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Kinder Morgan Builds Transport Business With $962M Acquisition

Billing it as a strategic move that will better position it to meet rising demand for the transport of refined petroleum products, Kinder Morgan Energy Partners LP (KMP) has struck a deal to acquire two maritime shipping companies for $962 million in cash.

The acquisition of American Petroleum Tankers and State Class Tankers from private equity affiliates The Blackstone Group and Cerberus Capital Management is expected to close during the first quarter of 2014, when it will become accretive to cash available for KMP unitholders.

"This is a strategic and complementary extension of our existing crude oil and refined products transportation business," said John Schlosser, president of KMP's terminal's segment. "Product demand is growing and sources of supply continue to change, in part due to the increased shale activity. As a result, there is more demand for waterborne transportation to move these products. We are purchasing tankers that provide stable fee-based cash flow through multi-year contracts with major creditworthy oil producers."

Indeed, transport acquisitions and company-wide expansions are on the rise at all levels, from rail and terminals, to shipping and trucking outfits, as production volumes of crude oil and condensates increase across the country's major shale plays and operators squeezed for takeaway capacity employ multiple ways to move their products.

Along with its general partner Kinder Morgan Inc. and its subsidiaries, KMP is the nation's largest independent transporter of refined petroleum products, as well as the largest natural gas pipeline and storage operator in the U.S.

With its acquisition of American Petroleum, it will get five medium-range tankers, each with 330,000 bbl of cargo capacity. The APT fleet is one of the youngest in the nation, according to KMP, and its ships have long-term time charters -- or fully-funded delivery agreements -- for a term of four years with renewal options at contractors including major integrated oil companies, refiners and the U.S. Navy.

State Class has commissioned the construction of four medium-range vessels, each with a capacity of 330,000 bbl. Those ships are scheduled to be completed in 2015 and 2016, and KMP will invest approximately $214 million to complete their construction. KMP also said the new vessels will be operated under long-term contracts of five years with a major integrated oil company.

American Petroleum currently generates $55 million in annual earnings before interest, tax, deductions and amortization. Once the State Class vessels are built, KMP said it expects that acquisition to generate annual EBITDA of $140 million.

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