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Pembina Buys Alliance, Aux Sable Stakes for C$3.1B

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Pembina Pipeline (PBA) will buy Enbridge’s (ENB) interests in Alliance Pipeline, Aux Sable, and NRGreen for C$3.1B. The assets connecting Western Canada to the Midwest have a positive outlook, according to East Daley Analytics’ natural gas and NGL commodity forecasts.

The acquisition will give Pembina 100% ownership in Alliance Pipeline, the Canadian operations of Aux Sable, and NRGreen, while PBA’s interest in the US Aux Sable operations will increase to 85.4%. The companies expect to close the transaction in 1H24. PBA will partially fund the deal by issuing 26MM subscription receipts for a price of $42.45, totaling C$1.1B.

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Pembina has created a healthy financial position to support the acquisition. According to the PBA Financial Blueprint, 2023 free cash flow after distributions will total C$1,430MM, and the company’s leverage ratio is low at 3.29x.

The PBA and ENB Blueprints include system forecasts for the assets trading hands. EDA models Alliance Pipeline to make C$551MM in EBITDA in 2023, and Aux Sable to generate EBITDA of C$155MM, indicating a transaction multiple of 9.1x without additional synergies.

Our estimated EV/EBITDA multiple of 9.1x is in line with PBA’s reported multiple of ~9x, but places EDA’s valuation of the assets slightly above Enbridge’s. ENB reported an 11x multiple on Alliance and a 7x multiple on Aux Sable for the transaction, based on 2024 EBITDA.

In 2024, we expect EBITDA to total C$517MM for Alliance Pipeline and $166MM for Aux Sable, indicating a value of C$3.3B based on ENB’s stated multiples vs the C$3.1B sale price (see figure). PBA is targeting C$40-65MM in annual synergies by 2025

Alliance Pipeline can deliver up to 1.6 Bcf/d of rich natural gas from Alberta to Joliet, IL at the Chicago citygate. NGLs are extracted and processed at the Aux Sable fractionator located near the terminus of Alliance, providing purity products for the Midwest market.

East Daley subscribers can use the “Gas Pipeline Customer Contracts” screen in Energy Data Studio to review the outlook for Alliance Pipeline based on its shippers and contracts. Canadian producers comprise most of the pipeline’s shippers, including Seven Generations Energy, Ovintiv (OVV) and BP (see figure).

East Daley expects strong US and Canadian gas fundamentals to support future performance of the assets. Production from the Western Canadian Sedimentary Basin (WCSB) will ramp when LNG Canada enters service. Moreover, we expect growth in US LNG exports to pull more gas supply from other basins to the Gulf Coast. Alliance and Aux Sable are uniquely positioned to capture WCSB production growth and transport gas to Midwest markets, helping to meet some of the supply gap resulting from LNG growth. – Zach Krause Tickers: ENB, OVV, PBA.


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