U.S. private equity fund KKR & Co. Inc. KKR-N is considering exiting a decade-long investment in Western Canadian natural gas processing plants, and partner Pembina Pipeline Corp. PPL-T is a contender to buy the business.
Calgary-based Pembina owns 60 per cent of Pembina Gas Infrastructure (PGI), a collection of 22 facilities and pipelines in Northern British Columbia and Alberta, while KKR owns the remaining 40 per cent of the unit.
New York-based KKR originally invested in the gas processing business in 2015 and combined forces with Pembina in 2022 in a transaction that valued the entire division at $11.4-billion. Private equity funds typically sell holdings after 10 to 12 years.
KKR has hired Bank of Nova Scotia to run a sales process on its stake in PGI, with a potential price of US$7-billion, Reuters reported on Wednesday.
Analysts and an industry source say Pembina is a contender to buy the business, along with institutional investors such as pension plans. The Globe and Mail is not identifying the source, who is not authorized to speak publicly about the talks.
“While we would not preclude the potential of Pembina exploring the purchase of KKR’s stake, we anticipate it would approach such an opportunity in a manner that is not dissimilar from how it would approach other potential deals,” analyst Maurice Choy at RBC Capital Markets said in a report.
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He said Pembina would want to make the acquisition at a price that immediately boosts its cash flow.
If a new investor bought KKR’s holding and had a shared strategy for the business, Mr. Choy said the transaction would be “neutral” for Pembina.
Pembina and KKR declined to comment on PGI.
PGI owns one of the largest gas networks in the Montney and Duvernay shale formations, with the capacity to process five billion cubic feet of gas per day.
In January, PGI spent $420-million to acquire a 50-per-cent stake in Whitecap Resources Inc.’s WCP-T gas processing assets in northwestern Alberta. As part of the transaction, PGI committed to investing an additional $400-milion in expanding the facilities, and $300-million to another Alberta project. KKR would be on the hook for its share of this spending.
Pembina is building its natural gas operations across Western Canada as power plant operators increase their reliance on the fuel source and producers drill more gas wells. The utility competes with pipeline operators such as Keyera Corp. KEY-T However, in a recent report, analyst Aaron MacNeil at TD Securities said: “Pembina’s large customers are growing and, as a result, we believe all market participants can be successful.”
Investment aimed at increasing Pembina’s ability to process natural gas come as the company and the Haisla Nation move forward on the $5.9-billion Cedar LNG project on the B.C. coast. Pembina owns a 49.9-per-cent stake in the floating terminal, which is expected to open in 2028. The Haisla Nation owns the rest of the project.
Pembina is also emerging as a major player in Alberta’s growing data centre sector, backing projects powered by natural gas. In February, the company partnered with Calgary-based Kineticor Asset Management LP on construction of the Greenlight Electricity Centre in Gibbons, Alta., north of Edmonton. The project has a $4-billion budget.