Kinder Morgan Pays $3 Billion for Hiland’s Bakken Midstream Assets

By Brad Kramer January 22, 2015 View Profile

With one move, Kinder Morgan Inc. added 1,225 miles of crude oil gathering pipelines and 1,800 miles of gas gathering pipelines in the Bakken shale region.

In a deal expected to close within the first quarter of this year, Kinder Morgan announced Jan. 21 a definitive agreement to acquire Hiland Partners from its founder, Harold Hamm, and certain Hamm family trusts, for a total purchase price of approximately $3 billion, including the assumption of debt.

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Hiland’s assets, which are mostly fee-based, consist of crude oil gathering and transportation pipelines and gas gathering and processing systems, primarily serving production from the Bakken formation in North Dakota and Montana.

The transaction creates a premier midstream platform for Kinder Morgan in the Bakken with a significant amount of acreage dedicated under long-term gathering agreements. These acreage dedications are with some of the Bakken’s largest and most successful producers, covering some of the most attractive and economically viable areas in the basin.

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, located in North Dakota and Montana, consist of approximately 1,225 miles of gathering pipelines that deliver crude oil to the basin’s major takeaway pipelines and rail terminals. When the deal closes, 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 crude oil transportation pipeline, the Double H Pipeline, is a 485-mile pipeline that will transport crude oil from Hiland’s Dore Terminal in North Dakota to Guernsey, Wyoming, where Double H interconnects with Pony Express Pipeline for further transportation to Cushing, Oklahoma. Double H Pipeline is in the final stages of construction and is expected to begin service by the end of the month. Double H Pipeline will have an initial capacity of approximately 84,000 barrels per day (bpd), with an expansion to approximately 108,000 bpd in 2016. The pipeline has firm take-or-pay contracts for approximately 60,000 bpd and is currently conducting an open season for additional commitments.

Hiland’s gas gathering and processing systems in North Dakota and Montana consist of approximately 1,800 miles of gathering pipelines and, upon completion of a plant expansion in 2015, 240 million cubic feet per day (MMcf/d) of gas processing capacity and 30,000 bpd of fractionation capacity. These systems process associated gas from oil production and have approximately 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.

“We are delighted to establish a substantial midstream footprint in one of the most prolific oil producing basins in the United States,” said Kinder Morgan chairman and CEO Richard D. Kinder. “Hiland’s systems serve some of the Bakken’s largest and most successful producers, including Continental. We look forward to continuing to provide high quality midstream services to these producers and pursuing incremental growth opportunities in the basin.”

Kinder Morgan anticipates retaining nearly all of Hiland’s approximately 430 employees and maintaining Kinder Morgan’s already significant presence in Oklahoma.

“Through the hard work of its employees, Hiland has become a premier midstream company. This transaction is about expanding our midstream footprint and Hiland’s employees will be a critical part of that growth,” Kinder said. “We expect this transaction will provide opportunities for Hiland’s many talented employees.”

Bracewell & Guiliani acted as legal counsel to Kinder Morgan, and UBS Securities LLC provided a $2.025 billion bridge financing facility to the company. The transaction is subject to customary closing conditions, including regulatory approval. Kinder Morgan expects to close the transaction in the first quarter of 2015.