Houston-based Kinder Morgan Inc. announced after the markets closed Monday that it agreed to acquire NextEra Energy Partner’s South Texas assets, STX Midstream, for $1.815 billion.
The transaction requires clearance under Hart-Scott-Rodino and is expected to close in the first quarter of 2024.
A Kinder Morgan spokesman told The Texas Lawbook that Locke Lord’s Kevin Peter and David Wilhelm advised KMI and Hogan Lovells’s Greg Hill represented NextEra. Eric McCord, KMI’s deputy general counsel, worked on the deal in-house.
Besides Peter, other members of the Locke Lord team include: John Arnold, Pat Beaton, Derrick Carson, Ben Cowan, Laura L. Ferguson, Eric Larson, Terry Radney, Jennie Simmons, Elizabeth Guffy, Nicole Davies, Lauren Richter, Case Towslee (all of Houston) and Van Jolas (Dallas).
John Ketchum, chairman and CEO of Juno Beach, Fla.-based NextEra, said the agreement is an important next step in company’s transition plans and the proceeds would be sufficient to pay off the outstanding project-related debt ($425 million) and address the equity buyouts of the STX Midstream and NEP Renewables II convertible equity portfolio financings ($1.1 billion).
NextEra said it would use the remaining proceeds to pay down a portion of the outstanding corporate revolver.
Tudor Pickering Holt said in a note that the deal screens in line with the EBITDA multiples for the assets and KMI was the likely buyer given the alignment with company’s focus on longer-term, take-or-pay contracts.
The STX Midstream pipeline system includes a set of integrated, large diameter high pressure natural gas pipelines that connect the Eagle Ford basin to key growing Mexico and Gulf Coast demand markets, Kinder Morgan said in a release.
STX Midstream includes a 90 percent interest in the NET Mexico pipeline, with MGI Enterprises, a Pemex affiliate, owning the other 10 percent.
The unit owns and operates Eagle Ford Midstream, a 158-mile residue line connecting the Eagle Ford basin to the Agua Dulce Hub in Nueces County, Texas, connected to multiple pipeline systems, including KMI’s Tennessee Gas Pipeline, Kinder Morgan Tejas Pipeline and Natural Gas Pipeline Company of America.
STX Midstream also owns a 50 percent interest in Dos Caminos, which is operated by, and the other 50 percent interest owned by, Howard Energy Partners. Dos Caminos has placed in service a 62-mile pipeline that connects HEP’s existing midstream pipeline and facilities in Webb County, Texas, to KMI’s new Eagle Ford pipeline, which was recently placed in service.
The portfolio of assets is highly contracted, with an average contract length over eight years. About 75 percent of the business is supported by take-or-pay contracts.
“This is a very attractive acquisition for KMI,” Sital Mody, KMI’s president of natural gas pipelines, said in a statement. “STX Midstream nicely complements our existing assets and will enable us to capture incremental opportunities serving LNG, power generation, LDC customers and exports to Mexico.”
KMI expects the investment to be accretive to its shareholders, with the purchase price representing a 2024 EBITDA multiple of 8.6 times and a long-term investment-to-EBITDA multiple of 7 to 7.5 times, based on KMI’s financial projections and inclusive of commercial synergies.
Initially, KMI plans to fund the transaction with cash on hand and short-term borrowings. Based on its longer-term funding plans, KMI expects the transaction to be neutral to KMI’s balance sheet.