(Bloomberg) -- KKR & Co. and Alberta Investment Management Corp. agreed to buy a 65% stake in a C$6.6 billion ($5 billion) pipeline project that will bring Canadian natural gas to an export facility in British Columbia.
TC Energy Corp. sold the stake in a limited partnership that will operate the 670-kilometer (416-mile) Coastal GasLink Pipeline Project, according to a statement Thursday. Calgary-based TC Energy said it will retain the other 35% stake while keeping control of the general partnership, and record a C$600 million after-tax gain on the deal.
Coastal GasLink is currently under construction and will supply gas to LNG Canada, a planned $30 billion liquefied natural gas export facility led by Royal Dutch Shell Plc. The project will provide seaborne access for output from the prolific Montney shale formation in British Columbia and Alberta. The Montney is estimated to hold 449 trillion cubic feet of gas -- equivalent to about half the total reserves of Qatar. The first phase of the pipeline is targeted for completion in early 2023, according to AIMCo.
While the global LNG market is expanding at a rapid pace, prices have slumped amid a glut of the fuel. There’s also intense competition among various rival projects to build export terminals. Chevron Corp. said earlier this month it intends to sell its 50% stake in Kitimat, a rival LNG project in British Columbia. Chevron had adopted a go-slow approach with Kitimat, and LNG Canada is due to come online first.
“The Coastal GasLink pipeline represents a critical component of Western Canada’s ability to meaningfully realize the value of its vast natural gas resources, while supporting the coal-to-gas energy transition currently underway globally,” AIMCo Chief Executive Officer Kevin Uebelein said in a statement.
The agreement to acquire the stake in Coastal GasLink is the third big pipeline deal of the year for KKR. The private equity giant teamed up with with oil and gas pipeline owner SemGroup Corp. to buy Meritage Midstream ULC, an owner of pipelines, processing plants and terminals in the U.S. and Canada, for C$600 million in January. And in February, KKR and BlackRock Inc. agreed to invest $4 billion in Abu Dhabi National Oil Co.’s oil pipelines.
TC Energy, which earlier this year changed its name from TransCanada, has been selling assets to fund C$30 billion in projects that include expansion of its Canadian natural gas system and new pipes in Mexico.
The company is set to get upfront proceeds from the sale of the stake including the reimbursement of KKR and AIMCo’s proportionate share of the project costs incurred as of the closing date of the transaction, which is expected in the first half of 2020. The after-tax gain is more than the C$300 million to C$500 million that Wall Street had expected, analysts at Credit Suisse Group AG said in a note.
TC Energy also said 20 First Nations groups will be given an option to buy a 10% stake in Coastal GasLink on similar terms to Thursday’s deal.
The company’s U.S.-traded shares rose 1.3% to $53.69 at 12:26 p.m. in New York.
(Updates with expected gain in second paragraph, First Nations option in ninth)
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