Kinder Morgan’s Buying Spree: SouthTex Treaters

by Kyle St. Romain
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KMP
Kinder Morgan Partners
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A couple of weeks ago, Kinder Morgan Inc., General Partner and parent of Kinder Morgan Energy Partners (NYSE:KMP), announced its plans to acquire El Paso Pipeline Company for $38 billion in cash, stock and assumed debt. On 24 October 2011, Kinder Morgan announced another agreement it reached to purchase SouthTex Treaters for $155 million. SouthTex gives Kinder Morgan additional exposure in the United States’ rapidly growing natural gas market, particularly in the popular shale regions.

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SouthTex Adds to Natural Gas Capabilities

SouthTex is involved in the design, construction and operation of natural gas treatment plants. Treatment plants are essential to the production of natural gas as they remove unwanted impurities from the raw gas such as CO2, Hydrogen Sulfide and moisture. The deal should be finalized later this year.

Through this acquisition, Kinder Morgan expands its existing gas treatment capabilities and gives its customers greater flexibility for their processing needs. Notably, SouthTex gives Kinder Morgan the ability to build its own plants, giving its customers the option to either purchase or lease a treatment plant.

Given Kinder Morgan’s strong balance sheet and recent appetite for acquisitions, the purchase of SouthTex further solidifies Kinder Morgan’s position as the preeminent midstream energy services company in North America. Analysts expect the deal to close quickly and immediately add profits to Kinder Morgan’s bottom line, increasing the Master Limited Partnership’s quarterly required distribution.

Overall, the shares of Kinder Morgan companies rose on the announcement of this deal, in line with general market sentiment; however, shares of KMI outpaced the gains seen in shares of both KMP and KMR.

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