Love this deal… keep expanding the Texas nat gas virtual monopoly they have. Looks like a roughly 10% annual return on the purchase assuming zero efficiencies and profit expansion. The Mexico part is huge as gas exports continue to climb and are currently hitting record numbers.
How is the Mexcian nat gas market?
Mexico’s precarious situation when it comes to energy security, and especially natural gas, which currently comprises 48 percent of the country’s energy matrix and is the country’s largest single fuel source. While consumption has risen steadily, Mexico has underinvested in domestic production and grown rapidly reliant on U.S. exports to meet around 70 percent of its domestic demand. Some industries, especially those near the U.S.-Mexico border, are almost entirely dependent on imports to sustain their operations.
There will be plenty of demand for KMI’s gas from this deal for many years.
The Release:
$1.8 billion acquisition of 462 miles of pipeline with 4.9 billion cubic feet per day of transport capacity
HOUSTON–(BUSINESS WIRE)– Kinder Morgan, Inc. (NYSE: KMI) today announced that it has agreed to acquire NextEra Energy Partner’s South Texas assets, STX Midstream, for $1.815 billion. 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. STX Midstream includes a 90% interest in the NET Mexico pipeline; MGI Enterprises, a PEMEX affiliate, owns the other 10%. STX Midstream 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. Eagle Ford Midstream is 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% interest in Dos Caminos LLC, which is operated by, and the other 50% interest owned by, Howard Energy Partners (HEP). 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 8 years. Approximately 75% of the business is supported by take-or-pay contracts.
“This is a very attractive acquisition for KMI,” said Sital Mody, KMI President of Natural Gas Pipelines. “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 approximately 7.0-7.5 times, based on KMI’s financial projections and inclusive of commercial synergies. Initially, we plan to fund the transaction with cash on hand and short-term borrowings, increasing our Net Debt-to-EBITDA ratio by approximately 0.1 times after including a full year EBITDA contribution from the asset. Based on our longer-term funding plans, we expect this transaction to be neutral to KMI’s balance sheet.
The transaction requires clearance under Hart-Scott-Rodino and is expected to close in the first quarter of 2024. A presentation including information relating to this transaction has been posted to the Investor Relations page on KMI’s website.
