DBRS Comments on Pembina’s Announcement to Acquire Kakwa Assets and the 6-18 Facility

DBRS Limited (DBRS) today notes that Pembina Pipeline Corporation (Pembina or the Company; rated BBB with a Stable trend by DBRS) has announced its agreement to acquire the Kakwa Assets and the 6-18 Facility (Acquisition Assets) from Paramount Resources, Inc. (Paramount) for total consideration of $556 million (the Acquisition). The purchase price will be funded by net proceeds from the Company's concurrently announced $300 million bought deal common share financing and existing capacity under the $2.0 billion revolving credit facility. The Acquisition is expected to close in Q2 2016, pending approval under the Competition Act (Canada) and other customary closing conditions. Based on DBRS’s initial review of the Acquisition Assets and Pembina’s financing plan, DBRS believes that the Acquisition will not have a material impact on the Company’s credit profile.

The Acquisition Assets include the following:

KAKWA ASSETS
The Kakwa assets include a sour natural gas processing facility and associated gas-gathering pipelines, sales gas pipelines and future disposal wells. The facility comprises (1) a 200 million cubic feet per day (mmcf/d) deep-cut train, (2) a 50 mmcf/d shallow-cut train, (3) 22,500 barrels per day of condensate stabilization and (4) an amine processing train to facilitate sour gas processing. The shallow-cut and deep-cut facilities were placed into service in Q1 2012 and August 2014, respectively. DBRS notes that the Kakwa Assets represent the only sour gas processing facility west of the Smoky River within 50 kilometres (km). As part of the Acquisition, Pembina and Paramount will enter into a 20-year take-or-pay contract (ToP) for up to 200 mmcf/d.

6-18 FACILITY
Pembina will acquire all of the preliminary engineering studies, licenses and surface rights from Paramount in support of a new sour shallow-cut facility to be located approximately seven km from the Company’s Cutbank Complex. Upon Paramount’s election or sufficient third-party demand and subject to certain conditions, Pembina will construct a natural gas processing facility at 6-18. If built, commercial provisions underlying the 6-18 Facility are expected to be similar to the Kakwa Assets and include a substantial ToP commitment.

DBRS views the impact of the Acquisition on Pembina’s business risk profile as slightly negative, reflecting Paramount’s much weaker credit profile when compared with most of the Company’s other counterparties; however, the Acquisition Assets will account for less than 5% of Pembina’s total assets (as of December 31, 2015) and will not expose the Company to direct commodity price risk or volume risk.

Based on Pembina’s financing plan, DBRS does not expect any material impact on the Company’s credit metrics. Pembina’s credit ratios are currently very solid and should remain solid for the current rating category following the Acquisition.
Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Pipeline and Diversified Energy Industry and Preferred Share and Hybrid Criteria for Corporate Issuers, which can be found on our website under Methodologies.

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