Kinder Morgan's favorable 1Q14 earnings: Key takeaways (Part 7 of 7)
Kinder Morgan’s goals
In March, 2014, Kinder Morgan reconfirmed its 2014 guidance. KMP expects to increase cash distributions per unit by 5% 2013 level. The company also expects to exceed its distributable cash flow per unit target. An account of the better-than-expected result is discussed below.
Positive impact of the previously noted tanker acquisition
In January 2014, KMP acquired American Petroleum Tankers (or APT) and State Class Tankers (or SCT). These two tankers are engaged in the marine transportation of crude oil, condensate and refined products in the U.S. domestic trade. APT consists of five medium range tankers, each with 330,000 barrels of cargo capacity. SCT has four medium range, each with 330,000 barrels of cargo capacity. The SCT vessels are scheduled to be delivered in 2015 and 2016 and will be operated under long-term time contracts.
TGP’s north to south firm transportation contracts
Tennessee Gas Pipeline (or TGP) is a multiple-line gas distribution system that begins in the natural gas producing regions of Louisiana, the Gulf of Mexico, and South Texas and extends to New York City and Boston. TGP is an asset drop down of KMI into KMP in August 2012. In December 2013, TGP awarded natural gas transportation capacity totaling 500,000 dekatherms per day to five shippers. This will provide transportation service for gas production regions of Marcellus and Utica to multiple delivery points on the Gulf Coast. The service is expected to become operational in April 2014. TGP signed a binding, 15-year firm transportation agreement with Seneca Resources Corporation to ship 158,000 dekatherms per day of natural gas to eastern Canadian markets. This project is expected to begin service November 1, 2015.
The TGP-Utika Blackhaul transportation, estimated to be in service in April 2014, will carry gas from Utika shale to markets in Gulf Coast. It has an average contract term of 18 years, and the projected cost is $155.6 million. It has short-term capacity of 100 dekatherms per day, which can be extended to 400 dekatherms per day in the long-run.
TGP-Cameron LNG Project will enable multiple supplies for LNG exports by modifying compressor stations and establishing new pipelines for access to Perryville hub. It has an average contract term of 21 years and a capacity of 900 dekatherms per day. It has a capital budget of 138.4 million and is expected to be in service by 4Q14.
EPNG’s long-term contracts will provide 772,000 dekatherms per day of new firm natural gas transport capacity. EPNG is another KMI asset drop down in August, 2012. The company will invest approximately $529 million on expansions to serve these customers, with service being staged in between 2014 and 2020.
Kinder Morgan Louisiana Pipeline (KMLP) will invest approximately $143 million to upgrade its pipeline system to serve Magnolia LNG in the Lake Charles area. The proposed project will provide Magnolia LNG with access to multiple pipelines to ensure deliveries of gas supply, pending regulatory approval.
Kinder Morgan Condensate Processing facility
This is a $359 million project in intended for Eagle Ford production and will support higher demand for KMCC pipeline systems for markets in Texas. The project will have integrated connectivity to refining, petrochemical, pipeline, and marine facilities. The project includes constructing a processing unit and 1.9 million barrels of new tankage. For this project, KMP has received committed supply to British Petroleum (BP) for 84,000-100,000 barrels per day for 10 years. Phase I of the project is scheduled to be completed by July 2014.
Cochin Line Reversal
This project aims to provide 95,000 barrels per day of light condensates to oil sand producers in Canada. The project is supported a 10year contract for committed delivery of 85,000 barrels per day. The $310 million pipeline includes construction of new terminals and tank, pump station and reversal of product flow from Milford, Indiana to producers in western Canada. This is expected to be in service in July 2014.
In March 2014, KMP announced plans to build and operate a new 213-mile pipeline to transport CO 2 from the company’s St. Johns source field in Apache County, Arizona to the Kinder Morgan-operated Cortez Pipeline in Torrance County, New Mexico. The Lobos Pipeline will have an initial capacity of 300 million cubic feet per day.
Joint Venture with NGLS
KMP and Targa Resources Partners (NGLS) are pursuing a possible joint venture to construct new NGL fractionation facilities at Mont Belvieu, Texas, to provide services for producers in the Utica and Marcellus Shale resource plays in Ohio, West Virginia and Pennsylvania. The facilities would provide fractionation services for customers of the Utica Marcellus Texas Pipeline (UMTP), a proposed joint venture between MarkWest and KMP which was announced in the fourth quarter. The pipeline would have capacity of 150,000 bpd expandable to 400,000 barrels per day over time.
BOSTCO Terminals facility
The $520 million Battleground Oil Specialty Terminal Company (BOSTCO) project located on the Houston Ship Channel is expected to have its remaining tanks coming online in 2014. Its phase two construction continues and involves building an additional 900,000 barrels of storage capacity, which is expected to begin service in the third quarter of 2014.
Kinder Morgan Energy Partners (KMP) is one of the largest master limited partnerships operating in the midstream energy space. Other major companies operating in the same sector as KMP include Targa Resource Partners (NGLS), Regency Energy Partners (RGP), Plains All American Pipeline (PAA), and Energy Products Partners (EPD). All of these companies are components of the Alerian MLP ETF (AMLP). KMP is part of the Alerian MLP ETF (AMLP), as well as the MLPA ETF (MPLA). KMI is part of the MLPX ETF (MPLX).
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