Kinder Morgan Inc. has signed a definitive deal to purchase NextEra Energy Partners LP’s natural gas pipeline system in South Texas for $1.82 billion.
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The pipeline, South Texas Midstream LLC (STX Midstream), connects the Eagle Ford basin to the Gulf Coast and Mexico. It is also linked to Kinder Morgan pipelines.
Expected to conclude in the first quarter of 2024 the acquisition follows the coming into service of another Eagle Ford pipeline owned by Kinder Morgan that is connected to a pipeline 50-percent owned by STX Midstream.
“STX Midstream nicely complements our existing assets and will enable us to capture incremental opportunities serving LNG [liquefied natural gas], power generation, LDC customers and exports to Mexico”, Kinder Morgan president for natural gas pipelines Sital Mody said in a press release.
Kinder Morgan noted, “The portfolio of assets [of STX Midstream] is highly contracted, with an average contract length over 8 years”.
“Approximately 75 percent of the business is supported by take-or-pay contracts”, it said.
NextEra Energy Partners said proceeds will be used to pay debt related to the project.
“This agreement is an important next step in NextEra Energy Partners’ transition plans”, NextEra Energy Partners chair and chief executive John Ketchum said in a separate news release. “Upon closing, the proceeds would be sufficient to pay off the outstanding project-related debt and address the equity buyouts of the STX Midstream and NEP Renewables II convertible equity portfolio financings”.
These liabilities are due 2025, the partnership said in its third-quarter earnings release.
“In late September and early October, NextEra Energy Partners primarily used subsidiary and corporate revolvers to complete the final buyouts of $402 million of the STX Midstream convertible equity portfolio financing and would replenish these borrowings with a portion of the pipeline sale proceeds”, NextEra Energy Partners said in the quarterly report October 24.
The purchase value would not hurt Kinder Morgan’s coffers. The energy logistics company posted about $3.6 billion in borrowing capacity and $80 million in cash and cash equivalents as of the end of the third quarter. “We have consistently generated substantial cash flows from operations, providing a source of funds of $4,169 million and $3,563 million in the first nine months of 2023 and 2022, respectively”, it said in a quarterly filing with the USA Securities and Exchange Commission.
“KMI expects the investment to be accretive to its shareholders, with the purchase price representing a 2024 EBITDA [earnings before income taxes, depreciation and amortization] multiple of 8.6 times and a long-term investment-to-EBITDA multiple of approximately 7.0-7.5 times, based on KMI’s financial projections and inclusive of commercial synergies”, Houston, Texas-based Kinder Morgan said in the purchase announcement.
“Initially, we plan to fund the transaction with cash on hand and short-term borrowings, increasing our Net Debt-to-EBITDA ratio by approximately 0.1 times after including a full year EBITDA contribution from the asset.
“Based on our longer-term funding plans, we expect this transaction to be neutral to KMI’s balance sheet”.
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