Kinder Morgan Energy Partners has advanced its position in the North American shale race adding another 6,900 miles of pipelines and nine processing plants to its empire.
Kinder’s deal to purchase Copano Energy for $3.9 billion, announced late Tuesday, will expand its its 46,000-mile pipeline network and, perhaps more important, will give it processing capabilities in key shales plays including the Eagle Ford in South Texas.
“Copano gives us a great platform in the Eagle Ford,” partnership President Park Shaper said Wednesday.
The pipeline giant announced late Tuesday night that it would buy midstream natural gas company Copano Energy for almost $4 billion.
Kinder Morgan Energy Partners also will assume another $1 billion in debt.
Copano, also based in Houston, has operations primarily in Texas, Oklahoma and Wyoming and provides services, including gas gathering, processing, treating and liquids fractionation. Shaper said Copano’s pipelines also will help Kinder Morgan access new opportunities in the Niobrara shale in Wyoming and Woodford Shale in Oklahoma and that “we are hoping to exploit them as well.”
The deal means KMP will own 100 percent of Eagle Ford Gathering — now a joint venture with Copano that provides gathering, transportation and processing services to natural gas producers in the Eagle Ford Shale.
KMP closed down $2.05, to $87.61. Stock in Copano closed up $4.90 to $38.03.
“We are delighted to have reached this agreement with Copano, a company that we know very well and have partnered with through the years, as this transaction will enable us to significantly expand our midstream services footprint,” Kinder Morgan Energy Partners Chairman and CEO Richard D. Kinder said in a statement. “As a result of this acquisition, we will be able to pursue incremental development in the Eagle Ford Shale play in south Texas, gain entry into the Barnett Shale Combo in north Texas and the Mississippi Lime and Woodford Shales in Oklahoma. We continue to be bullish on the domestic shale plays and believe they will drive substantial future growth at KMP. Copano’s assets are very complementary to ours, as KMP is principally a pipeline transportation and storage company, while Copano is primarily a fee-based gathering, processing and fractionation player. Broadening our midstream assets will allow us to offer a wider array of services to our customers.”
The deal will be a unit-for-unit transaction with an exchange ratio of .4563 Kinder Morgan Energy Partnership units per Copano unit. That is valued at at $40.91 per Copano common unit based on KMP’s closing price on Tuesday – a 23.5 percent premium to Copano’s close the same day.
The deal is slated to close in the third quarter. TPG, Copano’s largest unitholder – it owns 14 percent of its outstanding equity — supports the deal, the companies said.
“We are excited to have reached this agreement with KMP, which delivers a significant premium to our unitholders that is reflective of the strength and potential of our business and provides an ownership interest in a highly diversified industry leader with an impressive history of sustained distribution growth,” Copano President and CEO R. Bruce Northcutt said in a statement. “Through this transaction, Copano will become part of a larger, investment grade organization with stable cash flows and the financial resources to fund our increasing number of high-return growth projects. We are committed to continuing to support our customers with the highest quality service, and expect that KMP’s size and scale will allow us to provide even more value for customers. In addition, we expect this combination will provide opportunities for our many talented employees. We look forward to completing this transaction and to building significant long-term value for all of our stakeholders as part of KMP.”
Copano owns an interest in or operates about 6,900 miles of pipelines with 2.7 billion cubic feet per day of natural gas throughput capacity and 9 processing plants with more than 1 Bcf/d of processing capacity and 315 million cubic feet per day of treating capacity.
Kinder Morgan Energy Partners owns an interest in or operates approximately 46,000 miles of pipelines and 180 terminals. The general partner of KMP is owned by Kinder Morgan, Inc.
“We anticipate retaining the vast majority of Copano’s approximately 415 employees,” Kinder said. “This transaction is about producing future cash flow and expanding our midstream services footprint.”
Copano has a sizable office in Tulsa that Kinder Morgan Energy Partners plans to maintain.
Citi acted as financial advisor for KMP and Weil Gotshal & Manges LLP and Bracewell & Giuliani acted as legal counsel to KMP. Barclays Capital and Jefferies & Company provided financial advisory services to Copano and Wachtell, Lipton, Rosen & Katz acted as legal counsel to Copano.
Read more about Kinder Morgan’s recent expansions and buying spree:
Kinder Morgan to grow Trans Mountain pipeline expansion (Jan. 10)
Kinder Morgan to expand Canada pipeline (Apr. 13, 2012)
Kinder Morgan buys out partner in Houston Ship Channel project (Jan. 5, 2012)
Kinder Morgan plans $130 million processing facility (Dec. 14, 2011)
Kinder Morgan to buy Southtex treatment plants for $155 million (Oct. 25, 2011)
Kinder Morgan buying El Paso Corp. for $21 billion (Oct. 16, 2011)
Infrastructure for Eagle Ford shale production to expand (June 16, 2011)
Kinder-Copano to expand Eagle Ford JV (Jan. 2011)