Kinder Morgan Closes JV Stake Buy

Zacks Equity Research
June 5, 2012

Kinder Morgan Energy Partners L.P. (KMP) has wrapped up its agreement with a private equity and venture capital firm, Kohlberg Kravis Roberts & Co. (KKR) to purchase the latter’s 50% interest in a joint-venture (:JV) for $300 million. The transaction is also expected to be immediately accretive to distributable cash flow at the partnership.

With the completion of this accord, Kinder Morgan now enjoys 100% right over the JV, which will be equally held by KMP and Kinder Morgan, Inc. (KMI). Notably, KMI owns the general partner interest and incentive distribution rights of Kinder Morgan Energy Partners.

The JV was originally formed by KKR and Houston-based El Paso Corp. in 2010. KKR had paid $125 million to secure a 50% stake in Altamont assets and Camino real gathering system.

The acquired properties include the Altamont possessions in the Uinta Basin in Utah comprising1,100 miles of pipeline infrastructure, natural-gas processing capacity of 60 million cubic feet per day (MMcf/d), natural-gas liquid-fractionation of 5,600 barrels per day (:BPD) and 450 well connections with producers. Additionally, Camino Real Gathering System in the Eagle Ford Shale in Texas consists of oil gathering capacity of 110,000 BPD together with gas gathering capacity of 150 MMcf/d.

In October last year, Kinder Morgan Inc. announced plans to acquire El Paso Corp. in a bid to create the largest natural gas pipeline system in North America. The deal will enhance steady cash flow generation and promise growth for the partnership, which plans to acquire a significant portion of EL Paso’s natural gas pipeline assets over the next few years at attractive prices. The merger also enables the partnership to be involved in liquefied natural gas (LNG) along the Gulf Coast, given the connectivity provided by the El Paso assets.

Houston-based Kinder Morgan Energy Partners L.P is the largest independent owner and operator of petroleum product pipelines in the U.S. Its pipelines transport natural gas, refined petroleum products, crude oil, carbon dioxide and other products, while its terminals store petroleum products and chemicals and handle bulk materials such as coal and petroleum coke.

Both Kinder Morgan Energy Partners LP and Kinder Morgan Inc. maintain Zacks #3 Ranks, which is equivalent to a short-term Hold rating.

We are maintaining our long-term Neutral recommendation on Kinder Morgan Energy Partners LP and Kinder Morgan Inc.

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Read the Full Research Report on KKR

Read the Full Research Report on KMI

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