NGI The Weekly Gas Market Report / NGI All News Access

Kinder Morgan Receives BC Approval of $5.6B Terasen Acquisition

Coming one step closer to seeing its merger with Terasen Inc. completed, Kinder Morgan Inc. (KMI) announced late last week that the British Columbia Utilities Commission (BCUC) issued an order approving its application to acquire the common shares of Terasen, the parent company of the Terasen Gas natural gas distribution companies and other public utilities.

In early August, KMI announced its intentions to acquire the British Columbia gas utility and pipeline company for $3.1 billion in cash with $2.5 billion in assumed debt (see NGI, Aug. 8).

On Thursday, KMI said the BCUC order adopted conditions either proposed by KMI or satisfactory to KMI to protect the financing capabilities and service levels of the Terasen utilities. In addition to Terasen Gas, the BCUC also regulates Terasen's water and utility services businesses.

"When the transaction is completed, the transition for Terasen's approximately 875,000 natural gas distribution customers in British Columbia should be seamless," said Kinder Morgan CEO Richard D. Kinder. "The Terasen Gas name will remain the same, its headquarters will continue to be in Greater Vancouver (Surrey) and the BCUC will still maintain regulatory supervision and oversight of the company. Additionally, we intend to retain virtually all of the Terasen Gas employees, policies and procedures."

With BCUC and Terasen shareholders supporting the merger (see NGI, Oct. 24), the last hurdle is approval under the Investment Canada Act. "We are delighted to be investing in Canada and to have the opportunity to contribute to Canada's growing economy," Kinder said. KMI said it is hopeful that it will be able to close the acquisition on or before Nov. 30.

The Investment Canada Act is Canada's general legislation on foreign investment. The act gives the federal government the ability to negotiate enforceable commitments with the investor during the review process. These commitments assist the minister in determining whether the investment is of "net benefit" to Canada, as the minister is required to determine under the act.

If consummated, the transaction will create a leading North American energy transportation and distribution company with 40,000 miles of natural gas and petroleum transportation pipelines, more than 1.1 million natural gas distribution customers and 150 terminals.

Terasen's pipeline segment, which includes 2,800 miles of pipelines that carry 680,000 bbl/d of petroleum and products, currently represents about 35% of its earnings. The company's regulated natural gas distribution business, which serves 850,000 customers in BC, represents the lion's share of the balance, earning an allowed rate of return of 9%.

Terasen's tremendous oilsands production growth upstream of its petroleum pipeline business led Kinder Morgan to the table. Canadian oilsands producers already are expecting to invest about $50 billion in the next five years, doubling production there to about two million barrels per day. Kinder Morgan also will come away from the deal with a stable gas utility operation in British Columbia. The combined entity will have 9,000 employees. It will have 13,000 miles of refined product and oil pipeline, and gas utility operations that serve a total of 1.1 million customers in British Columbia, Nebraska, Colorado and Wyoming.

©Copyright 2005 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.