Pembina Pipeline Corporation (PBA Quick QuotePBA - Free Report) , a leading Canadian midstream company, announced that it will purchase Enbridge Inc.'s (ENB Quick QuoteENB - Free Report) remaining interests in the Alliance Pipeline, Aux Sable pipelines and NRGreen joint ventures for C$3.1 billion.

This deal will see Pembina take full ownership of its critical assets, strengthening its position as a leader in transporting natural gas across North America. This strategic move is also expected to significantly boost Pembina's growth and profitability in the years to come.

Let's delve into the details of this expansive acquisition and its potential impacts.

Background

The Alliance Pipeline is a critical natural gas transportation system that operates across Canada and the United States. Spanning approximately 3,888 kilometers (2,414 miles), it carries natural gas from western Canada to the Chicago market. The Aux Sable processing plant, located in Illinois, is strategically connected to the Alliance Pipeline and is responsible for processing natural gas liquids (NGL) from the pipeline.

The Acquisition

Per the terms of the agreement, Pembina is set to purchase Enbridge's 50% interest in Alliance, Aux Sable (42.7% interest) and NRGreen joint ventures. Additionally, PBA will assume C$327 million of Enbridge's debt in the Alliance venture. This acquisition will enable Pembina to take full ownership of these pivotal assets, providing enhanced control and operational flexibility.

Significance and Benefits

Increased Stake in Gas Transportation: By acquiring Enbridge's interests, PBA will expand its footprint in the natural gas transportation sector. This transaction will significantly bolster the company's overall gas logistics capabilities and extend its reach into key markets.

Streamlined Operations: Combining ownership of the Alliance Pipeline and Aux Sable processing plant will allow Pembina to streamline operations, leading to improved efficiency, cost optimization, and better integration of the gas transportation and processing value chain.

Diversification and Revenue Growth: The acquisition aligns with Pembina's long-term growth strategy, enabling diversification of revenue streams and reduced exposure to any single commodity. It positions the company as a strong player in serving North American energy markets, driving potential revenue growth and stable cash flow.

Enhanced Infrastructure for Energy Transition: As the world transitions toward cleaner energy sources, natural gas and NGLs continue to play a crucial role. Pembina's expanded ownership of vital infrastructure, such as the Alliance Pipeline, positions the company to support the efficient transportation and processing of natural gas and NGLs, contributing to the energy transition efforts.

Regulatory Approvals and Closing

The acquisition is subject to customary closing conditions, along with necessary regulatory approvals. Pembina expects the transaction to close in the first half of 2024.

Conclusion

PBA’s acquisition of Enbridge's interests in the Alliance Pipeline and Aux Sable processing plant marks a milestone in the energy sector. This deal not only strengthens Pembina's position as a key player in gas transportation and processing but also supports its long-term growth strategy and provides infrastructure for the evolving energy landscape.

Zacks Rank and Key Picks

Currently, both PBA and ENB carry a Zacks Rank #3 (Hold).

Investors interested in the energy sector might look at some better-ranked stocks like The Williams Companies (WMB Quick QuoteWMB - Free Report) , sporting a Zacks Rank #1 (Strong Buy), and Liberty Energy Inc. (LBRT Quick QuoteLBRT - Free Report) , carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Williams Companies is valued at $41.86 billion. The company currently pays a dividend of $1.79 per share, or 5.20%, on an annual basis.