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Kinder Morgan Invests $1.8 Billion in South Texas Gas Infrastructure
11/09/2023
- Kinder Morgan Inc. (KMI) acquired NextEra Energy Partners' (NEP) South Texas assets, STX Midstream, for $1.8 billion.
- The pipeline network has a transport capacity of 4.9 billion cubic feet per day.
- The acquisition aims to help Kinder Morgan keep pace with an expanding natural gas market along the Gulf Coast.
- The deal is expected to close in the first quarter of 2024.
- NEP plans to use the sale proceeds to pay off STX’s outstanding debt and for a $1.1 billion buyout for NEP Renewables II CEPF.
Kinder Morgan’s $1.8B NextEra Deal
Kinder Morgan's strategic acquisition of STX Midstream from NextEra is a significant move to enhance its infrastructure capabilities in South Texas. The area is witnessing an upsurge in natural gas production and demand, particularly towards Mexico and the Gulf Coast markets. The 462-mile pipeline system, which is highly contracted with an average contract length of over eight years, is expected to generate about $181 million in EBITDA for 2023.
The STX Midstream system consists of large diameter, high-pressure natural gas pipelines spanning 462 miles, connecting the Eagle Ford basin to growing markets in Mexico and the Gulf Coast.
Both Kinder Morgan and NextEra had hinted at such a deal earlier in the year, with Kinder Morgan expressing the need for increased pipeline infrastructure to match the expected decade-long surge in gas production in South Texas. The purchase aligns with Kinder Morgan's growth strategy and its commitment to expand along the Gulf Coast to support the increasing production facilities.
Financial Aspects of the Deal
Kinder Morgan's payment for the acquisition stands at an expected EBITDA multiple of about 8.6x for 2024, which is projected to drop to 7.0x to 7.5x in the long term. The transaction is set to close in the first quarter of 2024, and the proceeds are earmarked by NextEra for debt payoff and further investment in renewable energy projects.
Use of Proceeds from the Sale
The proceeds from the sale are expected to cover the outstanding debt related to the Texas pipeline projects and address equity buyouts for specific financing arrangements. The sale's valuation is approximately ten times the estimated 2023 adjusted core profit for the natural gas pipeline portfolio in Texas. NextEra Energy Partners plans to pay off about $425 million in project-related debt and interest rate swaps, complete a $1.1 billion buyout under NEP Renewables II CEPF by June 2025, and reduce corporate debt.
Recent Developments at Kinder Morgan
Kinder Morgan reported a profit that beat Wall Street estimates for the fourth quarter and announced a CEO change. Steve Kean left his position as CEO and Kim Dang, a two-decade veteran of the company, took over. The company's natural gas pipelines segment saw a rise in earnings to $1.4 billion for the quarter ending December 31, due to higher volumes of natural gas and other products. The company's revenue was $4.6 billion for the quarter and it also increased its share repurchase program by $1 billion.
NextEra Energy Partners' Outlook
NextEra Energy Partners shared that the sale will improve its financial positioning, with no need for growth equity until 2027. The partnership's payout ratio should stay in the mid-90s until 2026, and it does not plan on making an acquisition in 2024 to meet its 6% growth target for distribution per unit. It expects its adjusted EBITDA and cash available for distribution to be between $1.9 billion to $2.1 billion and $730 million to $820 million, respectively, at the end of 2023.
About Kinder Morgan Inc.
Kinder Morgan is one of North America's largest energy infrastructure companies, with headquarters in Houston, Texas. Founded in 1997, it operates approximately 83,000 miles of pipelines and 143 terminals. These pipelines transport various products including natural gas, which accounts for about 40 percent of U.S. consumption. The company's CO2 division is also engaged in carbon sequestration efforts. As of 2021, Kinder Morgan reported $16.61 billion in revenue, $2.92 billion in operating income, and it employed over 10,000 people.
About NextEra Energy Partners
NextEra Energy Partners, a renewable energy company based in Juno Beach, Florida, is a publicly traded subsidiary of NextEra Energy. Established in 2014, it focuses on wind power, solar power, and natural gas pipeline projects across North America. The company completed its IPO in June 2014 and has since acquired several renewable energy projects. Its revenue in 2014 was $301 million with total assets amounting to $2.7 billion.
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$113 Million Transaction Baytex Energy Sells Off Crude Oil Holdings in Western Canada
Baytex Energy Corp., a prominent oil and gas company, has struck a deal to sell part of its Viking assets located in Forgan and Plato, southwest Saskatchewan. The transaction sealed at CAD 153.8 million (approximately US$113.23 million).
Dallas-Based Sunoco Buys NuStar Energy for $7.3 Billion
Sunoco, a gas station company based in Dallas, will buy NuStar Energy, a major operator of liquid storage and pipelines, for $7.3 billion. The acquisition of NuStar Energy by Sunoco not only enlarges Sunoco's fuel distribution business but also moves it into the crude oil middle market, especially in the important Permian Basin area.
Exxon Mobil recently completed its acquisition of Pioneer Natural Resources, a deal worth about $60 billion. This transaction, which is the biggest in shale oil history, significantly changes the competitive landscape in the Permian Basin, a major oil field. This marks Exxon Mobil's largest deal since its $84.4 billion merger with Mobil Corp. in 1999. With this acquisition, Exxon Mobil's production in the Permian Basin will double to 1.3 million barrels of oil equivalent per day.
OXY has been the leader in Permian Basin production for the past five years. Currently, the Houston-based oil and gas company is deepening its presence in the basin with a $12 billion acquisition of CrownRock, adding over 94,000 acres in the Midland Basin and increasing its oil output by about 170,000 barrels per day. Occidental announced an increase in its proved reserves to 4.0 billion barrels of oil equivalent by the end of December 2023, up from 3.8 billion the previous year. Activities in the Permian largely fueled this rise. Occidental added approximately 303 million barrels through infill development projects as well as new discoveries and the further development of existing fields brought in another 153 million barrels.
TotalEnergies kicked off 2024 with a net income of $5.7 billion in the first quarter, marking a modest 3% increase from the same period last year and a 13% rise from the previous quarter. This growth occurred despite experiencing drops in both the volume and price of gas sales over the year and the quarter. Their adjusted net earnings, which exclude one-time or unusual items, were $5.1 billion. This represents a significant 22% decline compared to last year and a slight 2% drop from the last quarter. The company's earnings before tax, depreciation, and amortization reached $11.5 billion, while their cash flow from operations significantly decreased to $2.2 billion, falling by 58% from last year and a steep 87% from the previous quarter. TotalEnergies also recorded $644 million in impairments.