Good afternoon, ladies and gentlemen. Welcome to the TransCanada Conference Call. I would like to turn the meeting over to Mr. David Mineta, Vice President, Investor Relations. Please go ahead, Mr.
Mineta.
Thanks very much, and good afternoon, everyone. We're pleased you could join us today to hear more about our agreement to acquire Columbia Pipeline Group. Please note that a slide presentation will accompany our remarks. A copy of the presentation is available on our website at transcanada.com. It can be found in the Investors section under the heading Events and Presentations.
In accordance with securities laws, we will not hold a question and answer period today. In connection with our receipts offering, this presentation does not contain all the information related to that offering. Also, I'd like to remind you that our remarks today will include forward looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by TransCanada with Canadian Securities Regulators and with the U. S.
Securities and Exchange Commission. And finally, I'd also like to point out that during this presentation, we'll refer to certain non GAAP measures such as adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA. These measures do not have any standardized meaning under GAAP, and as a result, they may not be comparable to similar measures presented by other entities. With that, I'd like to introduce our 2 speakers this afternoon. With me today to discuss the acquisition
are Russ Girling, President and Chief Executive Officer of TransCanada and Don Marchand, our Executive Vice President of Corporate Development and Chief Financial Officer. With that, I'll turn the call over to Russ for his comments. Thanks, David, and good afternoon, everyone, and thank you very much for joining us today. I'm very excited to announce that TransCanada has entered into an agreement to acquire Columbia Pipeline Group for US13 $1,000,000,000 including US2.8 billion dollars in assumed debt. Under the terms of the all cash deal, unanimously approved by the Boards of Directors of both companies, Columbia shareholders will receive $25.50 per common share, an 11% premium to Columbia's closing stock price on March 16, 2016, dollars 23 per share and 32% premium above the volume weighted average price over the last 30 days.
This acquisition represents a rare opportunity to invest in an extensive, competitively positioned growing network of regulated natural gas pipeline and storage assets in Marcellus and Utica regions of the U. S. The assets complement our existing North American footprint, which together will create a 91,000 kilometer or 57,000 mile natural gas pipeline system connecting North America's fastest growing supply basins to premium markets across the continent. In addition, we will be well positioned to transport North America's abundant natural gas supply to liquefied natural gas terminals for export to international markets. Colombia is currently advancing USD7.3 billion or about CAD9.6 billion of commercially secured projects, bringing our combined near term growth portfolio to CAD23 1,000,000,000 The acquisition is expected to be accretive to earnings per share in the 1st full year of operation or ownership and thereafter as $23,000,000,000 of combined near term commercially secured projects enter service.
The combined portfolio of attractive growth opportunities that I just mentioned, along with approximately $2,500,000 of targeted cost, revenue and financing benefits is expected to support and may augment our 8% to 10% expected annual dividend growth through 2020 that we have previously communicated to the market. Consistent with our strategy, the addition of Columbia Gas' transmission network to our portfolio will improve the stability and predictability of our earnings and cash flow with 92% of our 2015 adjusted pro form a EBITDA coming from regulated and long term contracted assets. The acquisition will be financed in a manner that maintains our financial strength and flexibility. Just moments ago, we announced a $4,200,000,000 bought deal issue of subscription receipts to fund a portion of the purchase price. Holders of those subscription receipts will be entitled to a dividend equivalent while they are outstanding.
Looking forward, the remainder of the acquisition is expected to be funded through the monetization of our U. S. Northeast Merchant Power business as well as a minority interest in our Mexico Natural Gas Pipeline business. In the interim, we have put in place $13,000,000,000 in committed acquisition credit facilities with a syndicate of lenders. Any draws on these facilities will be repaid with proceeds from the equity issuance and asset monetization.
