08/21/2019 11:19 EDT

Kinder Morgan Canada, Former Trans Mountain Pipeline Owner, Bought Out By Pembina

Pembina Pipeline Corp. will buy the company in a $4.35 billion deal.

Dennis Owen / Reuters
Steel pipe to be used in the oil pipeline construction of the Trans Mountain Expansion Project, in Kamloops, B.C., May 29, 2018. Kinder Morgan sold the project to the federal government in 2018.

Canada’s Pembina Pipeline Corp has agreed to buy smaller rival Kinder Morgan Canada and the U.S. portion of the Cochin pipeline for $4.35 billion, bulking up its storage resources in Canada.

Kinder Morgan Canada is 70-per-cent owned by Texas-based Kinder Morgan, and last year sold the controversial Trans Mountain Pipeline system to the federal government.

It marks just the latest case of foreign capital exiting Canada’s oil industry. The Koch brothers, owners of Koch Industries, the U.S.’s second-largest privately held company, sold their Canadian assets earlier this year, according to news reports.

Watch: Federal government approves Trans Mountain expansion project (again). Story continues below.


Producers in Canada’s Alberta oilfields are storing more oil locally due to a shortage of transport options and the Cochin pipeline currently carries U.S. condensate into the region to dilute the heavy crude it produces.

Years of delay in building new pipelines has led to oil production outpacing takeaway capacity and pushed up demand for storage tanks in the Canadian industry.

The deal also follows an unsolicited bid for Inter Pipeline Ltd., highlighting growing interest in the “midstream” business in transporting and storing crude in an otherwise slow energy M&A market.

Kinder Morgan’s Cochin pipeline system traverses three provinces in Canada and seven states in the United States and is one of two pipelines that import condensate from the United States.

Pembina, which owns a range of gas and oil pipelines, storage and processing plants in western Canada, will also buy the Edmonton storage and terminal business as well as the bulk storage business Vancouver Wharves, as part of the deal.

Pembina will pay $2.3 billion for Kinder Morgan Canada and $2.05 billion for the U.S. portion of the Cochin pipeline system from U.S.-based Kinder Morgan Inc.

“This is the transaction the market wanted earlier this year,” Brokerage Credit Suisse said, adding that valuation was in line with its original expectations and that the deal would likely be well received.

Shares in Kinder Morgan Inc rose around 2.5 per cent in trading before the bell. Kinder Morgan Canada’s shares were up 34 per cent, while those of Pembina were down about 0.8 per cent.

Kinder Morgan Canada had earlier explored options, including a sale, but in May decided to continue as a stand-alone entity. The company said it got Pembina’s proposal about two months after the review was concluded.

Reuters, with a file from HuffPost Canada. Reporting by Shanti S Nair in Bengaluru; Writing by Arathy S Nair, editing by Shinjini Ganguli and Patrick Graham.

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