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NEW YORK ( RealMoney) -- There is big news in pipelines today: Kinder Morgan Partners (KMP) is buying El Paso Energy (EP) for a big 37% premium, which will make the former the U.S. leader in pipeline mileage and volume. But, more than that, this monster merger is a tell on the future of natural gas.
No one in Washington seems to believe in it -- but Richard Kinder does. He is the kind of guy in the world of natural gas that you don't ignore. Kinder is the undisputed king of midstream, understanding the transport and storage business in natural gas as no one else in the world does. He is the godfather of the transport master limited partnership. On a basic level, he singlehandedly devised the investment vehicle to deliver fantastic dividends (actually distributions) to shareholders while avoiding the double taxation problems that had previously burdened connected natural gas exploration and production companies.
|The rise of natural gas is inevitable, and Richard Kinder is betting on it in a big way.|
Richard Kinder, CEO of Kinder Morgan Partners -- with market capitalization of $23 billion -- receives a yearly check of $1 from his company, preferring to benefit solely from distributions, as his shareholders do. He's all in the boat with his shareholders. The man was paying $26.87 a share for El Paso when it closed on Friday at a much lower $19.59, making most analysts cringe. Clearly, they will say, that's an enormous overpayment for a natural gas exploration, production and pipeline company. But it is Richard Kinder who is paying it. That makes all the difference.The exploration-and-production portion of El Paso will almost surely be spun out, because Kinder is a midstream guru. He's not interested in concentrating on the next great shale play, even as he is convinced of their monster future. It is the pipelines at El Paso that excite Kinder, as they will give him added exposure in Texas and through the midcontinent. They will deliver an enormous new pipeline system into New Mexico and Southern California to augment his own products pipeline, and add new routes dead through the mid-Atlantic and up to the North East, cutting right through Marcellus country. You don't think Richard Kinder believes in the inevitability of shale? You know he does.