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KMI Nears End of Massive Asset Divestiture Program

KMI Nears End of Massive Asset Divestiture Program

Kinder Morgan Inc. (KMI) transferred the 2,600-mile Kinder Morgan Texas Pipeline (KMP) system and several Rocky Mountain region gathering and treating assets to Kinder Morgan Energy Partners last week for $300 million, which nearly wraps up the massive asset divestiture program KMI started last year following its merger with KN Energy.

The largest asset to be contributed is the former MidCon Texas pipeline, a system that extends from South Texas to Houston along the Texas Gulf Coast. The other assets include the Casper and Douglas Gas Gathering and Processing Systems, KMI's 50% interest in Coyote Gas Treating and KMI's 25% interest in Thunder Creek Gas Services. As consideration for the assets, KMI will receive $300 million, 50% in cash and 50% in KMP partnership units. KMI expects the transaction to be completed in the fourth quarter.

"This transaction represents a true win-win for both KMI and KMP," said Kinder Morgan CEO Richard Kinder. "It is expected to be accretive to cash available for distribution to KMP's unitholders by between 5-10 cents in 2001."

Kinder Morgan Texas Pipeline accounts for about two-thirds of the EBITDA of the transferred assets. "As we previously announced, we firmed up several large long term firm contracts on this system, which now leads to a very stable cash flow, but also a cash flow that has some nice growth potential as more and more electric generation load comes on line along the Gulf Coast, which is the primary market served by Kinder Morgan Texas.

"The other three assets are good sets operationally with other KMP assets," Kinder added during a conference call. "The Casper-Douglas system gathers and treats gas that is then shipped the Kinder Morgan Interstate system, which we already transferred to KMP... Thunder Creek is really the same thing, except it has a more rapid growth profile. It transports gas out of the Powder River Basin, which as most of you know is a very rapidly growing producing area in Wyoming, down to Kinder Morgan Interstate. The final asset, Coyote Gulch, is the facility which removes excess CO2 from the gas gathered by our red cedar gathering system - we own 49% of that at KMP, and the Southern Ute Indian tribe owns the other 51%. That's a very profitable gathering system moving over 600 MMcf/d in the part of the San Juan Basin that lies in Colorado."

Kinder noted that because the mix of consideration paid will include equity issued to KMI, it will not be necessary to raise funds for the transaction via a public offering of KMP units. "KMI will also benefit from the transaction, as it will be able to reduce its debt by $150 million," Kinder said. "Additionally, the transaction is expected to be modestly accretive to KMI's earnings per share in 2001. By increasing its stake in the master limited partnership, KMI will enjoy greater participation in the expected future growth of KMP." KMI holds about a 21% share of KMP.

Upon closing of this latest transfer, KMP will have completed in excess of $600 million of acquisitions in 2000. In total, KMI's asset contribution to KMP has reached more than $1 billion, far exceeding the original goal of $500 million stipulated when Kinder Morgan merged with KN Energy last July.

"We have less than $50 million of assets left in discontinued operations, and we expect to complete the rest of the divestiture program within the next few weeks," Kinder said.

He said despite the large amount of acquisitions already this year for KMP, the company should make "significant additional acquisitions by KMP between now and year-end 2000."

Rocco Canonica

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