Kinder Morgan Energy Partners, L.P. (KMP) on Thursday announced it has entered into a definitive agreement to pay approximately $855 million to Petrohawk Energy Corp. and assume approximately $65 million in debt for Petrohawk's 50 percent interest in KinderHawk Field Services (the natural gas gathering and treating services provider in the Haynesville Shale) and a 25 percent interest in Petrohawk's natural gas gathering and treating business in the Eagle Ford Shale. Additionally, KMP will invest approximately $220 million to build a new crude/condensate pipeline with a capacity of approximately 300,000 barrels per day (bpd) that will initially transport 50,000 bpd of condensate for Petrohawk from its production area in the Eagle Ford to the Houston Ship Channel.
"We are pleased to increase our footprint in the Eagle Ford and Haynesville shale plays by acquiring these fee-based assets from Petrohawk and building a crude/condensate pipeline," said Chairman and CEO Richard D. Kinder. "As we detailed at our recent investor conference, we expect opportunities in the prolific natural gas shales to be a primary driver of future growth at KMP. In addition to our Natural Gas business segment, which will benefit from the acquisition, our Products Pipelines segment will realize growth from the construction and operation of the new pipeline that will transport condensate and crude oil. We have executed a long-term anchor agreement with Petrohawk for 50,000 bpd of condensate, and this new pipeline offers the potential to ship significant incremental third-party volumes above that amount."
Upon closing, which is expected in the third quarter this year, KMP will own 100 percent of KinderHawk, the largest natural gas gathering and midstream business in the Haynesville Shale of northwest Louisiana. KinderHawk currently has more than 400 miles of pipeline with over 2 billion cubic feet (Bcf) per day of pipeline capacity and throughput of over 0.9 Bcf per day. Throughput is expected to reach 1.2 Bcf per day by year end.
In the Eagle Ford Shale in south Texas, KMP and Petrohawk will form a joint venture (KMP will own 25 percent and Petrohawk 75 percent) that will own two midstream gathering systems in and around Petrohawk's Hawkville and Black Hawk fields. The joint venture, which will have a life of lease dedication of Petrohawk's reserves, will provide Petrohawk and other area producers with gas and condensate gathering, treating and condensate stabilization services. Combined, the joint venture assets will consist of more than 280 miles of gas gathering pipelines and approximately 112 miles of condensate gathering lines to be in service by year end. KMP already has a significant presence in the Eagle Ford through its existing assets and its joint venture with Copano Energy, L.L.C. (Nasdaq: CPNO), which provides natural gas gathering, transportation, processing and fractionation services to various customers.
KMP's crude/condensate pipeline will consist of about 61 miles of new-build construction and 109 miles of existing natural gas pipeline that is being converted. Service to KMP's natural gas customers in the Houston Ship Channel will not be affected by this optimization of the company's Texas intrastate pipeline system. The pipeline will originate in Petrohawk's Black Hawk Field near Cuero, Texas, and extend to the Houston Ship Channel where it will initially deliver condensate to multiple terminaling facilities with access to local refineries, petrochemical plants and docks. The new pipeline is expected to be in service in the second quarter of 2012.
"We believe the crude/condensate pipeline will be very attractive to other Eagle Ford producers who are looking to get their products into the marketplace," Kinder said. "We are in the advanced stage of discussions with other producers, which are expected to result in substantial additional throughput agreements in the future." Those interested in obtaining more detailed information about the pipeline project can visit the Kinder Morgan web site or contact Don Lindley, vice president of business development for the company's Products Pipelines business segment, at (713) 369-8840 or Don_Lindley@kindermorgan.com.
The acquisition of Petrohawk's assets is expected to be accretive to cash available to unitholders upon closing, even including the assumption that KMP finances the transaction with about 60 percent equity. The general partner of KMP (Kinder Morgan, Inc. (KMI)) has agreed to forego a portion of its incremental incentive distributions in 2012 and 2013 of approximately $26 million and $4 million, respectively, to support this transaction. The new condensate pipeline will be accretive to cash available to unitholders when it begins service next year.
The transaction will be immediately accretive to KMI's cash available to pay dividends, even after foregoing a portion of the incremental incentive distributions this transaction is expected to produce. The increase in KMI's cash available to pay dividends (net of the amounts voluntarily foregone in 2012 and 2013) is expected to be approximately $6 million in 2011, $17 million in 2012 and $25 million in 2013, and is expected to grow thereafter.
From an accounting perspective, because KMP is paying less for the second half of the Haynesville assets than it paid for the first half, KMP will take a second quarter non-cash write down of the carrying value of the first half of the Haynesville assets estimated to be less than $200 million. From an economic perspective, KMP expects to earn an attractive return well in excess of the company's cost of capital on the total investment in the Haynesville and the other components of this transaction.
Kinder Morgan Energy Partners, L.P. is a leading pipeline transportation and energy storage company in North America. KMP owns an interest in or operates approximately 28,000 miles of pipelines and 180 terminals. Its pipelines transport natural gas, gasoline, crude oil, CO2 and other products, and its terminals store petroleum products and chemicals and handle such products as ethanol, coal, petroleum coke and steel. KMP is also the leading provider of CO2 for enhanced oil recovery projects in North America. One of the largest publicly traded pipeline limited partnerships in America, KMP has an enterprise value of over $33 billion. The general partner of KMP is owned by Kinder Morgan, Inc. Combined, KMI and KMP have an enterprise value of approximately $55 billion.
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