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KMI Buys NextEra South Texas Pipes for $1.8B

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Kinder Morgan (KMI) will acquire South Texas pipeline assets from NextEra Energy Partners (NEP) for $1.8B. The purchase is part of recent expansions by KMI in the region that could help the company realize synergies.

KMI and NEP announced the deal on November 6. The assets include a 90% operating interest in NET Mexico, a 50% interest in the newly constructed Dos Caminos LLC, and full ownership of Eagle Ford Midstream (EFM) and five other assets. The companies expect to close the deal in 1Q24.

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NEP estimates the South Texas portfolio will earn ~$181MM in 2023 Adj. EBITDA, boasting a 10x multiple for the sale. On the other side of the deal, KMI anticipates a ~8.6x multiple based on 2024 EBITDA ($211MM annual EBITDA). KMI is targeting a long-term multiple of 7.0-7.5x ($242-259MM in annual EBITDA) that the company would achieve through commercial synergies.

The synergies likely begin with other projects Kinder Morgan is pursuing in South Texas. East Daley previously reported on KM Tejas’ Eagle Ford Gathering project and Dos Caminos. A 50-50 JV between EFM and Howard Energy Partners (HEP), DOS Caminos runs from HEP’s gathering system in Webb County, TX to a KM Tejas compressor station near Freer, TX. The Eagle Ford Gathering project runs from the compressor station near Freer to Sinton, TX.

In the Kinder Morgan Financial Blueprint, East Daley estimated Eagle Ford Gathering would generate ~$66MM in 2024 EBITDA prior to the latest deal with NextEra. The acquisition of the 50% interest in Dos Caminos places KMI closer to the wellhead in Webb County and allows for more control of volumes that feed KMI’s Texas intrastate system.

KMI has more incentive to build in Webb County following a recent transportation agreement with Kimmeridge Texas Gas (KTG). Following KTG’s acquisition of 30,000 additional acres in Webb County, KTG and Kinder Morgan Texas Pipeline (KMTP) signed a multi-year transportation agreement that enables KTG to move Eagle Ford natural gas to Gulf Coast LNG terminals. Kimmeridge is also a backer of the Commonwealth LNG project.

The 30,000 acres pair with the 75,000-acre position that KTG already held in the Austin Chalk play. KTG is targeting 500 MMcf/d of production from the combined acreage by 2026. This ramp in production will hit KMI pipes starting in 2026 and help the company move closer to its 7.0-7.5x multiple target. – Zach Krause Tickers: KMI, NEP.



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