The transaction is expected to close in the second half of twenty sixteen following Columbia shareholder approval as well as normal course regulatory approvals, including compliance with the Hart Scott Rodino Antitrust Improvements Act. This is an extremely rare opportunity, as I said, to acquire premium natural gas pipeline and storage assets in one of North America's fastest growing supply basins. Colombia's assets and growth plan fits very well with our overall strategy of owning and operating highly contracted and or regulated assets that generate stable and predictable earnings and cash flow streams. The Columbia Natural Gas Transmission and Storage Platform sits directly on top of the fastest growing areas of the Marcellus and Utica Basins and competitively serves customers in the Northeast, Midwest and Mid Atlantic regions of the United States. Almost all of Columbia's current revenues are generated under firm contracts with the weighted average remaining life of approximately 5 years.
As I mentioned earlier, Colombia currently has $7,300,000,000 of commercially secured growth projects, which are largely expected to be in service by 2018 with certain additional modernization initiatives to be completed by 2021. Don will provide you a few more details on those projects in just a moment. With this acquisition, we believe that we have secured an incumbency position in North America's 2 fastest growing natural gas basins, the Western Canadian Sedimentary Basin and now the Appalachian Basin. We believe that these two basins have the lowest development and production costs and the highest growth prospects in North America. We believe that will lead to additional material growth opportunities not only through the end of the decade but for very many more years to come.
This next slide highlights Columbia's main pipeline systems. Overall, Columbia operates a 15,000 mile or 24,000 kilometer network of interstate natural gas pipelines extending from New York to the Gulf of Mexico, including a broad footprint in the Marcellus and Utica gas shale plays that I mentioned. It also operates one of the nation's largest underground natural gas storage systems. The key pipeline is the 11,300 mile or 18,000 kilometer Columbia gas system, which transports approximately 3,900,000,000 cubic feet a day of natural gas, reaching customers in 10 states and serving hundreds of communities in the U. S.
Northeast, Midwest and Mid Atlantic regions. This system also includes 286,000,000,000 cubic feet of natural gas storage capacity. In addition, the 2nd largest asset in the group is the Columbia Gulf Pipeline. This is a 3,300 mile or 5,400 kilometer pipeline that historically has transported U. S.
Gulf Coast production north to Columbia's Midwest markets. This pipeline is currently transitioning from south to north to one in which we'll transport natural gas from the Marcellus and Utica to the U. S. Gulf Coast to meet rapidly developing demand. This reversal and expansion, supported by long term contracts, offers a relatively inexpensive path to transport gas to the Gulf Coast.
The 3rd asset in the group is the Millennium Pipeline, which transports Pennsylvania gas 2 50 miles to New York City. Columbia owns 47.5 percent of this pipeline. In 2015, almost all of Columbia's revenues were generated under firm revenue contracts. When combined with our existing natural gas transmission system, TransCanada will become one of North America's largest regulated natural gas transmission businesses with 91,000 kilometers or almost 57,000 miles of natural gas pipelines and 664,000,000,000 cubic feet a day of storage capacity. Colombia's business is very complementary to that of TransCanada.
We will have a broad geographic footprint connecting North America's largest supply basins to the premium markets in North America. This transaction will further strengthen the predictability and stability of our EBITDA. Using pro form a 2015 adjusted EBITDA, this transaction would increase the percentage that comes from regulated and contracted assets to approximately 92%. Looking forward, we expect that the monetization of our U. S.
Northeast power business will serve to increase that percentage even further. This significantly de risks our business profile and will reinforce the predictability and stability of our underlying EBITDA going forward. Turning to growth. Marcellus and Utica production has grown and is expected to continue to grow well into the future. Since 2010, production has grown from under 5,000,000,000 cubic feet a day to just under 20,000,000,000 cubic feet a day in 2015.
According to IHS CIRA, natural gas production in these regions is anticipated to grow to above 30,000,000,000 cubic feet a day by the end of 2020. Growth in that production will lead to many opportunities for well positioned and well capitalized companies like TransCanada. As I mentioned, Columbia has a number of commercially secured projects underway already across its footprint to transport this growing supply to market. I'll now turn the call over to Don Marchand to discuss those projects in a bit more detail as well as our combined industry leading capital program. Don?
Thanks Russ and good afternoon everyone. As previously noted, Colombia is currently advancing US7.3 billion dollars of commercially secured projects. Dollars 5,600,000,000 of this growth of this is growth opportunities underpinned by long term contracts with durations between 10 20 years. $4,200,000,000 is on the Columbia Gas System designed to receive and deliver gas within the Northeast U. S.
