CALGARY, AB, Aug. 31, 2023 /CNW/ – AltaGas Ltd. (“AltaGas” or the “Company”) (TSX: ALA) has entered into a definitive agreement with Tidewater Midstream and Infrastructure Ltd. (“Tidewater”) to acquire: 1) the Pipestone Natural Gas Processing Plant Phase I and Phase II expansion project (individually, “Pipestone Phase I” and “Pipestone Phase II”); 2) the adjacent Dimsdale Natural Gas Storage Facility (“Dimsdale Facility”); 3) the Pipestone condensate truck-in/truck-out terminal; and 4) the associated gathering pipeline systems required to operate these assets (collectively, the “Pipestone Assets”) for total consideration of $650 million, or approximately 7.2x estimated run-rate normalized EBITDA, inclusive of synergies and the incremental capital that AltaGas will deploy to complete the Pipestone Phase II development project.
KEY INVESTMENT AND FINANCIAL HIGHLIGHTS
The Pipestone transaction strengthens AltaGas’ midstream value chain through an expanded footprint in the Alberta Montney and provides meaningful long-term Liquified Petroleum Gas (LPG) supply for our global exports’ platform. The transaction is expected to be five percent EPS accretive in 2025 forward while being 0.1x net debt to normalized EBITDA credit accretive in 2025 forward.
Key highlights from the transaction include:
1. Strategic Fit:
- Supports AltaGas’ long-term strategy by adding long-life infrastructure assets with meaningful financial accretion.
- Strategic and complementary assets strengthen AltaGas’ footprint in the Alberta Montney with low-risk assets that have long-term growth.
- Expands the Midstream customer base with marquee independent producers, which will provide incremental growth opportunities.
- Improves the scale of Midstream Business with a multi-year growth profile.
- Provides processing and liquids handling growth that will augment global exports expansion in the coming years.
2. Risk Accretion
- Reduces Midstream overall commodity price risk by increasing take-or-pay and fee-for-service revenue profile by six percent.
- Diversifies AltaGas’ customer base with multiple strong independent and investment grade customers.
- De-risks global exports by adding meaningful long-term LPG supply, including ~3,500 Bbls/d in 2024, ~6,500 Bbls/d in H2/2025, and the potential for 11,500 Bbls/d over the long-term through incremental processing capacity additions beyond Pipestone Phase II.
3. Leverage and Balance Sheet
- Credit accretive financing structure reduces net debt to normalized EBITDA by 0.1x in 2025+.
4. Financial and Asset Value
- Anticipated to deliver five percent EPS accretion in 2025+.
PIPESTONE PHASE II
The acquisition is contingent on Tidewater and AltaGas making a positive final investment decision (FID) for the Pipestone Phase II project. To facilitate reaching FID, AltaGas and Tidewater have entered into an agreement to create a new joint venture (the “Pipestone Joint Venture”) to advance the final steps required to develop and construct the project. The terms of the Pipestone Joint Venture will permit the parties to continue to collaborate on the Pipestone Phase II project, even if the acquisition does not proceed.
The total consideration is $650 million, comprised of $325 million in cash and the issuance of approximately 12.5 million AltaGas common shares to Tidewater, which will be priced at $26.07, based on AltaGas’ 10-day volume weighted average price (VWAP) as at August 30, 2023, with the shares to be issued and transferred to Tidewater at the time of closing and subject to typical closing adjustments. AltaGas plans to fund the transaction through a combination of short-term debt from the Company’s current liquidity and with the issuance of common equity from treasury. The transaction is expected to be 0.1x leverage accretive in 2025 forward, aligning with AltaGas’ ongoing leverage reduction targets of moving to 4.5x net debt to normalized EBITDA over the long-term. The transaction is anticipated to be modestly positive to EPS in 2024 and then be five percent accretive in 2025 forward. The transaction is subject to regulatory approvals and customary closing conditions and is expected to close prior to 2023 year-end.
The Pipestone acquisition is risk accretive to AltaGas. Over 90 percent of the Pipestone Assets’ normalized EBITDA comes from take-or-pay or fee-for-service based contracts. With inclusion of the Pipestone Assets, AltaGas’ take-or-pay and fee-for-service Midstream EBITDA mix will increase by an estimated six percent with a commensurate decrease in commodity/differential exposed EBITDA. The Pipestone Assets’ customers are comprised of a combination of strong independent or investment grade counterparties, with a weighted average contract term of approximately 8.5 years.
