Business Context and Reporting Period
This Form 8-K, dated February 24, 2012, reports a material definitive agreement entered into by subsidiaries of El Paso Corporation (a company in the process of merging with Kinder Morgan, Inc.) to sell El Paso's exploration and production (E&P) assets. The transaction is a prerequisite to the closing of the merger between Kinder Morgan and El Paso.
Key Financial Metrics
- Transaction Value: Approximately $7.15 billion in cash or immediately available funds.
- Termination Fee: $400 million payable by Kinder Morgan under certain circumstances if the transaction fails.
- Assets Involved: Equity interests in EP Energy, LLC, El Paso E&P S. Alamein Cayman Company, UnoPaso Exploracao e Producao de Petroleo e Gas Ltda., El Paso Oleo e Gas do Brasil Ldta., and El Paso Brazil Holdings Company.
- Financial Statements: This filing does not contain revenue, profit, cash flow, margin, debt, or liquidity metrics for Kinder Morgan or El Paso.
Material Changes and Transaction Details
The primary material event is the execution of a Purchase and Sale Agreement to divest El Paso's E&P assets to a consortium of investors including Apollo Global Management, Riverstone Holdings, and Access Industries. The sale is contingent upon the closing of the Kinder Morgan Merger Agreement. Both transactions are expected to close in the second quarter of 2012. El Paso has provided an unconditional guarantee of the sellers' obligations to the purchaser.
Guidance, Risks, and Contingencies
- Closing Conditions: The transaction is subject to customary closing conditions, including clearance under U.S. antitrust laws. There is no assurance these conditions will be satisfied.
- Indemnification: Kinder Morgan is required to indemnify El Paso and its subsidiaries for costs arising from the EP Energy Sale.
- Forward-Looking Risks: Risks include the inability to consummate the sale or merger, failure to obtain regulatory or shareholder approvals, financing availability, integration challenges, and market conditions affecting energy prices.
- Regulatory Filings: Investors are directed to the Registration Statement on Form S-4 (declared effective January 30, 2012) for detailed information.
Investor Verification Checklist
- Verify the status of regulatory approvals, specifically U.S. antitrust clearance, required for the $7.15 billion asset sale.
- Confirm the timeline for the closing of both the EP Energy Sale and the Kinder Morgan-El Paso merger, currently targeted for Q2 2012.
- Review the definitive Information Statement/Proxy Statement/Prospectus filed on Form S-4 for details on the merger terms and potential synergies.
- Assess the implications of the $400 million termination fee obligation for Kinder Morgan if the transaction is not completed.
- Monitor for any updates regarding the satisfaction of closing conditions or changes in the expected completion date.