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Kinder Morgan, Inc. (NYSE: KMI) closed on its $1.815 billion acquisition of NextEra Energy Partners' South Texas assets, including the NET Mexico pipeline, Eagle Ford Midstream, and a 50% interest in Dos Caminos LLC. The acquisition integrates well with KMI's existing South Texas footprint and extends direct connectivity in the lean area of the Eagle Ford Basin, allowing greater access to low-nitrogen natural gas supply for LNG customers. KMI expects the acquisition to be accretive to its preliminary 2024 budget guidance, with the purchase price equal to 8.6 times the 2024 EBITDA and a long-term investment-to-EBITDA multiple of approximately 7.0-7.5 times, inclusive of commercial synergies.
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Insights
The acquisition by Kinder Morgan (KMI) of NextEra Energy Partners’ South Texas assets represents a strategic expansion that is financially significant. The deal's valuation at 8.6 times the 2024 EBITDA may seem high compared to the industry average of 6-8 times EBITDA for pipeline transactions. However, considering the long-term investment-to-EBITDA multiple of approximately 7.0-7.5 times, which includes commercial synergies, the acquisition appears to be reasonably priced within the context of the current market.
For stakeholders, the immediate increase in the Net Debt-to-Adjusted EBITDA ratio by 0.1 times suggests a conservative approach to leverage. This is further supported by the high percentage of take-or-pay contracts, which provide a stable cash flow and reduce the risk of volume-based revenue fluctuations. The long average contract length of over 8 years also offers visibility into future earnings, which is favorable for investor confidence.
Considering KMI's existing operations in South Texas, the integration of these assets is expected to create operational efficiencies and enhance connectivity to key markets. This could lead to improved margins and increased competitive advantage, potentially driving long-term shareholder value.
The integration of the South Texas assets into Kinder Morgan's portfolio is poised to capitalize on the growing demand from LNG, industrial, Mexico export and power generation markets. The lean natural gas from the Eagle Ford Basin, characterized by low nitrogen content, is increasingly sought after by LNG customers due to stricter environmental regulations and the push for cleaner burning fuels.
Furthermore, the acquisition's emphasis on large diameter, high-pressure natural gas pipelines enhances Kinder Morgan's capacity to transport significant volumes efficiently, which is critical as the energy sector moves toward more extensive network integration to meet rising cross-border demand, particularly with Mexico.
The strategic positioning of the acquired assets also suggests potential for Kinder Morgan to become a more dominant player in the region, leveraging the increased footprint to negotiate better terms with suppliers and customers alike and possibly influencing regional natural gas prices in the long run.
In the context of mergers and acquisitions, Kinder Morgan's purchase of NextEra Energy Partners’ assets involves a complex transaction with several legal considerations. The 90% interest in the NET Mexico pipeline, co-owned with a PEMEX affiliate and the shared ownership of Dos Caminos LLC with Howard Energy Partners (HEP) will require careful management of joint venture agreements and cross-border regulatory compliance, especially given the international nature of the deal involving U.S.-Mexico energy trade.
The highly contracted nature of these assets, predominantly through take-or-pay contracts, will necessitate rigorous contract management to ensure that terms are met and potential disputes are minimized. Legal expertise is crucial for navigating the regulatory landscape, particularly with regard to the Federal Energy Regulatory Commission (FERC) in the U.S. and the Comisión Reguladora de Energía (CRE) in Mexico.
Additionally, the transaction's impact on Kinder Morgan's debt covenants and financial ratios must be scrutinized to maintain compliance with existing agreements with lenders and to avoid triggering any adverse clauses.
Pipeline systems complementary to KMI’s existing South Texas footprint
HOUSTON--(BUSINESS WIRE)--
Kinder Morgan, Inc. (NYSE: KMI) today closed on its previously announced $1.815 billion acquisition of NextEra Energy Partners’ South Texas assets (STX Midstream), which includes a set of integrated, large diameter high pressure natural gas pipeline systems that connect the Eagle Ford basin to key growing Mexico and Gulf Coast demand markets. The acquisition includes a 90% interest in the NET Mexico pipeline (MGI Enterprises, a PEMEX affiliate, owns the other 10%), Eagle Ford Midstream and a 50% interest in Dos Caminos LLC (Howard Energy Partners (HEP) owns the remaining 50% and will continue to operate the pipeline). Dos Caminos recently placed in service a 62-mile pipeline connecting HEP’s existing midstream pipeline and facilities in Webb County, Texas to KMI’s new Eagle Ford pipeline, which was placed in service on November 1, 2023. This portfolio of assets is highly contracted, with an average contract length of over 8 years. Approximately 75% of the business is supported by take-or-pay contracts.
