SO Southern Co

Kinder Morgan Inc. on Sunday said it is selling a stake in a 7,600-mile natural-gas pipeline system to utility Southern Co. for $1.47 billion.

The Southern Natural Gas pipeline system connects natural-gas fields in Texas, Louisiana, Mississippi, Alabama, and the Gulf of Mexico to markets in the Southeast. Southern is one of the pipeline system's customers.

The deal comes as Kinder Morgan seeks to reduce its debt load. The sale of the 50% stake will help bring the company's ratio of debt to earnings before interest, taxes, depreciation and amortization below the level it has targeted for the year.

The two companies will also try to work together on additional projects expanding the pipeline system.

Kinder Morgan said the deal has been in the works for a year. Since those discussions began, pipeline companies like Kinder Morgan have taken a hit from the prolonged period of languishing oil and natural-gas prices amid investor concerns that these companies, once seen as havens from volatile commodities prices because of the stable fees they take in, wouldn't be immune to the pain affecting the energy industry.

As Wall Street soured on pumping new debt and equity into pipeline companies, Kinder Morgan reduced its dividend by 75% late last year as it faced a choice between using its cash for growth and funding the payout. The deal announced Sunday will help the company in its efforts to restore its dividend.

"The transaction significantly advances our effort to strengthen our balance sheet and move us closer to returning value to shareholders in the form of an increased dividend or stock repurchases," Kinder Morgan Chief Executive Steve Kean said in a statement.

Southern Chairman and CEO Thomas Fanning said the pipeline stake will position the company "for future growth opportunities and enhanced access to natural gas, which are expected to benefit customers and investors alike."

Kinder Morgan shares have rallied this year, along with oil and natural-gas prices. Kinder Morgan shares closed at $18.54 on Friday, up nearly 25% since the beginning of the year but still down more than 50% from this time last year.

The company has pledged to tighten its belt to bring its balance sheet in order, cutting spending plans and looking to bring in joint-venture partners for some of the projects it has in the works.

Last month, Kinder Morgan announced that it sold a 50% stake in its Utopia ethane pipeline to private-equity firm Riverstone Investment Group. The 215-mile pipeline in Ohio will connect to existing pipes to bring natural-gas liquids from the Utica shale formation to petrochemical producers in Ontario, Canada. Kinder Morgan expects the project to cost $500 million.

Write to Alison Sider at alison.sider@wsj.com

(END) Dow Jones Newswires

July 10, 2016 21:05 ET (01:05 GMT)

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