Pembina Pipeline Corporation (“Pembina” or the “Company”) (TSX: PPL) (NYSE: PBA) today announced that it has entered into definitive agreements with KKR to combine their respective western Canadian natural gas processing assets into a single, new joint venture entity (“Newco”), which will be owned 60 percent by Pembina and 40 percent by KKR’s global infrastructure funds. Pembina will serve as the operator and manager of Newco. Included in the transaction are Pembina’s field-based natural gas processing assets, the Veresen Midstream business (currently owned 55 percent by funds managed by KKR and 45 percent by Pembina), and the business currently carried on by Energy Transfer Canada (“ETC”) (currently owned 49 percent by funds managed by KKR). Concurrently with closing of the joint venture transaction, Newco will also acquire Energy Transfer LP’s remaining 51 percent interest in ETC. Collectively, the ascribed value of these transactions totals $11.4 billion, excluding the value of assets under construction.
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Highlights
- Brings together three complementary platforms to create a premier, highly competitive western Canadian gas processing entity with the ability to serve customers throughout the Montney and Duvernay trends from north central Alberta to northeast British Columbia (“NEBC”).
- Approximately $700 million of cash proceeds to Pembina expected upon closing, with approximately $550 million expected to be deployed for debt repayment and approximately $150 million for additional common share repurchases.
- Efficiencies from the combination of three platforms, enabling cost reductions and an enhanced customer service offering.
- Increases Pembina’s ownership in Veresen Midstream and exposure to increasing LNG-driven volume growth in NEBC in a capital efficient manner.
- Mid to high single digit accretion to Pembina’s adjusted cash flow from operating activities per share1 over the next five years.
- Upon closing, Pembina intends to increase its common share dividend by $0.0075 per share per month, or 3.6 percent.
- Area of mutual interest for natural gas processing in western Canada provides strong structural alignment for joint venture partners.
- Well-capitalized entity able to pursue future opportunities in a capital efficient manner.
“Pembina has enjoyed a strong relationship with KKR as a partner in Veresen Midstream over the past four years,” said Scott Burrows, Pembina’s President and CEO. “We work well together and share a mutual desire to invest capital and generate attractive returns. The formation of this new joint venture is a natural extension of our relationship, unlocks value for Pembina and creates another growth platform. We are extremely pleased to be creating this exciting new company with KKR to drive real synergies and deliver a wider suite of commercial opportunities.”
“We have developed a great, trusted relationship with Scott, Jaret and the industry-leading team at Pembina and we are thrilled to be deepening that partnership with today’s strategic combination,” said Brandon Freiman, Partner and Head of North American Infrastructure at KKR. “Importantly, we share Pembina’s views on the positive and essential role that Canadian natural gas plays within the global energy transition and we are pleased to combine these assets to create a stronger platform to meet that opportunity.”
Paul Workman, Director at KKR, added, “The industrial logic of combining these three complementary businesses in a fully-aligned partnership is compelling. We believe that a well-capitalized, customer-oriented private partnership between KKR and one of Canada’s leading infrastructure companies is incredibly well-positioned to create value for our investors, customers and the communities in which we operate.”
Strategic Rationale
Pembina has owned and operated natural gas processing infrastructure in western Canada since 2009. These operations provide Pembina with a long-term, fee-based cash flow stream, while enhancing Pembina’s ability to serve its customer base by delivering natural gas liquids extraction capabilities and offering egress certainty, thereby providing additional value and a higher service offering for our customers. As the energy sector has evolved, the opportunities available from bespoke partnerships between public and private infrastructure owners have become more compelling, particularly in the natural gas processing business.
By partnering with KKR in Newco, Pembina intends to extend its strong operating foundation, focused on safety, reliability and operational excellence, to a larger asset base across western Canada. Pembina will realize greater exposure to growing NEBC natural gas volumes in a capital efficient manner through increased ownership in the Veresen Midstream assets. The transaction is structured to create strong alignment between Pembina and KKR, a leading global investment firm. The combination of three adjacently located, high-quality processing platforms will enable the joint venture to realize incremental efficiencies and economies of scale. Pembina will also receive strategic benefits through the diversification of its natural gas processing asset suite and customer base.
Newco Asset Profile
Pembina will contribute to Newco its field-based gas processing assets, which include the Cutbank Complex, the Saturn Complex, the Resthaven Facility, the Duvernay Complex and the Saskatchewan Ethane Extraction Plant, as well as its 45 percent interest in Veresen Midstream.
Pembina’s Empress, Younger and Burstall assets will be excluded from the transaction and Pembina will retain its current ownership position.
KKR will contribute the 55 percent interest in Veresen Midstream and the 49 percent interest in ETC owned by its funds to the joint venture. Newco has also agreed to acquire the remaining 51 percent interest in ETC from Energy Transfer LP, aligning ownership of those assets and driving additional efficiencies. The contribution of Pembina’s and KKR’s assets to Newco, and Newco’s acquisition of 51 percent of ETC from Energy Transfer LP, are cross-conditional upon each other and will occur concurrently. Upon closing, Pembina will own 60 percent of Newco and KKR will own 40 percent. Newco’s permanent name is expected to be announced prior to closing.
Collectively, the ascribed value of these transactions totals $11.4 billion, excluding the value of assets under construction related to Newco’s 50 percent, non-operated interest in the Key Access Pipeline System (“KAPS”) project. As part of the transactions, Pembina and KKR intend to dispose of Newco’s non-operated interest in KAPS following closing of the transaction, subject to receiving acceptable purchase terms through the sale process.
