Jordan Cove ‘a little too big’ for Veresen

Continued from FP1

“We’re excited about Jordan Cove. We think it can happen. We think it might make sense to have partners in there,” Dilger said of the project, suggesting the company could sell portions.

In April, White House adviser and U.S. National Economic Council chair Gary Cohn said the U.S. government planned to approve Jordan Cove, which had previously been denied by the U.S. Federal Energy Regulatory Commission.

Since the price tag for Jordan Cove is estimated at US$6 billion, market observers had doubted Veresen’s ability to fund the project.

“The combined balance sheet is so much bigger and so much stronger, it really is supportive of projects like Jordan Cove,” Veresen president and CEO Don Althoff said. “This was always the project that was a little too big for Veresen, but it isn’t too big for the combined entity,” he added.

Althoff said Veresen wasn’t looking to sell, but Dilger approached the company with an offer — and a map that showed the two companies’ assets complemented each other — that convinced him a merger was a good idea.

AltaCorp Capital analyst Dirk Lever also said the assets were “really complementary” and fit together well without overlapping.

Pembina senior vice-president NGL and natural gas facilities Stuart Taylor said the gas pipelines his company is acquiring “overlap from a physical perspective (with Pembina lines) but they move different products.”

Taylor said the growth of shale gas production from formations like Alberta’s Montney attracted Pembina to Veresen. Montney producers previously would look for one pipeline company to move their gas and a second pipeline operator to move the associated liquids that is produced along with that gas. “Now, we can provide both,” he said.

Veresen shares jumped 19 per cent following the announcement of the deal, which places a roughly 22-per-cent premium on the company’s previous closing price.

The bid price could help prevent a competing bid from American pipeline rivals, which may have been interested in buying Veresen as the company generates most of its earnings in the U.S., Citigroup analyst Faisel Khan said in an interview.

“In the last cycle, in the last year, Canadian pipeline valuations were better than those in the U.S.,” Khan said, explaining why Canadian midstream companies have been purchasing American pipelines.

Khan also said the premium Pembina paid is in line with previous blockbuster deals among Canadian pipeline companies. Enbridge Inc. offered Spectra Energy Corp. shareholders an 11.5-per-cent premium in that $37-billion deal, and TransCanada Corp. offered Columbia Pipeline Group shareholders a 29-per-cent premium in its own US$13billion deal.

Once the deal closes in the second half of the year, Pembina plans to hike its dividend by close to six per cent.