Billionaire Kinder eyes consolidation with shale boom

11 Aug 2014

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In a bid to cash on the US shale drilling boom, Houston billionaire Richard Kinder is strengthening his pipeline empire to position it to $1.5 trillion in potential purchases and expansion projects, Bloomberg reported.

Kinder Morgan Inc has plans for acquisition of all of Kinder Morgan Energy Partners LP, Kinder Morgan Management LLC as also El Paso Pipeline Partners LP in a series of transactions valued at about $44 billion, according to a statement yesterday.

With the move, Kinder, who controls the entities through his 24 per cent stake in the parent company, takes a contrarian step to the industry trend of spinning off pipelines and oil terminals into tax-advantaged partnerships that funneled cash to investors.

The simplification of his empire's corporate structure would drop borrowing costs. It would also unify the company under a single stock that could be used as currency to buy competitors.

The company said in a slide presentation on its website yesterday that the consolidation would make it easier and more profitable for Kinder ''to pursue expansion and acquisitions in a target-rich environment.''

Investors had been pushing for consolidation, cutting costs and increasing profits.

According to The New York Times, master limited partnerships (MLPs) had become an increasingly popular and lucrative structure for oil and gas companies as they paid no corporate taxes and distributed all profits to shareholders, much to the delight of investors.

However, with the biggest MLP of them all, Kinder Morgan, announcing its disbanding, it  would have an estimated enterprise value of about $140 billion - $100 billion of market value and $40 billion of debt - making it the third-largest energy company in the US, after Exxon and Chevron.

Kinder said in an interview that the move would simplify the structure and would allow the company to get to turbocharged growth, The New York Times reported.

With the MLP structure he pioneered in the 1990s, Kinder became a billionaire by overseeing Kinder Morgan's growth for nearly two decades. He would own 11 per cent of the new company, a stake that would account for about $11 billion of his fortune.

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