Pembina Pipeline Corp. has signed a deal with U.S.-based private equity firm KKR to combine their western Canadian natural gas processing assets into a new joint venture.

The new entity, temporarily named Newco with a permanent name expected to be announced before the deal’s closing, will be owned 60 per cent by Pembina and 40 per cent by KKR’s global infrastructure funds. Pembina will serve as the operator and manager of Newco.

In a news release Tuesday, Calgary-based Pembina said the joint venture will be “a highly competitive western Canadian gas processing entity” with the ability to serve customers throughout the Montney and Duvernay resource plays, from north-central Alberta to northeast British Columbia.

The deal includes Pembina’s field-based natural gas processing assets, the Veresen Midstream business which is owned 55 per cent by funds managed by KKR and 45 per cent by Pembina, and Energy Transfer Canada (ETC), currently owned 49 per cent by funds managed by KKR.

The joint venture will also buy Energy Transfer LP’s 51 per cent stake in ETC.

“Pembina has enjoyed a strong relationship with KKR as a partner in Veresen Midstream over the past four years,” said Scott Burrows, Pembina’s president and CEO, in a release. “We work well together and share a mutual desire to  invest capital and generate attractive returns.”

Collectively, the ascribed value of these transactions totals $11.4 billion, excluding the value of assets under construction, Pembina said.

The company said it expects to receive $700 million in cash proceeds, with about $500 million to be used for debt repayment and $150 million to buy back its shares.

Once the deal closes, the company said it will increase its monthly dividend by 0.75 of a cent to 21.75 cents per share.

Pembina has owned and operated natural gas processing infrastructure in Western Canada since 2009. By partnering with KKR in Newco, Pembina will expand its footprint to a larger asset base across Western Canada, said National Bank of Canada analyst Patrick Kenny in a research note Tuesday.

“The strategic combination allows Pembina to extend and diversify operations over a larger asset base while gaining incremental exposure to the growth in NEBC (northeast B.C.) natural gas volumes with its increased ownership in Veresen Midstream, as well as realizing incremental efficiencies and economies of scale,” Kenny said.

The deal is expected to close in the second or third quarter of this year.

This report by The Canadian Press was first published March 1, 2022.

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