Pembina Pipeline (PBA, Financial), a Canadian energy pipeline and midstream services company, continues its active presence in the M&A market. The company aims to enhance its natural gas infrastructure assets and capacity through strategic acquisitions.
Pembina Gas Infrastructure, a unit jointly owned with private equity firm KKR & Co (KKR, Financial), has agreed to acquire four batteries from Veren Inc. in the Gold Creek and Karr areas of Alberta, Canada.
- PBA's acquisition follows its recent purchase of a 50% working interest in Whitecap Resources' Kaybob Complex for $420 million. While Whitecap retains operatorship, PBA benefits from 165 million cubic feet per day of natural gas processing capacity through a take-or-pay agreement.
- The $400 million transaction with Veren includes a 15-year take-or-pay arrangement and area of dedication agreements, with Veren retaining operatorship. The four batteries acquired offer 320 million cubic feet per day of natural gas handling capacity and 53,000 barrels per day of liquids handling capacity.
- These acquisitions strengthen PBA's Facilities segment, which saw a 25% year-over-year increase in adjusted EBITDA to $340 million in Q2, driven by the Canadian energy industry's momentum. Alongside a 31% increase in the Pipelines business, this growth allowed PBA to raise its FY24 adjusted EBITDA guidance to C$4.20-C$4.35 billion from C$4.05-C$4.30 billion.
- Upon closing, PBA estimates the new assets will contribute C$50 million in annual adjusted EBITDA. Further capital deployment is expected to generate incremental EBITDA through additional fees and increased plant utilization.
- Although PBA plans to fund the acquisition with an existing credit facility, increasing its debt, the company's balance sheet remains strong with a debt-to-adjusted EBITDA ratio of 3.6x, within its targeted range.
The main takeaway is that this appears to be another solid, lower-risk deal for PBA, allowing it to capitalize further on rising natural gas production in North America.
