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Kinder Morgan Invests $1.8 Billion in South Texas Gas Infrastructure
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- 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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