Kinder Morgan Energy Partners L.P.
) recently announced that it will divest certain assets for $3.3
billion to Tallgrass Energy Partners, LP. The sale includes Kinder
Morgan Interstate Gas Transmission, Trailblazer Pipeline Company,
the Casper-Douglas natural gas processing and West Frenchie Draw
treating facilities in Wyoming and the partnership's 50% interest
in the Rockies Express Pipeline (REX).
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Per the deal, Kinder Morgan will receive $1.8 billion in cash. The
total divestiture value however includes the proportionate amount
of the REX debt. The deal is expected to close by the fourth
quarter of this year subject to requisite approvals and fulfillment
of necessary conditions.
Kinder Morgan plans to use the proceeds to repay a $2.0 billion
credit facility which was issued earlier this month to acquire
stakes of Tennessee Gas Pipeline as well as El Paso Natural Gas
from its parent company
Kinder Morgan Inc.
The agreement will ensure stable cash flow to Kinder Morgan and its
unit holders over the future.
Kinder Morgan Energy partners is one of the largest publicly traded
master limited partnerships and generally serves as a benchmark for
the pipeline master limited partnership (MLP) group. A focus on
fee-based and diversified businesses has enabled the partnership to
spread its business ventures. In addition, the CO2 business is a
major growth avenue for the partnership with the commodity price
risk being offset by a long-term hedging strategy.
However, as inherent in all oil and gas majors, Kinder Morgan
remains vulnerable to volatile crude oil and natural gas prices,
imbalance between supply and demand for its products and rising
interest rates. Such factors can hurt the partnership's volumes and
As such, we see the stock performing in line with the broader
market and maintain our long-term Neutral recommendation, supported
by a Zacks #3 Rank (short-term Hold rating).