01/16/2012 03:10 EST | Updated 03/16/2012 05:12 EDT

Pembina Pipeline to buy Provident, poised to benefit from gas liquids growth

CALGARY - Pembina Pipeline Corp. and Provident Energy Ltd. say they're joining forces at a time when the natural gas liquids industry in North America is flourishing.

"The outlook for the NGL space has never been brighter," said Provident CEO Doug Haughey on a conference call Monday to discuss the $3.2-billion, all-stock deal.

The transaction will create one of Canada's largest publicly traded energy infrastructure players, with a market capitalization of $7.9 billion.

Both companies say there's very little overlap between them. The combined company will bear the Pembina name and will be led by a mix of both management teams.

The deal would mesh Pembina's energy transportation and gas processing businesses with Provident's NGL extraction, fractionation, storage, transportation and logistics offerings, said Pembina CEO Bob Michaleski.

"It's like the old adage: the whole is greater than the sum of the parts," Michaleski told the conference call.

"Through this acquisition, both Pembina and Provident will be able to achieve more than we each could have individually."

Haughey said the firms expect to see big growth in the natural gas liquids industry, as the price of that type of gas — used to make petrochemicals and plastics — far outpaces that of ordinary dry natural gas. Advances in drilling technology adds to the sector's rosy outlook, he added.

Major gas producers such as Encana Corp. (TSX:ECA) and Talisman Energy Inc. (TSX:TLM) have been activity bulking up on liquids-rich opportunities as prices for dry natural gas remain in the doldrums.

"To ensure that we're able to capture our share of this business it's essential that we have the financial capability, manpower and capacity to expand our NGL services business," said Haughey.

"Customers today are looking for efficient and cost-effective services. With the integrated service offering that Pembina will be able to deliver as a result of this transaction, this represents a compelling solution to a rapidly growing market."

Shares in Pembina (TSX:PPL) closed down four per cent or $1.20 at $26.70 on the Toronto Stock Exchange, while Provident's (TSX:PVE) stock soared nearly 18 per cent or $1.69 to end the day at $11.20 as the Toronto market's most actively traded stock on Monday.

The deal will see Pembina give 0.425 of a share for each Provident share held, for a premium of 24.7 per cent over last week’s closing price of $9.51.

Pembina said it also plans to boost its monthly dividend by 3.8 per cent to 13.5 cents per share once the transaction is completed.

Shares in the combined company will apply for a listing on the New York Stock Exchange, since the majority of Provident's current shareholders participate on that exchange, said Michaleski.

"So we thought it would be appropriate for Pembina to also achieve a listing to satisfy the large U.S. holding that Provident currently has," he said.

Pembina also expects to list shares issuable under the proposed transaction on the Toronto Stock Exchange, while Provident shares would be delisted from both.

Pembina Pipeline transports crude oil and natural gas liquids produced in western Canada and owns and operates oil sands pipelines. Provident Energy owns and manages a natural gas liquids infrastructure and logistics business.