Kinder Morgan to acquire Hiland Partners for $3 billion

Kinder Morgan Inc. (KMI) has agreed to acquire Hiland Partners from founder Harold Hamm and certain Hamm family trusts for $3 billion, including the assumption of debt. The deal is expected to close in the first quarter.

Hamm took Hiland Partners private in 2009 (OGJ Online, June 2, 2009). The assets, mostly fee-based, consist of crude oil gathering and transportation pipelines and gas gathering and processing systems, primarily serving production from the Bakken shale in North Dakota and Montana.

KMI says the deal includes a “significant amount of acreage dedicated under long-term gathering agreements.” Hiland’s customers include Continental Resources Inc., Oasis Petroleum Inc., XTO Energy Inc., Whiting Petroleum Corp., and Hess Corp., among others.

Hiland’s crude oil gathering systems in North Dakota and Montana consist of 1,225 miles of gathering pipelines that deliver crude oil to the basin’s major takeaway pipelines and rail terminals. At closing, the crude oil gathering systems will have more than 1.8 million acres dedicated under long-term, fee-based agreements with major Bakken oil producers.

At closing, Hiland’s largest oil gathering dedication will be with Continental, which has dedicated the majority of its Bakken acreage to Hiland’s gathering systems under a long-term agreement, including substantial acreage in McKenzie, Mountrail, and Williams counties in North Dakota.

Hiland’s 485-mile Double H crude oil transportation pipeline will transport crude oil from Hiland’s Dore Terminal in North Dakota to Guernsey, Wyo., where Double H interconnects with the Pony Express Pipeline for further transportation to Cushing, Okla. Hiland is in the final stages of construction and is expected to begin service by the end of the month.

Double H will have an initial capacity of 84,000 b/d, with an expansion to 108,000 b/d in 2016. The pipeline has firm take-or-pay contracts for 60,000 b/d and is currently conducting an open season for additional commitments (OGJ Online, Nov. 20, 2014).

Hiland’s gas gathering and processing systems in North Dakota and Montana consist of 1,800 miles of gathering pipelines and, upon completion of a plant expansion in 2015, 240 MMcfd of gas processing capacity and 30,000 b/d of fractionation capacity.

Those systems process associated gas from oil production and have 3.7 million acres dedicated under long-term agreements with major Bakken oil producers. Additionally, Hiland’s Midcontinent systems gather and process gas in the Woodford shale and other areas of Oklahoma.

KMI anticipates retaining nearly all of Hiland’s 430 employees. “This transaction is about expanding our midstream footprint and Hiland’s employees will be a critical part of that growth,” said Richard D. Kinder, KMI chairman and chief executive officer.

KMI last year acquired all of the outstanding equity securities of Kinder Morgan Energy Partners LP, Kinder Morgan Management LLC, and El Paso Pipeline Partners LP, creating a single publicly traded security, for a total purchase price of $71 billion (OGJ Online, Aug. 11, 2014).