Kinder Morgan, Inc. (KMI - Free Report) recently announced that the company has reached a final investment decision (FID) on its $2-billion Permian Highway Pipeline (PHP) Project, through its subsidiary Kinder Morgan Texas Pipeline LLC (“KMTP”). Private firm Blackstone Energy Partners’ portfolio company, EagleClaw Midstream Ventures is a partner in the PHP project, which so far secured enough shipping commitments. Most of the available capacity of the pipeline has already been allotted to long-term shipping commitments and the remaining capacity will likely be booked soon, reflecting the tremendous demand the project is facing.
Apart from EagleClaw, Exxon Mobil Corporation’s (XOM - Free Report) unit XTO Energy Inc. and Apache Corporation (APA - Free Report) are incorporated in the list of shippers of the pipeline. KMTP and EagleClaw are set to be the initial partners of the PHP project, with each holding 50% interest in the same. The pipeline is expected to be built and operated by KMTP. Notably, Apache can buy stakes in the project through its newly-announced joint venture, Altus Midstream, with Kayne Anderson Acquisition Corp.
A Significant Milestone
Reaching the final investment decision marks an important milestone for the project, which will provide a channel for transporting the rising natural gas volumes from the Permian Basin to emerging market areas along the coast of Texas Gulf. The 42-inch pipeline, with a length of about 430 miles, is intended to carry about 2 billion cubic feet per day (Bcf/d) of natural gas. The gas will be sourced from the Waha to Katy areas, and connected to the markets in the U.S. Gulf Coast and Mexico. The project is expected to come online in late 2020.
Importance of the Project
U.S. oil and gas production has soared in the past couple of years, primarily supported by shale boom. Among the active shale plays in the country, the Permian Basin is considered the current hotspot. Per a new report by Wells Fargo, production in the Permian Basin has surged 37.6% to 3.3 thousand barrels per day over the past year. However, oil pipeline constraints are creating obstacles and bottlenecks, making it difficult for transportation into the markets. Considering these constraints, the PHP Project will surely relieve the pressure from the existing infrastructure in the basin.
Over the past year, Kinder Morgan’s shares have declined 8% compared with 10.5% collective decline of the industry it belongs to.
Zacks Rank & A Stock to Consider
Currently, Kinder Morgan has a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for a better-ranked stock like McDermott International, Inc. (MDR - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Houston, TX-based McDermott is an equipment provider for energy companies. The company’s top line for 2018 is likely to improve 145% year over year. In the last four reported quarters, it delivered an average positive earnings surprise of 101.7%.
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