Kinder Morgan To Sell Assets As Part Of KMI-El Paso Deal

KMP: Kinder Morgan Energy Partners logo
Kinder Morgan Energy Partners

Kinder Morgan Inc. (NYSE:KMI) had agreed to sell some of Kinder Morgan Energy Partners’ (NYSE:KMP) natural gas assets while receiving approval for the El Paso acquisition from the Federal Trade Commission (FTC) earlier this year, in compliance with the anti-trust laws. The acquisition is now complete but KMI agreed to some conditions with the deal. KMP earlier bought some of El Paso’s natural gas assets from KMI. (See Kinder Morgan Buys Tennessee Gas Pipeline And 50% Stake In El Paso Natural Gas) It now plans to sell its assets in the Rocky Mountains to Tallgrass Energy Partners. [1] While KMP’s debt may rise marginally due to asset sales and purchases, we do not expect the transactions to have a major impact on the company’s assets or value.

Kinder Morgan is a midstream energy company in North America with operations in the U.S. and Canada. We have a price estimate of $90 for KMP, implying a 10% premium to the current market price.

See our complete analysis for Kinder Morgan Partners here

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As part of the deal, KMP will receive $1.8 billion in cash and offload close to $1.5 billion in debt. The assets to be sold include the Kinder Morgan Interstate Gas Transmission, Trailblazer Pipeline Company, the Casper-Douglas natural gas processing and West Frenchie Draw treating facilities in Wyoming, and a 50% stake in the Rockies Express Pipeline. The transaction is expected to complete by the end of fourth quarter. We previously discussed the assets that KMP will have to sell after the KMI-El Paso merger (See What The KMI-El Paso Merger Means To KMP).

From the previous transaction with KMI, the company is likely to add more than $4.36 billion to debt and, from this transaction, it will add $1.8 billion to cash reserves and reduce $1.5 billion debt. In total, the transactions will result in the addition of more than $2.86 billion to debt and reduction of $1.8 billion in cash. So, we can assume that the company has spent more than $1 billion in all of the transactions together. However, for now, it’s difficult to forecast the company’s exact capitalization after all the transactions are complete. But we do expect KMP’s debt to rise slightly based on the quality of the incoming assets relative to the outgoing ones.

Through the incoming assets, especially the Tennessee Gas Pipeline, KMP will gain access to the Marcellus and Utica shale plays, which have seen dramatic increases in gas exploration activity. This will offer tremendous growth opportunities for KMP, going forward, but the overall impact on the company’s value is likely to be insignificant.

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  1. Kinder Morgan Selling Rocky Mountain Assets for $3.3B,, August 20, 2012 []