Wrapping up the $38 billion acquisition that has been called a “once in a lifetime transaction,” Kinder Morgan on Thursday completed its acquisition of El Paso Corp., creating the largest midstream and the fourth largest energy company in North America, owning an interest in or operating approximately 75,000 miles of pipelines and 180 terminals with an enterprise value of more than $90 billion.

Originally announced last October (see Daily GPI, Oct. 18, 2011), the purchase price was $21.1 billion before the assumption of debt. The deal creates an energy transportation powerhouse within North America, with a significant focus on natural gas in U.S. shale plays.

Including master limited partnerships Kinder Morgan Energy Partners LP (KMP) and El Paso Pipeline Partners LP (EPB), the combined powerhouse is now the:

CEO Richard D. Kinder noted Thursday that the addition of El Paso increases Kinder Morgan’s natural gas pipeline footprint by approximately 44,000 miles.

“We are bullish on the future of natural gas and believe that it will be the fuel of choice in America for many years to come,” he said. “It’s domestically abundant, clean and cheap. As the largest transporter and storage operator of natural gas in the United States, we have many growth opportunities across the country, and we are eager to get to work to leverage these assets for the benefit of our customers, our shareholders and our employees.”

Kinder Morgan also reported Thursday that the $7.15 billion sale of El Paso’s exploration and production (E&P) business (EP Energy) to a group led by affiliates of Apollo Global Management LLC has also closed (see Daily GPI, Feb. 27). As announced in February, El Paso’s net operating loss carry forwards will largely offset taxes associated with the sale of the E&P business, and thus almost all of the proceeds are to be used to reduce the debt incurred by KMI to fund the cash portion of its El Paso purchase.

Welcoming the partnership with investors, EP Energy CEO Brent Smolik, who had run the E&P unit for El Paso, said the company would “continue to focus on large acreage positions with low-risk, repeatable drilling opportunities that generate strong financial returns.”

El Paso last May announced that it intended to spin off the E&P unit as a publicly traded company so that it could concentrate on its natural gas pipeline and midstream units (see Daily GPI, May 25, 2011). However, after agreeing to buy El Paso in October, Kinder Morgan executives indicated that an outright sale, as a complete package or in pieces, was preferred over a spinoff (see Daily GPI, Oct. 18, 2011).

Kinder classified the months-long integration of KMI and El Paso as a “herculean effort” that would pay dividends “for many years to come.”

The company now anticipates cost savings of more than $400 million a year, much higher than the previously announced projection of $350 million. The cost savings are to benefit not only KMI but KMP and EPB. KMI previously announced that, excluding the impact of the El Paso transaction, it expected to declare dividends of $1.35/share this year, but it now expects dividends of at least $1.40. The company also intends to recommend to its board of directors a dividend of 35 cents/share for 2Q2012.

Integrated as part of the merger, EPB has finished purchasing the remaining 14% interest in Colorado Interstate Gas and all of Cheyenne Plains Pipeline from El Paso for $635 million and will assume about $242 million of proportional debt.

As previously announced (see Daily GPI, April 20), KMI agreed to divest some of KMP’s assets to obtain Federal Trade Commission (FTC) approval for the merger. Under an agreement with the FTC, KMI has six months from May 1 to sell Kinder Morgan Interstate Gas Transmission, Trailblazer Pipeline Co., the Casper-Douglas natural gas processing and West Frenchie Draw treating facilities in Wyoming, as well as the company’s 50% interest in the Rockies Express Pipeline.

KMI said as part of its plans to replace KMP’s divested assets, the company expects to drop down all of Tennessee Gas Pipeline and a portion of El Paso Natural Gas contemporaneously with the close of KMP’s divestitures, which are expected to occur in 3Q2012.

In April KMP announced a $300 million agreement with an investment vehicle affiliated with Kohlberg Kravis Roberts & Co. LP giving KMP a 50% interest in the joint venture (JV) that owns the Altamont gathering, processing and treating assets in the Uinta Basin in Utah and the Camino Real gathering system in the Eagle Ford Shale in Texas. El Paso owned the other half of the joint venture, and with the merger’s closing, KMI would controls the JV, with 50% of the ownership at KMI and 50% through KMP. The JV transaction is to close early next month and be immediately accretive to KMP’s distributable cash flow.

As previously agreed upon, KMI added El Paso board members Anthony W. Hall Jr. and Robert F. Vagt to its board of directors. The EPB board of directors would be comprised of the same three outside directors who were serving prior to the KMI-El Paso transaction, along with four KMI officers to replace the El Paso officers who had been on the board. Richard Kinder would serve as chairman of the EPB board.

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