Kinder Morgan is set to acquire Texas pipelines from NextEra Energy Partners in a $1.82 billion deal

Kinder Morgan, a U.S. gas pipeline operator, stated that it would acquire NextEra Energy Partners gas pipelines in South Texas. This statement was announced on Monday, 6 November 2023. The deal is said to be worth $1.82 billion.

There have been several mergers and acquisitions this year in the oil and gas pipeline business. The main factor behind this is the difficulty in achieving permits to construct new pipelines amid growing demand in the U.S. This makes the existing pipeline operators more valuable.

NextEra Energy Partners' (NEP) Texas natural gas pipeline collection, STX Midstream, predominantly comprises seven pipelines that supply natural gas to both Mexico and South Texas' power producers and municipalities. These pipelines collectively possess a transport capacity of 4.9 billion cubic feet per day.

Kinder Morgan stated, "Initially, we intend to finance the transaction using available cash reserves and short-term borrowings," in a released statement. The deal is expected to conclude in the first quarter of 2024.

NEP, a subsidiary of NextEra Energy (NEE.N), established to acquire, operate, and own contracted energy projects, has witnessed a 44% decrease in its share value since September 27, following a revision of its distribution growth forecast through 2026. This downward trend is attributed to higher interest rates, which have increased project costs and adversely impacted NEP's growth, as per analysts' assessments.

John Ketchum, CEO of NextEra Energy Partners, stated, "Upon completion, the proceeds will be adequate to settle the outstanding project-related debt." According to NEP's report, the sale price is indicative of a multiple of roughly 10 times the projected adjusted core profit for the Texas natural gas pipeline portfolio in the calendar year 2023. Guggenheim Securities analysts noted that this valuation aligns with recent trading multiples for midstream sector constituents and falls below certain transaction benchmarks. Nonetheless, they emphasized that the deal offers some flexibility in credit metrics.