Energy Transfer to sell 51% stake in Energy Transfer Canada to Pembina, KKR

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Energy Transfer (NYSE:ET) agrees to sell its 51% stake in Energy Transfer Canada to a joint venture which includes participation by Pembina Pipeline (NYSE:PBA) and global infrastructure funds managed by KKR at a valuation of ~C$1.6B (US$1.3B) including debt.

Energy Transfer expects to see cash proceeds of ~C$340M (US$270M) from the sale, subject to purchase price adjustments.

The company says the deal allows it to "divest its high-quality Canadian assets at an attractive valuation to further deleverage its balance sheet and redeploy capital within its U.S. footprint."

Pembina Pipeline and KKR say they will combine their western Canadian natural gas processing assets into a single, new joint venture entity, which will include the Energy Transfer Canada business.

Pembina will serve as the JV's operator and manager, which also will include Pembina's field-based natural gas processing assets and the Veresen Midstream business; the company says the ascribed value of all the transactions total ~C$11.4B (US$9B).

The poor safety record of the Energy Transfer organization appears to be largest risk to the North Dakota and Illinois permits that have been revoked while the Dakota Access Pipeline is operating, Long Player writes in a bearish analysis posted recently on Seeking Alpha.

Comments

[CapVandal]

The fact they always resisted selling less strategic assets was always troubling to me. Glad to see this. I'm mostly out, but have some options. And like this.

[metal27]

According to the Venture Global LNG website, their Calcasiu Pass LNG facility went from FID to LNG production in 29 months. I believe that was greenfield, so ET should at least be able to match that time. See venturegloballng.com/...

[Pablomike]

@metal27
Calcasieu Pass is very different from what is proposed at Lake Charles. CP is building 18 tiny trains with .626MPTA capacity each, while LC is proposing just three trains with 5.5MPTA each. Bigger trains require much more time to construct.

[Sanmartinoclimber]

@Pablomike wouldnt that model work at lake charles? Seems like venture global is moving product very quickly...I wonder who is backing them?

[houtex]

@Sanmartinoclimber
Stonepeak

[eemoon]

Why hasn’t Munchin’s comments (still underway as I type) doubled the price of ET units?

Before you ask, there is no links yet to the ongoing conversation.

[houtex]

@eemoon
Whose comments? Sitting US senator or prior treasury secretary? Someone else?

[ckarabin]

@eemoon What did he say then, or is this just a tease. Remember the old kid taunt of "I know something you don't know!? LOL

[Pablomike]

@houtex @eemoon
Does he mean Joe Manchin and his call to ban Russian oil?? Not sure how that benefits ET

[eemoon]

Has anybody noticed the breakout from the Oct 4 level? Clearing and holding $10.22 is verified on the 1 year chart. I expect strong resistance around $10.60. When the price holds above that for one trading session, $10.80+ is imminent.

[bayousaint]

@eemoon Small thinking. I don’t know why ET is not $12 right now. This divestiture showing the company thinking more strategically, not kingdom building random acquisitions but divesting/monetizing assets that don’t fit a long term strategy. I like it.

[eemoon]

@bayousaint

“Small thinking” has negative connotations. Perhaps a poor choice of words? I’m simply providing my interpretation of Technical Analysis and calculating buy/sell points.

Note that I’m projecting prices in days/weeks; not months and years. I rarely post hour/day TA information on SA simply because it changes so fast (in seconds). Might as well predict the exact Market indices at the daily close.

If I had to throw a dart at the board of speculation, which I’m absolutely doing right now, I say energy demand will be higher 2 years from now and ET will increase 75% to 180% from today’s close. That is what my charts and research are telling me.

[The Cardinal]

@eemoon 75-180%?

Wow

[brazil2016]

Any views on how much ET pipes would benefit if Russian imports are banned ? Has to mean more shale/drilling given where prices are

[Diamond-Hands]

@brazil2016 $ET has been eying the creation of a new LNG export facility for years. If Europe pivots away from Russian natural gas toward U.S. natural gas, $ET's dream could come true.

