Monday, October 17, 2011

El Paso E&P Sale Makes Kinder Purchase Work

As more details of the agreed-to Kinder Morgan purchase of El Paso Corp. come out, it looks like the biggest variable will be the sale of El Paso's exploration and production business.  A sale could generate anywhere between $7 and $10 billion, which would represent a third to nearly half of the $21 billion equity value of the deal.  The numbers don't really work for Kinder Morgan if the E&P sale isn't done alongside larger deal in Q2 2012.

While El Paso has a good acreage position in the Haynesville Shale of around 46,000 net acres, it is the half million acres the company controls in west Texas that will be more attractive to a prospective buyer.  Speculation ranges from a foreign company with a taste for shale like Statoil (Norway) or Reliance (India) to a large independent, like Hess, Apache or Occidental, that is looking to get more involved in shale.  Investment bankers have already started to market the business, and we should expect an announcement in a few months.  El Paso's E&P business will be attractive to someone.  The question is how much will Kinder Morgan get for it?

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