08/20/2012 09:41 EDT | Updated 10/20/2012 05:12 EDT

Kinder Morgan Energy Partners selling select pipeline, natural gas units for $1.8 billion

HOUSTON - Kinder Morgan Energy Partners LP on Monday said it reached a deal to sell some of its assets to Tallgrass Energy Partners LP for about $1.8 billion in cash, a move necessary for its parent, Kinder Morgan Inc., to get regulatory approval for its $20 billion buyout of El Paso Corp.

Kinder Morgan Inc. owns the general partner and limited partner interests in Kinder Morgan Energy. The Houston company reached a deal with the Federal Trade Commission in March to sell certain assets in the Rockies in order to get approval for the El Paso transaction. The company completed the El Paso acquisition in May.

Kinder Morgan Energy is selling Kinder Morgan Interstate Gas Transmission, Trailblazer Pipeline Co., the Casper-Douglas natural gas processing and West Frenchie Draw treating facilities in Wyoming and its 50 per cent stake in the Rockies Express Pipeline to Overland Park, Kan.-based Tallgrass Energy.

Including debt, the company values the deal at $3.3 billion. The deal is targeted to close in the fourth quarter, pending FTC approval.

Earlier this month, Kinder Morgan Energy acquired Tennessee Gas Pipeline and a 50 per cent stake in El Paso Natural Gas pipeline from Kinder Morgan to more than replace the cash flow from the assets being sold to Tallgrass.

Kinder Morgan Energy says it plans to use proceeds from the sale to pay back a $2 billion credit facility issued when it acquired the Tennessee Gas Pipeline and El Paso Natural Gas.

"As I previously stated, we would prefer to keep all of these assets, but we anticipated divestiture of certain assets in the Rockies would be necessary to obtain FTC approval," Chairman and CEO Richard Kinder said in a statement on Monday.

Tallgrass is owned by The Energy & Minerals Group, Kelso & Co. and Tallgrass' management team, including CEO David G. Dehaemers — who is the former chief financial officer and executive vice-president of corporate development for Kinder Morgan.

Kinder said that Tallgrass is interested in keeping the workers of the companies involved in the sale.

Kinder Morgan Energy owns an interest in or operates about 29,000 miles of pipelines and 180 terminals.

Kinder Morgan Energy Partners shares closed Friday at $82.54 and were not trading premarket. Kinder Morgan Inc. shares added 34 cents to $34.56 in early trading, from their Friday close at $34.22.