Of course, such a facility would take years to build and would cost billions, so it's not immediately accretive to EBITDA--quite the opposite.

[Pablomike]

@Diamond-Hands
Granholm is sitting on 6 LNG applications right now and refuses to even evaluate them let alone approve. ET needs a change in the White House before they'll get your dream come true!!

[ephud]

@Pablomike

Who is Granholm?

[BSBA Econ]

ET's troubles are over. The left has found common cause fighting Russia to remove green curbs on US energy production so we can make up any gas and oil supply losses due to sanctions on Russia.

[breaking even]

@BSBA Econ left will not change. U r dreaming 🛌

[The Cardinal]

@az d-back correct

[Hamilton3]

@BSBA Econ Unfair to blame ET's issues on government. Building a pipeline across Dakota without preapproval; environmental issues that they winked at with potential fines of $500,000 now; poor oversight of projects; it's ET management blunders that have created the problems. If you are going to play the blame game, at least, honor the facts. And ET's concerns are not over!!!!!!!!!!

[Wall59]

Sure Tex, do your research. Great assets including a midstream. I’ve made a great return the last 10 years!

[Invest In Texas]

@Wall59 I held BAM and BIP years ago. Point is they are asset managers, not a Major Midstream Company.

[Wall59]

Way to go ET! You should learn from the success of other companies doing this like BIP or BIPC. Buy Low and Sell High...keep it up!

[Invest In Texas]

@Wall59 HUH ? Like BIP? 🤣🤣🤣

[DKG77]

@Wall59 Why would anyone want to own BIP?

[Wall59]

@DKG77 Actually I loaded up on BIPC on its first day of trading about 2 years ago. Already doubled in price!

[Veritas1010]

Long $PBA.

[Jim Kimmelman]

I hope they buy back $270 million in shares. They reduced leverage by selling debt to Pembina.

[The Cardinal]

@Jim Kimmelman Nah, continue to pay down debt. Get to the low end as quickly as possible. Reassures the market.

[ephud]

@cardinal933

I agree. Pay down debt.

[Jim Kimmelman]

@cardinal933 saves more money to retire shares than it saves in interest. This move already reduced debt.

[PianoCat]

ET finally selling something. Good news. If ET can sell everything it owns at fair market value ET should be worth $20+.

[Texasthumper]

@PianoCat I like you a lot piano cat but if ET sells all their assets ET is no longer a company. However they could pay a one time $20 dividend.

[charbert]

@PianoCat should be a lot more than $20. If they sell for what Warren Buffett bought Dominions pipeline assets for. I don’t remember where I saw the analysis but it would value ET over $30/share at Buffets purchase price

[The Cardinal]

@charbert Pipelines are not fungible. That type of comparison is meaningless.

[john18]

If the debt of this subsidiary is consolidated, that means ET can reduce net debt by more than $1 billion on its consolidated balance sheet. Net debt is meant to be total debt minus cash.

[houtex]

@john18
Close. $400 million of debt was on the BS at the end of the year. If they apply the $270 to debt reduction that gets close to $700. Not a billion or more.

[john18]

@houtex
If the debt is consolidated, then the consolidated balance sheet also shows the partners' shares of debt.

[houtex]

@john18
“Partners’ share” isn’t really a way to describe non recourse debt but yeah, the whole debt amount is on the balance sheet. That’s my point. There’s not a billion of it. Nor is there $731 million of it.

[yblarr]

EVEN IN THE BUSINESS WORLD, YOU GET OFFERS YOU CAN'T REFUSE!

[Riskman]

In connection with the transaction, and subject to approval and declaration by its Board of Directors, Pembina also intends to increase its common share dividend upon closing by $0.0075 per share per month, or 3.6 percent. The increase reflects the immediate cash flow accretion from creation of the joint venture and recognizes Pembina's long stranding track record of a sustainable, growing dividend.

