Eagle Ford Gathering LLC, a 50:50 joint venture (JV) between Kinder Morgan Energy Partners, L.P. (KMP) and Copano Energy, L.L.C. (CPNO), entered into a long-term agreement with a subsidiary of Anadarko Petroleum Corp. (APC) for midstream services in the Eagle Ford Shale play.
Per the agreement, Eagle Ford Gathering will facilitate Anadarko E&P Company LP, the subsidiary of Anadarko, with significant natural gas gathering, transportation, processing and fractionation services in the region.
Late last year, Eagle Ford Gathering announced its intention to increase the capacity of a 30-inch gas pipeline to 600,000 million British thermal units per day (MMBtu/d) from 375,000 million, to serve additional Eagle Ford Shale producers. For this, the JV planned to invest approximately $175 million. The 30-inch pipeline in the western Eagle Ford Shale play is expected to come online in the third quarter of 2011.
The JV also intends to construct 74 miles of natural gas pipelines by the end of this year. These pipelines will facilitate the JV to fully utilize the 600 million cubic feet per day (MMcf/d) capacity of its 30-inch pipeline and deliver natural gas to Formosa Hydrocarbons Company for processing.
Kinder Morgan is one of the largest publicly traded master limited partnerships (MLPs) and generally serves as a benchmark for the pipeline MLP group. The partnership’s risk-reward trade-off is adequately balanced by its focus on fee-based and diversified businesses.
We believe that Kinder Morgan is well positioned for future growth with organic and inorganic means. Recently, the partnership also increased its quarterly cash distribution per common unit to $1.13 ($4.52 annualized), representing an 8% year-over-year growth.
However, we are concerned about the partnership’s increased dependence on its CO2 business and cost overruns at organic growth projects. We currently rate Kinder Morgan as Neutral for the long term. Kinder Morgan holds a Zacks #3 Rank (short-term ‘Hold’ rating).
ANADARKO PETROL (APC): Free Stock Analysis Report
COPANO EGY LLC (CPNO): Free Stock Analysis Report
KINDER MORG ENG (KMP): Free Stock Analysis Report
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