Kinder Morgan to buy rival pipeline firm for US$3b

Houston

KINDER Morgan, the world's largest pipeline company by market value, agreed to buy Hiland Partners for about US$3 billion, including debt, to gain a foothold in the Bakken shale formation.

Kinder will buy the rival pipeline operator from founder and Continental Resources chief executive Harold Hamm and certain Hamm family trusts, the Houston-based suitor said in a statement on Wednesday. The company also reported a 63 per cent decline in fourth quarter net income after writing down the value of some oil and natural gas properties, and said chief operating officer Steven Kean will start as CEO on June 1.

The deal is billionaire Richard Kinder's latest move to dominate shipping of US gas everywhere from the Mexican border to the outskirts of New York. The company controls 129,000 kilometres of conduits and 180 terminals, transporting about a third of US gas. Mr Kinder in November united his empire into a single company worth US$89 billion.

"They're trying to take advantage of what they view as a down market in the Bakken," Bradley Olsen, a Houston-based analyst for Tudor Pickering & Holt, said in a phone interview. "It doesn't look especially cheap on the up-front numbers. There's going to be a lot of questions about whether he's been conservative enough with his forecast for the Bakken." Shares of Kinder Morgan fell 2.4 per cent to US$41 in after-hours trading at 5 pm in New York. They're up 18 per cent from a year ago.

Hiland Partners will be the company's biggest acquisition of a non-Kinder entity since the 2012 purchase of El Paso LLC for US$37.6 billion including US$17.75 billion in debt. Kinder Morgan bought affiliates Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso on Nov 28 in the year's largest energy deal, valued at about US$50 billion.

Net income fell to US$126 million, or 8 US cents a share, from US$338 million, or 33 US cents, a year earlier, Kinder Morgan also said. Per-share profit excluding one-time items trailed the 33-cent average of 13 analysts' estimates compiled by Bloomberg.

Distributable cash flow per share before certain items, a measure of the company's ability to pay dividends, rose to 60 US cents in the fourth quarter as the payout increased to 45 US cents. BLOOMBERG