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Energy infrastructure provider Kinder Morgan (KMI - Free Report) has inked a letter of intent (LOI) with DCP Midstream, LP (DCP - Free Report) and Targa Resources (TRGP - Free Report) .

Per the LOI, all the energy players will develop the Gulf Coast Express Pipeline Project (GCX Project). The proposed pipeline is expected to serve the growing need for Permian Basin natural gas in the Texas Gulf Coast key markets. The pipeline will likely have the capacity to carry 1.92 billion cubic feet of natural gas every day.

Included in the LOI, Kinder Morgan will construct and operate the pipeline project with a 50% stake. Targa Resources and DCP Midstream are each expected to have 25% ownership in the pipeline, which is likely to commence operations by the second half of 2019. The pipeline’s in-service date is primarily dependent on timely closure of shippers’ agreements. Investors should know that DCP Midstream and Targa Resources plan to transport considerable natural gas volumes through the pipeline.

Overall, the pipeline project is likely to prove highly lucrative for Kinder Morgan as the development will provide the partnership with significant and sustainable fee-based revenues.

Headquartered in Houston, TX, Kinder Morgan has the largest natural gas pipeline in North America that spreads over almost 70,000 miles. Most importantly, the company’s midstream properties are linked to all the prospective plays in the United States that are rich in natural gas.

However, we are concerned about Kinder Morgan’s weak balance sheet. As of the second quarter of 2017, total debt – both short and long term – stands at $38.3 billion. Also, year to date, the company lost 9.2% as against the 3.1% gain of the industry.

 

 

Kinder Morgan carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.

A better-ranked player in the energy sector is Lonestar Resources US Inc. (LONE - Free Report) . The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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