Kinder Morgan, Inc. (KMI - Free Report) and Tallgrass Energy GP, LP (TGE - Free Report) have teamed up to boost existing crude oil takeaway capacity from the Powder River and Denver-Julesburg (DJ) basins to the Gulf Coast through the Seahorse Pipeline. This will add incremental capacity to the Williston Basin and portions of Western Canada.
Per the agreement, the planned venture will comprise existing and newly-constructed assets. Kinder Morgan will contribute part of its Wyoming Intrastate Company and Cheyenne Plains Gas Pipeline as well as commence the process of abandonment and conversion to crude oil service. Tallgrass Energy will contribute the Pony Express Pipeline System. Additionally, about 200 miles of new pipeline will be constructed to provide crude oil into Cushing, OK.
The combined pipeline system is anticipated to be capable of transferring about 800,000 barrels per day (bpd) of light crude oil and 150,000 bpd of heavy crude oil. The oil will be transferred from points in Wyoming and Colorado to Tallgrass Energy’s and Kinder Morgan’s Deeprock terminal in Cushing.
From Cushing, shippers can transfer crude to the Gulf Coast and export markets through Tallgrass Energy’s planned Seahorse Pipeline and other existing or proposed future pipeline projects. Tallgrass Energy has extended the current Pony Express expansion and joint tariff open season with Seahorse to Feb 28, 2019, originally set to conclude on Jan 25.
The combined project is scheduled to initiate operations as early as the second half of 2020. The completion of the transaction between the parties is subject to conditions, including receipt of applicable state and federal regulatory approvals among other items. The companies have not disclosed the financial details of the transaction.
The transaction highlights the importance of the Pony Express asset, which has long been the cause of anxiety for investors due to its location in a less desirable basin (DJ) and exposure to weaker basin economics. Tallgrass Energy's competence in sourcing creative solutions to midstream challenges is also revealed through this transaction. The company has a major oil exporting asset despite not being located in the Permian.
For Kinder Morgan, this represents an incremental growth opportunity to generate substantial cash generation.
Zacks Rank & Stocks to Consider
Kinder Morgan currently carries a Zacks Rank #3 (Hold).
A few better-ranked players in the energy space are NextEra Energy Partners L.P. (NEP - Free Report) and TransCanada Corporation (TRP - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Based in Juno Beach, Florida, NextEra Energy Partners was formed by NextEra Energy, Inc in 2014 to acquire, manage and own contracted clean energy projects with stable long-term cash flows. The partnership delivered average positive earnings surprise of 99.1% in the last four quarters.
Calgary, Alberta-based TransCanada Corporation is a premier energy infrastructure provider in North America. The company delivered average positive surprise of 19.1% in the trailing four quarters.
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