Plains to Sell Alberta NGL Assets; We Model Supply Growth for Canada

The Daley Note: December 20, 2022

Plains All American (PAA) will sell its 21% ownership interest in Keyera Fort Saskatchewan back to Keyera (KEY) for $270 million ($365 million CAD).  We see growth ahead for NGLs from Western Canada, and midstream companies are starting to jockey for position to catch this wave. 

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PAA has an important position at Fort Saskatchewan, AB, which is one of the key aggregation hubs for NGLs in Western Canada. The facility being sold is one of several that contain ~17.3 MMb/d of fractionation capacity (net to PAA's interest) and ~16 storage caverns.

Based on data from East Daley’s PAA Blueprint Financial Model, we value the transaction between 8-9x EBITDA for the trailing twelve months (TTM). We see the sale as a win for PAA, which will use the proceeds to continue to de-lever its balance sheet and potentially reinvest in expansions and improvements to its remaining consolidated interest in the Fort Saskatchewan facilities.

East Daley currently forecasts NGL production out of the Western Canada Sedimentary Basin (WCSB) to grow by ~115 Mboe/d through 2027, resulting in more volumes through fractionators, pipelines, and storage assets. The expected start of LNG exports from the Shell Canada LNG project near Kitimat, BC will lead to more demand for WCSB natural gas  and increased recovery of NGLs.

In a sign that midstream companies are starting to prepare for this growth, Pembina Pipeline (PBA), a key player in Western Canada processing and fractionation, recently took a final investment decision (FID) on a 55 Mb/d expansion to its Redwater fractionation complex, a direct competitor to PAA and KEY. – AJ O’ Donnell Tickers: KEY, PAA, PBA.