1 Company's Laser Focus on Natural Gas Liquids
On Monday, Canada's Pembina Pipeline announced its plan to buy Provident Energy (NYS: PVX) for $3.1 billion in stock. Provident, a natural-gas-liquids-focused midstream company, has assets in three of the most important North American energy plays: the Alberta oil sands, the Bakken shale, and the Marcellus shale. Pembina's growing focus on NGLs was the driving force behind this acquisition.
"Natural gas liquids" describes those gases that are produced from a well in liquid form because of factors like pressure and temperature. The most common NGLs are ethane, propane, butane, isobutene, and pentane.
NGLs are more lucrative than methane production, which is why so many companies are pursuing plays rich in the stuff. The most recent price for a barrel of NGLs at the time of this writing was $60.57 at the Mont Belvieu hub in Texas.
Now that we understand why Pembina went after an NGL company, let's see what they're bringing home.
The acquisition will diversify Pembina's assets: Provident has NGL processing, storage, and marketing operations stretching from Western Canada to the Eastern United States. It will almost double its market cap and allow the company to pursue more complex growth opportunities at a faster pace: Pembina's capital spending for 2012 is set at $550 million Canadian, Provident is at CA$150 million.
It has been an active six months for pipeline companies. At the end of November, Plains All American Pipeline (NYS: PAA) announced it was buying BP's Canadian NGL operations for $1.67 billion. And of course there was Kinder Morgan's (NYS: KMI) huge announcement in October of its proposed $38 billion takeover of El Paso.
When the deal closes, Pembina will be Canada's third-largest energy infrastructure company, behind beleaguered TransCanada and Enbridge. The new and improved energy giant will also apply to begin trading on the New York Stock Exchange.
With that in mind, let's take a quick look at what the pipeline company looks like before the acquisition becomes official.
Total Enterprise Value
S&P Credit Rating
Source: Company statements. All dollar figures are in Canadian dollars.
Historically, Pembina has performed very well, generating a 500% rate of return over the last 10 years.
This is the second recent deal Pembina has struck to take advantage of the NGL boom. In October, the company inked a deal withEnCana (NYS: ECA) for a 65% working interest in a natural gas processing plant in Alberta focused on NGL extraction. Make no mistake, Pembina Pipeline will be worthy of U.S. investor attention once it hits the NYSE.
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