Southern Company & Kinder Morgan announce gas pipeline venture

Southern Company & Kinder Morgan announce gas pipeline venture

US-based Kinder Morgan Inc. (NYSE:KMI) announced it is selling a stake in a 7,600-mile natural-gas pipeline to utility Southern Company (NYSE:SO) for US$1.47 billion amid falling electricity demand.

The Southern Natural Gas pipeline system links natural-gas fields across the US Gulf Coast and the Gulf of Mexico to markets in the Southeast. Southern is one of the pipeline’s customers.

Kinder Morgan is looking to reduce its debt and the sale of the 50% stake will assist in bringing the company’s ratio of debt to earnings before interest, taxes and depreciation and amortisation below the level it has chosen for the year.

In addition, the two companies will try to collaboration on additional projects expanding the pipeline system.

Kinder Morgan said the agreement has been in the works for a year. The firm reduced its dividend by 75% late last year as it dealt with a choice between using its cash for growth and financing the pay-out. The new deal will help Kinder restore its dividend.

Steve Kean, chief executive of Kinder Morgan said: “The transaction significantly advances our effort to strengthen our balance sheet and move us closer to returning value to shareholders in the form of an increased dividend or stock repurchases.”

Thomas Fanning, Southern chairman and CEO said the pipeline stake will position the company “for future growth opportunities and enhanced access to natural gas, which are expected to benefit customers and investors alike.”

Kinder said it plans to put its balance sheets in order, cut spending plans and is looking for additional joint-partners for future projects.