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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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$113 Million Transaction Baytex Energy Sells Off Crude Oil Holdings in Western Canada
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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
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Sunoco, a gas station company based in Dallas, will buy NuStar Energy, a major operator of liquid storage and pipelines, for $7.3 billion. The acquisition of NuStar Energy by Sunoco not only enlarges Sunoco's fuel distribution business but also moves it into the crude oil middle market, especially in the important Permian Basin area.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/297_Blog_Keystone XL Pipeline Controversy and Wildlife Disaster From Trump's Green Light to Biden's Red Light on the 15 Billion Project.jpg)
The pipeline industry in the USA faced and still faces a range of regulatory challenges, including permitting delays, environmental requirements, and public opposition to pipeline projects. In recent years, pipeline projects like the Keystone XL and Dakota Access pipelines had legal and regulatory obstacles that delayed or canceled their construction. Keystone XL Pipeline, proposed by TransCanada in 2008, aimed to transport crude oil from Canada (around Calgary and Edmonton) to refineries on the Gulf Coast (Port Arthur). The project faced opposition from environmental groups and indigenous communities, who argued that it would contribute to climate change and pose a risk to water resources. In 2015, President Obama rejected the project, citing concerns about its environmental impact. However, in 2017, President Trump revived the project, leading to further legal challenges. In June 2021, U.S. President Joe Biden officially canceled the project on his first day in office.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/282_Blog_Renewable Natural Gas How RNG Changes the Industry.jpg)
The renewable natural gas (RNG) industry in the United States is showing promising signs of growth. As of 2019, the U.S. consumed 261 billion cubic feet (BCF) of RNG, primarily utilized by independent power producers, electric utilities, and various commercial and industrial entities. However, this figure represents only a small fraction of its potential. Research indicates that the U.S. could theoretically produce up to 2,200 BCF of RNG through anaerobic digestion alone, which would equate to about 11% of daily national natural gas consumption.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/295_Blog_Renewable Efforts Lag as Global Oil and Gas Demand Continues to Rise.jpg)
Recently, the progress toward an energy transition is hitting a snag. Sales of electric vehicles are decelerating, and the growth in wind and solar power needs to be keeping pace with expectations. To make matters more challenging, electricity prices are climbing when they were expected to fall. Amidst these setbacks, the oil and gas sectors are proving resilient. According to BP's latest energy outlook, not only are these energy mainstays here to stay, but their demand is expected to remain relatively high even after reaching a peak. Interestingly, BP forecasts that oil demand will reach its zenith next year, marking a critical moment in energy consumption trends. This isn't the first time BP has projected a peak in oil demand. Back in 2019, their review anticipated a decline in demand growth, but the prediction fell flat. Instead, oil demand surged to unprecedented levels following the end of the global pandemic lockdowns, defying previous forecasts and underscoring the enduring dominance of traditional energy sources in the global market.