Apollo Buys El Paso's E&P Unit Before Kinder Morgan Closes on the Pipeline Segment

El Paso Corp Eagle Ford Shale Map
El Paso Corp Eagle Ford Shale Map

Apollo and El Paso reached a $7.15 billion agreement for El Paso's E&P segment. The deal is subject to the closing of the El Paso-Kinder Morgan pipeline merger.

El Paso's exploration and production segment has been on the sales block since the Kinder Morgan deal was announced, but the question remained whether the assets would be sold in pieces or all together.

While Apollo has been rumored to be considering the deal, it comes as a bit of a surprise that the private equity group acquire El Paso E&P. Most industry experts thought El Paso would be a great fit for an international company looking to expand its footprint in the U.S. (e.g. Statoil-Brigham). Low natural gas prices that are limiting many companies' upstream budgets might have opened a window for the Apollo group to step in.

Apollo Global Management is leading a group that includes Riverstone Holdings, Access Industries, as well as others in buying the E&P unit. The deal will have almost no tax consequences for Kinder Morgan and the company will use the proceeds to pay down debt taken on to finance the purchase El Paso Corp.

El Paso's assets are attractive even at low natural gas prices because the company has significant oil/liquids producing acreage positions in the Uinta Basin in Utah, the Niobrara in the Rockies, the Wolfcamp in West Texas, and the Eagle Ford Shale of La Salle and Dimmit counties.

Apollo will likely increase the pace of development in the oil & gas areas of the company's portfolio. Private equity firms do not practice a long-term buy and hold strategy. El Paso will be held for a period and later re-offered to the market. Typically, private equity firms hold investments for a 3-7 year period and target a return of 2-3 times their investment.


El Paso Corp's Gathering System Expands to Allow Production Growth - Q3 Ops

El Paso Corporation recently announced it will be acquired by Kinder Morgan. That means El Paso's Eagle Ford assets might be on the market soon. In the mean time, the company reported results from the third quarter of 2011. The addition of a gathering system in the area will alleviate constraints and forth quarter production is expected to jump to 17,500 boe/d gross from 10,500 boe/d gross in Q3. The midstream group's gathering system will have capacity for 150 mmcfd and 80,000 bbls/d by year-end 2011. 

Eagle Ford oil production growing rapidly with completion of natural gas  facilities

El Paso's Midstream Group has completed the natural gas system for the EF Central area, which eliminates what had been a major production constraint caused by limited natural gas takeaway capacity. Gross daily Eagle Ford production for the third quarter 2011 was approximately 10,500 BOE/d. Fourth quarter 2011 gross production is expected to rise significantly to 17,000 to 18,000 BOE/d. El Paso expects to operate three rigs in this area for the remainder of the year.

The Midstream Group (Midstream) has successfully completed its natural gas gathering facilities in the area in south Texas. The system includes 83 miles of pipeline with a capacity of 150 MMcf/d. Also, Midstream is developing a 68-mile oil pipeline network with a capacity of 80,000 Bbls/d in the area, which is expected to be operational before year-end. Midstream reported that it did not receive adequate commitments for its Marcellus Ethane Pipeline System (MEPS) project to proceed at this time.