Government of Canada agrees to purchase Trans Mountain Pipeline System for $3.4 billion

The Government of Canada has agreed to purchase the Trans Mountain Pipeline system and expansion project (TMEP) from Kinder Morgan, Inc. (KMI) for approximately $3.4 billion in a deal expected to be finalized later this year, the company announced on Tuesday.

The government has agreed to fund ongoing TMEP planning and construction work under a federal government recourse credit that will guarantee TMEP advances until the transaction is finalized. The agreement, which is subject to Kinder Morgan Canada Limited (KML) shareholder and regulatory approvals, is expected to be finalized in the third or fourth quarter of 2018.

“We are pleased that KML and the government were able to reach agreement on a transaction that benefits the people of Canada, TMEP shippers and both KMI and KML shareholders,” Steve Kean, KMI CEO and KML chairman and CEO, said. “The outcome reached represents the best opportunity to complete TMEP and thereby realize the great economic benefits promised by that project.”

Despite losing earnings before interest, taxes, depreciation, and amortization (EBITDA) on the Trans Mountain System, Kean said expects to meet its expected 2018 distributable cash flow per share target.

“The transaction will also have a positive impact on our consolidated balance sheet, as we expect KMI’s approximately 70 percent share of after-tax proceeds to be approximately $2.0 billion,” he added. “Additionally, we continue to expect a 2018 annualized dividend of $0.80 per share, followed by $1.00 per share in 2019 and $1.25 per share in 2020, a growth rate of 25 percent annually. We will provide additional financial guidance after the transaction closes.”

Kean said he was confident that KMI would continue to find investment opportunities “across its unparalleled network of midstream assets” to drive future company growth. ‘

“Since mid-2015, we have added on average approximately $1.3 billion per year to our backlog,” Kean said. “During the last 12 months, we have added approximately $2.1 billion. Assuming that KMI can invest $2 billion per year at an average capital-to-Adjusted EBITDA multiple of approximately 7 times, versus the on-average 6.0 times for our backlog as of the first quarter of this year, those investments would yield KMI incremental annual EBITDA of over $300 million, representing greater than 4 percent annual EBITDA growth.”