Is Kinder Morgan Energy Partners the Best Way to Play the Natural Gas Boom?
Thanks to the various shale oil and gas discoveries, the energy boom in North America also has its constructive spinoffs. Pipeline transportation and energy storage company Kinder Morgan Energy Partners (NYS: KMP) has announced impressive first-quarter results, and this stock could be one for long-term energy investors' portfolios.
The Houston-based company rode the boom in natural gas production, and increasing demand for carbon dioxide, to post a 50% growth in operating income. As a result, income from continuing operations clocked in at $480 million, a fantastic 65% increase compared to the year-ago quarter.
Acquisitions: The best way to expand?
The company used small acquisitions and consolidations to build its asset portfolio, and this has proved to be successful so far. The natural gas pipelines business saw a 25% increase in earnings before depreciation, thanks mainly to the 50% buyout of Petrohawk's stake in midstream natural gas company KinderHawk. This move should bring long-term gains for Kinder Morgan. KinderHawk operates in the prolific Haynesville and Bossier natural gas shale plays, where it has gathering, treating, and dehydration facilities. With a total output capacity of more than 2 billion cubic feet (Bcf) per day, Kinder is well-positioned to exploit these shale plays.
The 185-mile long Fayetteville Express Pipeline, a $1.1 billion joint venture with Energy Transfer Partners (NYS: ETP) , has also been ramped up, which contributed to the earnings growth in the natural gas pipeline segment. The Eagle Ford Gathering services -- part of Kinder Morgan's Texas intrastate pipeline system -- also played a crucial part in increasing transportation volumes. In the first quarter, sales volumes on the Texas intrastate network were up 11% compared to last year. These networks should continue playing a major role. Additionally, the acquisition of natural gas treatment company South Tex Treaters last December played its part by increasing plant sales.
Carbon dioxide: Another huge potential?
The CO2 business also saw healthy growth due to rising demand in West Texas for carbon dioxide, which is used for enhanced oil recovery. Earnings in this segment grew 31% from the year-ago quarter before taking depreciation and amortization costs into account. Management sees enhanced oil recovery methods increasing CO2 demand and, in the process, potential opportunities for expansion. Currently, Kinder Morgan is working on the $255 million expansion of its Doe Canyon CO2 source field in Colorado. This will increase existing production capacity by more than 60%. The company also closed a deal in January to acquire the St. Johns CO2 source field in Arizona.
While other segments also witnessed growth, what I'm excited about is the impending $38 billion takeover of El Paso (NYS: EP) by the general partner, Kinder Morgan (NYS: KMI) . The parent company will then drop down El Paso's storage and transportation assets to KMP. This should see a significant consolidation on KMP's part.
Foolish bottom line
The natural gas boom should continue for a long time. And I feel that transportation and storage companies will definitely cash in. Kinder Morgan Energy Partners looks like a strong bet in this space. This company looks set to reap the harvest in the long run. Right now, to help you stay up to speed on the top news and analysis on Kinder Morgan Energy Partners, please add the company to your free personalized watchlist.
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At the time this article was published Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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