CALGARY, June 27, 2013 /PRNewswire/ - Pembina Pipeline Corporation ("Pembina" or the "Company") (TSX: PPL; NYSE: PBA) announced today that it has entered into an Engineering Support Agreement ("ESA") for diluent and blended bitumen transportation services associated with enhanced oil recovery developments in northeast Alberta owned by KKD Oil Sands Partnership ("KOSP"). KOSP is a partnership between Statoil Canada Ltd. ("Statoil"), as managing partner, and PTTEP Canada Ltd.
Concurrent with the work under the ESA, Pembina and Statoil will proceed with negotiations to conclude long-term agreements for the construction of and transportation service on a new greenfield pipeline system and associated infrastructure (the "Cornerstone Pipeline"). The Cornerstone Pipeline would transport diluent and blended bitumen between KOSP's upstream developments and the Edmonton area, including diluent connectivity at Pembina's Nexus Terminal ("PNT"). PNT interconnects Pembina's various terminalling infrastructure located in the Edmonton, Redwater and Fort Saskatchewan areas. It provides unparalleled access to the diverse crude oil grades produced in western Canada. In addition, it is connected to condensate grades transported on third-party and Pembina pipeline systems, including imported pipeline supplies. The access and connectivity of PNT provides the broadest array of diluent and diluent services available to Pembina's oil sands customers.
"This marks an important step forward in Pembina's oil sands and heavy oil transportation business," said Bob Michaleski, Pembina's Chief Executive Officer. "We continue to increase our access to diluent sources, both in the Edmonton, Alberta area via our Midstream business and through expansions of our Gas Services assets and Conventional Pipeline systems. This, combined with our ongoing major pipeline system construction experience, puts us in a strong position to support KOSP's oil sands development. The ESA allows us to lay the groundwork for a substantial infrastructure expansion, which, should it proceed, will provide Pembina with an exciting new oil sands platform that will generate long-term shareholder value."
Under the ESA, Pembina and KOSP have jointly agreed to spend up to approximately $35 million to conduct preliminary engineering work and begin associated stakeholder consultation in support of KOSP's transportation needs. At the conclusion of the work contemplated under the ESA, Pembina expects to be in a position to file the necessary applications to proceed with constructing the Cornerstone Pipeline. Subject to reaching commercial agreements, as well as obtaining regulatory and environmental approvals thereafter, Pembina expects the Cornerstone Pipeline could be in-service in mid-2017."Our preliminary capital cost estimate to undertake construction of a 320 kilometre 12" diluent and 24" blended bitumen pipeline system is approximately $850 million," said Michael Hantzsch, Vice President, Oil Sands & Heavy Oil. "This size of pipe would allow us to phase-in expansions down the road with incremental capital. We also may consider up-sizing the pipelines to 20" and 30", respectively, should the work conducted under the ESA indicate there are sufficient volumes." The Cornerstone Pipeline will be connected to KOSP's Cheecham Terminal and Pembina Midstream Limited Partnership ("PMLP"), a subsidiary of the Company, is expected to be a 50-percent shipper on the diluent pipeline alongside KOSP. The shippers on the pipeline system will have exclusive use of the terminal, enabling Pembina to offer additional value-added third-party services, including much needed new sources of condensate and synthetic crude oil diluent for use by area producers, as well as a number of options for blended product. PMLP will be working with regional customers to develop and contract for terminalling services, which will include diluent supply and blended bitumen transportation out of the area.