Dec. 1 (Bloomberg) -- Plains All American Pipeline LP is buying BP Plc’s natural-gas liquids business in Canada for $1.67 billion in cash, expanding its footprint in Canada and gaining the opportunity to increase its U.S. operations.

The business includes 2,500 miles (4,000 kilometers) of pipelines, 21 million barrels of storage capacity and fractionation plants in Sarnia, Fort Saskatchewan and Empress. The deal’s completion is expected in the first half of 2012, BP said today in a statement.

The purchase adds to Plains’s 16,000 miles of pipeline and makes it one of the largest natural gas liquids service providers in the U.S., Chief Executive Officer Greg Armstrong said in a separate statement.

The location of the pipelines and plants will allow Plains to process gas from U.S. formations including the Bakken in North Dakota and the Marcellus Shale in Pennsylvania, Chief Operating Officer Harry Pefanis said on a conference call.

Liquids such as propane, butane and ethane, which are produced along with gas, have become important by-products for producers. Fractionation distills the hydrocarbons found in gas into separate products that are more valuable than the mix.

BP previously used the system to transport and process liquids from its own fields, Armstrong said on the call. In the future, Plains may “simply use the fractionators to process third-party volumes for a fee,” he said.

Natural Gas Liquids

Plains, based in Houston, moved into the natural gas liquids and liquefied petroleum gas business on a smaller scale a few years ago, Daniel Spears, a fund manager with Swank Capital LLC in Dallas, said in an e-mail today.

“This transaction allows Plains to dramatically increase its presence in the NGL and LPG segments,” said Spears, who helps manage $1.5 billion, including shares of Plains.

The sale brings BP closer to its goal of raising almost $40 billion through asset sales to help compensate for last year’s Gulf of Mexico spill, the worst in U.S. history. Chief Executive Officer Robert Dudley has overseen divestitures in Venezuela, Vietnam and the U.S. since taking over from Tony Hayward more than a year ago.

“The divestment program is positive for BP because it generates cash quickly,” said Jason Kenney, an oil and gas analyst at Banco Santander SA in Edinburgh. “This also lets BP focus on their higher-value upstream assets.”

BP shares fell 1.4 percent to close at 454.35 pence London. Plains rose 1.7 percent to $65.99 at 1:37 p.m. in New York.

New Terminals

Plains also announced today it is buying pipelines and terminals from Western Refining Inc. for $220 million. The acquisition gives Plains an 82-mile, 100,000-barrel a day pipeline that connects fields in southeast New Mexico with Plains’s existing Basin pipeline system. The purchase also included a 6.6 million barrel storage terminal for crude oil, refined products and LPG at an idle refinery in Yorktown, Virginia.

Plains will spend $200 million upgrading those and other recent acquisitions, the company said.

Armstrong made an unsolicited $1 billion cash bid for rival pipeline owner SemGroup Corp. in October, an offer SemGroup’s board rejected again last month.

BP Assets

BP’s assets in the U.S. and Canada produce 48 percent of all natural gas liquids in the world, according to the company’s website. The London-based oil producer extracts gas in western Canada, and processes it there and in southern Ontario. The Empress plant, one of the largest in North America, can process up to 4.6 billion cubic feet a day.

“Canada remains an important part of our portfolio of growth opportunities to meet North America’s energy needs,” Dudley said in the statement. About 450 BP employees will transfer to Plains in the deal.

BP sold other Canadian gas assets as part of a $7 billion deal with Apache Corp. last year. The company is also getting rid of half its U.S. refining capacity, including plants in Texas City, Texas, and Carson, California. It plans to complete the refinery sales by the end 2012.

The Gulf of Mexico spill left BP with a bill projected to reach $40 billion, and led to Hayward’s resignation. In July, a year after BP capped the flow, the U.S. government estimated that about 491 miles of coastline from Louisiana to Florida were contaminated by BP oil. The disaster killed 11 people, hurt 17, destroyed Transocean Ltd.’s $365 million Deepwater Horizon drilling rig and closed thousands of square miles of fishing grounds for months.

Credit Suisse Group AG acted as the sole financial adviser to BP in the transaction.

--With assistance from Matthew Campbell in Paris and Zachary R. Mider and Jim Polson in New York. Editors: Jessica Resnick-Ault, Jasmina Kelemen

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Mike Lee in Dallas at mlee326@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

From (enter your email)

To (enter up to 5 email addresses, separated by commas)

Notes

Max 250 characters