Kinder Morgan Q4 Profit Plunges; To Buy Hiland Partners In $3 Bln Deal

(RTTNews) - Energy infrastructure company Kinder Morgan, Inc. (KMI) agreed Wednesday to acquire Hiland Partners LP from its founder and oil billionaire Harold Hamm, and certain Hamm family trusts, in a deal valued at about $3 billion, including the assumption of debt. The deal, which is expected to close during the first quarter of 2015, will boost Kinder Morgan's midstream position in North Dakota's Bakken shale.

Hiland Partners is a pipeline and logistics company founded by Continental Resources, Inc. (CLR) CEO Harold Hamm. It operates 1,225 miles of oil pipelines and 2,500 miles of natural gas lines primarily in the Bakken shale in North Dakota and Montana as well as Oklahoma.

Hiland's customers include Continental Resources, Inc. (CLR), Oasis Petroleum, Inc. (OAS), XTO Energy Inc., Whiting Petroleum Corp. (WLL) and Hess Corp. (HES), among others.

"We are delighted to establish a substantial midstream footprint in one of the most prolific oil producing basins in the United States. Hiland's systems serve some of the Bakken's largest and most successful producers, including Continental. We look forward to continuing to provide high quality midstream services to these producers and pursuing incremental growth opportunities in the basin," Kinder Morgan CEO Richard Kinder said in a statement.

The oil pipeline and other energy assets being acquired by Kinder Morgan are mostly fee based, including crude oil gathering and transportation pipelines and gas gathering and processing systems, primarily serving production from the Bakken Formation in North Dakota and Montana.

Houston, Texas-based Kinder Morgan said it anticipates retaining nearly all of Hiland's about 430 employees and maintaining its Kinder Morgan's already significant presence in Oklahoma.

Following the closure of the deal, the crude oil gathering systems will have more than 1.8 million acres dedicated under long-term, fee-based agreements with major Bakken oil producers, with Hiland's largest oil gathering dedication being with Continental.

Based on its long-term forecast for Hiland, Kinder Morgan projects the multiple of EBITDA paid for Hiland, including future growth capital investments, to decline about 10 times by 2018.

The deal is also expected to add modestly to Kinder Morgan's cash available to pay dividends in 2015 and 2016 and about six to seven cents accretive beginning in 2017.

Separately, Kinder Morgan announced that its board has approved a 10 percent increase in quarterly cash dividend to $0.45, payable on February 17 to shareholders of record as of the close of business on February 2, 2015.

The company also reconfirmed expectation to declare dividends of $2.00 per share for 2015, and said it will generate additional cash of over $500 million in excess of its dividend.

Even adjusting for current commodity prices, the company expects to have significant excess coverage in 2015 and expects to increase its dividends by 10 percent each year from 2016 through 2020.

Kinder Morgan also reported fourth-quarter net income attributable to the company of $126 million or $0.08 per Class P share, sharply lower than $338 million or $0.33 per share in the prior-year quarter.

Excluding special items, adjusted net income for the quarter was $664 million, compared to $640 million last year. Distributable cash flow, before certain items, was $1.28 billion or $0.60 per share, compared to $482 million or $0.46 per share in the year-ago quarter.

On average, 13 analysts polled by Thomson Reuters expected the company to report earnings of $0.34 per share for the quarter. Analysts' estimates typically exclude special items.

Revenue for the quarter increased to $3.95 billion from $3.87 billion in the same quarter last year, but missed nine Wall Street analysts' consensus estimate of $4.30 billion.

"While we experienced some headwinds in the fourth quarter due primarily to commodity pricing, Kinder Morgan demonstrated once again that our large diversified portfolio of mostly fee-based assets can produce good results even in tumultuous market conditions," Kinder stated.

Further, the board of Kinder Morgan announced that President and COO Steve Kean will become CEO of Kinder Morgan, effective June 1, 2015. Kean will succeed Richard Kinder, who will then become executive chairman in order to ensure a seamless transition. Kinder is also the largest shareholder of Kinder Morgan.

"I'm delighted that Steve will become our next CEO and have every confidence that he and the rest of our executive management team will continue to do an outstanding job. As for me, I'm not going anywhere and will remain involved in all major company decisions, including acquisitions and capital projects," Kinder added.

KMI closed Wednesday's regular trading session at $42.00, up $0.18 or 0.43% on a volume of 10.66 million shares. However, the stock lost $0.75 or 1.79% in after-hours trading.