KKR Deal Poises Pembina for Bigger Role in Canada's Natural Gas Market

Researched by Industrial Info Resources (Sugar Land, Texas)--Pembina Pipeline Corporation (NYSE:PBA) (Calgary, Alberta) and KKR & Company Incorporated (NYSE:KKR) (New York, New York) announced Tuesday they will combine their western Canadian natural gas-processing assets into a new joint venture (currently named Newco), which will be 60% owned by Pembina (which will serve as the operator and manager) and 40% owned by KKR's global infrastructure funds. The joint venture also will acquire Energy Transfer LP's (NYSE:ET) (Dallas, Texas) remaining 51% interest in Energy Transfer Canada.

Industrial Info is tracking more than US$3.8 billion worth of active projects from the three companies, including more than US$2.2 billion worth in Canada.

The full transaction totals C$11.4 billion (US$9 billion) in value, according to a Tuesday statement from Pembina and KKR, not including the value of any projects under construction. The Newco joint venture will be born with a giant silver spoon: a formidable presence in northeast British Columbia, which boasts significant gas reserves. The companies involved expect the deal to close late in the second quarter or in the third quarter.

The deal bolsters Pembina's role in the natural gas market at a time when prices are surging and the North American Oil & Gas Industry is struggling with a lack of transportation capacity and frequent supply disruptions. Pembina already expects to see significant revenue gains this year from its Prince Rupert Terminal on the coast of British Columbia, which began operations in April 2021. The Newco deal could boost Pembina's proposal for an expansion at Prince Rupert that would increase its propane-exporting capacity from 25,000 to about 40,000 barrels per day (BBL/d). A final investment decision is expected in early 2022. Subscribers to Industrial Info's Global Market Intelligence (GMI) Oil & Gas Project Database can learn more from a detailed project report.

Click on the image at right for a map of Pembina's active projects in the U.S. and Canada.

Among the properties included in the transaction are Pembina's field-based natural gas-processing assets, as well as Veresen Midstream's business, which currently is owned 55:45 by KKR and Pembina, respectively. Industrial Info is tracking activity at 20 Pembina-owned gas-processing facilities in the U.S. and Canada, including the Redwater NGL Fractionation & Storage Complex in Fort Saskatchewan, Alberta, which is considering a new de-ethanizer unit, and the Empress NGL Straddle Extraction Plant in Empress, Alberta, which is seeking permits for a cogeneration power plant.

The Redwater project would add 18,000 BBL/d of ethane-production capacity to one of the facility's natural gas liquids (NGL) fractionators, which produces 55,000 BBL/d of propane liquids. The Empress NGL Straddle Extraction Plant (so named because it sits on a major pipeline system) aims to add a 45-megawatt (MW) power plant to meet power-load requirements. Subscribers can read detailed reports on the Redwater and Empress projects, and click here for a full list of Pembina's active gas-processing plants.

"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," said Brandon Freiman, head of North American infrastructure at KKR, in a press release.

KKR already is active in some of the fastest-growing industries in North America, notably the development of semiconductor chips. KKR is preparing to begin construction this spring on a isopropyl alcohol-recycling plant in Phoenix, Arizona, which will clean and purify used, metal-contaminated isopropyl alcohol to be reused in semiconductor chips. Subscribers can learn more from Industrial Info's project report.

Upon closure of the Newco deal announced this week, Pembina and KKR intend to dispose of the new joint venture's 50% non-operated interest in Keyera Corporation's (Calgary, Alberta) Key Access Pipeline System, which is under construction and is designed to carry up to 130,000 BBL/d of mixed NGL from the Montney and Duvernay shales to a liquids processing and storage hub at Fort Saskatchewan. Subscribers can learn more from Industrial Info's project report.

Energy Transfer Canada (ETC) is one of Alberta's largest licensed gas processors, with six gas-processing plants that together process about 2 billion cubic feet per day, and more than 700 miles of gas-gathering and transportation pipelines. Nonetheless, Energy Transfer LP wants to divest its Canadian assets to deleverage its balance sheet and shift its focus to its high-performing U.S. properties, which it recently enlarged with its December acquisition of Enable Midstream Partners. For more information, see February 18, 2022, article - Energy Transfer Maintains Top NGL Export Position.

It is not yet known how the Newco joint venture's full acquisition of ETC will affect ETC's active projects, which include a sour gas NGL-processing facility in Wembley, Alberta, that is designed to handle 280 million standard cubic feet per day of Montney Shale-Deep Basin sour gas, and a second-phase gas-processing train addition at the Smoke Lake Processing Plant in Fox Creek, Alberta, which would double the facility's gas-processing capacity to about 120 million standard cubic feet per day. Subscribers can learn more from Industrial Info's reports on the Wembley and Smoke Lake projects.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.