Houston’s TC PipeLines LP late Wednesday increased its natural gas partnership by one-third in a $1.05 billion agreement with parent TransCanada Corp. that would give it control over both Gas Transmission Northwest LLC (GTN) and Bison Pipeline LLC.
The master limited partnership, a subsidiary of TransCanada, already holds a 25% interest in the two systems; the agreement would add another 45% stake in each. Besides building TC’s portfolio, the transaction is expected to reduce “relative exposure” to the Great Lakes Gas Transmission LLC gas pipeline system, which is experiencing earnings and cash flow “variability.”
“This acquisition is the largest transaction in the partnership’s history and significantly increases…future cash flows and earnings,” said Steve Becker, who is president of the pipeline’s general partner. “Cash flow predictability and stability are key elements of our investment approach, and both GTN and Bison fit this profile.”
The GTN pipeline system transports Western Canada and Rocky Mountain natural gas for large utilities, producers and marketers in Washington, Oregon, Nevada and California. The Bison pipeline transports Rocky Mountain gas to Midwest markets through a connection with the partnership’s Northern Border pipeline system. Both GTN and Bison are supported by long-term ship-or-pay contracts that extend through the end of the decade.
TC also has stakes in the Great Lakes Gas Transmission LLC system and Northern Border Pipeline Co., and it owns North Baja Pipeline LLC and Tuscarora Gas Transmission Co.
“A transaction of this magnitude demonstrates the attractiveness of the partnership as a financing vehicle for TransCanada as it continues to advance $26 billion of commercially secured projects,” said Becker. “Further dropdown opportunities may arise from TransCanada’s extensive natural gas pipeline portfolio.”
The deal is expected to reduce the partnership’s “relative exposure” to Great Lakes, “which is experiencing earnings and cash flow variability.” In February TransCanada said Great Lakes had lower gas capacity in 4Q2012, and the operator expected to see “continued weakness” in the gas pipeline segment because of lower commodity prices and higher operating costs (see Daily GPI, Feb. 14, 2013).
The aggregate purchase price paid to TransCanada assumes $146 million of GTN debt, leaving cash to close at about $904 million. The purchases, expected to close in July, would be funded through a combination of debt and equity. TC management said it intend to recommend to the board a 3 cent/unit (3.8%) increase to quarterly distribution when the transaction is completed. The general partner’s board unanimously approved the purchase.
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