KKR, AIMCo to take 65% stake in C$6.6b Canada gas pipe

New York

KKR & Co and Alberta Investment Management Corp agreed to buy a 65 per cent stake in a C$6.6 billion (S$6.8 billion) pipeline project that will bring Canadian natural gas to an export facility in British Columbia.

TC Energy Corp sold the stake in a limited partnership that will operate the 670-km Coastal GasLink Pipeline Project, according to a statement on Thursday. Calgary-based TC Energy said it will retain the other 35 per cent stake while keeping control of the general partnership, and record a C$600 million after-tax gain on the deal.

Coastal GasLink is currently under construction and will supply gas to LNG Canada, a planned US$30 billion liquefied natural gas export facility led by Royal Dutch Shell Plc. The project will provide seaborne access for output from the prolific Montney shale formation in British Columbia and Alberta. The Montney is estimated to hold 449 trillion cubic feet of gas - equivalent to about half the total reserves of Qatar. The first phase of the pipeline is targeted for completion in early 2023, according to AIMCo.

While the global LNG market is expanding at a rapid pace, prices have slumped amid a glut of the fuel. There's also intense competition among various rival projects to build export terminals. Chevron Corp said earlier this month that it intends to sell its 50 per cent stake in Kitimat, a rival LNG project in British Columbia. Chevron had adopted a go-slow approach with Kitimat, and LNG Canada is due to come online first.

"The Coastal GasLink pipeline represents a critical component of Western Canada's ability to meaningfully realise the value of its vast natural gas resources, while supporting the coal-to-gas energy transition currently underway globally," AIMCo CEO Kevin Uebelein said in a statement.

The agreement to acquire the stake in Coastal GasLink is the third big pipeline deal of the year for KKR. The private equity giant teamed up with with oil and gas pipeline owner SemGroup Corp to buy Meritage Midstream ULC, an owner of pipelines, processing plants and terminals in the US and Canada, for C$600 million in January. And in February, KKR and BlackRock Inc agreed to invest US$4 billion in Abu Dhabi National Oil Co's oil pipelines.

TC Energy, which earlier this year changed its name from TransCanada, has been selling assets to fund C$30 billion in projects that include expansion of its Canadian natural gas system and new pipes in Mexico.

The company is set to get upfront proceeds from the sale of the stake including the reimbursement of KKR and AIMCo's proportionate share of the project costs incurred as at the closing date of the transaction, which is expected in the first half of 2020. BLOOMBERG