“We are pleased to add these assets to our natural gas portfolio to serve growing LNG, industrial, Mexico export and power generation demand markets on the U.S. Gulf Coast,” said KMI President of Natural Gas Pipelines Sital Mody. “These assets integrate well with our existing South Texas footprint and extend our direct connectivity in the lean area of the Eagle Ford Basin, allowing us to offer LNG customers greater access to desirable low-nitrogen natural gas supply.”
KMI expects the acquisition to be accretive to its preliminary 2024 budget guidance with the purchase price equal to 8.6 times the 2024 EBITDA and a long-term investment-to-EBITDA multiple of approximately 7.0-7.5 times, inclusive of commercial synergies. Initially, we plan to fund the transaction with cash on hand and short-term borrowings, increasing our expected Net Debt-to-Adjusted EBITDA ratio for 2024 by approximately 0.1 times after including a full year Adjusted EBITDA contribution from the asset. Expected acquisition EBITDA multiples, Net Debt and Adjusted EBITDA are non-GAAP measures. For definitions of these measures and reconciliations to comparable GAAP measures, where applicable, please refer to KMI’s Investor Presentation for 4Q 2023, which is available at the Investor Relations Page of www.kindermorgan.com under “Events and Presentations.”
About Kinder Morgan, Inc.
Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy infrastructure companies in North America. Access to reliable, affordable energy is a critical component for improving lives around the world. We are committed to providing energy transportation and storage services in a safe, efficient and environmentally responsible manner for the benefit of the people, communities and businesses we serve. We own an interest in or operate approximately 82,000 miles of pipelines, 140 terminals, 700 billion cubic feet of working natural gas storage capacity and have renewable natural gas generation capacity of approximately 5.4 Bcf per year with an additional 1.5 Bcf in development. Our pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2, renewable fuels and other products, and our terminals store and handle various commodities including gasoline, diesel fuel, jet fuel, chemicals, metals, petroleum coke and ethanol and other renewable fuels and feedstocks. Learn more about our work advancing energy solutions on the lower carbon initiatives page at www.kindermorgan.com.
Important Information Relating to Forward-Looking Statements
This news release includes forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities and Exchange Act of 1934. Generally, the words “expects,” “believes,” anticipates,” “plans,” “will,” “shall,” “estimates,” and similar expressions identify forward-looking statements, which are not historical in nature. Forward-looking statements in this news release include express or implied statements concerning the business of STX Midstream and the anticipated benefits to KMI’s business and stockholders of the acquisition transaction. Forward-looking statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management, based on information currently available to them. Although KMI believes that these forward-looking statements are based on reasonable assumptions, it can give no assurance as to when or if any such forward-looking statements will materialize or their ultimate impact on KMI’s operations or financial condition. Important factors that could cause actual results to differ materially from those expressed in or implied by these forward-looking statements include the timing and extent of growth in demand for the products we transport and handle; counterparty financial risk; and the risks and uncertainties described in KMI’s reports filed with the Securities and Exchange Commission (SEC), including its Annual Report on Form 10-K for the year-ended December 31, 2022 (under the headings “Risk Factors” and “Information Regarding Forward-Looking Statements” and elsewhere) and its subsequent reports, which are available through the SEC’s EDGAR system at www.sec.gov and on KMI’s website at ir.kindermorgan.com. Forward-looking statements speak only as of the date they were made, and except to the extent required by law, KMI undertakes no obligation to update any forward-looking statement because of new information, future events or other factors. Because of these risks and uncertainties, readers should not place undue reliance on these forward-looking statements.
What assets did Kinder Morgan, Inc. acquire from NextEra Energy Partners?
Kinder Morgan, Inc. acquired NextEra Energy Partners' South Texas assets, including the NET Mexico pipeline, Eagle Ford Midstream, and a 50% interest in Dos Caminos LLC.
How does the acquisition benefit Kinder Morgan, Inc.?
The acquisition integrates well with KMI's existing South Texas footprint and extends direct connectivity in the lean area of the Eagle Ford Basin, allowing greater access to low-nitrogen natural gas supply for LNG customers.
What is the expected impact of the acquisition on Kinder Morgan, Inc.'s 2024 budget guidance?
KMI expects the acquisition to be accretive to its preliminary 2024 budget guidance, with the purchase price equal to 8.6 times the 2024 EBITDA and a long-term investment-to-EBITDA multiple of approximately 7.0-7.5 times, inclusive of commercial synergies.
How does Kinder Morgan, Inc. plan to fund the acquisition?
Initially, KMI plans to fund the transaction with cash on hand and short-term borrowings, increasing the expected Net Debt-to-Adjusted EBITDA ratio for 2024 by approximately 0.1 times after including a full year Adjusted EBITDA contribution from the asset.
