Pembina to acquire Kinder Morgan Canada, taking control of Cochin condensate line

New York — Pembina Pipeline has agreed to acquire Kinder Morgan subsidiary Kinder Morgan Canada, giving Pembina ownership of the cross-border Cochin condensate pipeline system, the company said Wednesday.

The C$4.35 billion deal will also increase Pembina's above ground storage capacity tenfold through the acquisition of Kinder Morgan's 10-million-barrel crude storage and terminalling business centered in Edmonton.

Pembina will also take control of the Vancouver Wharves marine terminal based at the Port of Vancouver that handles more than 4 million tons of bulk cargo per year.

With the Cochin aspect of the deal, Pembina would take control of a fully contracted, 110,000 b/d pipeline that runs from Chicago, Illinois, to Fort Saskatchewan, Alberta.

Pembina might extend the eastern leg of Cochin to its assets and markets in Sarnia, Ontario.

That prospect is a big part of the company's "blue sky" scenario for the acquisition, Pembina President and CEO Mick Dilger said on a conference call Wednesday.

Dilger saw less blue sky potential for the storage business, but he said it is a critical area for vertical integration that would not be possible without the deal.

While Pembina's existing terminals are "good little" assets, Dilger called the Edmonton terminal "the main event."

"It's the delivery terminal we never had and that we could never catch up and build," he said. "We never really had a delivery terminal for our crude oil pipelines. This gives us that. It gives us another source of diversification for condensate supply."

The assets are mostly underpinned by long-term, fee-for-service, take-or-pay contracts, and are expected to contribute about C$350 million to adjusted EBITDA in 2019.

STORMY ECONOMY

The announcement came as growth has showed signs of stalling in key parts of the global economy, raising concerns about crude oil and fuel demand. Investors have fretted over the recent inversion of the yield curve in the bond market, which has historically heralded recessions.

"When you see yield curves invert and stuff like that, this is the kind of asset you want to have that can pay your dividend through any kind of cycle," Dilger said. "So I love that about [the acquisition], and we would have done it just for that reason, even though sometimes in the short term people don't pay you for quality."

The deal comes two months after Kinder Morgan Canada's strategic review, when the company had opted to remain a standalone public entity even after it divested its largest asset, the Trans Mountain pipeline system.

At the time, the company said there were no satisfactory transactions available.

Parent company Kinder Morgan said it plans to use deal proceeds to reduce debt.

The deal is scheduled to close in the fourth quarter, or in the first half of 2020.

-- Tom DiChristopher, newsdesk@spglobal.com

-- Sibyl Layag, newsdesk@spglobal.com -- Edited by Jeff Mower, newsdesk@spglobal.com