Kinder Morgan to Purchase El Paso for Approximately $38 Billion

The combined enterprise, including the associated master limited partnerships, Kinder Morgan Energy Partners, L.P. (NYSE: KMP) and EPB, will represent the largest natural gas pipeline network in the United States, the largest independent transporter of petroleum products in the United States, the largest transporter of CO2 in the United States and the largest independent terminal owner/operator in the United States.

"This once in a lifetime transaction is a win-win opportunity for both companies," said Kinder Morgan Chairman and CEO Richard D. Kinder. "The El Paso assets are primarily regulated interstate natural gas pipelines that produce substantial, stable cash flow and have access to key supply regions and major consuming markets. The natural gas pipeline systems of the two companies are very complementary, as they primarily serve different supply sources and markets in the United States. The transaction is expected to produce immediate shareholder value (upon closing) through strong cash flow accretion and offers significant future growth opportunities."

The consideration to be received by the EP shareholders is valued at $26.87 per EP share based on KMI's closing price as of Oct. 14, 2011, representing a 47 percent premium to the 20-day average closing price of EP common shares and a 37 percent premium over the closing price of EP common shares on Oct. 14, 2011. The offer is comprised of $14.65 in cash, 0.4187 KMI shares (valued at $11.26 per EP share) and 0.640 KMI warrants (valued at $0.96 per EP share) based on KMI's closing price on Oct. 14, 2011. The warrants will have an exercise price of $40 and a five-year term. EP shareholders will be able to elect, for each EP share held, either (i) $25.91 in cash, (ii) 0.9635 shares of KMI common stock, or (iii) $14.65 in cash plus 0.4187 shares of KMI common stock. All elections will be subject to proration and in all cases EP shareholders will receive 0.640 KMI warrants per share of EP common stock. The receipt of shares and warrants by EP shareholders in the transaction is intended to be tax free for U.S. federal income tax purposes. Upon closing, KMI shareholders are expected to own approximately 68 percent of the combined company and EP shareholders are expected to own the remaining 32 percent.

"El Paso's board and management have been highly focused on delivering value for our shareholders, and we believe that our agreement with Kinder Morgan will provide even greater value for our shareholders than we expected through the planned spin-off of our exploration and production business," said Doug Foshee, chairman, president and chief executive officer of El Paso Corporation. "We are very pleased to become a significant part of this combined enterprise and offer our shareholders the opportunity to participate in what we believe will be North America's preeminent infrastructure company."

The transaction has been approved by each company's board of directors. KMI has a commitment letter from Barclays Capital underwriting the full amount of cash required for the transaction. Prior to closing, the transaction will require approval of both KMI and EP shareholders. The transaction is expected to close in the second quarter of 2012 and is subject to customary regulatory approvals.

"We believe that natural gas is going to play an increasingly integral role in North America," stated Kinder. "With the recent development of shale resources, there are now abundant domestic supplies of natural gas, which are being used increasingly to generate electricity and are environmentally friendly. If America is serious about reducing carbon emissions to benefit the environment, and reducing its dependence on foreign oil, natural gas is absolutely the best readily available option. We are delighted to be able to significantly expand our natural gas transportation footprint at a time when it seems likely that domestic natural gas supply and demand will grow at attractive rates for years to come."

The transaction is expected to be immediately accretive to dividends per share at KMI, distributions per unit at KMP, dividends per share at Kinder Morgan Management (NYSE: KMR) and distributions per unit at EPB. Part of these benefits will be driven by cost savings, which are expected to be approximately $350 million per year, or about 5 percent of the combined system's EBITDA. Following is a summary of the plans and benefits for each entity:

KMI

Following the closing of the transaction, EP will become a subsidiary of KMI. KMI intends to sell the exploration and production assets of EP. EP's net operating loss carryforwards will offset taxes associated with this sale and the resulting cash raised will substantially reduce the debt borrowed to fund the cash portion of the transaction. KMI also intends to sell (drop down) all of EP's natural gas pipeline assets to KMP and EPB over the next few years. Each of these transactions will be subject to approval by KMP's or EPB's independent directors, who are expected to obtain independent advisors to assist them in their analysis.

By the end of 2015, KMI expects its assets to consist almost exclusively of its general partner interests in KMP and EPB, and the ownership of KMP units, KMR shares and EPB units. At that point, well over 80 percent of KMI's cash flows is expected to come from the general partner interests and essentially all of the remainder from its limited partner interests. KMI expects to continue to determine dividend payouts based upon this ultimate set of assets and cash flows. In the interim, KMI will be generating more cash flow than necessary to support the expected dividend stream and will use the excess to pay down debt. Incorporating this approach to determining dividends, the transaction is expected to be immediately accretive to KMI's dividend per share. If this transaction were to close at the beginning of 2012 and factoring in KMI's normal expected annual growth, KMI would expect to pay a dividend per share of approximately $1.45 in 2012, up substantially from its current annual rate of $1.20 per share. Since the transaction is unlikely to be in effect for the full year 2012, KMI's actual dividend in 2012 will likely be slightly less than $1.45.