[SelmaPete]

@Riskman : this is from another article...love PBA

Approximately $700 million of cash proceeds to Pembina expected upon closing, with approximately $550 million expected to be deployed for debt repayment and approximately $150 million for additional common share repurchases.
Efficiencies from the combination of three platforms, enabling cost reductions and an enhanced customer service offering.
Increases Pembina's ownership in Veresen Midstream and exposure to increasing LNG-driven volume growth in NEBC in a capital efficient manner.
Mid to high single digit accretion to Pembina's adjusted cash flow from operating activities per share1 over the next five years.
Upon closing, Pembina intends to increase its common share dividend by $0.0075 per share per month, or 3.6 percent.

[Riskman]

@SelmaPete I like your copy better!

[CJB123]

I guess all those fines ET got that ET said didn't matter because they were small compared to their income do after all. ET finds it necessary to shed income producing assets to help make up the shortfall.

[Steve Fischer]

@CJB123 Don't guess. They are separate issues- those fines matter as well as the legal costs- their reputation suffers and it can also hurt with regulatory issues in the future.

[Invest In Texas]

@Steve Fischer A lot of those fines are paid by the contractor(s). Precision Pipeline is one of the largest pipeline contractors in the country and does work for just about all major midstream companies. They are a subsidiary of MasTec.

www.precisionpipelinellc.com/...

https://www.mastec.com/

[john18]

@Invest In Texas
The contractors' fines may be paid by insurance.

[Ed Cwedward]

Its always a good move to get out of Canada.

[1sinedo]

@Ed Cwedward It is often wise to disengage from an arrangement you don't control.

[asg01]

@Ed Cwedward
Especially now when the current govt. pays its bills for disregarding the Canadian Charter and destroying faith in govt. as an institution. The Ottawa Idiots will pay the price.

[HaroldL]

@1sinedo ET is selling a 51% interest in ET Canada. Wouldn't it have controlled that entity?

[eemoon]

I wonder how much LP paid for that last paragraph by Sir Surran?

[Invest In Texas]

@eemoon They're trying to get him page views due to lack of participation on his bs.

[asg01]

@Invest In Texas
Lp truly is a lost soul. I wonder if more than a handful click on anything associated with him.

[HaroldL]

@asg01 There's always going to be a large number of disgruntled current and former unitholders, as well as people who hate fossil fuels. LP plays well with these people. He has found a profitable niche. We just have to leave him and his followers behind. It won't hurt ET's unit price anymore. ET is on its way up.

[eemoon]

I’m enjoying these positive and unanticipated moves by ET management. Mr. Market will soon catch on to this recent change in debt reduction philosophy and reward unit holders handsomely. That’s my bet.

[CJB123]

@eemoon that would be true if it weren't for the constant legal trouble / fines that ET has to pay out for shoddy work.

[asg01]

@CJB123
Tsk, tsk, tsk. The "constant [negligible] legal trouble" is a cost of doing business. Put your money elsewhere, say Fakebook......it'll be safer. 🤣

[Robo 707]

1.3 B total worth (270 cash) looks like another 300 off of debt

[rob123]

@Robo 707 Assuming that is what they actually do with the cash! Cash has a strange way of causing an itch in the pocket and making a disappearing act at short/no notice.

[Robo 707]

@rob123 What 270+300=570ish 1.3B total @ 51% Does that help

[houtex]

@Robo 707
Balance sheet debt reduction is about $400 million plus $250 of preferred.

[Username Already Taken]

Hate to see a good business sold but hope they know better than I …

[CJB123]

@Username Already Taken This sale wouldn't have been necessary if it weren't for all the past and future(?) fines that ET is always having to pay out.

[Dodilligence]

@CJB123 Please tell me more and post more about fines. Super interesting!

[Invest In Texas]

@Dodilligence He's clueless