Pembina Pipeline Corporation plans to expand its portfolio with the acquisition of the recently constructed Vantage pipeline system and Mistral Midstream Inc.’s interest in the Saskatchewan Ethane Extraction Plant.
The $650 million (US) deal is subject to traditional closing adjustments, from certain entities affiliated with Riverstone Holdings LLC.
“I am very happy to announce our agreement to acquire Vantage and SEEP,” said Mick Dilger, Pembina’s president and CEO. “We have watched the development of these assets with great interest as they represent an excellent opportunity to expand our footprint into one of the most promising hydrocarbon plays in North America and, as such, the Transaction is a low-risk, logical step-out for Pembina. We are excited to add this infrastructure to our leading portfolio of pipeline assets. Not only will the Transaction augment our fee-for-service cash flow stream, but we expect opportunities associated with both Vantage and SEEP to result in long-term shareholder value.”
Vantage links a growing supply of ethane from the prolific North Dakota Bakken play to the petrochemical market in Alberta. It originates from a large-scale gas plant in Tioga, North Dakota extending northwest, through Saskatchewan and terminating near Empress, Alberta, where it is connected to the Alberta Ethane Gathering System (AEGS) pipeline.
The 700 km, 40,000 barrel per day (bpd), high vapour pressure pipeline provides long-term, fee-for-service cash flow and strategic access to the North Dakota Bakken play for future natural gas liquids (NGL) opportunities.
Among other things, the transaction provides geographic diversification of Pembina’s pipeline and midstream infrastructure, providing access to a new and prolific resource play in North Dakota.
The pipeline is sized to reach an ultimate capacity of approximately 60,000 bpd through modest capital investment via the addition of two quarter point pump stations.
The transaction is expected to be neutral to cash flow per share in 2015 and accretive in 2016 on the basis of minimum volumes currently under contract and a full year contribution from SEEP. Pembina foresees the potential for significant accretion as additional volumes are secured.
As part of the Transaction, Pembina is also acquiring pipeline infrastructure from Mistral and Mistral’s interest in SEEP, a development-stage, 60 million cubic feet per day deep cut gas processing facility that is centrally located to service the southeast Saskatchewan Bakken region.
The pipeline infrastructure includes an approximately 105 km, 4-in. ethane pipeline and an approximately 75 km gas gathering pipeline, both of which are currently under construction. SEEP will receive liquids-rich gas produced from the Viewfield and the Flat Lake gas plants and from TransGas’ local system.
The facility is underpinned by both a long-term ethane sales agreement and a long-term, fee-for-service processing agreement.
SEEP is expected to produce approximately 4,500 bpd of ethane and will connect into Vantage through a pipeline lateral that is also currently under construction. Pembina expects SEEP and the associated pipeline lateral to be in-service in mid-2015.
Pembina anticipates incurring additional capital expenditures of approximately C$100 million (net to Pembina) prior to the end of 2015 in connection with the transaction in order to complete the construction of SEEP and the associated gathering and delivery system.
Pembina will acquire all the issued and outstanding shares of Vantage Pipeline Canada ULC, Vantage Pipeline US LP and Mistral and repay Vantage’s bank indebtedness of approximately US$224 million at closing.
Pembina intends to use cash of US$395 million and US$255 million in common shares to fund the Transaction. The Company expects to fund a portion of the cash consideration with a bought-deal preferred share issuance and existing credit capacity. The US$255 million common share portion will result in 5.61 million shares being issued to the Seller.
The Transaction is subject to regulatory approvals (including approval of the National Energy Board and under the Competition Act (Canada) and the Canada Transportation Act) and other customary closing conditions, including the approval of the Toronto Stock Exchange.
The Transaction will have an effective date of Aug. 1, 2014, and is expected to close in the fourth quarter of 2014.