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Tallgrass Pays $1.8B for Kinder Assets

Tallgrass Energy Partners LP of Overland Park, KS, is buying a slate of assets from Kinder Morgan Energy Partners LP (KMP) that the partnership is selling to comply with antitrust stipulations related to Kinder Morgan Inc.'s (KMI) recent acquisition of El Paso Corp.

Changing hands are Kinder Morgan Interstate Gas Transmission (KMIGT), Trailblazer Pipeline Co., KMP's Casper-Douglas natural gas processing and West Frenchie Draw treating facilities in Wyoming, and KMP's 50% interest in the Rockies Express Pipeline (REX). Tallgrass is paying $1.8 billion in cash. Including REX debt, the deal is worth $3.3 billion. Closing is expected during the fourth quarter following Federal Trade Commission approval.

Tallgrass is owned by the management of Tallgrass, Kelso & Co., and a limited group of investors led by The Energy & Minerals Group (EMG), including Magnetar Capital. Tallgrass declined to comment on the acquisition; an executive said it was too early to discuss plans for the assets.

In response to the booming development in the Bakken Shale, KMIGT is seeking Federal Energy Regulatory Commission authorization to transfer a portion of its Pony Express natural gas pipeline to an affiliate to transport crude from the Bakken to key refinery centers. The company also would build replacement facilities so it can continue to provide service to existing natural gas firm transportation customers.

The conversion of a 432-mile segment of the Pony Express facilities will create "economic and strategic benefits" for the nation by "linking increased domestic crude oil supplies produced from the Bakken formation in Montana and North Dakota to [the oil hub at] Cushing, OK, where the oil supplies can have access to local refineries or be transported by downstream pipelines to refineries in other regions of the country including the Gulf Coast," the pipeline said last week.

"The conversion of the Pony Express Pipeline portion of KMIGT into oil service, the seamless transitioning of its gas customers, and placing it in service during the second half of 2014 will be a significant focus for near term growth. In addition, we will be exploring some promising growth projects on the east end of Rockies Express to maximize the potential of this state-of-the-art pipeline," Tallgrass CEO David G. Dehaemers Jr. said last week. The Tallgrass investors "bring a lot to the table and the opportunity to leverage their deep bench of expertise and significant financial backing greatly strengthens our overall abilities in this space."

Dehaemers previously served as CFO and executive vice president (EVP) of corporate development at KMI from 1997 to 2003. He served as the EVP of corporate development at Inergy LP from 2003 to 2007 and was one of the owners of Inergy LP's general partner, NRGP, when it went public in 2005.

In March KMI said it had reached an agreement with the FTC to divest certain KMP assets in the Rockies in order to obtain regulatory approval of its acquisition of El Paso, which closed in May (see NGI, May 28). Effective Aug. 1, KMP acquired 100% of Tennessee Gas Pipeline (TGP) and a 50% interest in El Paso Natural Gas (EPNG) pipeline from KMI to more than replace the cash flow from the KMP assets being divested. KMP said it intends to use the proceeds from the divestiture sales to repay a $2 billion credit facility that was issued when KMP acquired TGP and EPNG.

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