Calgary-based KeySpan Facilities Income Fund, the trust owner of KeySpan Energy Canada, announced plans Wednesday to acquire EnerPro Midstream Co. from Chevron Canada Resources for C$268.5 million. KeySpan, one of Canada’s largest natural gas midstream operators, will pick up EnerPro’s interests in its five gas processing plants and associated gathering systems located in the Western Canadian Sedimentary Basin (WCSB).

Once the transaction is completed, KeySpan expects to increase its monthly distribution 8%, from C$0.0908/unit to C$0.0980/unit, beginning with the June 2004 distribution, which is payable in July.

Jim Bertram, KeySpan’s CEO, said the acquisition would be immediately accretive to unitholder distributions. “We also expect further growth in per unit cash flow as we begin to integrate the businesses and capture growth opportunities and operating synergies.”

KeySpan has an existing ownership interest in all of EnerPro’s existing facilities, including its West Pembina and Brazeau North gas plants. EnerPro’s natural gas liquid (NGL) infrastructure consists of processing and storage at Fort Saskatchewan and a sizeable interest in the Rimbey pipeline, terminal and NGL loading facilities. EnerPro also manages an NGL marketing business that will be integrated within KeySpan’s marketing program.

KeySpan already has 13 gas processing plants and associated facilities in the WCSB, and its NGL infrastructure consists of pipelines, processing and storage in Edmonton and Fort Saskatchewan.

“This acquisition fits KeySpan’s strategy extremely well and establishes us as the pre-eminent independent midstream company in western Canada,” said Bertram. “EnerPro is focused on the same three business lines as KeySpan, and its assets are located west of the Fifth Meridian, where we foresee significant future exploration and development activity.”

Bertram said the two companies’ “significant ownership overlap and increased operatorship of key assets will enable us to streamline our business processes and more effectively take advantage of growth opportunities. This will facilitate the incorporation of the EnerPro assets into KeySpan’s business and create real synergies. We are also excited that a diverse talent pool of EnerPro employees will be joining the KeySpan team.”

KeySpan intends to fund the transaction by issuing approximately C$100 million of trust units, with a 15% over-allotment option, and approximately C$100 million of subordinated unsecured convertible debentures. The securities sale will be completed through a syndicate of underwriters led by RBC Capital Markets, and the portion of the purchase price not covered by the financings will be funded through existing debt facilities.

The subordinated unsecured convertible debentures will have a C$1,000 face value per debenture, a coupon of approximately 6.75-7.0%, and will be convertible into trust units of the Fund at the option of the holder at a conversion price representing a premium of approximately 10%. The convertible debentures will have a maturity date of June 30, 2011 and will pay interest semi-annually in arrears on June 30 and December 31, beginning at the end of this year.

Peters & Co. Limited acted as financial adviser. Following regulatory approval, the sales transaction is expected to close in July.

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