KMP to Invest $ 170 M in Project

Kinder Morgan Energy Partners, L.P. (KMP - Analyst Report) has proposed to invest around $170 million for a project that entails expansion and acquisition of further infrastructure along the Gulf Coast to support the growing demand for liquids storage and dock services.

The total investment of $170 million includes the purchase of 42 acres, developing a new ship dock to manage ocean going vessels and construction of 1.2 million barrels of liquids storage tanks in the Houston Ship Channel.

A letter of intent has been signed between Kinder Morgan and a major unidentified ship channel refiner with the aim to build six 150,000-barrel tanks and four 75,000-barrel tanks. The tanks are likely to be linked with its Galena Park Terminal and to the refiner’s location.

The site will be used to offer dock services for about eight vessels per month for the refinery and four vessels per month for KMP’s terminal.

The project will be hugely beneficial for the refiners, facing dock congestion on Kinder Morgan’s Houston Ship Channel terminals. The incremental capacity addition created by the project, on its completion, will be value accretive for Kinder Morgan unitholders.

Recently, the partnership brought online a crude oil and condensate pipeline, which can transfer 50,000 bpd of condensate from the Eagle Ford shale play in south Texas to the Houston Ship Channel.

Kinder Morgan is one of the largest publicly traded master limited partnerships (MLPs) and generally serves as a benchmark for the pipeline MLP group. A focus on fee-based and diversified businesses has enabled the partnership to spread its business risks. In addition, the CO2 business is a major growth avenue for the partnership with the commodity price risk being offset by a long-term hedging strategy.

Kinder Morgan, which acquired stakes of Tennessee Gas Pipeline as well as El Paso Natural Gas from its parent company Kinder Morgan Inc. (KMI - Analyst Report), holds a Zacks Rank #3, which is equivalent to a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation on the stock.