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Kinder Morgan Divests 49% Stake in Elba Liquefaction to EIG

Zacks Equity Research

Kinder Morgan, Inc. KMI recently announced that it has divested 49% interest in Elba Liquefaction Company, LLC to investment funds managed by EIG Global Energy Partners.

The joint venture will gain ownership of 10 liquefaction units and other ancillary equipment to be constructed as part of the Elba Liquefaction Project at Kinder Morgan’s existing Southern LNG Company, L.L.C. Elba Island LNG facility near Savannah, GA.

To obtain its membership interest, EIG has made an upfront cash payment of about $385 million, which comprises reimbursement to Kinder Morgan for EIG’s 49% share of previous Elba Liquefaction Company capital expenditures, excluding capitalized interest. This apart, a payment of about $170 million has been made beyond the capital expenditures in consideration of the value created by Kinder Morgan in developing the project to this stage.

Subject to the terms and conditions in the applicable agreements, EIG has agreed to fund its share of future capital expenditures to complete the construction and commissioning of the liquefaction facility. The total project cost is projected to be about $1.3 billion, excluding capitalized interest.

Currently, initial liquefaction units are anticipated to be commissioned in mid-2018, with final units coming on line by early 2019. In 2012, the Elba Liquefaction Project received approval from the Department of Energy (DOE) to export to Free Trade Agreement (FTA) countries, and on Dec 16, 2016, the DOE issued non-FTA export authority. The project is anticipated to have a total capacity of about 2.5 million tons per year of LNG for export, which is equal to about 350 million cubic feet per day of natural gas.

Kinder Morgan’s price chart reveals that its shares have underperformed the Zacks categorized Oil & Gas-Production/Pipeline industry in the last three months. Kinder Morgan shares have lost 0.2%, whereas the broader market increased 0.6%.

Kinder Morgan carries a Zacks Rank #2 (Buy). Other well-ranked players in the same space include Delek Logistics Partners, LP DKL, Sunrun Inc. RUN and W&T Offshore Inc. WTI. Both Delek Logistics Partners and Sunrun sport a Zacks Rank #1 (Strong Buy), while W&T Offshore holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Delek Logistics Partners posted a negative earnings surprise of 25.45% in the preceding quarter. It had an average negative earnings surprise of 11.32% in the four trailing quarters.

Sunrun posted a positive earnings surprise of 137.21% in the preceding quarter. It beat estimates in all the four trailing quarters with an average positive earnings surprise of 134.71%.

W&T Offshore posted a positive earnings surprise of 44.19% in the preceding quarter. It beat estimates in all the four trailing quarters with an average positive earnings surprise of 31.49%.

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