CNQ/PONY Deal Further Strengthens AltaGas' Counterparty ListOUR TAKE: Positive. We see AltaGas as a large winner of the recent round of energy producer M&A in northeast BC. Today's announcement that Canadian Natural Resources (CNQ) will acquire Painted Pony (PONY) further strengthens AltaGas' customer list. PONY is a large customer at AltaGas' Townsend gas plant and other infrastructure in the region. Investors had been concerned with PONY's ability to meet its commitments, which should not be a problem for CNQ. This announcement replaces one of the weaker counterparties in the basin with one of the strongest. KEY POINTS We see PONY representing ~4% of AltaGas' EBITDA. We view Painted Pony (covered by Cameron Bean) as a riskier counterparty given its leverage and its role as a key backer of the Townsend plant. It was also the key marketer of its liquids. In terms of exposure, we see Painted Pony representing ~4% of AltaGas’ consolidated EBITDA, if we include the volumes through North Pine and the Ridley Island Export Terminal. The acquisition will transfer these commitments to one of the strongest energy producers in western Canada. Counterparty exposure – looking better. Prior to the latest round of energy producer M&A, we saw ~80% of AltaGas’ counterparties being either investment grade or one of its utility customers. But with this CNQ/PONY deal (~4% of AltaGas' EBITDA) and the recent ConocoPhillips (investment grade)/Kelt deal (link) (3%-4% of AltaGas' EBITDA), we see this increasing to over 85%. The remaining 15% that is non-investment grade would largely be its energy producer customers including Tourmaline (TOU-T), Black Swan (private), and Birchcliff (BIR-T). The strength of AltaGas' counterparties had previously been a concern for investors, one we expect will largely dissipate
Scotiabank