Kinder Morgan endorses Operation Alberta Freedom.

WSJ: Kinder Morgan To Buy Terasen, Tap Oil Sands

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Hoping to capitalize on a vast store of oil under development in western Canada, U.S. pipeline operator Kinder Morgan Inc. said it is purchasing Terasen Inc., of Vancouver, British Columbia, for $3.1 billion in stock and cash and the assumption of $2.5 billion in debt.

Houston-based Kinder Morgan operates 35,000 miles of natural-gas and oil pipelines across North America, as well as 145 storage terminals. But it lacks a significant presence in Alberta, Canada, where the world's second-largest deposit of oil rests locked in gritty oil-sands deposits.

Extracting and processing the molasses-like bitumen -- the type of crude oil found in oil sands -- is much more expensive than producing and refining conventional crude oil, but recent high oil prices have made bitumen projects more viable. Analysts have estimated that oil-sands developments need long-term prices averaging $25 a barrel or more for benchmark crude -- well below recent levels.

Kinder Morgan's move shows one of the pipeline industry's largest players expects elevated prices to sustain development. "For the last year or so we have thought that a great megatrend to be involved with was the oil sands," Kinder Morgan Chairman and Chief Executive Richard D. Kinder said in an interview yesterday.

Terasen operates pipelines linking Alberta with the U.S. Midwest and Canada's West Coast. It also is the largest natural-gas distributor in British Columbia.

The big opportunity in the deal, said Mr. Kinder, was the prospect of building pipelines, particularly as oil-sands production is expected to grow from one million barrels of oil a day to two million sometime in the next decade. "There's a tremendous need for midstream energy infrastructure," he said. Midstream is the gathering and processing of oil and gas, the link between rigs in the field and the large interstate pipelines that carry oil and gas to consumers.

While the U.S. is the main market for exports from the oil sands, China has shown growing interest. China state oil company PetroChina Co. in April agreed with Canadian pipeline company Enbridge Inc. to share the costs of building a $2 billion pipeline from Alberta to the West Coast.