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Pembina to buy Veresen in C$9.7bn deal

01 May 2017 19:37 (+01:00 GMT)
Pembina to buy Veresen in C$9.7bn deal

Houston, 1 May (Argus) — Canadian midstream firm Pembina has agreed to buy Veresen in a stock and cash deal worth C$9.7bn ($7.1bn), including assumption of debt, the latest in a string of large oil and gas midstream mergers.

The combined company would be worth C$33bn ($24bn), making it one of the largest infrastructure companies in North America, Pembina said.

The deal would vastly expand Pembina's reach in moving natural gas and NGLs out of western Canada to domestic and US markets.

By 2018, Pembina and Veresen together will own about 5.8 Bcf/d (164mn m³/d) of gas processing infrastructure in western Canada, including in the Duvernay and Montney fields.

The infrastructure will be integrated with Pembina's previously announced pipeline expansions in the Alberta and British Columbia areas of the Montney, including its $2.4bn Phase III expansion which is expected to be complete in July. That expansion includes building two pipelines to transport propane, ethane, condensate, and crude to the company's Namao Junction facility in Alberta.

Pembina owns about 6,200 miles (10,000km) of pipelines in Canada and the US, as well as gas gathering and processing assets. It is also the sole transporter of crude for Syncrude Canada and Canadian Natural Resources Horizon oil sands operations.

Veresen will give Pembina a greater size and scale in the natural gas midstream market.

Veresen's "deep inventory of well-head oriented expansions should pair nicely" with Pembina's role as a liquids aggregator across the Western Canadian Sedentary basin, said analysts at Tudor, Pickering Holt.

The merger will allow Pembina to market downstream connections to its existing liquids platform and Veresen's stake in the long-haul 1.6 Bcf/d Alliance pipeline that moves liquids-rich natural gas from western Canada to the Chicago market.

Pembina said that the merger with Veresen could bolster the potential expansion of Alliance, which is currently under discussion. Alliance is considering boosting capacity by as much as 500mn cf/d.

The deal also gives Pembina a potential stake in the LNG export market as Veresen is proposing to build the Jordan Cove LNG export terminal in Coos Bay, Oregon, a $7.5bn greenfield project. But the future of that project is unclear after several delays.

The Pembina-Veresen deal follows other large midstream mergers.

Earlier this year, Canadian pipeline company Enbridge closed on its purchase of Spectra Energy for $28bn, creating one of the largest midstream companies in North America, with a massive natural gas system in the eastern half of the US and a dominant position in moving Canadian crude.

TransCanada last year purchased Columbia Pipeline Group for $13bn in cash and debt. That deal gave TransCanada a combined 57,000 miles (91,700km) of pipelines that stretch from Canada to the US Gulf coast and the northeast and midcontinent US.