Pipelines change hands as Rockies energy heats up
NEW YORK (MarketWatch) --
As part of Kinder Morgan Inc.'s (KMI) purchase of El Paso Corp., which carried a value of $38 billion when the deal was initially announced in October 2011, regulators demanded certain divestitures. As El Paso was Kinder Morgan's major competitor in the Rocky Mountains, the Federal Trade Commission ordered the sale of several properties in the region.
"Without the pipeline divestitures, the combined firm would dominate natural-gas transportation options in five Rockies production areas," the FTC said May 1.
The divestiture, valued at $3.3 billion, was announced Monday. See Energy Stocks for more on the deal.
"We would prefer to keep all of these assets, but we anticipated divestiture of certain assets in the Rockies would be necessary," Chairman and CEO Richard Kinder said in a statement.
For a pipeline firm that makes money by carrying fuel to market, higher production means business growth down the road -- and the Rocky Mountains offer that.
Natural-gas production in the region is expected to increase by 12% to 5.51 trillion cubic feet by 2019, up from 4.93 trillion cubic feet in 2011, according to projections by the Energy Information Administration.
Even more lucrative, Rocky Mountain oil production is seen growing 18% to 1.11 million barrels of oil a day in 2019 from 940,000 barrels of oil a day in 2011, according to government forecasts.
With an eye on growth, Tallgrass Energy Partners, the outfit partly owned by private-equity firm Kelso & Co., plans to grow the pipeline business in the Rockies that it's buying from Kinder Morgan.
"We will be exploring some promising growth projects on the east end of Rockies Express to maximize the potential of this state-of-the-art pipeline," Tallgrass said.
RBC Capital Markets analyst Elvira Scotto reiterated her outperform rating on Kinder Morgan.
"While total consideration of $3.3 billion came in below our expectation of $3.6 billion, we believe it is in line with the range of expectations," Scotto said in a note to clients. "Moreover, it removes a layer of uncertainty and enables Kinder Morgan management to focus on its growth."
As part of the closing of its El Paso deal, Kinder Morgan agreed to sell its 50% interest in the Rockies Express Pipeline, Kinder Morgan Interstate Gas Transmission, Trailblazer Pipeline Company, the Casper-Douglas natural-gas processing and the West Frenchie Draw treatment facilities in Wyoming.
In one sign of bullish activity in the Rocky Mountains among energy producers,