MLP Merger Closings Keep MLP Interest Alive

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The two largest oil and gas midstream (pipeline) companies in the United States each closed a major deal Friday. One was the $3 billion acquisition of pipeline, gathering and processing company Hiland Partners by Kinder Morgan Inc. (NYSE: KMI). Hiland was owned by shale developer Harold Hamm and certain Hamm family trusts and operates primarily in the Bakken play in North Dakota and Montana.

The second deal that closed was the acquisition of Oiltanking Partners L.P. (NYSE: OILT) by an affiliate of Enterprise Products Partners L.P. (NYSE: EPD) in a two-step transaction valued at around $5.9 billion. The first step in the deal was completed in October, with an Enterprise payment of approximately $4.41 billion to acquire about 66% of Oiltanking Partners’ outstanding common units, its general partner and the general partner’s incentive distribution rights. In the second step completed Friday, Enterprise exchanged 1.3 Enterprise common units for each common unit of Oiltanking Partners that it did not already own. Friday was the last day that Oiltanking will trade on the New York Stock Exchange.

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Kinder Morgan’s acquisition of Hiland Partners gives the company a significant position in the Williston Basin, serving producers like Hamm’s own Continental Resources, Oasis Petroleum, XTO Energy, Whiting Petroleum and Hess, among others. The acquisition is expected to be slightly accretive to Kinder Morgan’s cash available to pay dividends in 2015 and 2016 and to add approximately six to seven cents to the dividend beginning in 2017.

Enterprise has now acquired a company that it has done business with for 31 years and that owned 12 ship and barge docks on the Houston Ship Channel and the Port of Beaumont, Texas, with about 24 million barrels of storage for both crude oil and refined products. Prior to the completion of the acquisition, Enterprise estimated that it generated about 40% of Oiltanking Partners’ 2013 EBITDA. Oiltanking Partners was already connected to the existing Enterprise Crude Houston (ECHO) facility, with its 800,000 barrels of crude oil capacity. Enterprise plans to bring the total at ECHO to 6 million barrels and another 8 million barrels per day of refining and water capacity.

When the Enterprise-Oiltanking Partners deal was announced in October, Enterprise said it expected at least $30 million in synergies and cost savings, among other benefits, and expects the acquisition to be accretive to distributable cash flow beginning in 2016.

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Kinder Morgan shares traded up about 0.2% in the noon hour Friday, at $41.85 in a 52-week range of $30.81 to $43.18.

Enterprise stock traded up about 0.9%, at $34.56 in a 52-week range of $16.21 to $41.38.