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SemGroup and KKR form JV

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World Pipelines,

SemGroup® Corporation and KKR have announced they have formed a joint venture (JV) to create a Canadian midstream infrastructure platform, SemCAMS Midstream ULC. The companies also announced that SemCAMS Midstream has entered into a definitive agreement to acquire Meritage Midstream ULC and its midstream infrastructure assets for CAN$600 million (US$449 million).

Under the terms of the JV, SemGroup will contribute the shares and assets of its Canadian subsidiary, SemCAMS, valued at CAN$1.15 billion (US$860 million), in exchange for CAN$615 million (US$460 million) cash proceeds and 51% common equity ownership in SemCAMS Midstream. KKR will contribute CAN$515 million (US$385 million) of cash in exchange for 49% of the common equity ownership. KKR will also contribute CAN$300 million (US$224 million) to acquire perpetual preferred equity. In addition, the joint venture will enter into a CAN$800 million (US$598 million) underwritten bank credit facility.

The transactions create a well-capitalised Canadian growth platform and expand SemGroup’s Montney footprint while deleveraging and strengthening its capital position. The JV positions SemCAMS Midstream for future growth opportunities.

Carlin G. Conner, Chief Executive Officer of SemGroup, 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 optimise 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. We are pleased to partner with KKR, an industry-leading investor with extensive experience in the energy sector.”

Brandon Freiman, Member and Head of North American Infrastructure at KKR, 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. We are thrilled to be partnering with SemGroup and the SemCAMS management team to build a nimble, well capitalised, customer-focused midstream business together in Western Canada in the coming years.”

Dave Gosse, President of SemCAMS Midstream, added, “Combining the SemCAMS and Meritage portfolios will diversify our customer base and broaden our service offerings to include oil batteries and liquids processing, while considerably expanding our gas processing capacity. Our contiguous asset mix, geographic proximity and operational leverage will allow us to optimise our system while creating increased reliability. This acquisition complements our competitive advantages, including our unique, flexible assets that now include additional infrastructure in a top quartile producing basin. Partnering with KKR will further enhance our ability to execute on our growth strategy and our focus on being the midstream provider of choice for area producers.”

SemCAMS Midstream – a high growth Canadian midstream platform

Upon close of the transaction, SemCAMS Midstream will acquire Meritage Midstream ULC, an operating portfolio of approximately 195 million ft3/d of natural gas processing capacity, 101 miles of gas gathering pipelines, 38 miles of oil gathering pipelines and 18 miles of emulsion and gas lift pipelines (Patterson Creek facilities) in the liquids-rich Montney play. Additionally, a 200 million ft3/d gas processing expansion is currently under construction and expected to be in service by 3Q19.

Development at Meritage is underpinned by a combination of area dedications and contracted minimum volume commitments with industry-leading producers. In addition, active drilling continues across these plays and there is a significant inventory of drilled, but uncompleted (DUC) wells, which supports the company’s near-term growth expectations.

SemCAMS Midstream will own approximately 900 million ft3/d of natural gas processing capacity between the existing SemCAMS and Meritage facilities. The Wapiti Plant is ahead of schedule and is currently being commissioned to be online by the end of January 2019. The Smoke Lake Plant and Pipestone Pipeline are on track for completion later this year. Total natural gas processing operational capacity will increase to approximately 1.3 billion ft3/d following completion of the SemCAMS and Meritage projects under construction. Potential growth projects include the proposed 280 million ft3/d Pipestone sour gas plant, 100 000 bpd Montney-to-Market liquids pipeline and potential expansions at the Patterson Creek facility. SemCAMS Midstream continues to evaluate other greenfield and brownfield development opportunities.

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