Alliance Pipeline is the holding company of a 3,848km long natural gas gathering and transmission pipeline system spanning Canada and the US, Aux Sable manages NGL extraction and fractionation facilities in both countries, while NRGreen Power operates waste heat recovery facilities in Canada

Alliance pipeline

Enbridge has signed a deal to sell its stakes in Alliance Pipeline, Aux Sable, and NRGreen Power to Pembina Pipeline. (Credit: Quinten de Graaf on Unsplash)

Enbridge has agreed to divest its stakes in the Alliance Pipeline, Aux Sable, and NRGreen Power businesses to its joint venture partner Pembina Pipeline for C$3.1bn ($2.3bn).

The consideration includes Alliance Pipeline’s non-recourse debt of around C$327m ($243m).

Alliance Pipeline is the holding company of a 3,848km long integrated natural gas gathering and transmission pipeline system that spans Canada and the US. The midstream system transports natural gas from the Western Canadian Sedimentary Basin and the Williston Basin to the Chicago market hub.

Enbridge holds a stake of 50% in Alliance Pipeline.

Aux Sable, in which Enbridge has a 42.7% stake, manages natural gas liquids (NGLs) extraction and fractionation facilities in both the US and Canada. These facilities, with extraction rights on Alliance Pipeline, provide connectivity to essential NGL hubs in the US.

NRGreen Power, on the other hand, operated five waste heat recovery facilities along the Alliance Pipeline in Canada, as of 31 July 2023. Enbridge has a 50% stake in this business through the Enbridge Income Fund.

According to Enbridge, the consideration reflects an appealing valuation, standing at approximately 11 times the projected 2024 EBITDA for Alliance Pipeline and around seven times for Aux Sable. This aligns with valuations seen in other businesses exposed to commodities, said the company.

Enbridge EVP and chief financial officer Pat Murray said: “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 ~C$14 billion since 2018 at attractive valuations.

“Today’s transaction reinforces our disciplined approach to capital allocation. We remain committed to optimising our portfolio, enhancing our industry leading cash flow profile by reducing commodity price exposure, bolstering our financial flexibility, and maintaining a strong balance sheet.”

The deal enables Pembina Pipeline to take full ownership of Alliance Pipeline, Aux Sable’s Canadian operations, and NRGreen. It will increase its stake in Aux Sable’s US operations to about 85.4% while enabling it to become the operator of all the three businesses.

The remaining 14.6% stake in Aux Sable US unit is held by Williams.

Pembina Pipeline president and CEO Scott Burrows said: “This is a rare opportunity to consolidate interests in these assets at an attractive valuation multiple, with cash flow accretion and significant synergy potential.

“Aligning with Pembina’s strategy, the Acquisition grows and strengthens our existing franchise and provides greater exposure to resilient end-use markets.”

The transaction is anticipated to conclude in the initial half of 2024. It is contingent upon standard closing conditions, which include obtaining necessary regulatory approvals.

National Bank Financial and Scotiabank served as financial advisors, while Torys acted as legal advisor to Enbridge in the transaction.

For Pembina Pipeline, TD Securities is the exclusive financial advisor, and Blake, Cassels & Graydon is providing legal counsel in connection with the acquisition.