Kinder Morgan leads transportation asset buying spree

Dec. 11, 2000
Petroleum pipeline and storage companies are buying and selling assets to realign and strengthen their portfolios.

Petroleum pipeline and storage companies are buying and selling assets to realign and strengthen their portfolios.

In one of the larger transactions announced recently, Kinder Morgan Energy Partners LP (KMP), Houston, will purchase from GATX Terminals Corp., a subsidiary of Chicago-based GATX Corp., its US pipeline and terminal businesses for $1.15 billion cash and assumed debt.

And KMP continued its buying spree.

In a separate deal, announced early last week, KMP acquired Delta Terminal Services Inc. for about $114 million cash. The acquisition includes two liquid bulk storage terminals in New Orleans and Cincinnati.

And Nova Chemicals Corp. used its first-refusal right to acquire Dow Chemical Canada Inc.'s 32.5% interest in Cochin Pipeline Co., which it then agreed to sell to KMP.

In other action, a unit of Gaz de France SA is acquiring Calgary-based TransCanada PipeLines Ltd.'s natural gas pipelines and marketing interests in Mexico.

In addition, TEPPCO Partners LP unit TEPPCO Crude Pipeline LP will acquire $91 million in pipeline assets from Duke Energy Corp. unit Duke Energy Field Services LLC (DEFS), Denver.

KMP acquisitions

KMP said that the pipeline asset purchase would make it the second largest independent petroleum storage operator and second largest independent chemical terminal operator in the US, based on capacity.

Following the company's purchase announcement, Moody's Investors Service confirmed as stable its ratings for both KMP and parent firm Kinder Morgan Inc. "The confirmation of KMP's ratings reflects the significant growth in its cash flow resulting from this strategic acquisition," the analyst said.

Assets included in the sale are Calnev Pipe Line Co. and Central Florida Pipeline Co. (CFPL), along with 12 petroleum product and chemical terminals. During 1999, the 550-mile Calnev pipeline-which extends from Colton, Calif. to markets in the Las Vegas area-transported an average of 112,000 b/d of gasoline, diesel, and jet fuel. Calnev interconnects in Colton with KMP's Pacific operations, a 3,300-mile refined petroleum products pipeline system that transports more than 1 million b/d of gasoline, diesel, and jet fuel to markets in Arizona, California, Nevada, New Mexico, and Oregon.

"Calnev is an ideal fit with our existing operations in the West," Richard D. Kinder, chairman and CEO of KMP, said. "We believe rapid population growth in Las Vegas and other western markets will continue to drive consumption of refined petroleum products. As a result, we project volumes on Pacific and Calnev to grow more than 3% annually."

The 195-mile CFPL system, which originates in Tampa and consists of a 16-in. gasoline pipeline and a 10-in. jet fuel and diesel pipeline, transported an average 85,000 b/d of petroleum products last year from Tampa to Orlando. "CFPL fits perfectly into KMP's strategy of acquiring fee-based assets in high-growth markets," Kinder said.

KMP also is acquiring 12 terminals, which have a storage capacity of 35.6 million bbl for both petroleum products and chemicals. The largest of these terminals are located in Houston, New York, Los Angeles, and Chicago, with a total capacity of 31.2 million bbl. Other terminals are located in Philadelphia, San Francisco, Seattle, and Portland, Ore.

KMP also is acquiring six other GATX terminals, with 3.6 million bbl capacity. These terminals are part of the Calnev and CFPL pipeline systems.

Kinder said the terminals are essential to the distribution of petroleum products and chemicals in the US. "They also are a good match for our existing assets, as KMP's pipelines currently receive petroleum products from or inject them into three of the terminals that we are acquiring on the West Coast," Kinder said.

Kinder said the transaction is expected to be immediately accretive to cash available for distribution to KMP unit holders by 10-15¢/year. It will also raise earnings for Kinder Morgan Inc. shareholders by 15-20¢/share/year. "We are comfortable with the lower end of these ranges, even if we assume no additional acquisitions in 2001, and we are targeting the higher end of these ranges, assuming that we make a reasonable amount of acquisitions in 2001," Kinder said.

Separately, Kinder called the recent purchase of Delta Terminal Services a "great fit" with the purchase of GATX's US assets, as it provides KMP liquids terminals in two new locations. Kinder added that the company would continue to search for other opportunities to expand its terminals business.

The New Orleans terminal has a 2.5 million bbl storage capacity and is at the 98.5-mile point on the Mississippi River, near the Harvey Canal and the Greater New Orleans Bridge. The terminal, on about 100 acres, serves the New Orleans-Baton Rouge corridor.

The 500,000 bbl capacity Cincinnati terminal covers about 60 acres and is at the 465.7-mile point on the Ohio River.

Cochin system sale

Nova Chemicals' purchase-followed by its subsequent sale-of Dow Chemical's interest in the Cochin system is subject to rights of first refusal from other Cochin Pipeline partners, as well as regulatory approval.

Cochin Pipeline Co. owns the Cochin Pipeline System, consisting of 1,900 miles of 12-in. pipeline that transports high vapor pressure ethane, ethylene, propane, butane, and NGL to the US Midwest and to eastern Canadian petrochemical and fuel markets. The 112,000 b/d capacity system traverses three provinces in Canada and seven states in the US.

Other partners in the pipeline include BP, Conoco Inc., and Royal Dutch/Shell Group.

The proposed acquisition-valued at $100-150 million-will enable KMP to gain a foothold in the Western Canadian Sedimentary Basin, CEO Kinder said. The basin is expected to play an integral role relative to the future supply of natural gas and gas liquids to North America, Kinder added. When this and other previously announced acquisitions are closed, KMP will have purchased more than $750 million in assets during 2000, and it expects additional acquisitions between now and yearend.

Gaz de France asset purchase

TransCanada's intentions to sell certain Mexican natural gas systems and marketing interests are part of a $3 billion (Can.)-plus divestiture program by the Canadian pipeline company.

The sale of TransCanada's Mexican assets to Gaz de France unit GDF International SA consists of:

  • 67.5% of Energia Mayakan S de RL de CV, a pipeline company that owns and operates a 435-mile natural gas pipeline in Mexico.
  • 100% of TransCanada del Bajio S de RL de CV, a pipeline company that is currently building a 124-mile natural gas line in Mexico.
  • 50% of TransNatural S de RL de CV, a natural gas marketing company.
  • 100% of TransCanada International (Mexico) SA de CV, a company offering bundled energy services to industrial natural gas consumers in Mexico.

TransCanada said remaining assets in the process of being sold include:

  • TransGas natural gas pipeline in Colombia.
  • GasPacifico natural gas pipeline between Argentina and Chile.
  • Paiton power plant in Indonesia.
  • Other minor interests in Latin America and the Harmattan gas gathering and processing facility in Alberta.

TEPPCO's purchase

TEPPCO's pipeline asset purchase from Duke includes two East Texas NGL systems-the 189-mile Panola NGL pipeline, which extends from Carthage, Tex., to Mont Belvieu, Tex., and the 34-mile San Jacinto NGL system, which extends from Carthage to Longview, Tex.-and the assumption of the lease of a 34-mile condensate line, which extends from Carthage to Marshall, Tex.

The Panola system has a capacity of 38,000 b/d, while the San Jacinto line can carry about 11,000 b/d. All three systems originate at DEFS's East Texas NGL plant complex in Panola County.

TEPPCO estimates annual revenues from the lines at about $15 million. Subject to regulatory approval, TEPPCO expects the transaction to close by Dec. 31.