Houston-based pipeline operator Kinder Morgan Inc. announced a big bet Monday on the development of the Western Canadian oilfields — the purchase of Vancouver-based Terasen Inc. for $3.1 billion in stock and cash and the assumption of $2.5 billion in debt.
Terasen is the largest natural-gas operator in British Columbia and operates pipelines that connect Alberta, Canada with the Midwestern part of the U.S. and the Canadian West Coast. Kinder Morgan is paying a premium price for the company, almost 24 times Terasen’s estimated 2005 earnings.

Kinder Morgan is a huge pipeline operator, with about 35,000 miles of natural-gas and oil pipelines across North America and another 150 or so storage terminals. But this is its first foray into the quirky oil-sand deposits of Alberta, Canada that hold second-largest deposit of oil in the world. Producing and refining this type of crude oil is more expensive than producing and refining most other types of crude, but recent high oil prices suggest that the long-term price necessary for profitable extraction of the oil-sand deposits has finally been achieved.
The transaction reflects that a major player in the pipeline industry is betting that the current high prices will last long enough to sustain development of the fields. Kinder Morgan expects that oil-sands production will increase from one million barrels of oil a day to two million during the next decade, which in turn will generate a need for the midstream and pipelien infrastructure that Kinder Morgan plans to build. Midstream is the gathering and processing of oil and gas that takes place between production from rigs in the field and the large interstate pipelines that carry oil and gas to consumers.
The “Kinder” of Kinder-Morgan is Richard Kinder, the former president and chief operating officer of Enron Corp., who left in 1996 to establish Kinder Morgan after being passed over as Kenneth Lay’s replacement as Enron’s chief executive officer.