Kinder Morgan, a U.S. pipeline operator, announced on Monday its plans to purchase NextEra Energy Partners’ gas pipelines in South Texas for $1.82 billion. The consolidation in the oil and gas pipeline industry has been on the rise due to the growth in U.S. production and ongoing permit issues for new pipelines, which have made existing operators more valuable.
NextEra Energy Partners’ Texas natural gas pipeline portfolio, known as STX Midstream, consists primarily of seven pipelines that supply natural gas to Mexico, as well as power producers and municipalities in South Texas. These pipelines have a combined transport capacity of 4.9 billion cubic feet per day.
Kinder Morgan stated that it intends to finance the acquisition using cash reserves and short-term borrowings. The transaction is expected to be finalized in the first quarter of 2024.
The share value of NextEra Energy Partners, a subsidiary of NextEra Energy focused on acquiring, managing, and owning contracted energy projects, has declined by approximately 44% since September 27. This drop followed the company’s revision of its distribution growth forecast through 2026, which was attributed to higher interest rates increasing project costs and impeding growth.
NextEra Energy Partners’ CEO, John Ketchum, expressed that the proceeds from the sale would be sufficient to pay off the outstanding project-related debt. The sale price represents a multiple of about 10 times the estimated calendar-year 2023 adjusted core profit for the Texas natural gas pipeline portfolio, according to NEP.
Analysts at Guggenheim Securities noted that the valuation falls in line with recent trading multiples for midstream sector companies and is below some of the previous transaction marks. They also highlighted that the deal offers some flexibility in credit metrics.
Seher Dareen and Sourasis Bose reporting from Bengaluru contributed to this article, which was edited by Shilpi Majumdar.
