Pembina Signs Deal to Acquire 50% Stake in Whitecap

Pembina Pipeline Corporation PBA, an energy transportation and midstream services provider, has entered into a purchase and sale agreement through its joint venture entity, Pembina Gas Infrastructure Inc. ("PGI"), with Whitecap Resources Inc., a Calgary-based oil and gas exploration and production company.

This strategic collaboration will see PGI acquiring a 50% working interest in Whitecap's 15-07 Kaybob Complex in Alberta and supporting the infrastructure development of the company's Lator growth area. The gross proceeds related to this transaction amount to C$420 million, with C$252 million net to Pembina.

Key Transaction Details

Acquisition of Kaybob Complex: PGI will acquire a 50% working interest in the Kaybob Complex, which includes a natural gas processing capacity of 165 million cubic feet per day and a condensate stabilization capacity of 15,000 barrels per day.

Despite the acquisition, Whitecap will retain operatorship of the assets. A long-term take-or-pay agreement for PGI's capacity in the Kaybob Complex has been secured with Whitecap, which will a dedicated area for all volumes produced by the company in the region.

Lator Area Development: PGI has committed to funding the development of Whitecap's Lator area, including a new battery and gathering lateral, referred to as the Lator Infrastructure. PGI will own this infrastructure and in return Whitecap has agreed to long-term take-or-pay agreements, which will grant the company priority access to the Lator Infrastructure. This development also includes an area of dedication to PGI for all volumes produced by Whitecap from the Lator area.

Additional Agreements and Facilities: Whitecap has also entered into further long-term take-or-pay contracts with PGI at the Musreau gas plant within the Cutbank Complex and the K3 gas plant. These contracts enhance the volume capture potential of PGI's facilities.

Integrated Services Agreements: In addition to the transaction, PBA has signed a combination of new and extended long-term integrated transportation, fractionation and marketing services agreements with Whitecap. These agreements include a dedication of future growth volumes from Whitecap's Kaybob and Lator developments, which should provide a significant boost to Pembina's operational capabilities.

Strategic Benefits of the Transaction

Alignment With a Growth-Oriented Company: The transaction further aligns PGI and PBA with Whitecap. The company has an exceptional growth track record in the Montney and Duvernay plays. This alignment is expected to yield significant strategic advantages.

Enhanced Asset Utilization: By increasing volumes at PGI's Musreau and K3 facilities, the transaction will enhance the utilization of existing white space within these assets. This increased utilization is a critical component of Pembina's operational strategy.

Increased Volume Capture Potential: The Lator Lateral, which connects PGI's Musreau facility to the Lator area, will enhance PGI's ability to capture additional volumes. This strategic connection is expected to drive growth and efficiency within PGI's operations.

Strong Contractual Protections: The transaction is underpinned by long-term take-or-pay agreements and dedicated areas of production, providing strong contractual protections. These agreements ensure that PGI and PBA can reliably forecast and manage the companies' operations and revenue streams.

Comprehensive Value Chain Benefits: Beyond the immediate infrastructure and development gains, the transaction offers additional benefits across Pembina's integrated value chain. The new and extended long-term transportation, fractionation and marketing services agreements will support higher utilization of PBA's Peace Pipeline and at the Redwater Complex, including the construction of RFS IV. The arrangements for Whitecap's Lator development also support Pembina's ethane supply commitments, further enhancing the company's strategic position.

Financial and Operational Impact

Transaction Funding: The transaction will initially be funded using PGI's existing credit facility, which should provide a streamlined and efficient financial pathway for the acquisition and development activities.

Expected Closing Timeline: The closing of the transaction is anticipated to occur in the third quarter of 2024, subject to the satisfaction or waiver of customary closing conditions, including all required regulatory approvals. This timeline allows for a structured and well-managed transition of ownership and operational responsibilities.

Conclusion

The strategic partnership between PBA, through its joint venture PGI, and Whitecap Resources Inc. marks a significant milestone in the development of Western Canada's natural gas infrastructure. The acquisition of a 50% working interest in the Kaybob Complex and the commitment to support the Lator area development position PBA and PGI for sustained growth and enhanced operational efficiency.

The transaction's comprehensive contractual protections and alignment with Whitecap's growth trajectory underscore the strategic value of this partnership, promising significant benefits across PBA's integrated value chain.

Zacks Rank and Key Picks

Currently, PBA carries a Zacks Rank #3 (Hold).

Investors interested in the energy sector might look at some better-ranked stocks like Sunoco LP SUN, sporting a Zacks Rank #1 (Strong Buy) and SM Energy Company SM and Coterra Energy Inc. CTRA,  each carrying a Zacks Rank #2 (Buy), at present.

Sunoco is valued at $5.68 billion. It is a major wholesale motor fuel distributor in the United States, distributing over 10 fuel brands through long-term contracts with more than 10,000 convenience stores, ensuring consistent cash flow.

SUN's extensive distribution network across 40 states provides a robust and reliable source of income and the Brownsville terminal expansion should add to its revenue diversification.

Denver, CO-based SM Energyis valued at $5.02 billion. The company currently pays a dividend of 72 cents per share, or 1.65%, on an annual basis.

SM, an independent energy company, engages in the acquisition, exploration, development and production of oil, gas and natural gas liquids in the state of Texas.

Coterra Energy is valued at $19.75 billion. The company currently pays a dividend of 84 cents per share, or 3.16%, on an annual basis.

CTRA is an independent upstream operator engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids.

To read this article on Zacks.com click here.