Kinder Morgan Energy Partners, L.P. (KMP) has signed five new contracts for the sale of CO2 in the first quarter of 2012. The total sales volume adds up to over 2 trillion cubic feet while the aggregate contract quantities are over 440 million cubic feet per day (MMcfd) at their peak.

One of the contracts, expected to start in 2014, involves the transfer of CO2 through Kinder Morgan’s 91-mile Eastern Shelf Pipeline to a project adjacent to the partnership’s Katz Field. The contract is expected to augment CO2 capacity, to be carried by the pipeline to over 130 million cubic feet per day (MMcfd). This in turn demands further pump stations to boost capacity.

The greater part of the sales quantity has been booked by third parties, and will help in the development of new and existing CO2 flood projects, located in the Permian Basin of West Texas. These projects, operated by the buyers, have a volume weighted average term of about 16 years.

The continuous increase in oil prices has increased the number of oil recovery operations leading to robust demand for CO2. Therefore, Kinder Morgan is planning to revive its $255 million expansion at its Doe Canyon Unit CO2 source field in southwestern Colorado, announced earlier. This will enhance CO2 capacity to 170 MMcfd from 105 MMcfd.

The construction is anticipated to begin in the second quarter of 2012 and will comprise the setting up of both primary and booster compression. The primary compression and the booster compression are expected to be commissioned in the fourth quarter of 2013 and in the second quarter of 2014, respectively.

For the next decade, the partnership expects to drill 19 additional wells, which will increase the yield to 170 MMcfd from 105 MMcfd.

Kinder Morgan holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain our Neutral recommendation on the stock. It faces threats from Enterprise Products Partners LP (EPD) and Enbridge Energy Partners LP (EEP).

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