United We Stand - Pembina and Inter Pipeline Merger Could Create Canada’s Largest Midstreamer

Financial pain, increasing regulatory scrutiny, and rising environmental mandates have been keenly felt across the entire energy industry in the past few years. When times are tough and companies are struggling to regain their footing, corporate mergers often increase in frequency. One recently announced merger between two large Canadian midstream providers, Pembina Pipeline and Inter Pipeline, has grabbed headlines and is also turning into a corporate dogfight with a prominent third party trying to scuttle the merger and take control of Inter Pipeline. Today, we examine the two companies and what the combined entity might look like and what it might mean for the energy industry in Canada.

The midstream sector provides many valuable functions for the oil and natural gas industries: gathering, long-haul, and distribution pipelines; other forms of energy transportation such as barges and trucking; gas processing plants; oil batteries; fractionation plants; and energy storage (gas and oil), to name just a few. And there are at least half a dozen midstream players of size in Canada whose footprints for such services overlap, especially regarding gathering pipes, fractionation, and gas processing. Two such companies, Pembina Pipeline Corp. and Inter Pipeline Ltd. announced June 1 that they had agreed to combine their operations in a deal that, if consummated, would create Canada’s largest energy midstream company. Although the transaction is described as a friendly merger, it is effectively an agreed-upon corporate takeover of Inter Pipeline by Pembina.

Before discussing what the combined entity might look like, let’s briefly touch on each company separately. Calgary, AB-based Pembina began life in the mid-1950s as an operator of oil and natural gas pipelines in, not surprisingly, the Pembina field of west-central Alberta. Over the decades, with expansions, acquisitions, and the transformation to a publicly traded company in 1998, Pembina has evolved into a big player. The company now operates a vast network of crude oil and NGL gathering pipelines across western Alberta and northeastern British Columbia (BC), as well as oil sands and ethane pipelines, and also natural gas transportation through its 50% ownership interests in the 1.7-Bcf/d Alliance Pipeline and the Ruby Pipeline, which connects the gas trading hubs of Opal, WY, and Malin, OR. Pembina also owns 6.1 Bcf/d of gas processing capacity, 354 Mb/d of fractionation capacity, and 32 MMbbl of storage capacity, plus its recently commissioned Prince Rupert LPG export terminal on BC’s coastline. Further, Pembina offers marketing and blending operations for producers and bulk marine exports through a terminal in Vancouver, BC, that it acquired from Kinder Morgan Canada in 2019.