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SemCAMS Midstream and Keyera to build Canadian liquids pipeline system

Published by , Editorial Assistant
World Pipelines,

SemCAMS Midstream ULC (‘SemCAMS Midstream’) has announced it has entered into an asset joint venture with Keyera Corp. to construct a natural gas liquids (‘NGL’) and condensate pipeline system to connect the liquids-rich Montney and Duvernay production areas of northwestern Alberta to the fractionation and condensate hubs in Fort Saskatchewan, Alberta.

This pipeline system provides producers additional and alternative transportation solutions to meet growing production and is supported by long-term contracts with significant take-or-pay commitments.

This joint venture brings together two producer-focused midstream companies to develop a world-class pipeline and replaces SemCAMS Midstream’s previously announced Montney to Market (M2M) pipeline. SemCAMS Midstream and Keyera will be equal partners on the project, with Keyera acting as operator. Both partners will form a commercial committee to ensure collaboration as they pursue additional volume commitments.

“We are pleased to partner with Keyera on this critically needed transportation solution for customers,” said Dave Gosse, President of SemCAMS Midstream. “As Alberta’s low-cost natural gas plays continue to develop, customers are searching for competitive options to move NGLs and condensates from the production and processing areas in field locations to the Fort Saskatchewan market. Our well-capitalised and expanding midstream infrastructure platform makes SemCAMS Midstream the logical partner on this project, further advancing our Canadian growth strategy.”

SemCAMS Midstream will now have liquids take-away capabilities, introducing another component to the midstream value chain. This project strengthens SemCAMS Midstream's role as a leading Canadian integrated midstream company, providing an improved ability to offer comprehensive infrastructure solutions for producers across a broader capture area.

“SemGroup is excited to have this opportunity to partner with KKR and support SemCAMS' participation in this highly strategic project,” said SemGroup Chief Executive Officer Carlin Conner. “Together SemCAMS joint venture owners will utilise an optimal funding arrangement for all parties. The addition of this asset to SemCAMS’ growing midstream portfolio is critical to providing our customers the full suite of service offerings they desire.”

“KKR is pleased to support SemCAMS’ exciting partnership with Keyera on this critical infrastructure solution for Montney producers,” said Brandon Freiman, Member and Head of North American Infrastructure at KKR. “The combined midstream footprints of SemCAMS and Keyera along the route of the pipeline reinforces the strategic logic of this project for both parties. The project also aligns well with our investment thesis around building an integrated service provider in the high-growth Alberta Montney corridor.”

Highly contracted growth opportunity

The project is supported by multiple long-term firm service agreements, averaging 14 years length, representing 60% of initial pipeline capacity. The firm-service agreements are underpinned by 75% take-or-pay commitments as well as specific facility and area dedications. Additionally, there are ongoing discussions with additional producers for incremental volumes. Furthermore, the pipeline can be cost-effectively expanded with additional pump stations to meet future capacity requirements. This project is expected to provide SemCAMS Midstream with additional long-term, fee-for-service revenues.

The current scope of the project includes a 16 in. condensate pipeline and a 12 in. NGL pipeline. These pipelines are designed to be connected to third-party facilities as well as Keyera and SemCAMS Midstream-owned facilities. Keyera and SemCAMS Midstream expect to have nine gas plants operating in the area by 2022, with access to approximately 2.25 billion ft3/d of gas processing and 130 000 bpd of condensate handling capability in Canada's premier liquids-rich fairway stretching from Pipestone to Kaybob. The project is targeted to become operational in the first half of 2022, with the majority of the capital spending expected to occur during the second half of 2020 and into 2021.

Pipeline funding secured

Total cost for the project is estimated at CAN$1.3 billion. SemCAMS Midstream's 50% portion of the construction cost will be financed with a combination of funds from SemGroup, KKR Global Infrastructure Investors III and affiliated investment vehicles, internally generated cash flow from SemCAMS Midstream, and fully-underwritten financing at SemCAMS Midstream, consisting of a CAN$300 million (US$223million) KAPS construction facility which is being provided by a syndicate of banks led by TD Securities and BMO Capital Markets. This facility will be drawn as construction begins in mid-2020, subject to regulatory approvals. SemCAMS Midstream intends to continue maintaining a prudent capital structure before, during and after construction and expects the project to materially improve SemCAMS Midstream's overall credit profile.

Strategic benefits for SemCAMS Midstream

SemCAMS Midstream was formed in the first quarter of 2019 and continues to expand its footprint in the Montney and Duvernay, capturing attractive opportunities to serve a growing customer base. SemCAMS Midstream owns and operates approximately 1.1 billion ft3/d of natural gas processing capacity, increasing to approximately 1.3 billion ft3/d later this year with the expected completion of its Patterson Creek Plant expansion and Smoke Lake Plant.

This pipeline will further enhance SemCAMS Midstream's asset footprint and vertical integration, providing multiple strategic benefits which enhance SemCAMS Midstream's growth profile:

  • Increased weighting from long-term, take-or-pay revenue.
  • Enhanced customer and geographic diversification.
  • New greenfield and brownfield investment opportunities, including additional processing investments, new NGL infrastructure, and other value-add offerings for producers in the field and in Fort Saskatchewan.

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