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

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

“This transaction represents a true win-win for both KMI andKMP,” said Kinder Morgan CEO Richard Kinder. “It is expected to beaccretive to cash available for distribution to KMP’s unitholdersby between 5-10 cents in 2001.”

Kinder Morgan Texas Pipeline accounts for about two-thirds ofthe 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 flowthat has some nice growth potential as more and more electricgeneration load comes on line along the Gulf Coast, which is theprimary market served by Kinder Morgan Texas.

“The other three assets are good sets operationally with otherKMP assets,” Kinder added during a conference call. “TheCasper-Douglas system gathers and treats gas that is then shippedthe Kinder Morgan Interstate system, which we already transferredto KMP… Thunder Creek is really the same thing, except it has amore rapid growth profile. It transports gas out of the PowderRiver Basin, which as most of you know is a very rapidly growingproducing area in Wyoming, down to Kinder Morgan Interstate. Thefinal asset, Coyote Gulch, is the facility which removes excess CO2from the gas gathered by our red cedar gathering system – we own49% of that at KMP, and the Southern Ute Indian tribe owns theother 51%. That’s a very profitable gathering system moving over600 MMcf/d in the part of the San Juan Basin that lies inColorado.”

Kinder noted that because the mix of consideration paid willinclude equity issued to KMI, it will not be necessary to raisefunds for the transaction via a public offering of KMP units. “KMIwill also benefit from the transaction, as it will be able toreduce its debt by $150 million,” Kinder said. “Additionally, thetransaction is expected to be modestly accretive to KMI’s earningsper share in 2001. By increasing its stake in the master limitedpartnership, KMI will enjoy greater participation in the expectedfuture growth of KMP.” KMI holds about a 21% share of KMP.

Upon closing of this latest transfer, KMP will have completed inexcess of $600 million of acquisitions in 2000. In total, KMI’sasset contribution to KMP has reached more than $1 billion, farexceeding the original goal of $500 million stipulated when KinderMorgan merged with KN Energy last July.

“We have less than $50 million of assets left in discontinuedoperations, and we expect to complete the rest of the divestitureprogram within the next few weeks,” Kinder said.

He said despite the large amount of acquisitions already thisyear for KMP, the company should make “significant additionalacquisitions by KMP between now and year-end 2000.”

Rocco Canonica

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