Seeking Alpha

El Paso to buy natural gas assets from Kinder Morgan for $2B

  • El Paso Pipeline Partners (EPB) agrees to acquire natural gas assets from Kinder Morgan (KMI) for ~$2B, including ~$1B of debt.
  • Ultimately, EPB is acquiring a 50% interest in Ruby Pipeline, 50% interest in Gulf LNG and 47.5% interest in Young Gas Storage.
  • EPB, which is purchasing the assets at ~9x 2013 EBITDA, says the deal will be immediately accretive to its earnings; EPB plans to fund most of the purchase via equity or debt issuances and/or borrowings under its revolving credit facility.
  • EPB -1.9%, KMI +0.2% AH.
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Comments (15)
  • Ruffdog
    , contributor
    Comments (2179) | Send Message
     
    KMI only owns 50% of Ruby so KMI is selling their whole stake to EPB.
    28 Apr 2014, 04:41 PM Reply Like
  • webbersworld
    , contributor
    Comments (176) | Send Message
     
    Is this good for KMI?
    28 Apr 2014, 04:50 PM Reply Like
  • bigbenorr
    , contributor
    Comments (891) | Send Message
     
    It's not really good or bad. This has been part of the plan since the El Paso acquisition.
    28 Apr 2014, 05:05 PM Reply Like
  • Ruffdog
    , contributor
    Comments (2179) | Send Message
     
    It is good for EPD, Ruby is about the only pipeline taking NG out of Wyoming The next open period for Ruby transmission rights should be interesting.
    29 Apr 2014, 08:31 PM Reply Like
  • Albert Alfonso
    , contributor
    Comments (2504) | Send Message
     
    It is good for KMI since it will receive increased cash flows from its GP stake in EPB.
    28 Apr 2014, 05:53 PM Reply Like
  • bigbenorr
    , contributor
    Comments (891) | Send Message
     
    But KMI will no longer be taking the cash flow directly from the pipelines right? So it seems just like reshuffling the deck. I mean, I agree its a good thing, but kind of neutral in terms of impact on the stock since they have been telegraphing it for a long time.
    28 Apr 2014, 06:11 PM Reply Like
  • Ruffdog
    , contributor
    Comments (2179) | Send Message
     
    I do not think that anyone knew how valuable Ruby would become. Sort of like the TransMountain pipeline, KMP and Canadian crude.
    29 Apr 2014, 08:34 PM Reply Like
  • bigbenorr
    , contributor
    Comments (891) | Send Message
     
    Isn't the other 50% owner looking to sell though?
    29 Apr 2014, 09:32 PM Reply Like
  • missbaysdaddy
    , contributor
    Comments (30) | Send Message
     
    So what does this mean for the dividend going forward. Will KMI still pay a 5 plus percent dividend or will it decrease the dividend now?
    28 Apr 2014, 06:56 PM Reply Like
  • bigbenorr
    , contributor
    Comments (891) | Send Message
     
    Yes Kinder has already reaffirmed dividend guidance for the year. This just shifts some income to EPB. Since KMI owns a large part of EPB it will receive the GP share of the additional income from EPB. Nothing really changes here, basically just an accounting difference.
    28 Apr 2014, 07:10 PM Reply Like
  • Albert Alfonso
    , contributor
    Comments (2504) | Send Message
     
    KMI should see zero impact from selling the asset. It is currently paying interest with the cash flow generated from the pipeline.

     

    However, where it will see a benefit is when EPB starts paying higher distributions. There, KMI is entitled to a 50% cut.
    28 Apr 2014, 07:12 PM Reply Like
  • smurf
    , contributor
    Comments (4803) | Send Message
     
    Doesn't Kinder own all of EPB? From what I've read, EPB has no direct employees, they are just a shell.

     

    So, isn't Kinder in effect selling it to themselves?
    28 Apr 2014, 10:21 PM Reply Like
  • 21thomas99
    , contributor
    Comments (412) | Send Message
     
    Yes, Kinder is effectively selling to themselves. Why it is deemed a "sale" is because KMI and EPB are two separate entities.
    29 Apr 2014, 08:19 AM Reply Like
  • stvrob_63
    , contributor
    Comments (1122) | Send Message
     
    Its a positive for both the way I see it. It moves an asset from the "taxed as a C-Corp" status to the tax advantaged MLP structure. Less tax paid = More $$ for investors.
    29 Apr 2014, 10:52 AM Reply Like
  • Ruffdog
    , contributor
    Comments (2179) | Send Message
     
    That is why you buy EPB and KMP rather than KMI.
    29 Apr 2014, 08:36 PM Reply Like
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