Midstream merger mania just getting started

Author Tom Fowler

The 60pc collapse in crude prices has kicked-off what’s expected to be a busy period in energy mergers and acquisitions.

The 60pc collapse in crude prices has kicked-off what’s expected to be a busy period in energy mergers and acquisitions.

In October Enterprise Products Partners said it would acquire Oiltanking Partners in a $6bn deal that would combine two major operators of crude storage and pipelines on the US Gulf coast. In November Halliburton said it would acquire energy services rival Baker Hughes for $37bn, a reaction to what was then a more modest price drop.

Enlink Midstream said it would acquire hedge fund-backed Coronado Midstream, which owns natural gas and processing facilities in the Permian basin, for $600mn. And US independent producer Pioneer Natural Resources said it is looking to sell its Eagle Ford midstream business, a trend that other exploration and production companies may follow, Fitch Ratings said. 

But Kinder Morgan is shaping up to be the pacesetter for M&A, particularly in the midstream business.

Back in August, when Kinder Morgan announced it would simplify itself in a stock buyout that would eliminate the tax-advantaged master limited partnership (MLP) structure it had used for years, chief executive Rich Kinder said the company would be poised for acquisitions.

“We have over 120 MLPs out there with enterprise value of well over $800bn dollars, so I think it's a fertile field to do a little grazing in," Kinder said.

Kinder has kept true to his word. In January Kinder Morgan bought a 600,000 bl refined products terminal in Philadelphia, Pennsylvania, from Cronus Partners for an undisclosed amount, then announced plans to buy three terminals and one undeveloped site from Royal Vopak for about $158mn. Kinder also purchased Bakken pipeline company Hiland Partners from founder and Continental Resources chief executive Harold Hamm for $3bn, including debt.

Opportunistic growth is in the very DNA of Kinder Morgan, which was formed in the late 1990s based on pipeline and terminal assets that the late Enron no longer found valuable in the early days of online commodity trading. The company has gone public and then return to private ownership repeatedly over the years based on market conditions, each time re-emerging larger than the time before.

Many observers, including Continental chief executive Harold Hamm, expect Kinder Morgan to keep on grazing.

"That's not going to be the only pipeline they're going to do up there," Hamm told Argus at the Crude Summit last month. "You know how Rich is."

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