$38-Billion Takeover Eyes Natural Gas Boom

Kinder Morgan, El Paso combination will form largest natural gas pipeline network

Kinder Morgan Inc. will buy rival El Paso Corp. in a $38-billion transaction that reaffirms the potential of the domestic natural-gas industry. The two companies announced a definitive merger agreement that will create the largest owner/operator of natural gas pipelines (approx. 67,000 miles) and storage assets in North America.

The Kinder Morgan offer includes cash and stock, and the transaction has been approved by directors of each company. It is expected to close in the second quarter of 2012, following customary regulatory approvals.

Kinder Morgan owns a share of and/or operates more than 37,000 miles of pipelines and 180 terminals, handling natural gas, gasoline, crude oil, CO2, and other products, and its terminals store petroleum products and related chemicals.

El Paso owns North America's largest interstate natural-gas pipeline system and a large independent exploration and production organization. Like the recently announced merger of oilfield service suppliers Superior Energy Services Inc. and Complete Production Services Inc., the consolidation anticipates rising availability of affordable natural gas from sources like oil sands, shale oil, tight gas, and coal-bed methane.

"This once in a lifetime transaction is a win-win opportunity for both companies," stated Richard D. Kinder, Kinder Morgan chairman and CEO. "The El Paso assets are primarily regulated interstate natural gas pipelines that produce substantial, stable cash flow and have access to key supply regions and major consuming markets. The natural gas pipeline systems of the two companies are very complementary, as they primarily serve different supply sources and markets in the United States."

The prospective pipeline network would be connected to several important sites for natural gas in shale beds, including the Eagle Ford, Marcellus, Utica, Haynesville, Fayetteville, and Barnett fields. The new company also would be the largest provider of contracted natural gas treating services. It also would be the largest independent transporter of petroleum products in the U.S. (1.9 million barrels/day), and the largest U.S. transporter of CO2 (1.3 billion ft3/day.) It would be the second-largest oil producer in Texas (50,000 barrels/day) and the largest independent terminal owner/operator in the U.S. And, it would be the only oil-sands pipeline serving the West Coast.

"We believe that natural gas is going to play an increasingly integral role in North America," according to Kinder. "With the recent development of shale resources, there are now abundant domestic supplies of natural gas, which are being used increasingly to generate electricity and are environmentally friendly. If America is serious about reducing carbon emissions to benefit the environment, and reducing its dependence on foreign oil, natural gas is absolutely the best readily available option.”

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