Kinder Morgan Inc. (KMI) is selling two pipelines, gas processing and treating facilities, and its 50% share of Rockies Express Pipeline (REX) to win Federal Trade Commission (FTC) approval of its buyout of El Paso Corp., the company said Thursday.

Kinder Morgan Interstate Gas Transmission (KMIGT), Trailblazer Pipeline Co, KMI’s Casper-Douglas gas processing and West Frenchie Draw treating facilities in Wyoming are to be sold.

“We would prefer to retain all of these assets, but as we anticipated when the transaction was announced, we must sell certain assets in the Rockies to obtain FTC approval,” said KMI CEO Richard D. Kinder. “The amount of divestitures is reasonably consistent with our original financial model.

“…[W]e anticipate significant interest in the Kinder Morgan assets that will be sold, particularly the Rockies Express Pipeline, which was the largest natural gas pipeline to be built in the United States when it was fully completed in 2009.”

Some analysts were skeptical that REX would be viewed as much of a prize in a market that has seen abundant supply grow up in the Marcellus Shale — in the backyard of REX’s intended market area. “We see absolutely no industry buyers for Rockies Express given the regional natural gas supply and demand fundamentals,” said CreditSights Inc. analyst Andy DeVries in a note Thursday.

Besides KMI, through its Kinder Morgan Energy Partners (KMP), owners of the 1,679-mile REX are Sempra Energy, 25%; and ConocoPhillips, 25%. KMI management has conceded that REX volumes have been flagging due to booming gas production from the Marcellus Shale, much of which is supplying the eastern markets targeted by REX (see Daily GPI, Jan. 26).

Spectra Energy Corp. CEO Greg Ebel has said his company might be interested in some KMI assets, Bloomberg reported. Other names tipped by analysts as potential buyers are Williams and Boardwalk Pipeline Partners.

In January Standard & Poor’s Ratings Services lowered its corporate credit and senior unsecured debt ratings on Rockies Express Pipeline LLC to “BB” from “BBB-” with a “stable” outlook and said the decision was based on compressed basis differentials leading to increased recontracting risk in the years ahead (see Daily GPI, Jan. 31).

Also back in January, U.S. Capital Advisors LLC analysts Becca Followill and James Carreker tallied throughput on KMI assets and figured that a combined KMI-El Paso would have a 52% market share in the Rockies based on 2010 figures (see Daily GPI, Jan. 9). The analysts posited what pipelines might be sold, and REX was not among them.

“We don’t see Rockies Express as a likely sales candidate given its below-market returns (2010 estimated return on equity of 3.2%) and the fact that ConocoPhillips was unable to find a buyer at the right price for their 25% share in 2010,” the analysts said in a note.

On Thursday Followill told Bloomberg the asset sale could fetch as much as $3 billion and bring the combined company’s market share down to 38%. However, “Rockies Express is going to be a tough sell,” Followill told the news service.

KMIGT represents about 5,100 miles of transmission lines in Colorado, Kansas, Nebraska, Missouri and Wyoming. The business unit also owns the Huntsman natural gas storage facility in Cheyenne County, NE. Trailblazer is a 436-mile system that runs from Colorado through southeastern Wyoming to Beatrice, NE.

While KMI is letting go of some assets, it’s gaining far more with the acquisition of El Paso. “We are very excited about the 43,000 miles of El Paso natural gas pipelines that we will be adding to our Kinder Morgan portfolio,” Kinder said. “We are nearing the final stages in the regulatory process, and we look forward to becoming the largest midstream and the fourth largest energy company in North America when the acquisition is completed, which is expected to occur in mid to late May.”

KMI said it will likely drop down some El Paso assets to KMP to replace assets being divested. KMI expects the divestitures and the dropdowns to occur contemporaneously. Now that the required asset divestitures are tentatively known, El Paso also expects to offer some of its assets to El Paso Partners LP, KMI said. Such a dropdown transaction could be completed before the close of the KMI-El Paso transaction.

Earlier this month El Paso shareholders approved the merger (see Daily GPI, March 12). KMI shareholders approved the transaction with all shares that voted cast in favor of the transaction.

In late February, El Paso agreed to sell its exploration and production business, EP Energy Corp., for $7.15 billion to affiliates of Apollo Global Management LLC and Riverstone Holdings LLC, which are joined by Access Industries Inc. and other parties (see Daily GPI, Feb. 27).

Kinder said integration efforts are under way. “…[W]e expect to realize cost savings and other synergies totaling approximately $350 million per year.”

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