DBRS Places the Ratings on Kinder Morgan Kansas, Inc. and Kinder Morgan Energy Partners, L.P. Under Review – Negative

DBRS has today placed the BBB (low) Senior Notes and Unsecured Debentures rating of Kinder Morgan Kansas, Inc. (KMK) and the BBB (high) Medium-Term Notes & Unsecured Debentures ratings of Kinder Morgan Energy Partners, L.P. (KMP) Under Review with Negative Implications. KMK is 100% owned by Kinder Morgan, Inc. (KMI) and directly and indirectly owns an effective 13% interest (and a 50% economic interest) in KMP.

The rating actions follow KMI’s announcement that it has agreed to acquire all of the outstanding shares of El Paso Corporation (EP), one of the leading interstate natural gas pipeline companies in the United States, with more than 42,000 miles of pipelines. EP also owns approximately 3.36 trillion cubic feet (equivalent) proved developed reserves of natural gas (78%) and oil (22%), with the 2010 production level of 2,225 million cubic feet (equivalent).

The total purchase price is approximately $38 billion (or $26.87 per share), including the assumption of approximately $16.7 billion of existing consolidated debt and other adjustments at EP and its subsidiaries, representing a 47% premium to the 20-day average closing price of EP common shares and a 37% premium over the closing price of EP common shares on October 14, 2011. The transaction is expected to close in the second quarter of 2012, subject to KMI’s and EP’s shareholders and regulatory approvals.

KMI expects to finance the proposed acquisition with approximately 55% in debt ($14.65 per share) and 45% in new share issuance in exchange for EP shares (0.4187 KMI share for one EP share, valued at $11.26) and 0.640 warrants (valued at $0.96 per EP share).

DBRS is of an opinion that, following the oil and gas exploration and production (E&P) asset divestiture, the proposed acquisition would have a modest impact on KMI’s business risk profile, reflecting the fact that a substantial portion of EP’s current earnings is generated from either the regulated pipeline businesses or long-term contracts. In addition, the proposed acquisition is expected to create the largest midstream energy company in North America, with the following major businesses:

(1) The largest transporter of natural gas in the United States, with an interest in or operating approximately 67,000 miles of interstate/intra-state pipeline.

(2) The largest independent petroleum products pipeline system in the United States, with approximately 1.9 million barrels per day.

(3) The largest carbon dioxide (CO2) transporter in the United States, with 1.3 billion cubic feet per day of CO2 for enhanced oil recovery.

(4) The largest independent terminal operator in the United States, with more than 180 liquid/dry bulk terminals, consisting of 107 million barrels of liquids capacity.

DBRS’s rating actions reflect uncertainties associated with the financing of the proposed acquisition and the potential sale of EP’s E&P and the execution risk related to the various components of the post-transaction plan. Particularly, DBRS will conduct further review on the following:

(1) KMI intends to finance the proposed acquisition with approximately $11.5 billion of debt. However, which entity in KMI’s organizational structure would issue the new debt remains unclear. DBRS will assess the impact of the new debt on either KMK or KMP.

(2) KMI intends to sell EP’s E&P assets. There are uncertainties relating to the amount of the proceeds and the timing of the sale, although the Company has indicated that use of proceeds will be to substantially reduce acquisition debt.

(3) KMI intends to drop down EP’s pipeline assets into both El Paso Pipeline Partners, L.P (which is expected to continue to operate as separate, publicly traded partnership) and KMP. DBRS would assess the impact of the asset drop-down on KMP’s business and financial risk profiles.

Notes:

All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating North American Pipeline and Diversified Companies, which can be found on our website under Methodologies.