Pembina Pipeline buys Nova Chemicals Alberta ethylene storage stake for $185M

CALGARY (CP) - Pembina Pipeline Income Fund is paying $185 million in cash to Nova Chemicals Corp. for a half-interest in the Fort Saskatchewan Ethylene Storage Limited Partnership. The partnership owns a large ethylene storage facility in five salt caverns northeast of Edmonton, described as "a key component of the petrochemical infrastructure industry" in Alberta. The acquisition is expected to close June 24, subject to a right of first refusal held by Dow Chemical Canada Inc., the operator of the facility and owner of the other 50 per cent interest. Pembina said the deal - "providing a diversification into the petrochemical business without commodity price risk" - will be funded from a $220-million issue of convertible unsecured subordinated debentures. The Fort Saskatchewan storage facility, in use since the late 1970s, charges a fixed fee per kilogram of contracted storage, independent of actual usage, and its customers cover operating costs and capital expenditures. "Accordingly, Pembina is not exposed to any fluctuations in the price or value of ethylene stored at the storage facility," the trust (TSX:PIF.UN) stated. The facility receives ethylene - the raw material for various plastics and other petrochemical products - from a system of pipelines, and stores it for use in Alberta chemical plants and for shipment by pipeline to Ontario. The caverns, in a salt bed 1,900 metres underground, have a capacity of 213,000 tonnes. "This transaction is a perfect fit for Pembina and will be accretive to distributions," stated Robert Michaleski, president and chief executive officer of Pembina. "The attractive, stable, long-term cash flow from ownership in the storage facility is ideally suited to the income fund." Nova Chemicals (TSX:NCX) is selling its stake in the Fort Saskatchewan facility "because owning it is not strategic to our business, and it is well valued," stated Jeffrey Lipton, president and CEO of the Pittsburgh-headquartered company. "The cash from this transaction further bolsters our liquidity and strengthens our balance sheet. Through a long-term contract, we have the same access to the facility that we had prior to the sale." Nova also said that as a result of the sale it is calling off a planned issue of notes worth $200 million. The Pembina Pipeline debentures, carrying a coupon of 7.35 per cent and maturing at the end of 2010, are convertible into trust units at $12.50 per unit. The units have a 52-week high and low of $12.03 and $9.75.