Pembina Pipeline Corp. increased its guess on the future of Canada’s turbulent oil-sands trade, agreeing to buy Kinder Morgan’s Canadian unit and the U.S. portion of a critical pipeline for about C$4.35 billion ($3.3 billion).
The deal makes Pembina a major participant within the oil-storage business, giving it 10 MMbbl of capacity in the crude advanced close to Edmonton, Alberta, a key spot for oil-sands producers. With the acquisition of Kinder’s Cochin Pipeline system, Pembina also turns into a key provider of the condensate that oil-sands companies must mix with their thick crude to allow it to flow through pipelines.
The acquisition is a significant guess on the future of the oil sands at a time when delays to critical export pipelines have hampered the business’s capacity to develop and forced the Alberta government to assist Western Canadian high crude costs with unprecedented manufacturing limits, which is extended for another year on Tuesday. The deal additionally continues a flight of international capital out of the oil sands, following main divestitures from Royal Dutch Shell Plc and ConocoPhillips in recent years.
Pembina CEO Mick Dilger said the deal increases its vertical integration, diversifying its choices to its oil-sands prospects and enhancing the company’s resilience in an uncertain environment. The takeover additionally gives Pembina further integration opportunities, and those benefits are reflected in the premium it paid for the belongings, Chris Cox, an analyst at Raymond James, mentioned in a note.
“The acquisition further strengthens the standard of the company’s integrated value chain, improves the quality of the company’s cash flows and provides a new compelling business line with the Edmonton storage business,” Cox mentioned.