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Kinder Morgan Signs MOU with Contractors for Trans Mountain

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The Canada-based unit of energy infrastructure provider Kinder Morgan, Inc. (KMI - Free Report) recently announced six major contractors for the controversial Trans Mountain pipeline expansion project extending from Alberta to British Columbia.

The seven segments of the pipeline from Edmonton, Alberta to the southwest of British Columbia have been covered by a memorandum of understanding (MOU) signed by the company with the contractors, which are expected to operate in partnerships or joint ventures. The contractors will have the authority to employ individuals and sub-contractors to finish the project. It will bring employment opportunities to the locals.

While the construction work is anticipated to start this month, most of the work of the pipeline is scheduled for 2018 and 2019. The company expects the expansion work to take around 28 months and the project to start operation before the end of 2019.

The development worth C$7.4 billion ($5.9 billion) has received federal and regulatory approvals.

However, the pipeline has been the subject of much scrutiny. The alliance of New Democratic Party and Green Party of British Columbia that won the May 9 election poses a threat to the project. Environmental groups and indigenous communities – through whose land the project passes – have also objected. Kinder Morgan, however, believes that the political and environmental oppositions will not hamper the expansion.

Kinder Morgan is keeping the expansion project alive amid the negatives through various actions, which do not involve actual pipeline construction work. Recently, the company raised C$5.5 billion ($4.16 billion) from the financial community for the expansion project after filing for an initial public offering (IPO) of restricted voting shares to garner funds. Actions like this are expected to strengthen the company's presence in the Canadian pipeline industry.

About the Pipeline

The Canadian unit of Kinder Morgan owns the 1,150 km Trans Mountain Pipeline, which carries crude and refined oil from Alberta to the west coast of British Columbia.

The construction of the expansion project that could begin in September will help the company to nearly triple the size of the existing pipeline. The new development will help Kinder Morgan to carry 890,000 barrels a day of crude from Edmonton, Alberta, to Barnaby, British Columbia.

About the Company

Kinder Morgan is engaged in energy transportation and storage in North America. The company handles energy products like natural gas, refined petroleum products, crude oil, ethanol, coal, and carbon dioxide (CO2). It operates natural gas pipelines in the Rocky Mountains, the Midwest, and Texas as well as refined petroleum products pipeline in North America. Kinder Morgan also operates terminals for the storage of petroleum products and chemicals and CO2 pipelines and oil producing fields. Kinder Morgan is headquartered in Houston, TX.

We note that Kinder Morgan is spending significantly on acquisitions and asset expansion, which helps the company to generate high distributable cash flow. Investors should also know that for supporting these investments, the company’s total debt now stands higher than equity capital, reflecting balance sheet weakness.

Price Performance

Kinder Morgan has lost 7.6% year to date against 1.8% growth of its industry.

Zacks Rank and Stocks to Consider

Kinder Morgan currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector are Lonestar Resources US Inc. (LONE - Free Report) , Range Resources Corporation (RRC - Free Report) and Subsea 7 SA (SUBCY - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lonestar Resources’ sales for 2017 are expected to surge 60.2% year over year. The company delivered a positive earnings surprise of 62.5% in the second quarter of 2017.

Range Resources’ sales for the third quarter of 2017 are expected to increase 27% year over year. The company delivered an average positive earnings surprise of 51.8% in the last four quarters.

Subsea’s sales for 2017 are expected to increase 11.6% year over year. The company delivered an average positive earnings surprise of 83.8% in the last four quarters.

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