Enbridge sells $3.1B interest in pipelines to Pembina

Key Takeaways:

• Enbridge has entered into a definitive agreement to sell its 50% interest in Alliance Pipeline and its 42.7% interest in Aux Sable.
• The interest will be sold to Pembina Pipeline Corporation for $3.1 billion.
• The sales proceeds will fund a portion of the strategic U.S. gas utilities acquisitions and be used for debt reduction.

The Whole Story:

Enbridge, a Calgary-based multinational pipeline and energy company, has entered into a definitive agreement to sell its 50% interest in Alliance Pipeline and its 42.7% interest in Aux Sable to Pembina Pipeline Corporation for a purchase price of $3.1 billion, including non-recourse debt at Alliance of approximately $0.3 billion, and subject to customary closing adjustments.

Alliance delivers liquids rich natural gas sourced in Northeast B.C., Northwest Alberta, and the Bakken region to Chicago. Aux Sable operates NGL extraction and fractionation facilities in both Canada and the U.S., with extraction rights on Alliance, offering connectivity to key U.S. NGL hubs.

Enbridge explained that the sale price represents a valuation of approximately 11 times projected 2024 EBITDA for Alliance and approximately 7 times for Aux Sable, which is in line with other commodity exposed businesses.

“We are pleased to continue our strong track record of surfacing value for shareholders through an ongoing capital recycling program. With this divestiture, we will have raised ~$14 billion since 2018 at attractive valuations,” said Pat Murray, EVP and chief financial officer. “Today’s transaction reinforces our disciplined approach to capital allocation. We remain committed to optimizing our portfolio, enhancing our industry leading cash flow profile by reducing commodity price exposure, bolstering our financial flexibility, and maintaining a strong balance sheet.”

As part of the transaction, Pembina, a long-standing partner on Alliance and the current operator of Aux Sable, will also assume operatorship of Alliance.

“The Alliance and Aux Sable system has been a reliable and profitable asset for Enbridge for many years. We would like to thank our high-quality team for their commitment to safety and reliability,” said Cynthia Hansen, EVP and president, gas transmission and midstream. 

Enbridge explained the divestiture represents an important element of its financing plan. The sales proceeds will fund a portion of the strategic U.S. gas utilities acquisitions and be used for debt reduction. Any remaining Acquisitions funding will be satisfied through utilizing any, or all, of the following financing programs available to Enbridge including its ongoing capital recycling program, issuance of further hybrid securities and bonds, reinstatement of its DRIP Program, or at-the-market equity issuances.   

The effective date of the transaction is January 1, 2024, with closing expected to occur in the first half of 2024, subject to the receipt of regulatory approvals and customary closing conditions. Enbridge’s 2024 financial guidance and near-term growth outlook through 2025 remain unchanged as a result of this announcement.

“Pembina is well positioned to benefit from growing volumes in the Western Canadian Sedimentary Basin driven by near term catalysts, including new West Coast LNG export capacity, expanded crude oil export capacity, as well as developments in the Alberta petrochemical industry,” said Scott Burrows, Pembina CEO. “The funding plan for the acquisition ensures Pembina’s continued financial flexibility and ability to fund future projects that respond to growing demand, while maintaining leverage within targeted ranges.”