Kinder Morgan to acquire Hiland Partners for US$3 billion

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Kinder Morgan to acquire Hiland Partners for US$3 billion

Kinder Morgan, Inc. has announced that KMI will acquire Hiland Partners from its founder, Harold Hamm, and certain Hamm family trusts, for a total purchase price of approximately US$3 billion, including the assumption of debt.

Hiland’s assets, which are mostly fee based, consist of crude oil gathering and transportation pipelines and gas gathering and processing systems, primarily serving production from the Bakken Formation in North Dakota and Montana, USA. The transaction creates a premier midstream platform for KMI in the Bakken with a significant amount of acreage dedicated under long-term gathering agreements. Hiland’s customers include Continental Resources, Inc. (Continental), Oasis Petroleum Inc., XTO Energy Inc., Whiting Petroleum Corporation and Hess Corporation, among others.

  • Hiland’s crude oil gathering systems consist of approximately 1,225 miles of gathering pipelines that deliver crude oil to the basin’s major takeaway pipelines and rail terminals. At closing, 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. At closing, Hiland’s largest oil gathering dedication will be with Continental, which has dedicated the majority of its Bakken acreage to Hiland’s gathering systems under a long-term agreement, including substantial acreage in McKenzie, Mountrail and Williams counties in North Dakota.
  • Hiland’s Double H Pipeline is a 485-mile pipeline that will transport crude oil from Hiland’s Dore Terminal in North Dakota to Guernsey, Wyoming, where Double H interconnects with Pony Express Pipeline for further transportation to Cushing, Oklahoma. Double H Pipeline is in the final stages of construction and is expected to begin service by the end of the month. Double H Pipeline will have an initial capacity of approximately 84,000 barrels per day, with an expansion to approximately 108,000 barrels per day in 2016. The pipeline has firm take-or-pay contracts for approximately 60,000 barrels per day and is currently conducting an open season for additional commitments.
  • Hiland’s gas gathering and processing systems consist of approximately 1,800 miles of gathering pipelines and, upon completion of a plant expansion in 2015, 240 million cubic feet per day of gas processing capacity and 30,000 barrels per day of fractionation capacity. These systems process associated gas from oil production and have approximately 3.7 million acres dedicated under long-term agreements with major Bakken oil producers. Additionally, Hiland’s Midcontinent systems gather and process gas in the Woodford shale and other areas of Oklahoma.

Based on its long-term forecast for Hiland, KMI expects that the multiple of EBITDA paid for Hiland, including future growth capital investments, will decline to approximately 10 times by 2018. The acquisition is expected to be modestly accretive to KMI’s cash available to pay dividends in 2015 and 2016 and approximately six to seven cents accretive beginning in 2017.

KMI Chairman and CEO, Richard D. Kinder, stated:

“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’s projections for Hiland are reflective of the current commodity price environment. While Hiland’s gathering systems serve some of the Bakken’s and North America’s most economic acreage, the projections incorporate announced reductions in drilling activity by Hiland’s customers. Although Hiland’s cash flow is largely fee-based, our projections are based on commodity prices consistent with the current forward curve for the portion that is sensitive to commodity prices.”

Kinder Morgan anticipates retaining nearly all of Hiland’s approximately 430 employees and maintaining KMI’s already significant presence in Oklahoma.

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