Kinder Morgan Plans $400M Venture

Kinder Morgan Energy Partners, L.P. (KMP - Analyst Report) announced plans to invest in the Battleground Oil Specialty Terminal Company, LLC or BOSTCO – a joint venture with TransMontaigne Partners L.P. (TLP - Snapshot Report).

Kinder Morgan will set up, own and operate a $400 million oil terminal on the Houston Ship Channel. The first phase of the project involves construction of 52 storage tanks with a capacity of 6.6 million barrels for handling residual fuel and other black oils. Future development plans include joining the deepwater terminal to other Kinder Morgan assets in Houston.

BOSTCO has been approved by the Texas Commission on Environmental Quality air permit as well as by the Port of Houston. Kinder Morgan expects to receive the green signal from other authorities by the end of November and commence construction this year following the completion of binding definitive customer agreements.

Kinder Morgan remains highly upbeat regarding this venture and expects to strengthen its presence in the Texas Gulf Coast. Management believes that the new unit will enable the partnership to reach out to more customers.

The investment in the project is expected to be accretive to cash distributable to Kinder Morgan shareholders when the first phase of the project starts by the third quarter of 2013.

Kinder Morgan is one of the largest publicly traded master limited partnerships (MLP) and generally serves as a benchmark for the pipeline MLP group. A focus on fee-based and diversified businesses has enabled the partnership to dilute its business risks.

Recently, the partnership reported third quarter 2011 earnings of 44 cents per limited partner unit (excluding certain items), missing the Zacks Consensus Estimate of 46 cents. However, the quarterly results were significantly above the year-ago profit of 23 cents. Revenue increased approximately 6.6% to $2,195.1 million from $2,060.0 million in the year-ago quarter.

We expect the partnership to perform in line with the broader industry and rate it Neutral on a long-term basis. Kinder Morgan, which competes with peers such as Enterprise Products Partners L.P. (EPD - Analyst Report) and ONEOK Partners, L.P. (OKS - Analyst Report), currently holds a Zacks #3 Rank (short-term ‘Hold’ rating).

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