The remaining $1,400,000,000 is on the Columbia to deliver natural gas to growing demand markets on the U. S. Gulf Coast. The majority of these projects are within existing infrastructure corridors, are more cost competitive and are expected by management to have less execution risk than comparable greenfield projects and all are expected to enter service by 2018. In addition to these growth projects, Columbia has US1.7 billion dollars of system modernization investment spend to be completed by 2021.
These initiatives were developed to improve pipeline integrity and reliability within its existing network and provide both cost recovery and return on investment through customer agreements. This next slide highlights the industry leading combined capital program that will be in place after the acquisition closes. Overall, TransCanada will have approximately $23,000,000,000 in commercially secured near term projects. Approximately 80% of those projects will be on the natural gas side of business. The remainder is made up of Alberta Regional Liquids Pipelines and 2 power opportunities in Ontario.
Virtually all are underpinned by long term contracts. In addition, we continue to advance over $45,000,000,000 of longer term projects, including Energy East, Keystone XL, as well as our 2 West Coast LNG pipelines. We expect this substantial capital program will generate significant growth in earnings and cash flow over time. As Russ mentioned, portfolio management is expected to play an important role in the permanent financing of the acquisition. We plan to monetize our U.
S. Northeast Merchant Power assets, including our Ravenswood facility in New York, our hydro assets in New England, the Kibbe wind facility in Maine, Ocean State Power in Rhode Island and our Ironwood plant in Pennsylvania. This will remove the majority of merchant power exposure from our portfolio and will serve to further de risk our business. Advisors have been engaged and this process is already underway. Further, we plan to monetize a minority interest in our Mexican natural gas pipeline business.
Advisor selection is underway and we have received a number of inbound indications of interest in these long term contracted U. S. Dollar revenue stream assets. Proceeds from these sales will be used to repay any amounts drawn under our asset sale bridge facility. Before Russ returns to wrap up the call, I would like to summarize the financial highlights of this transaction.
First, the Columbia acquisition is expected to be accretive to earnings per share in the 1st full year of ownership and thereafter as the combined $23,000,000,000 in near term commercially secured projects enter service. We are also targeting approximately $250,000,000 in annual cost revenue and financing benefits. The addition of Columbia's gas transmission network to our portfolio will increase our 2015 adjusted pro form a EBITDA from regulated and long term contracted assets to approximately 92%. The planned monetization of our U. S.
Northeast power assets will serve to further increase that percentage and enhance the stability and predictability of our revenue streams. These transformational initiatives will support and may augment the 8% to 10% expected annual dividend growth through 20 20 that we have communicated in the past. Our acquisition funding program is designed to be consistent with our current financial strength and flexibility. Future growth is expected to be funded in a similar manner in order to ensure access to capital markets on competitive terms through all stages of the economic cycle. I'll now turn the call back over to Russ.
Thanks, Don. In closing, I'd like to leave you with these key takeaways. The acquisition of Columbia Pipeline Group is a rare attractive opportunity that will create one of North America's largest regulated natural gas transmission businesses. Our new platform in the Marcellus and Utica is complementary to our existing regulated natural gas pipeline and storage business. The location of these pipeline assets adds to our basin diversification and our access to large markets across North America.
We are very excited to have reached this agreement with Colombia and we are confident that the acquisition will lead to both near term and long term growth opportunities as production in the Appalachia region continues to grow. Combined with the planned asset monetizations, our company will be one of North America's leading energy infrastructure companies with earnings and cash flow underpinned by regulated cost of service businesses and long term contracted assets. Finally, we believe that these changes will support and may even augment our dividend growth rate of 8% to 10% through 2020, building on our track record of delivering enduring shareholder value. Thank you again for taking the time this afternoon to join the call and your continued support of our company. And with that, I'll turn the call back over to
Thanks, Russ, and thanks to all of you for participating today. We very much appreciate your interest in TransCanada, and we look forward to talking to you soon. Bye for now.
Thank you. The conference call has now ended. Please disconnect your line at this time, and we thank you for your participation.