A subsidiary of Plains All American Pipeline LP (PAA) said Thursday it would pay $1.67 billion to acquire BP plc’s Canadian natural gas liquids (NGL) and liquefied petroleum gas (LPG) business.

The sale by BP has been expected; the oil major announced it was looking for a buyer for the Canadian businesses a year ago (see Daily GPI, Dec. 27, 2010). The acquisition by Plains Midstream Canada ULC is expected to close by mid-2012, subject to regulatory approval and customary closing conditions.

“BP’s Canadian NGL business is an asset-rich platform that significantly expands our LPG asset footprint, providing a supply-based complement to our existing demand-focused business and making PAA one of the largest LPG service providers in North America,” said PAA CEO said Greg L. Armstrong. “We expect to be able to generate meaningful operating and commercial synergies by more fully connecting, integrating and utilizing these assets together with our existing North American LPG assets and our Canadian crude oil assets and activities.”

The assets to be acquired include ownership stakes in and contractual rights relating to about 2,600 miles of pipelines, 20 million bbl of LPG storage capacity, seven fractionation plants with 232,000 b/d of capacity, multiple straddle plants and two field gas processing plants with an aggregate capacity of 8 Bcf/d. In addition the acquisition would include close to 10 million bbl of long-term and seasonal NGL inventory as of Oct. 1, 2011.

BP’s Canadian business also includes various supply contracts at other field gas processing plants, shipping arrangements on third-party NGL pipelines and long-term leases on 720 rail cars used to move product among various locations. Collectively the BP assets and activities provide access to 140,000-150,000 b/d of NGL supply transported through a fully integrated network to fractionation facilities and markets in Western and Eastern Canada, as well as the Great Lakes region of the United States.

Based on the accretive nature of the BP purchase, as well as four other acquisitions announced by PAA on Thursday, Armstrong said the partnership would increase its 2012 distribution growth target to 8-9% over its current annualized distribution of $3.98/common unit. As a result of PAA’s existing credit lines and bank commitments for a new $1-1.2 billion, 364-day liquidity facility, the partnership “is well positioned to complete the transactions while maintaining a strong balance sheet and liquidity position.” PAA completed a $385 million equity offering in early November and is forecasting to retain $300 million of cash flow in excess of distributions during 2011.

In connection with the transaction, PAA’s general partner owners have agreed to reduce their incentive distribution rights by $15 million/year for each of the first two years following the acquisition and $10 million/year thereafter. Armstrong noted that this is the fourth time PAA’s general partner owners have agreed to unilaterally modify their incentive distribution rights.

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