Pembina Pipeline Announces Acquisition of Enbridge’s JV Interests
12.26.2023 By Tank Terminals - NEWS

December 26, 2023 [World Pipelines]- Pembina Pipeline Corporation is pleased to announce that it has entered into an agreement with Enbridge Inc. to acquire all of Enbridge’s interests in the Alliance, Aux Sable and NRGreen joint ventures.

 

Pembina has entered into an agreement to acquire Enbridge’s interests in Alliance, Aux Sable and NRGreen for an aggregate purchase price of approximately CAN$3.1 billion (subject to certain adjustments), including approximately CAN$327 million of assumed debt, representing Enbridge’s proportionate share of the indebtedness of Alliance.

The cash portion of the acquisition will be funded through a combination of: (i) the net proceeds of a CAN$1.1 billion bought deal offering of subscription receipts; and (ii) amounts drawn under Pembina’s existing credit facilities and cash on hand.

Complements Pembina’s strategy of providing access for world-class, long-life resources from the Western Canadian Sedimentary Basin (WCSB) to premium end markets and increases exposure to lighter hydrocarbons, including natural gas and NGL.

Immediately accretive to adjusted cash flow per share, with mid-single digit accretion expected to be achieved in the first full year of ownership, inclusive of synergies. Additional long-term synergy opportunities have been identified that are expected to drive incremental accretion.

The acquisition is expected to be leverage neutral, ensuring Pembina’s continued financial flexibility to fund future projects, and enhances its free cash flow position.

Aligned within Pembina’s financial guardrails, consistent with a strong BBB credit rating, and an unchanged business profile with 85% to 90% fee-based contribution to adjusted EBITDA with a high-degree of take-or-pay commitments. The acquired business is estimated to be 80% to 90% fee-based.

Attractive acquisition multiple of approximately 9x 2023 and 2024 forecasted adjusted EBITDA, or approximately 8x 2023 and 2024 forecasted adjusted EBITDA, inclusive of CAN$40 million to CAN$65 million of annual synergies expected to be realised by 2025. Additional long-term synergy opportunities have been identified that would further reduce the transaction multiple.

The acquisition is expected to close in the 1H24, subject to the satisfaction or waiver of customary closing conditions, including the receipt of required regulatory approvals.

“Pembina’s business is built around integrated, difficult-to-replicate assets that provide an enduring competitive advantage and unequaled market access for customers. Alliance and Aux Sable are world-class energy infrastructure assets and increasing our ownership in them will further strengthen our growing franchise,” said Scott Burrows, Pembina’s President and Chief Executive Officer.

“This is a rare opportunity to consolidate interests in these assets at an attractive valuation multiple, with cash flow accretion and significant synergy potential. Aligning with Pembina’s strategy, the acquisition grows and strengthens our existing franchise and provides greater exposure to resilient end-use markets. Pembina is well positioned to benefit from growing volumes in the WCSB driven by near term catalysts, including new West Coast LNG export capacity, expanded crude oil export capacity, as well as developments in the Alberta petrochemical industry. The funding plan for the acquisition ensures Pembina’s continued financial flexibility and ability to fund future projects that respond to growing demand, while maintaining leverage within targeted ranges.”

“Pembina has enjoyed a strong relationship with Enbridge throughout our six years as partners in Alliance and Aux Sable,” said Jaret Sprott, Senior Vice President & Chief Operating Officer. “Enbridge is a world-class company, with similar values focused on safety, people, customers, and the communities in which we operate. With this acquisition, I look forward to welcoming Enbridge employees to Pembina, enhancing our relationship with Williams and strengthening our growing franchise and integrated service offering.”

 

Strategic rationale

Opportunistic consolidation of highly strategic infrastructure:

The acquisition is an opportunistic consolidation of critical and highly differentiated North American energy infrastructure. Further, it complements Pembina’s strategy of providing world-class, long-life resources in the WCSB access to premium end markets. Alliance has a strong track record of high reliability and high utilisation and is unique within North America in its ability to transport liquids rich natural gas, while providing a cross-border conduit to high demand US markets.

