Kinder Morgan Buys Copano for $3.2 Billion in Shale Deal

Kinder Morgan Energy Partners LP, the biggest U.S. pipeline company, agreed to acquire Copano Energy LLC for about $3.2 billion in stock to capitalize on rising natural gas output from shale basins in Texas, Oklahoma and Wyoming.

Kinder Morgan Energy will pay the equivalent of $40.91 a share, about 24 percent more than Copano’s closing price of $33.13 on Jan. 29, the Houston-based company said today in a statement. Including preferred shares and debt, the acquisition is worth about $5 billion, according to the statement.

The deal adds Copano’s interests in about 6,900 miles (11,100 kilometers) of pipelines and nine plants to Kinder Morgan Energy’s 46,000 miles of lines, according to the statement. Copano expands Kinder Morgan’s reach into the gathering and processing business, which includes pipelines that move gas from wells to delivery points and processing plants that strip out valuable liquids such as ethane and propane.

Demand for gas will increase as power plants and factories begin using more of the fuel, Kinder Morgan Energy Chairman and Chief Executive Officer Richard Kinder said at an analyst conference in Houston.

“The biggest single handicap to that development is making certain that we have adequate infrastructure to serve the additional supply that’s coming online and connect it to the additional demand,” Kinder said.

Texas Expansion

Copano, founded in 1992 by John Eckel, operates or owns a stake in pipelines with 2.7 billion cubic feet a day of gas throughput capacity.

The company agreed to pay 0.4563 of a share for each Copano unit, Kinder Morgan Energy said. Partnership units trade like stock. Parent company Kinder Morgan Inc. became the biggest operator of pipelines to carry gas among U.S. states when it acquired El Paso Corp. last year for $22.8 billion.

Copano’s shares rose 15 percent to $38.03 at the close in New York, the most since Oct. 13, 2008. Kinder Morgan Energy Partners fell 2.3 percent to $87.61.

With the Copano purchase, Kinder Morgan will become sole owner of a joint venture in the Eagle Ford shale in western Texas. It also will enter three other so-called liquids-rich areas in the Barnett Shale in northern Texas and in Oklahoma’s Mississippi Lime and Woodford Shale, Kinder said in the statement.

Joint Venture

The Eagle Ford joint venture began in 2009. Since then, the Eagle Ford Shale’s capacity has grown to 964 million cubic feet a day, from 47 million cubic feet a day, according to state regulators.

Kinder Morgan and Copano have signed processing contracts with producers such as Anadarko Petroleum Corp.

The transaction is expected to be completed in the third quarter of 2013, Kinder Morgan Energy said. Citigroup Inc. was Kinder Morgan Energy’s adviser, while Barclays Plc and Jefferies & Co. advised Copano Energy, according to the statement.

Kinder Morgan’s gas pipelines performed better than expected last year, although some areas, including its pipelines in the Eagle Ford Shale, suffered due to slower-than-expected production, Chief Financial Officer Kimberly Dang said on a Jan. 16 conference call.

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