MEG Energy is selling its 50% interest in an oil-sands pipeline and an oil storage facility in western Canada for $1.61 billion to Wolf Midstream, Kallanish Energy reports.
Calgary-based MEG sold a 50% interest in the 207-mile Access Pipeline in Alberta and its 900,000-barrel Stonefell oil storage facility near Edmonton, in a move to reduce its debt and fund an expansion.
Wolf, backed by the Canada Pension Plan Investment Board, paid $1.4 billion for the pipeline stake and $210 million for the Stonefell facility. Calgary-based Wolf will own the entire pipeline. It had acquired its 50% pipeline stake in 2016 when it paid Devon Energy $1.4 billion.
The pipeline runs from MEG’s Christina Lake Project near Fort McMurray in northern Alberta, to the Edmonton hub. It transports diluted bitumen and condensate blended with heavy crude oil.
Under the deal, MEG will receive $1.52 billion in cash and a credit of $90 million toward future pipeline expansions, whereby MEG will not pay incremental tolls to fund such expansions.
The two companies agreed to a 30-year pact for MEG to move its products via the pipeline.
MEG said it expects to cover the additional transportation costs in the future as it moves more product and reduces interest costs, said president and CEO Bill McCaffrey, in a statement.
His company said it will repay about $1.23 billion in debt and will use about $275 million to fund its Phase 2B oil sands expansion at Christina Lake.
It will boost its 2018 capital spending from $510 million to $700 million to fund 70% of that expansion in 2018, MEG said.