Kinder Morgan Merges Assets In $70-Billion Deal

The newly consolidated Kinder Morgan will be able to move aggressively to acquire rivals and to expand its existing 129,000 km of pipelines.

Kinder Morgan (NYSE:KMI), the biggest pipeline company in North America, said Sunday it is consolidating its vast oil-and-gas pipeline empire into a single company, in a $44 billion deal amid investor worries about the operations' growth prospects.

The company, which encompasses a large network of oil and gas pipelines across the United States and Canada, said it would acquire its three associated companies and reorganize as one corporation based in Houston.

The deal is the largest energy industry merger since Exxon bought Mobil in 1999, and it will make Kinder Morgan the third-biggest energy company in the U.S., after Exxon and Chevron.

“This transaction dramatically simplifies the Kinder Morgan story, by transitioning from four separately traded equity securities today to one security going forward, and by eliminating the incentive distribution rights and structural subordination of debt,” Chairman and CEO Richard D. Kinder said in a statement.

“Further, we believe that KMI will be a valuable acquisition currency and have a significantly lower hurdle for accretive investments in new energy infrastructure,” he added.

The newly consolidated Kinder Morgan, with an estimated value of about $140 billion — $100 billion of market value and $40 billion of debt —is expected to move aggressively to acquire rivals and to expand its existing 129,000 km. of pipelines.

Under the deal’s terms, Kinder Morgan is acquiring its two related M.L.P.s — Kinder Morgan Energy Partners and El Paso Pipeline Partners — and a third related company, Kinder Morgan Management, for $71 billion.

Fracking-fuelled boom

The move highlights the vast demand for oil and gas infrastructure, especially in the north east of the U.S. Producers have tapped massive new oil and natural gas reserves in shale deposits, yet they need pipelines that can transport surging oil and gas production from there to refineries.

U.S. energy production has soared since 2009 thanks to the increasing use of hydraulic fracturing, or fracking, and other technologies that have made it possible to tap energy trapped in shale deposits.

Oil output has increased 55%, or nearly three million barrels a day, over the period, while natural-gas production has risen 23%, much of it in parts of the country without sufficient existing pipelines.

By. Cecilia Jamasmie of Mining.com