Encana Corporation says it is selling its natural gas pipeline and processing assets in northeast British Columbia to a new 50/50 limited partnership of New York’s investment firm Kohlberg Kravis Roberts & Co. L.P. (KKR) and Calgary-based midstream provider Veresen Inc. for $412 million plus costs accrued in 2015.
When announcing its $2.8 billion capital program for 2015, the company described the sale in general terms.
Reneé Zemljak, Executive Vice-President, Midstream, Marketing & Fundamentals with Encana, said:
“We are pleased to expand our relationship with Veresen, and now KKR, with what we believe is one of western Canada’s most innovative midstream service structures.”
“We are unlocking value from our midstream infrastructure that we can redirect to strategic upstream opportunities while ensuring reliable, efficient midstream service to support our ongoing operations and development in the Montney.”
After the deal is completed, Encana can focus on drilling while the buyers concentrate on transportation and expansion of the infrastructure, Ms. Zemljak explained.
Veresen President and CEO Don Althoff said on a conference call on Monday that his company’s partnership with Kohlberg Kravis Roberts was reached following Encana’s request for proposals during the summer.
Mr. Althoff said:
“We really do think one of the keys to our strategy is to build a platform in some of the best regions and then begin to connect those assets and then begin to optimize that.”
“We think there’s a remarkable amount of growth opportunity in this region and it will keep us quite busy for the foreseeable future. This is really where we want to grow the business, with KKR as our partner.”
Encana will receive gathering and compression services from Veresen, and the CRP (Cutbank Ridge Partnership) under a fee-for-service agreement in a dedicated area of mutual interest within the Montney.
According to Encana, Veresen is committing up to C$5 billion for midstream expansion to support the Montney development, a strategic growth asset for Encana.
CRP and Encana plan to invest between US$600 million and US$700 million in the plan in 2015. CRP is a partnership between Encana and Cutbank Dawson Gas Resources Ltd., a subsidiary of Mitsubishi Corporation.