SemGroup seeks to carve out bigger niche in Canada with $500-million investment

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U.S.-based SemGroup Corp. is sharpening its focus on Canada and could sell its Mexico business as the company seeks to take advantage of an expected shale boom in Alberta and British Columbia, its chief executive officer says.

SemGroup, known for transporting, storage and processing oil and gas, is investing $500-million in Western Canada through 2019 and may consider acquisitions to expand its footprint, CEO Carlin Conner said in an interview at its Calgary offices.

The growing interest in Canada is notable in a segment of the industry that has seen major companies look south to the United States for growth through a succession of multibillion-dollar deals.

This year, Altagas Ltd. snapped up utility WGL Holdings Inc. and Ontario's Hydro One Ltd. bought Washington state-based Avista Corp. Those deals followed large U.S. acquisitions by TransCanada Corp. and Enbridge Inc. last year.

"Those big firms, for them to appreciably grow, the lack of Canadian opportunities was real," Mr. Conner said.

"We're smaller, right? Investing $500-million, for us, that moves the needle."

SemGroup has put storage assets in Britain on the block and is making plans to jettison its asphalt business in Mexico as it looks to carve out a bigger niche in Canada.

It's a corner of the energy world Mr. Conner says has been overshadowed by red-hot exploration regions such as the Permian in West Texas, even though producers have made big strides chopping costs and boosting productivity.

SemGroup, based in Tulsa, Okla., acquired its Canadian assets a decade ago, including a web of pipelines and four plants with combined capacity to process 1.5 billion cubic feet of natural gas a day.

This year, it bought a major oil terminal on the U.S. Gulf Coast in a $2.1-billion (U.S.) deal, a move that puts the company at the centre of expanding U.S. exports of crude.

The company is tailoring its Canadian operations for expected production growth in shale deposits rich in natural gas and other petroleum liquids. Construction is under way on a $350-million (Canadian) plant near Grand Prairie, Alta., that is expected to start up in 2019.

Mr. Conner said the facility is supported by long-term contracts and strong demand in Alberta for condensate. The ultralight oil is used to dilute oil sands bitumen and typically fetches a premium to U.S. crude as a result of local supply shortages.

That has fuelled drilling activity in Western Canada even as Alberta wholesale natural-gas prices have languished at multiyear lows, offering some reprieve for an industry that has been in contraction mode for nearly four years.

Canadian producers also stand to benefit indirectly from the ability of U.S. rivals to export excess production, which would have previously made its way by rail to Alberta, depressing prices, he said. Restrictions on U.S. crude exports were lifted in 2015.

"That's a huge piece of this, and that's really just in the last two years that that's been made available," he said.

SemGroup is also eyeing potential acquisitions as producers consider infrastructure sales to fund drilling, said David Gosse, vice-president and general manager of the Canadian operations, known as SemCams.

Such transactions have become more common as equity markets remain off-limits for energy deals, forcing producers to seek alternative financing. That includes parting with highly-valued processing capacity.

SemGroup was among bidders last year for infrastructure sold by Paramount Resources Ltd. Paramount struck a deal with Pembina Pipeline Corp.

He said Cenovus Energy Inc.'s Deep Basin plants would also be of interest, should the company decide to sell them. The latter has mulled such a move to help fund its megadeal for most of ConocoPhillips Co.'s oil sands and natural-gas assets.

"We're in the queue, if you will, for when they're ready to make decisions on what they want to do with those," Mr. Gosse said.