The South Texas gas pipelines owned by NextEra Energy Partners (NEP.N) will be purchased by American pipeline operator Kinder Morgan (KMI.N) for $1.82 billion on Monday.
This year has witnessed a rise in consolidation in the oil and gas pipeline industry as U.S. output continues to rise, and ongoing issues with licenses for new pipelines have enhanced the value of current operators.
The STX Midstream portfolio of Texas natural gas pipelines, owned by NextEra Energy Partners (NEP), consists of seven channels that deliver natural gas to South Texas towns, power companies, and Mexico. The combined daily transport capacity of the pipes is 4.9 billion cubic feet.
Kinder Morgan stated, “At first, we intend to fund the transaction with cash on hand and short-term borrowings.” It is anticipated that the acquisition will be finalized in 2024’s first quarter.
Almost 44% of the value of NEP’s shares, which were acquired, managed, and owned by NextEra Energy (NEE.N), have been lost since the firm reduced its distribution growth estimate until at least 2026 on September 27.
Analysts claim that higher financing rates have harmed NEP’s expansion by driving up project costs. CEO of NextEra Energy Partners, John Ketchum, stated that “the proceeds would be sufficient to pay off the outstanding project-related debt upon closing.”
According to NEP, the sale price is around ten times greater than the projected adjusted core profit for the Texas natural gas pipeline portfolio in 2023.
Guggenheim Securities analysts stated, “The valuation falls in line with recent trading multiples for midstream sector constituents and below some of the transaction marks.” The analysts did note that the agreement does offer some flexibility in credit criteria.
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