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Kinder Morgan, Inc. (KMI) has announced a definitive agreement whereby KMI will acquire Hiland Partners (Hiland) 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鈥檚 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. The transaction creates a premier midstream platform for KMI in the Bakken with a significant amount of acreage dedicated under long-term gathering agreements. These acreage dedications are with some of the Bakken鈥檚 largest and most successful producers, covering some of the most attractive and economically viable areas in the basin. Hiland鈥檚 customers include Continental Resources, Inc., Oasis Petroleum Inc., XTO Energy Inc., Whiting Petroleum Corporation and Hess Corporation, among others.

Hiland鈥檚 crude oil gathering systems, located in North Dakota and Montana, consist of approximately 1225 miles of gathering pipelines that deliver crude oil to the basin鈥檚 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鈥檚 largest oil gathering dedication will be with Continental, which has dedicated the majority of its Bakken acreage to Hiland鈥檚 gathering systems under a long-term agreement, including substantial acreage in McKenzie, Mountrail and Williams counties in North Dakota.

Hiland鈥檚 crude oil transportation pipeline, the Double H Pipeline, is a 485 mile pipeline that will transport crude oil from Hiland鈥檚 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 bpd, with an expansion to approximately 108 000 bpd in 2016. The pipeline has firm take-or-pay contracts for approximately 60 000 bpd and is currently conducting an open season for additional commitments.

Hiland鈥檚 gas gathering and processing systems in North Dakota and Montana consist of approximately 1800 miles of gathering pipelines and, upon completion of a plant expansion in 2015, 240 million ft³/d of gas processing capacity and 30 000 bpd 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鈥檚 Midcontinent systems gather and process gas in the Woodford shale and other areas of Oklahoma.

鈥淲e are delighted to establish a substantial midstream footprint in one of the most prolific oil producing basins in the United States,鈥� said KMI Chairman and CEO Richard D. Kinder. 鈥淗iland鈥檚 systems serve some of the Bakken鈥檚 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.鈥�

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鈥檚 cash available to pay dividends in 2015 and 2016 and approximately six to seven cents accretive beginning in 2017.

鈥淜inder Morgan鈥檚 projections for Hiland are reflective of the current commodity price environment. While Hiland鈥檚 gathering systems serve some of the Bakken鈥檚 and North America鈥檚 most economic acreage, the projections incorporate announced reductions in drilling activity by Hiland鈥檚 customers,鈥� explained Kinder. 鈥淎lthough Hiland鈥檚 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.鈥� Kinder Morgan anticipates retaining nearly all of Hiland鈥檚 approximately 430 employees and maintaining KMI鈥檚 already significant presence in Oklahoma.

鈥淭hrough the hard work of its employees, Hiland has become a premier midstream company. This transaction is about expanding our midstream footprint and Hiland鈥檚 employees will be a critical part of that growth,鈥� said Kinder. 鈥淲e expect this transaction will provide opportunities for Hiland鈥檚 many talented employees.鈥�

The transaction is subject to customary closing conditions, including regulatory approval. Kinder Morgan expects to close the transaction in the first quarter of 2015. Bracewell & Guiliani acted as legal counsel to KMI. UBS Securities LLC has provided a US$2.025 billion bridge financing facility to KMI.

Adapted from press release by

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