Houston-based Spectra Energy Corp. said Tuesday it has secured one of the three major pipeline systems that move western Canadian crude oil to refineries in the Rockies and Midwest, agreeing to purchase the entire ownership interest in the 1,717-mile Express-Platte Pipeline System. The deal is expected to close in the first half of 2013.
Spectra would pay $1.49 billion ($1.25 billion in cash and the rest in acquired debt) to Borealis Infrastructure, the Ontario Teachers’ Pension Plan and Kinder Morgan Energy Partners (KMP) for the system, which runs between Hardisty, Alberta, and Wood River, IL.
The interconnected system consists of two crude oil pipelines, the Express and the Platte, according to Kinder Morgan’s website, which calls it an “integrated oil transportation network connect[ing] Canadian and U.S. producers to refineries in the Rocky Mountain and Midwest regions of the United States.”
Since 1997, Express has carried light, medium and heavy crude oil produced in western Canada to refining markets in Billings and Laurel, MT, and Casper, WY, with a 280,000 b/d capacity. The much older Platte line, which dates back to 1952, transports crude primarily from the Bakken and Western Canada to refiners in Illinois, carrying a capacity of 164,000 b/d in Wyoming and 145,000 b/d in Illinois.
Spectra said it expects the acquisition to be immediately accretive to earnings, estimating a full-year $130 million in earnings before interest, taxes, depreciation and amortization in 2013.
For Spectra, the purchase represents a “significant opportunity” to be part of the fast-growing North American crude oil pipeline market, a spokesperson said. Express-Platte is a major link in the overall pipeline system between Canada and the United States.
Saying the acquisition will fill out Spectra’s footprint, CEO Greg Ebel characterized Express-Platte as being “strategically located to supply crude oil to U.S. refining markets,” along with presenting “an incremental growth platform.”
Ebel said the acquisition is a “logical extension” of Spectra’s business model as a major player in the gas midstream sector. Midstream crude oil assets are a next step, he said.
Kinder Morgan CEO Richard Kinder said Spectra was purchasing a “good pipeline system,” and in exchange, KMP will receive “a very attractive price.”
Based on the structure of KMP’s investment with its Express-Platte partners, KMP receives about $15 million of cash flow on an annual basis from the investment, which is primarily debenture interest, Kinder said. “We will redeploy the proceeds from this sale into various growth projects to further benefit our unitholders.”
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