Kinder Morgan to buy Terasen in $5.6 billion deal

Aug. 8, 2005
Kinder Morgan Inc. (KMI), Houston, will acquire Terasen Inc.

Kinder Morgan Inc. (KMI), Houston, will acquire Terasen Inc., Vancouver, BC, in a $5.6 billion deal creating a combined system of 40,000 miles of natural gas and oil pipelines in Canada and the US with potential for expansion based on production from Alberta’s oil sands.

Directors of both companies have approved the transaction, which if approved by regulators and Terasen shareholders will close by yearend. The estimated value of the offer, which gives Terasen shareholders the option to exchange their shares for cash, KMI common stock, or a combination, includes the assumption of Terasen debt.

In addition to the pipeline systems, the combined company will have more than 1.1 million gas distribution customers and about 150 terminals (see map).

Terasen system

Terasen has 2,926 miles of oil pipelines and 27,384 miles of gas distribution lines.

Its oil throughput last year included 236,100 b/d through the Trans Mountain system between Alberta and British Columbia and 175,300 b/d through the 1,700-mile Express System, in which it holds one-third interest, connecting Alberta with refineries in the US Rocky Mountains and Midwest.

Terasen’s other pipelines include the 306-mile Corridor heavy oil and diluent system in Alberta, the 65-mile Puget Sound crude oil pipeline connecting the Trans Mountain system with refineries in Washington, and a 25-mile jet fuel line at Vancouver International Airport.

Throughput through Terasen’s gas distribution companies, Terasen Gas Inc. and Terasen Gas (Vancouver Island )Inc., last year totaled 193 bcf, all in British Columbia.

For 2004, Terasen reported assets of $4.97 billion (Can.) and net income of $149.8 million on revenue of $1.957 billion.

Before disclosure of the KMI deal, Terasen had reported plans to expand Trans Mountain’s ability to carry production from Alberta’s oil sands to the Pacific Coast.

On July 12, the company said it had filed an application with Canada’s National Energy Board to increase Trans Mountain’s capacity to 260,000 b/d from 225,000 b/d by adding and upgrading pump stations between Edmonton, Alta., and Burnaby, BC. It planned later to seek commercial support for a 30-in. loop between Hinton, Alta., and Valemount, BC, raising capacity to 300,000 b/d.

Terasen also had proposed to build the Heartland Terminal near Edmonton for the storage and blending of heavy crude.

In a statement announcing the acquisition, KMI Chairman and CEO Richard D. Kinder spoke of expansion based on growing production from the oil sands.

Click here to enlarge image

“There is a definite need for additional pipeline infrastructure from the Alberta oil sands, and we have a great opportunity to use the capital strength of the combined company, along with our expertise in building and operating pipelines, to increase capacity on Terasen’s existing pipeline system,” he said.

Kinder Morgan

Subject to approvals, the Terasen assets will join 35,000 miles of US gas and products pipelines and 145 terminals that KMI owns or in which it holds interests.

KMI’s Natural Gas Pipeline Co. of America (NGPL) transports as much as 5.8 bcfd of gas through nearly 10,000 miles of pipeline, mainly in the Midwest.

KMI also provides gas distribution and related services to more than 240,000 customers in Colorado, Nebraska, and Wyoming and owns interests in four gas-fired power plants.

It is general partner of and holds a 16% limited partner interest in Kinder Morgan Energy Partners LP (KMP), which owns or operates 10,000 miles of pipelines carrying 2 million b/d of gasoline, jet fuel, diesel, and natural gas liquids; carbon dioxide reserves and pipelines serving the Permian basin, along with related oil production; and a 15,000-mile gas pipeline system carrying more than 8 bcfd in Texas, the Rockies, Midwest, and Gulf Coast. KMP also owns 145 terminals.

KMI reported net income last year of $528.5 million (US) on $1.2 billion of revenue. KMP reported 2004 net income of $831.6 million on $7.9 billion of revenue.