. Further, it will enhance our diversification as well as Pembina’s customer service offering as a leading provider of integrated services to hydrocarbon producers in Western Canada.”
The transaction represents a unique opportunity for Pembina to acquire 100 percent of Cochin, which is one of two significant cross-border condensate import pipelines. Cochin, which spans 2,900 km from Chicago to Fort Saskatchewan, Alberta, has a design capacity of up to 110,000 barrels per day (bpd) and is primarily underpinned by long term, take-or-pay commitments with investment grade counterparties. Cochin complements Pembina’s existing condensate infrastructure in Western Canada and extends the company’s reach into the United States, with the potential to provide Pembina and its customers improved market access and tremendous long-term optionality. Cochin has operated both as a condensate import system, and previous thereto, as a propane export system.
The transaction also provides Pembina enhanced diversification and an entrance into a new franchise opportunity through a significant crude oil storage terminalling business strategically located in the core of the Edmonton area crude oil complex and underpinned by long-term, fee-based contracts with investment grade counterparties. With 10 million barrels (net) of storage capacity, excellent inbound and outbound connectivity and strong industry fundamentals associated with crude oil storage, Pembina views these assets as highly attractive in the current environment. The Storage Business also has a strong strategic alignment with Pembina’s existing conventional and oil sands pipelines and marketing businesses. The Storage Business also includes direct connectivity to two rail terminals, ownership in which is included in the Transaction.
Finally, the Vancouver Wharves are a critically important commodity export and import business in the Port of Vancouver, Canada’s largest port. Vancouver Wharves is a 125-acre bulk marine terminal facility, which transfers over four million tonnes of bulk cargo annually and is supported by fee-based contracts with creditworthy counterparties and is competitively positioned as the facility-of-choice for key agricultural, mining and petroleum product customers. Pembina has identified a number of expansion possibilities at Vancouver Wharves which would further integrate these assets into Pembina’s value chain, help improve customer netbacks and attract additional volumes to Pembina’s existing asset base.
The transaction is cross-conditional on the closing of both the corporate acquisition and the Cochin acquisition. It has been unanimously approved by the Pembina board of directors and is expected to close in the first half of 2020.