Global investment firm KKR is exploring the sale of its 40% stake in Canadian midstream pipeline operator Pembina Gas Infrastructure (PGI), with Pembina Pipeline considered a strong contender to buy KKR’s share, according to recent reports. 

Four sources familiar with the matter told Reuters that the holding could be valued at approximately $7 billion. 

The New York-based private equity firm has been working with investment bankers at Scotiabank in recent weeks to gauge potential buyer interest for the stake in PGI, which owns and operates natural gas and natural gas liquids infrastructure across western Canada. 

However, the sources cautioned that a final sale is not guaranteed and spoke on condition of anonymity to discuss confidential information.

PGI was established in 2022 as a joint venture between KKR and Pembina Pipeline Corp., combining assets originally acquired by KKR in 2015. 

The entire division was valued at $11.4 billion at the time of the merger, with private equity funds typically looking to divest holdings after a period of 10 to 12 years.

With KKR evaluating potential buyers, Pembina Pipeline has emerged as a strong contender to acquire KKR’s stake, according to industry sources and analysts, along with institutional investors such as pension funds, The Globe and Mail reported on Sunday, October 5. 

RBC Capital Markets analyst Maurice Choy noted that while he would not “preclude the potential of Pembina exploring the purchase,” the company would likely approach the opportunity with an eye toward acquiring it at a price that would immediately boost its cash flow.

PGI holds one of the largest gas networks in the Montney and Duvernay shale formations, with a processing capacity of five billion cubic feet of gas per day. 

The company has recently been expanding its footprint, including a $420-million purchase in January of a 50% stake in Whitecap Resources Inc.'s gas processing assets in northwestern Alberta, alongside commitments for further expansion investments. KKR would be liable for its share of this planned spending.

Pembina continues to expand its natural gas operations throughout Western Canada, competing with other pipeline operators as power plant reliance on gas increases. 

The company is also co-developing the $5.9-billion Cedar LNG project in British Columbia and is entering Alberta’s data center market with natural gas-powered initiatives.