Given its existing ownership interests in the assets, current commercial management of Alliance and operatorship of Aux Sable, and established customer relationships, Pembina is uniquely positioned to execute this transaction with minimal integration risk. Given its deep knowledge of the assets being acquired, Pembina has identified both near-term and long-term synergies that it expects to unlock incremental value. Further, Alliance and Aux Sable are currently treated as equity accounted investees for accounting purposes and the acquisition will allow Pembina to simplify its corporate reporting.

 

Backed by strong fundamentals:

The North American natural gas industry is in a period of dynamic transition in which the supply and demand factors support a favourable outlook for both Alliance and Aux Sable. Growing WCSB natural gas production, most notably from the world-class Montney play, is expected to largely fill the approximately 2.8 billion ft3/d of new Canadian West Coast LNG export capacity expected to come on-line over the next five years, while existing production volume will continue to be drawn south to US markets. Limited WCSB intra-basin demand growth, alongside growing production from the Bakken play in North Dakota, highlight the growing need for US destined natural gas transportation. As well, the liquids-rich nature of Montney and Bakken natural gas aligns well with Alliance’s strategic value within the North American natural gas market and its unique ability to transport liquids rich natural gas at a premium to US Midwest markets. Finally, a significant expansion of US Gulf Coast LNG export capacity is expected over the next five years. Alliance acts as a valuable and cost-effective conduit for Canadian natural gas to access this growing export market.

 

Drives resilient growth:

Consistent with Pembina’s well-established commitment to its financial guardrails, Alliance provides additional low risk, fee-based cash flows underpinned by long-term, predominantly take-or-pay contracts with high-quality counterparties. As the acquired business provides service for natural gas and NGL, the acquisition is also expected to increase Pembina’s exposure to lighter hydrocarbons. Further, the acquisition enhances Pembina’s service offering for existing customers, with whom Pembina has established strong relationships, and strengthens its competitive advantage.

 

Platform for the future:

Increasing its ownership interest in Alliance and Aux Sable will expand Pembina’s US presence and is expected to provide opportunities to further establish the Company’s reputation and brand name in the robust US NGL market. Post-2030, Pembina expects there will be an opportunity to grow its marketing portfolio by approximately 100 000 bpd and has identified incremental commercial integration opportunities, that could further bolster Pembina’s service offering. As well, the acquisition is expected to deliver CAN$225 million to CAN$250 million of incremental low risk, predominantly fee-based cash flow from operating activities with modest sustaining capital, in support of continued strategic growth investments and maintaining Pembina’s strong financial position.

 

The acquisition

Pembina has entered into a purchase and sale agreement (the ‘PSA’) with Enbridge to acquire all of Enbridge’s interests in the Alliance, Aux Sable and NRGreen joint ventures and in the related operatorship contracts (collectively, the ‘acquired business’) for an aggregate purchase price of approximately CAN$3.1 billion (subject to certain adjustments), including approximately CAN$327 million of assumed debt, representing Enbridge’s proportionate share of the indebtedness of Alliance.

Pembina currently owns 50% of the equity interests in Alliance, Aux Sable’s Canadian operations and NRGreen and approximately 42.7% of the equity interests in Aux Sable’s US operations, and is the operator of certain assets of the acquired business pursuant to various operation services agreements (‘COSAs’), with Enbridge being the operator of the remaining assets of the acquired business under other COSAs. Upon closing of the acquisition, Pembina will hold 100% of the equity interests in Alliance, Aux Sable’s Canadian operations and NRGreen and approximately 85.4% of Aux Sable’s US operations, and Pembina will become the operator of all of the Alliance, Aux Sable and NRGreen businesses. Pembina’s acquisition of Enbridge’s interests, including the additional interests in Aux Sable’s US operations, is not subject to any rights of first refusal.

 

Closing of the acquisition

Closing of the acquisition is expected to occur in the 1H24 and is subject to the satisfaction or waiver of customary closing conditions, including all required approvals under the Competition Act (Canada), the Canada Transportation Act and the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 and approval from the United States Federal Communications Commission.

Pembina will provide updated 2024 guidance prior to closing of the acquisition.

 

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