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Pembina's Valleyview truck and tank station, south of Valleyview, Alberta.

A Texas private equity firm is suing Pembina Pipeline Corp. for a half-billion dollars, arguing one of its investments was driven into receivership by the pipeline company.

Irving, Tex.-based NGP Energy Capital Management LLC is seeking at least $501-million in damages tied to its investment in defunct Mosaic Energy Ltd., according to a statement of claim filed in the Court of Queen's Bench of Alberta in Calgary.

NGP was one of Mosaic's largest shareholders when the company struck a deal with Pembina to transport and process gas from the company's growing operations in northwestern Alberta. Though it is not mentioned in the statement of claim, court documents show the private-equity firm was authorized to pursue the action against Pembina on Mosaic's behalf.

In court documents, Mosaic accused Pembina of gross negligence and said plant outages and high costs led to "catastrophic loss and damage which wholly undermined the viability of Mosaic as a going concern."

None of the allegations has been tested in court, and Pembina has not filed a statement of defence. However, the company late on Monday issued a statement calling the lawsuit "frivolous" and said it would vigorously defend itself. "Pembina does not expect this nuisance suit to have any financial or operational impact," the company said. Neither NGP nor a lawyer representing the firm responded to messages seeking comment.

The case shows that even longer-term investors with deep pockets have seen bets on Canadian energy companies sour as the industry slump approaches its fourth year.

Several oil and gas producers backed by private-equity firms that were tipped as potential candidates for initial public offerings have put those plans on hold, partly due to weak prices and pipeline constraints. Meanwhile, other closely held companies have buckled under the weight of hefty debt loads.

"The reality is private equity-backed companies still face the same headwinds that the public companies do, in terms of takeaway capacity and commodity prices," said Jeremy McCrea, an analyst at Raymond James Ltd. "Even though some of these plays look economic, some of the macro headwinds are difficult."

Calgary-based Mosaic owed banks roughly $142-million when it was placed into receivership last spring; it has since been carved up and sold to a trio of rivals. Mosaic said in its claim that, in the spring of 2014, it had been in talks with several so-called midstream companies regarding processing and transportation options for its operations in the Jayar area of northwest Alberta.

It scrapped those talks following an approach by Pembina, which said it could construct a pipeline for $35-million to $37-million while expanding a nearby gas plant "at little additional cost" to process higher-value liquids deemed fundamental to Mosaic's business and financing plans.

The companies signed an agreement later that year, after which Mosaic contends Pembina "grossly inflated" and included other charges that led to a "staggering" increase in the fees and costs for the services.

Mosaic said actual costs for the pipeline and plant expansion resulted in increased fees of more than $198-million over the term of the agreements, with monthly fees for the pipeline totalling $900,000, nearly three times higher than initially stated.

In October, 2015, Mosaic said Pembina improperly declared a force majeure at the expanded plant, citing mercury contamination. It did so again, in April, 2016, further curtailing deliveries of gas, according to the statement of claim.

A day later, it demanded prepayment of more than $7-million in fees as financial assurance, according to the claim. The outages and call for cash exacerbated a liquidity crunch for Mosaic, which said it was already "teetering on the brink of financial collapse owing largely to the aforesaid conduct of Pembina."

"As a result of the Pembina plant and pipeline being wholly unreliable and Pembina's refusal and inability to accept Mosaic's gas, Mosaic was rendered unable to obtain continued financing and to otherwise meet its financing covenants and liquidity requirements," Mosaic said.

The technology at an Alberta oil sands mine near Fort McMurray has evolved since it opened almost 50 years ago. Gary Bunio of Suncor Energy explains how 850-tonne bucketwheel trucks were once used to extract crude oil.

The Canadian Press

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SymbolName% changeLast
PPL-T
Pembina Pipeline Corp
+0.42%47.81
PBA-N
Pembina Pipeline Cor
+0.71%35.34

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