NextEra to buy Texas gas pipeline company NET Midstream for $2.1 billion

By JIM POLSON and MARK CHEDIAK
Bloomberg

NextEra Energy Partners, the wind and solar power generator controlled by NextEra Energy, agreed to buy seven natural gas pipelines in Texas for $2.1 billion, adding sales of the power plant fuel to Mexico.

By buying closely held NET Midstream, NextEra Energy Partners will gain the ability to ship 3 billion cubic feet/day of Texas shale gas, with the potential to expand that by 1 billion cubic feet, the company said in a statement. NET’s assets include a pipeline in the Eagle Ford formation, the top US gas field by proved reserves, according to Energy Department data.

“They’ll be selling a lot of equity to finance this acquisition,” said Kit Konolige, senior utility analyst at Bloomberg Intelligence, who doesn’t own or rate NextEra or its partnership. “Current NextEra partnership shareholders may be concerned about their stake being diluted.”

NextEra Energy Partners fell 7.7% to $32.95 after news broke, representing its lowest price since December. NextEra rose 2.4% to $107.71.

The purchase marks the first foray into pipelines for NextEra Energy Partners, which was formed in 2014. Before Monday’s transaction, the partnership had focused on buying renewable-energy power assets from its creator.

The largest of NET Midstream’s pipelines delivers gas to Mexico under a 20-year ship-or-pay contract with Petroleos Mexicanos, the state-owned energy company known as Pemex.

Pipeline Presence

The acquisition gives the partnership a “presence in the long-term contracted natural gas pipeline space,” the companies said in the statement. It also will increase cash available for distribution to partnership investors by $110 million to $120 million in 2016 and by $135 million to $155 million in 2018, assuming expansions.

“Natural gas demand in Mexico has been growing substantially,” NextEra chief financial officer Moray Dewhurst said on a call with investors. “At the same, time Mexico-based natural gas supply has been declining, which we believe increases Mexico’s need for US gas.”

In addition to the line under contract to Pemex, the partnership is buying the Eagle Ford Pipeline that connects to US and Mexican markets and the Monument Pipeline, which delivers fuel to Houston from a gas trading hub in Katy, Texas. The deal also includes four smaller lines that supply power plants and households.

NextEra, owner of Florida’s largest electric utility, sold stakes in the partnership to the public in July 2014. The Juno Beach, Florida-based company is a developer of wind and solar projects, which it is selling to the partnership.

NextEra has so far sold the partnership renewable- generating assets with multiple-year contracts, promoting it as a growth investment with steady dividends to investors.

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