Black Hills to buy state natural gas utility for $1.2B

OMAHA, Neb. -- Regional utility Black Hills Corp. is buying natural gas provider SourceGas, which serves 425,000 customers in Arkansas, Colorado, Nebraska and Wyoming, for roughly $1.2 billion.

Black Hills is buying control of SourceGas from investment funds Alinda Capital Partners and GE Energy Financial. As part of the deal, Black Hills is also assuming $720 million of debt and expecting to receive $150 million in tax benefits.

Black Hills Chairman, president and chief executive officer David Emery told investors last week that this deal will strengthen the Rapid City (S.D.)-based utility and increase its profits.

"It will supplement our strong earnings growth, improve our financial strength and help us create significant value both for customers and shareholders," Emery said.

Shares of Black Hills stock declined $1.14, or 2.4 percent, to close Monday at $45.70.

SourceGas has more than 162,000 customers in Arkansas, primarily in the northern part of the state. SourceGas Arkansas has offices in Ozark, Fayetteville, Rogers, Harrison and Blytheville. Formerly known as Arkansas Western Gas company, the utility was purchased by SourceGas in 2008, according to the company website.

Valerie Simpson, a Black Hills spokesman, said July 13 that the acquisition will have no negative effect on customers in Arkansas but added that the combined companies will be able to be even more efficient in delivering natural gas to customers. She said it was too early to make any decisions concerning any possible reduction in SourceGas Arkansas employees resulting from the acquisition but noted an integration plan was underway and staffing studies would be completed before any actions are taken.

Black Hills will serve more than 1.2 million customers after the addition of SourceGas, which is based in Golden, Colo. The deal is expected to close sometime in the first half of 2016, but it must be approved by state and federal regulators.

SourceGas was created in 2007 after Kinder Morgan agreed to sell its retail natural gas utility division to GE Energy Financial and Alinda.

Black Hills approached the investment funds selling SourceGas several times in the past five years before finally agreeing on this deal.

Emery said SourceGas is a good strategic fit for his company because of the territory it serves and its growth prospects.

"I think we see some great opportunities obviously to combine the two companies and make them very efficient," Emery said. "Just looking at the footprint, that's pretty obvious."

In addition to SourceGas' retail customers, it also operates a 512-mile interstate natural gas transmission pipeline in Colorado.

Black Hills already serves nearly 800,000 electricity and natural gas customers in Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming.

The deal is Black Hills' biggest since it kicked off a string of acquisitions with the $940 million purchase of gas utilities from defunct Aquila Corp. seven years ago, according to data compiled by Bloomberg.

"It is certainly material to Black Hills given the size of the deal and number of customers acquired," Christopher Ellinghaus, a New York-based analyst for Williams Capital Group LP, said Monday in an email. "All utilities in the general region are looking to expand their regulated businesses."

Utility companies are using acquisitions to increase their regulated assets and reduce exposure to the competitive and more volatile unregulated market, according to Stacy Nemeroff, an analyst at Bloomberg Intelligence.

"SourceGas is a great strategic fit, adding to our strong utility base," Emery said in a statement to investors. "We are excited to significantly expand our presence in Colorado, Nebraska and Wyoming."

Information for this article was contributed by Josh Funk of The Associated Press; by Sharon Cho, James Paton and Lars Paulsson of Bloomberg News; and by John Magsam of the Arkansas Democrat-Gazette.

General News on 07/22/2015