Canadian Energy Companies Pembina Pipeline, Veresen to Combine -- Update

By Christopher M. Matthews and Austen Hufford Features Dow Jones Newswires

Pembina Pipeline Corp. on Monday said it agreed to buy Veresen Inc. for about 5.85 billion Canadian dollars (US$4.28 billion) in a deal that creates one of Canada's largest energy infrastructure companies.

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Pembina has a pipeline network stretching more than 6,000 miles across Western Canada and into the U.S., including large oil sands assets. It will add Veresen's natural gas gathering, processing and pipeline assets in Western Canada.

The deal comes as global oil prices have stabilized at around $50 a barrel, but many oil producers are selling off assets in Canada's oil sands, which hold vast reserves but are prohibitively expensive under current prices.

Some Canadian producers hope to replicate the success of U.S. drillers using hydraulic fracturing technology, and Monday's deal appears designed to capitalize on that.

Under the deal, Pembina will acquire nearly 5.8 billion cubic feet per day of gas processing infrastructure in the Western Canadian Sedimentary Basin, estimated to hold some of the largest gas and oil reserves in the world. The companies said the combined entity will be valued at C$33 billion.

The merger follows a deal last year in which Canadian pipeline operator Enbridge Inc. bought Houston's Spectra Energy Corp. in an all-stock deal valued at about $28 billion.

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Mick Dilger, Pembina's president and CEO, said the company had misjudged the amount of liquids in the Montney, a shale gas and oil formation that is part of the Western Canadian Sedimentary Basin, and gets a "do-over" under the deal.

"The shale revolution in Canada is just getting started," Mr. Dilger said.

Pembina is paying about C$18.65 for each Veresen share in the cash and stock deal, a 22% premium to Veresen's closing price Friday. Pembina said the deal values Veresen at C$9.7 billion, including debt.

Alberta-based Veresen owns and operates energy infrastructure across North America, including a pipeline business, a midstream business and a natural gas liquids extraction business.

Calgary-based Pembina is an energy transportation and midstream services provider, including an integrated system of pipelines primarily in western Canada, gas gathering and processing facilities and an oil and natural gas liquids business.

Veresen shareholders can chose cash or stock but are expected to receive, on average, C$4.8494 in cash and 0.3172 of a Pembina share for each Veresen share they own. Pembina's shareholders will own about 80% of the combined company, with Veresen's shareholders expected to own the remaining 20%.

Pembina said it would initially fund the cash portion of the deal through its C$2.5 billion unsecured credit facility, but that it expects to refinance this with a combination of internally generated cash flows and the issuance of medium-term notes and preferred stock.

If the deal is completed, Pembina said it would increase its monthly common dividend to 18 Canadian cents from 17 Canadian cents.

Pembina said it expects to complete the acquisition late in the third quarter or early in the fourth quarter of this year.

Write to Christopher M. Matthews at christopher.matthews@wsj.com and Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

May 01, 2017 11:08 ET (15:08 GMT)