National Post (National Edition)
STREAMLINED KINDER MAY LEAD TO DEALS
We have SUCH a broad platform, virtually ANYTHING in the midstream area would FIT us
— RICH KINDER, CHAIRMAN AND CEO, KINDER MORGAN, ON THE RESTRUCTURING OF HIS ENERGY INFRASTRUCTURE COMPANY
Shares of Canadian energy pipeline and midstream companies perked up Monday on news that Houstonbased Kinder Morgan Inc.’ s US$70-billion restructuring could lead to a new wave of sizeable acquisitions in North America’s changing energy infrastructure.
In a conference call Monday, chairman and CEO Rich Kinder said the newly streamlined company — the largest energy infrastructure company in North America — could grow further through purchases in the natural gas and crude oil pipeline and processing sector.
The new company will have lower borrowing costs and can use its single stock as currency to buy competitors.
“We have such a broad platform, virtually anything in the midstream area would fit us,” Mr. Kinder said.
The move could usher a new round of deal-making in a business that is transforming itself as a result of the oil and gas shale boom.
The discoveries have created demand for new pipelines and processing facilities within North America, or to repurpose infrastructure used for oil and gas imported from abroad.
RBC Dominion Securities Inc. analyst Robert Kwan said the deal is a positive for Canadian pipeline and midstream companies and any lift in valuation resulting from a more acquisitive environment could spill over to Canadian names.
The company’s lower cost of capital could result in project growth in Canada, where Kinder Morgan owns the Trans Mountain oil pipeline from Alberta to the West Coast, Mr. Kwan said in a report Monday.
Keyera Corp. rose 1.42%, Pembina Pipeline Corp. was up 2.59% and TransCanada Corp. was up 0.32% at close Monday in Toronto, while Enbridge Energy Transfer Partner LP was up 2.65% in New York.
Kinder Morgan has had its eyes on Canada since 2005, when it entered the country with the purchase of Terasen Inc. for $6.9-billion and talked about becoming a major player in the transportation of crude from the oil sands.
Its major asset is the TransMountain pipeline from Edmonton to Burnaby, which has proposed a major expansion now under review by the National Energy Board.
It also owns the Cochin pipeline, the Puget Sound and the Trans Mountain Jet Fuel pipelines, the Westridge marine terminal, the Vancouver Wharves terminal in British Columbia, and the North Forty terminal in Edmonton.
“This acquisition by Kinder Morgan Inc. will have no impact on or result in any chan- ges to the operations of Kinder Morgan Canada or its assets,” said Andrew Galarnyk, director of external relations at Kinder Morgan Canada.
The company announced Sunday it would put all its publicly traded units under one roof in a US$70-billion restructuring to address investor concerns about its growth prospects and complicated financial structure.
Under the deal, Kinder Morgan will consolidate master limited partnerships (MLPs) Kinder Morgan Energy Partners, El Paso Pipeline Partners LP and Kinder Morgan Management LLC, shedding the tax-advantaged legal structure it had popularized.
The deal is expected to close in the fourth quarter.
Mr. Kinder said the company had grown so large and was paying out so much cash to its general partners it was hindered in making acquisitions by a higher cost of capital.
MLPs, which pay no taxes if they distribute the bulk of their earnings to investors, have come under greater scrutiny in the United States.
The Internal Revenue Service this year halted approvals for new MLPs that stray from the traditional pipeline model.
Meanwhile, Kinder Morgan’s overall valuation suffered because it traded as four entities and the market struggled to understand its business.
Investors have been putting pressure on Mr. Kinder, 69, to consolidate, cut costs and increase profits. Mr. Kinder is a former Enron Corp. president who formed Kinder Morgan in 1997, growing the company from 175 employees to about 11,000 employees.
His personal stake of 243.1 million shares makes him the largest individual investor. The value of his holdings surged by almost US$1-billion after he said he would consolidate his companies to grow faster.