Kinder Morgan buys $920mn in US shale assets, will build $220mn crude/condensate pipeline

Kinder Morgan Energy Partners (KMP) will pay $855mn to Petrohawk Energy and assume $65 million in debt for Petrohawk’s 50% interest in KinderHawk Field Services (the natural gas gathering and treating services provider in the Haynesville Shale) and a 25% interest in Petrohawk’s natural gas gathering and treating business in the Eagle Ford Shale.

Additionally, KMP said it plans to invest approximately $220mn to build a new crude/condensate pipeline with a capacity of approximately 300,000 bpd that will initially transport 50,000 bpd of condensate for Petrohawk from its production area in the Eagle Ford to the Houston Ship Channel.

“We are pleased to increase our footprint in the Eagle Ford and Haynesville shale plays by acquiring these fee-based assets from Petrohawk and building a crude/condensate pipeline,” said CEO Richard Kinder. “As we detailed at our recent investor conference, we expect opportunities in the prolific natural gas shales to be a primary driver of future growth at KMP.

“In addition to our natural gas business segment, which will benefit from the acquisition, our products pipelines segment will realize growth from the construction and operation of the new pipeline that will transport condensate and crude oil,” he continued.

“We have executed a long-term anchor agreement with Petrohawk for 50,000 bpd of condensate, and this new pipeline offers the potential to ship significant incremental third-party volumes above that amount.”

Upon closing, which is expected in the third quarter of 2011, KMP will own 100% of KinderHawk, the largest natural gas gathering and midstream business in the Haynesville Shale of northwest Louisiana.

KinderHawk currently has more than 400 miles of pipeline with over 2 billion cubic feet (Bcf) per day of pipeline capacity and throughput of over 0.9 Bcf per day. Throughput is expected to reach 1.2 Bcf per day by year end.

In the Eagle Ford Shale in south Texas, KMP and Petrohawk will form a joint venture (KMP will own 25% and Petrohawk 75%) that will own two midstream gathering systems in and around Petrohawk’s Hawkville and Black Hawk fields. The joint venture, which will have a life of lease dedication of Petrohawk’s reserves, will provide Petrohawk and other area producers with gas and condensate gathering, treating and condensate stabilization services.

Combined, the joint venture assets will consist of more than 280 miles of gas gathering pipelines and approximately 112 miles of condensate gathering lines to be in service by year end. KMP already has a significant presence in the Eagle Ford through its existing assets and its joint venture with Copano Energy, which provides natural gas gathering, transportation, processing and fractionation services to various customers.

KMP’s crude/condensate pipeline will consist of about 61 miles of new-build construction and 109 miles of existing natural gas pipeline that is being converted. Service to KMP’s natural gas customers in the Houston Ship Channel will not be affected by this optimization of the company’s Texas intrastate pipeline system.

The pipeline will originate in Petrohawk’s Black Hawk Field near Cuero, Texas, and extend to the Houston Ship Channel where it will initially deliver condensate to multiple terminaling facilities with access to local refineries, petrochemical plants and docks. The new pipeline is expected to be in service in the second quarter of 2012.

“We believe the crude/condensate pipeline will be very attractive to other Eagle Ford producers who are looking to get their products into the marketplace,” Kinder said. “We are in the advanced stage of discussions with other producers, which are expected to result in substantial additional throughput agreements in the future.”