Kinder Morgan Energy Partners buying Tejas Gas for $750 million

Kinder Morgan Energy Partners LP Monday said it would buy Tejas Gas LLC, a wholly owned subsidiary of InterGen (North America) Inc., for $750 million in cash. Both are large Texas intrastate gas pipelines. The deal is expected to close in the first quarter.

By the OGJ Online Staff

HOUSTON, Dec. 17 -- Kinder Morgan Energy Partners LP (KMP) Monday said it would buy Tejas Gas LLC, a wholly owned subsidiary of InterGen (North America) Inc., for $750 million in cash.

The deal is expected to close in the first quarter.

Tejas Gas, with a transportation capacity of 3.5 bcfd, is a 3,400-mile intrastate gas pipeline system extending from south Texas to the Louisiana border. Intergen is a joint venture owned by affiliates of the Royal Dutch/Shell Group and Bechtel Enterprises Holding Inc.

KMP said Tejas Gas is a good fit with Kinder Morgan Texas Pipeline, a 2,600-mile intrastate pipeline. It said combining the systems will increase transportation capacity, improve reliability, and create additional services for its customer base.

The Tejas Gas system has 16 compressor stations with 73,585 hp, two natural gas storage facilities with 100 bcf of working gas capacity, and three fee-based, gas processing-treating facilities.

Richard Kinder, KMP chairman and CEO, said, "We will gain access to new, growing markets, including Austin, Corpus Christi, and Texas City. In addition, we will be able to substantially reduce corporate costs, yet still offer more services to customers. We also expect to realize solid growth on the system, primarily due to increased demand for natural gas to fuel new gas-fired power plants that are being built along the pipeline."

Tejas Gas has access to the major supply areas of South Texas, the Texas Gulf Coast, and East Texas. It is a major provider of gas to refining, petrochemical, gas and electric utilities, independent power generation, and industrial markets.

Kinder said, "Tejas Gas has long-term pipeline transportation and sales contracts in place and operates fee-based facilities, which fits our strategy perfectly."

KMP has announced almost $1.4 billion in acquisitions in 2001 and over $6 billion since its formation less than 5 years ago. KMP said it has maintained a strong balance sheet by issuing equity in conjunction with accretive transactions.

Kinder said, "Our accretion guidance conservatively assumes that the Tejas transaction is financed with sufficient equity to return KMP to its targeted 40% debt-to-total-capital ratio. We expect the vast majority of the equity will be raised via another offering of Kinder Morgan Management LLC shares to institutional investors once the transaction closes. We do not expect to issue additional KMP common units in a public offering."

He said the acquisition will be accretive to cash available for distribution to KMP unitholders and the annual distribution per unit would be increased at least 10¢ to $2.30 in the first full quarter after the transaction closes.

"We now expect to achieve KMP's previously announced annualized distribution target of at least $2.50 per unit by yearend of 2002, without any additional acquisitions. Additionally, we are increasing our 2002 earnings per share guidance for Kinder Morgan Inc. by 15¢ to between $2.55 and $2.65, up from the previously announced level of between $2.40 and $2.50. We are comfortable with the low end of this range, which represents an approximate 35% increase over 2001 consensus estimates of $1.91, without additional acquisitions."

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