Kinder, Phillips in Pipeline Deal

Zacks

Kinder Morgan Energy Partners L.P. (KMP) has inked a deal with oil refiner Phillips 66 (PSX) for the transportation of Eagle Ford crude and condensate to the latter’s Sweeny refinery in Brazoria County, Texas.

Per the agreement, Kinder Morgan will construct a 27-mile, 12-inch diameter lateral pipeline extension of its Kinder Morgan Crude Condensate (:KMCC) pipeline. The partnership will spend about $90 million for the project, which also comprises the construction of a five-bay truck offloading facility and three new storage tanks at its facilities in Texas. The storage tanks can hold 360,000 barrels of crude and condensate at Kinder Morgan's DeWitt Station and Wharton Pump Station.

The largest U.S. midstream firm, Kinder Morgan, commenced its KMCC pipeline on June 14. Notably, the pipeline has the capacity to ship 300,000 barrels per day (:BPD) from the prolific Eagle Ford region to the Texas Gulf coast.

The lateral line has the initial capacity of 30,000 BPD that can be expanded to 100,000 BPD. Construction is expected to start by the year end and Phillips 66 is entitled to receive a major portion of this new pipeline’s initial capacity. This project is expected to immediately increase cash available to Kinder Morgan unitholders following its completion in the first quarter of 2014.

Kinder Morgan is the largest independent owner and operator of petroleum product pipelines in the U.S. Its pipelines transport natural gas, refined petroleum products, crude oil, carbon dioxide and other products, while its terminals store petroleum products and chemicals and handle bulk materials such as coal and petroleum coke.

It also serves as a major player in the expansion of infrastructure to ship the newly discovered natural gas, condensates and crude oil of the Eagle Ford region, where production increased by 195% year over year to 283,292 BPD in June.

Kinder Morgan delivered slightly disappointing results in the second quarter, despite positive performances across each of its business segments but for Product Pipeline. Nonetheless, we expect it to seize attractive investment opportunities in the near term, particularly in the Eagle Ford and Haynesville shale plays.

We maintain our long-term Neutral recommendation on Kinder Morgan, which retains a Zacks #3 Rank (short-term Hold rating).

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