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Kinder Morgan's PHP Project to Receive ExxonMobil's Support

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A subsidiary of Kinder Morgan Inc KMI — Kinder Morgan Texas Pipeline LLC (“KMTP”) — and other shippers of the proposed Permian Highway Pipeline (PHP) Project announced that Exxon Mobil Corporation XOM has inked a letter of intent to support the project.

Per the letter of intent, ExxonMobil’s subsidiary — XTO Energy — is anticipated to contract a capacity of about 450,000 dekatherms per day (Dth/d) on the pipeline.

About the PHP Project

The PHP Project is estimated to cost about $2 billion and will provide a channel for transporting the rising natural gas yield from the Permian Basin to emerging market areas along the Texas Gulf Coast. 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 will have links to the U.S. Gulf Coast and Mexico markets. Post the execution of definitive agreements and the receipt of necessary construction permits, the PHP Project is projected to be commissioned in late 2020.

Per a previous announcement, KMTP and EagleClaw Midstream Ventures, LLC, a portfolio company of Blackstone Energy Partners will be the initial partners, each with interest of 50% in the project. KMTP will be responsible for building and operating the pipeline. Both Apache Corporation APA and EagleClaw will be major shippers on the planned pipeline. The entities intend to commit about 500,000 Dth/d to the project. Apache will also have the choice to purchase equity from the initial partners.

Benefits from the Project

Per a report, Wells Fargo projects that Permian will face pipeline restraints through the third quarter of 2019 in February.

Per a new report by Wells Fargo, over the past year, production in the Permian Basin surged 37.6% to 3.3 thousand barrels per day. However, the oil pipeline constraints are creating obstacles for transportation into the markets. The region is estimated to hold more than 1.5 thousand barrel per day of additional oil pipeline capacity. However, about two of the seven pipeline projects, currently under talks, are expected to be constructed.

Considering these constraints, the new Permian Highway Pipeline is anticipated to offer additional capacity for consistent transportation of natural gas to the U.S. Gulf Coast. This will also help the companies to set appropriate tariff.

Moreover, KMTP and EagleClaw will hold an open season for capacity on the PHP Project, beginning on Aug 10, 2018.

Price Performance

In the past year, Kinder Morgan’s shares have declined 7.4% compared with the industry’s 3.5% decline.


Zacks Rank & Stock to Consider

Currently, Kinder Morgan carries a Zacks Rank #3 (Hold).

A better-ranked player in the same sector is China Petroleum and Chemical Corporation SNP, also known as Sinopec, which flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sinopec is one of the largest petroleum and petrochemical companies in Asia. The company delivered an average positive earnings surprise of 492.8% in the trailing four quarters.

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