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January 30, 2013 8:18 am
Kinder Morgan Energy Partners, the US gas and oil pipeline group, is acquiring Copano Energy, another US partnership that operates gas gathering and processing facilities, in an all-paper deal worth about $5bn.
The acquisition, Kinder’s first big deal since the $38bn takeover of El Paso, announced in 2011, positions Kinder to benefit from the pressure on oil companies to cut the volume of gas that they burn off in flares.
Copano has a joint venture with Kinder in the Eagle Ford shale of south Texas, one of the most active areas in the US for new oil development, and is also active in the Woodford shale and Mississippi Lime regions of Oklahoma, widely seen as two of the most promising areas for the future.
Over the past five years there has been a steep increase in the volume of unwanted gas flared off by US oil companies.
The new oilfields opened up by the shale revolution are often in remote locations that are not connected up to gas infrastructure. This, coupled with the low price of gas caused by the shale gas boom, means it is often not commercially attractive to install it.
However, oil companies are coming under pressure from environmental campaigners worried about the waste of resources and the pollution it causes, and many are setting targets to reduce their flaring.
With gas gathering and processing facilities in several important oilfields, Copano is well-placed to benefit from companies deciding they need to make more productive use of their gas.
Its services are also generally complementary to Kinder’s, operating at a more local level than Kinder’s pipelines, many of which cover long distances.
The surge in US gas production has sent prices tumbling, straining the finances of many companies in the industry.
However, Richard Kinder, Kinder Morgan’s chief executive, said: “We continue to be bullish on the domestic shale plays, and believe they will drive substantial future growth at [Kinder Morgan].”
The terms of the deal are 0.4563 Kinder units for each one of Copano; a 23.5 per cent premium to the Copano share price on Tuesday night.
Kinder said it expected the deal to start boosting its cash flow per share as soon as it is closed, which it is planning for the third quarter of 2013.
One immediate gain will be enabling Copano to benefit from Kinder’s greater financial strength and investment-grade credit rating.
Kinder was advised by Citi, while Copano was advised by Barclays and Jefferies.
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