Kinder Morgan Will Combine Its Family of Pipeline, Storage Firms

By Jonathan Fahey

NEW YORK -- The group of oil and gas pipeline and storage companies controlled by Kinder Morgan but traded separately will combine and become the fourth biggest U.S. energy company by market value.

The companies announced Sunday that Kinder Morgan Inc. (KMI), Kinder Morgan Energy Partners (KMP), Kinder Morgan Management (KMR) and El Paso Pipeline Partners (EPB) will all combine under the Kinder Morgan Inc. umbrella and trade under the KMI ticker symbol. Houston-based Kinder Morgan Inc. says the total purchase price of the three other companies is $71 billion, including $27 billion of assumed debt.

The combined market value of the four companies was $92 billion as of the close of the market Friday. That would make it the fourth largest U.S. energy company after Exxon Mobil (XOM), Chevron (CVX)  and ConocoPhillips (COP).

The combination means Kinder Morgan will abandon a novel corporate structure it pioneered and leveraged to great benefit, called the master limited partnership. MLPs are given special tax breaks in part because they distribute much of their cash flow to investors and the partners who run the companies. MLPs have become especially popular in recent years because investors have been willing to pay a premium for high-yielding investments at a time when interest rates on savings accounts and bonds are low.

The investor enthusiasm has helped make it easier for MLPs to raise money to buy pipelines or build new ones to expand their portfolios. The Kinder Morgan Partners MLP is so big, though, that investors have questioned whether it could continue to grow under the requirement that it distribute so much of its cash.

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