ASSET VALUATION
AltaGas is valuing the current operating assets, including Pipestone Phase I and the Dimsdale Facility, at $525 million, with the Pipestone Phase II expansion project being valued at $125 million, inclusive of existing long-lead time capital assets that are currently owned by Tidewater, as well as regulatory approvals and other intangible assets. The valuation on the operating assets implies approximately 8.5x expected 2024 normalized EBITDA and approximately 7.0x long-term run-rate normalized EBITDA, inclusive of the operational and other synergies associated with Pipestone Phase II coming onstream in 2025.
The valuation on the Pipestone Phase II, inclusive of the $125 million value attributed to the assets as part of the purchase price and the remaining $355 million to $365 million of construction costs for the project, implies approximately 7.5x expected long-term run-rate normalized EBITDA, inclusive of synergies.
CEO MESSAGE
“We are excited that the Pipestone transaction will strengthen our Midstream value chain” said Vern Yu, AltaGas’ President and CEO. “The acquisition is consistent with AltaGas’ long-term strategy and provides us the opportunity to support industry-leading producers’ growth plans in one of Canada’s most prolific resource plays. The assets will deliver highly contracted take-or-pay and fee-for-service revenue that will also bring meaningful long-term LPG supply for AltaGas’ global exports platform. The acquisition should also deliver stable and growing earnings and cash flows, which will deliver strong long-term value creation for our stakeholders while reducing risk and providing long-term credit accretion. We look forward to working with all key stakeholders to advance the final steps required to develop and construct the Pipestone II expansion project and support continued resource development in Western Canada.
“The Dimsdale Facility is a strategic natural gas storage asset that connects to the NGTL and Alliance pipeline systems and will provide Pipestone customers with egress certainty and the ability to manage pipeline maintenance and service disruptions in the years ahead. The Dimsdale Facility will also be one of only three facilities that will be able to serve the balancing needs of the Montney and Canadian LNG demand pulls mid-decade and will be the only integrated processing and storage facility in the Montney. The facility has current working storage capacity of 15 Bcf with the ability to more than quadruple effective capacity to 69 Bcf on attractive incremental capital investments.”
ASSETS AND OPERATIONS
The Pipestone Assets are principally comprised of the following assets:
- Pipestone Phase I: The Pipestone Phase I facility is a modern sour deep-cut natural gas plant with 110 MMcf/d of processing capacity and 20,000 Bbls/d of liquids handling capacity located in the heart of the Alberta Montney. The facility is currently 100 percent contracted with approximately 85 percent of the volumes coming from long-term take-or-pay contracts with credit worthy customers. The facility includes 67 kms of natural gas gathering pipelines that are tied into key production regions and provides strategic egress connections to the NGTL and the Alliance pipeline systems. The facility also includes the Pipestone condensate truck-in/truck-out terminal for liquids handling and value maximization.
- Pipestone Condensate Terminal: Truck-in/truck-out terminal used to maximize value of Pipestone liquids.
- Pipestone Phase II: Pipestone Phase II is a fully permitted, shovel-ready expansion project that will provide an additional 100 MMcf/d of sour deep-cut natural gas processing capacity and an additional 20,000 Bbls/d of liquids handling capabilities. Post FID, the project is expected to be fully committed under firm take-or-pay and fee-for-service service agreements. Pipestone Phase II is expected to reduce operating costs and enhance run-time efficiencies for the broader Pipestone complex.
- Dimsdale Gas Storage: Premier operational natural gas storage facility located east of the Pipestone I and II facilities. Current working gas capacity of 15 Bcf, which can be increased more than four-fold to 69 Bcf. Connected to Alliance and NGTL pipeline systems, the storage facility provides Pipestone customers with egress certainty and will be one of only three facilities able to serve the balancing needs of the Montney and Canadian LNG demand pulls mid-decade and will be the only integrated processing and storage facility in the Montney. The facility is located upstream of the James River bottleneck points.
INVESTOR PRESENTATION
Concurrent with this news release, AltaGas has published a presentation on the transaction, which can be found here.
ADVISORS
RBC Capital Markets are acting as financial advisors and Burnet Duckworth & Palmer LLP are acting as legal advisors to AltaGas on the transaction.
ABOUT ALTAGAS
AltaGas is a leading North American infrastructure company that connects customers and markets to affordable and reliable sources of energy. The Company operates a diversified, lower-risk, high-growth Utilities and Midstream business that is focused on delivering resilient and durable value for its stakeholders.
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