Pembina – Veresen Merger: Will this Form North America’s Formidable Energy Infrastructure?

Posted on Posted in Canadian Business

Source:https://www.pexels.com/photo/gray-and-white-cruise-ship-on-body-of-water-126339/

A momentous modification is happening in the energy industry of North America. A significant break in increasing economic development throughout North America is possible because of the advancement of abundant light tight oil (LTO) and other alternative gas resources. Hence, it could also contribute to expanding North America’s competitiveness in the global markets.

However, a great challenge is posted for it to be materialized; the development of these promising resources together with the ever changing demand of the market requires an energy infrastructure expansion and reassessment of North America’s status quo in the global energy market. The capacity to bring out this transformation will play a dramatic role in the development and expansion of a formidable energy infrastructure.

Here Pembina Pipeline and Veresen Inc. come in the picture.

About the Companies

Source: https://www.pexels.com/photo/black-and-white-city-man-people-1984/

Pembina Pipeline Corporation is an accomplished Calgary-based company. It offers a reliable service of transporting synthetic crude and conventional oil, natural gas liquids, and other services via the system of pipelines. It has been servicing the energy landscape for over sixty years.

Like Pembina, Veresen Inc. is also based in Calgary, Alberta. It retains and operates an energy infrastructure corporation that offers three chief means of business, namely – natural gas, pipelines, and generation of power. Its pipeline business consists of Ruby Pipeline, Alliance Pipeline, and Alberta Ethane Gathering System.

With the increased production of liquid-rich natural gas in Western Canada, it motivates the call for new services, including greater plants that can break down the hydrocarbons into components used in fuels and plastics.

The Merger

Source: https://www.pexels.com/photo/business-signing-writing-writer-24193/

Pembina Pipeline Corp. President Mick Dilger said in an interview that a preliminary approach was made last year to Veresen. They reinstated the negations in late February with both sides backing up and looking for the best ways to make the merger a reality.  

When Pembina agreed to buy Veresen for $4.3 billion last May, they are gearing up to provide a generation of colossal plans that will be required to handle a bigger hydrocarbon production from North America. They aim to produce one of the biggest energy infrastructure firms in Canada with an enterprise value of around about $24.15 billion (almost C$33 billion).

The deal with these two giant pipeline companies will create an energy infrastructure that would combine Pembina’s reach in operation in Montney and Duvernay and Veresen’s pipeline scope in British Columbia; those are areas with incredible potential. Dilger said that they are in the early runs of the expansion.

With the transaction, Pembina can effortlessly offer clienteles natural gas outlet. Previously, they would have to contract another company to offer that service. The agreement certainly offers growth potential; the merged corporations has $6 billion of worth in terms of authorized projects, with the possibility for an added $20 billion in ‘unsecured’ projects that have not been approved yet.

Mr. Randy Findlay, Pembina’s Chair of the Board of Directors, said that the transaction provides a clear visibility in creating long-term value for their respective shareholders; thus, the agreement is highly tactical for both Pembina and Veresen. The joint platform gives a convincing customer service offering improvements, incorporation, and venture potential, beyond what they could do as individual entities. These reasons give them the confidence to increase their dividend by 5.9 percent upon close of the said transaction.

Mr. Stephen Mulherin, Veresen’s Chairman of the Board of Directors added that the collective scale and financial power, coupled with an established track record of safe, on-time and on budget project delivery, provides them assurance that the joint growth program currently under construction of nearly $6 billion will be translated into meaningful worth for stockholders.

Additionally, they have confidence that in combining these two magnates augment their capacity to compete for coming investment opportunities and execute on a larger, more complex suite of opportunities in the future.

Others did not view this merger as a surprise anymore. The analyst even notes that they regard the deal as a sound decision on the part of Pembina’s industrial judgment, especially at this point. The combination of the two companies also assumes to deliver substantial value for the shareholders through the gains that they will get from the transaction.

Takeaway

Source: https://www.pexels.com/photo/blue-and-yellow-graph-on-stock-market-monitor-159888/

In summary, the merger will bring the following advantages:

  • It spreads the geographical range of the joint firms while enhancing the customer service that they give
  •  It ensures the preservation of a strong balance sheet
  • It benefits from diversification (products, currency, and customers)
  • It creates a society of valuable scale that will able to achieve greater growth ventures

In an industry landscape that actively competes, lagging behind will mean could mean doom for a company. The intricacies and challenges surrounding the advancement of new pipeline infrastructure or even in other industries needs ingenious thinking; sometimes, it is true that it makes more sense to buy existing projects than to sweat building a new one. The company’s reach really matters; it contributes so much on the exploration and manufacturer side of the business. Adapting is a skill that a company needs to master. The collaboration will provide brighter horizons.

Leave a Reply

Your email address will not be published. Required fields are marked *