Kinder Morgan Inc. (KMI) is dropping down to master limited partnership (MLP) El Paso Pipeline Partners LP (EPB) its 50% stakes in Ruby Pipeline and Gulf LNG and 47.5% interest in Young Gas Storage in a deal worth $2 billion including debt at Ruby and Gulf LNG.
Excluding debt, the equity purchase price is $972 million, KMI said. The deal is expected to close in May with an effective date of April 30, 2014.
"These assets will generate substantial, stable cash flow to EPB unitholders for many years to come, and KMI will reduce its debt outstanding and continue to participate in the cash flows from these assets through its general and limited partner interests in EPB," said KMI CEO Richard Kinder. "Market conditions continue to support the view that natural gas, which is domestic, clean, abundant and reasonably priced, is the future play for America's energy needs."
The dropdown will be immediately accretive to EPB, which is purchasing the assets at about nine times 2013 earnings before interest, taxes, depreciation and amortization, KMI said. EPB plans to fund 10% of the transaction value, net of the proportionate debt, with EPB common units that will be issued to KMI at closing valued at $97.2 million. The remaining value is expected to be funded with the proceeds of one or more equity or debt issuances and/or borrowings under EPB's revolving credit facility. KMI intends to use the proceeds to reduce debt.
Ruby Pipeline is a 680-mile, 42-inch diameter system that extends from Wyoming to Oregon and carries gas from the major Rocky Mountain basins to consumers in California, Nevada and the Pacific Northwest. The Gulf LNG terminal, located in Pascagoula, MS, has 6.6 Bcf/d of storage capacity and 1.5 Bcf/d of peak vaporization sendout capacity, and is developing the proposed Gulf LNG Liquefaction Project, which will add liquefaction and export capabilities at the terminal. Young Gas Storage is in Morgan County, CO, and has a working capacity of 6 Bcf.
In 2011 KMI and El Paso Corp. announced that KMI would acquire El Paso in a friendly, $38 billion buyout to create North America's largest pipeline company (see Daily GPI, Oct. 18, 2011).