SemGroup, an Oklahoma-based midstream company, and global investment firm KKR have formed a joint venture (JV) to create a Canadian midstream infrastructure platform, SemCAMS Midstream.
As per the JV terms, SemGroup will contribute the shares and assets of its Canadian subsidiary SemCAMS, valued at C$1.15bn ($860m). In return, the US firm will get C$615m ($460m) cash proceeds and a 51% stake in SemCAMS Midstream.
KKR, on its part, will contribute C$515m ($385m) of cash to buy the remaining 49% stake in the JV. The investment firm will also contribute C$300m ($224m) to acquire perpetual preferred equity.
The newly formed SemCAMS Midstream has signed a deal to acquire Meritage Midstream and its midstream infrastructure assets for C$600m ($449m).
The operating portfolio of Meritage Midstream comprises nearly 195 MMcf/d of natural gas processing capacity, 162.5km of gas gathering pipelines, 61km of oil gathering pipelines and 30km of emulsion and gas lift pipelines in the Montney play in Canada.
The company is also undertaking a 200 MMcf/d gas processing expansion, which is slated to be in service by the third quarter of this year.
The acquisition is anticipated to be completed in the first quarter of 2019, subject to receipt of customary regulatory approvals and meeting of closing conditions.
Post acquisition, SemCAMS Midstream will own around 900 MMcf/d of natural gas processing capacity.
SemGroup CEO Carlin Conner said: “This transaction captures an attractive valuation for our SemCAMS business and accelerates our Canadian strategy in one of North America’s premier energy basins.
“The acquisition of Meritage enables SemCAMS Midstream to expand and optimize its portfolio of assets, broaden its service offerings and create a more attractive Canadian growth platform. In addition, it delivers on our commitment to strengthen our balance sheet.”
KKR North American Infrastructure member and head Brandon Freiman said: “We have been an active investor in the Canadian energy space for the last decade and are big believers in the Montney as a growing, low-cost natural gas play that is relevant on a global scale.
“The combination of the highly complementary SemCAMS and Meritage businesses creates a leading midstream platform in the core of the Alberta Montney that is well-positioned to serve its growing infrastructure needs.”
SemCAMS Midstream will also enter into a C$800m ($598m) underwritten bank credit facility, which will be used to fund a part of its first acquisition, future growth projects and current working capital requirements.