GE Energy Financial Services on Monday agreed to purchase a portion of the Kinder Morgan Inc. (KMI) natural gas retail distribution and related operations for $710 million plus working capital. The operations serve 260,000 customers in Colorado, Nebraska, Wyoming and Hermosillo, Mexico.
West Coast Energy Properties LP, an affiliated partnership GE Energy and Clayton Williams Energy Inc., also announced Monday it has acquired producing oil and gas assets in California and Texas for $58 million.
The KMI sale does not include Terasen Gas, the British Columbia natural gas utility that KMI purchased in November 2005 (see Daily GPI, Aug. 2, 2005). The business being sold serves residential, commercial, agricultural and industrial customers through 11,400 miles of distribution and transmission pipelines, underground storage fields, field system lines and related facilities.
"This is a good business that produces stable cash flow," said CEO Rich Kinder. "However, given our small retail footprint within the United States and the proceeds KMI will receive, the sale makes sense for our shareholders." Upon closing, KMI expects to recognize a book gain from this transaction and will use proceeds from the sale to retire debt and repurchase stock.
"This acquisition of an established retail natural gas distribution business, with a capable and experienced management team and work force, extends our pipeline business and provides an excellent growth platform for our energy investing," said GE Energy CEO Alex Urquhart. "We expect the acquisition and ensuing transition to be seamless to customers, who can continue to expect great service."
GE Energy intends to maintain the retail gas distribution business' headquarters in Lakewood, CO, with its president, Dan Watson, leading the work force. The business will adopt a new name to be announced after the transaction closes. The transaction, expected to close by the end of 1Q2007, is subject to certain closing conditions and regulatory approvals, including approvals from state utility commissions.
In the West Coast Energy venture, Clayton Williams Energy estimated proved reserves totaling 4.9 million boe and 3.7 Bcf for the acquired properties. More than 60% of the estimated proved reserves are classified as proved developed producing reserves. About 75% of the purchase price relates to properties in three fields in Southern California, and the remaining 25% relates primarily to properties located in Mitchell County, TX. West Coast Energy is a Texas limited partnership consisting of a limited liability company owned by Clayton Williams Energy as general partner and an affiliate of GE Energy as the limited partner.
With these transactions, GE Energy expands its energy base beyond investments in wholesale pipelines, gas services and alternative energy. GE Energy most recently has made a big push into alternative energy, announcing a joint venture with BP plc in July to develop and deploy hydrogen power projects (see Power Market Today, July 19) and another deal with Airtricity in June to sell wind turbines (see Power Market Today, June 30).
Last year, GE Energy, which has more than $10 billion invested in energy projects, spent $70 million on its first offshore natural gas play in a limited partnership with FW Oil Exploration LLC (see Daily GPI, Aug. 24, 2005). In another joint venture with Caisse de depot e placement du Quebec last year, it agreed to buy the Southern Star Central gas pipeline system from AIG Highstar capital for $362 million plus debt (see Daily GPI, July 12, 2005). GE Energy management said last year that the company wanted to double its energy portfolio by 2008.
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