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TheStreet Open House

Kinder Morgan Energy Partners Increases Quarterly Distribution To $1.26 Per Unit

Other News

Products Pipelines

  • KMP is investing approximately $90 million to build a 27-mile, 12-inch diameter lateral pipeline to extend its Kinder Morgan Crude Condensate (KMCC) pipeline to Phillips 66’s Sweeny Refinery in Brazoria County, Texas. In August, the companies announced an agreement whereby KMP will provide Phillips 66 with a significant portion of the lateral pipeline’s initial 30,000 barrels per day (bpd) of capacity, which is expandable to 100,000 bpd. The company will also add associated receipt facilities by constructing a five-bay truck offloading facility and three new storage tanks with approximately 360,000 barrels of crude/condensate capacity at stations in DeWitt and Wharton counties in Texas. Pending receipt of environmental and regulatory approvals, construction is scheduled to begin in the fourth quarter of 2012.
  • Construction continues on a petroleum condensate processing facility Kinder Morgan is building near its Galena Park terminal on the Houston Ship Channel which, when combined with the crude and condensate pipeline, will provide customers with unparalleled connectivity to crude oil and clean products markets on the Texas Gulf Coast. The cost of the facility is now projected to be approximately $200 million, with anticipated initial throughput capacity of about 50,000 bpd. The project is being supported by a fee-based contract with BP North America and the plant can be expanded to process 100,000 bpd. The facility is expected to be in service in the first quarter of 2014.
  • KMP began construction of the approximately $220 million Parkway Pipeline in August. A joint venture with Valero, the 141-mile, 16-inch pipeline will transport gasoline and diesel from a refinery in Norco, La., to an existing petroleum transportation hub in Collins, Miss., which is owned by Plantation Pipe Line Company. The pipeline will have an initial capacity of 110,000 bpd with the capability to expand to over 200,000 bpd. The project is supported by a long-term throughput agreement with a major refiner and is on schedule to be in service in September 2013.
  • KMP completed an expansion and modification of facilities at its Port of Tampa terminal in Florida as part of a joint venture with the Tampa Port Authority, TRANSFLO and CSX Corporation to bring ethanol into Tampa, Fla., which will be distributed throughout the market via the first U.S. ethanol unit train to refined products pipeline system. Kinder Morgan invested in new pipelines to transport the ethanol from the rail offloading facilities to its Tampa terminal where it can be distributed by a dedicated ethanol pipeline to other Tampa terminals for blending, or be transported along with gasoline shipments via the Central Florida pipeline to Orlando for gasoline blending at the company’s Orlando terminal. The system is expected to be fully operational in December 2012.
  • KMP closed on its approximately $38 million acquisition of a biofuel transload terminal located in Belton, S.C., in August. The terminal is designed for the receipt, storage and truck loading of ethanol and biodiesel received from unit trains. The 38-acre facility has 45,000 barrels of storage capacity, a three-bay truck rack and rail receipt capabilities for more than 200 cars. The terminal is located adjacent to two refined products terminals along the Plantation and Colonial pipelines corridor.
  • KMP completed facility modifications to provide for receipt, storage and blending of biodiesel at the company’s Fresno, Calif., terminal and began biodiesel blending service in August. Similar modifications are also complete at the company’s Colton, Calif., facility where blending will begin this month.
  • KMP’s $77 million expansion at its Carson Terminal in California continues to run ahead of schedule with three additional tanks coming online in September and this month. The first two tanks went into service last October. The company expects the two remaining tanks to be in service in the fourth quarter of 2012. Combined, the tanks will increase storage capacity by 560,000 barrels for refined petroleum products. All seven tanks have been leased under long-term agreements with large U.S. oil refiners.
  • KMP is continuing its plans for the Cochin Pipeline Reversal Project, which will allow the company to offer a new service to move light condensate from Kankakee County, Ill., to existing terminal facilities near Fort Saskatchewan, Alberta. The company received more than 100,000 bpd of binding commitments for a minimum 10-year term during a successful open season earlier this year. The approximately $260 million project involves modifying the western leg of the Cochin Pipeline to Fort Saskatchewan from a point of interconnection with Explorer Pipeline Company’s pipeline in Kankakee County, where Cochin will build a 1 million barrel tank farm and associated piping. Subject to the timely receipt of necessary regulatory approvals, light condensate shipments could begin as early as July 1, 2014.

Natural Gas Pipelines

Kinder Morgan currently has approximately $3.3 billion of approved major projects across all of its natural gas pipelines assets, the majority of which are at KMP.

  • Oct. 1, following Federal Energy Regulatory Commission (FERC) approval, Tennessee Gas Pipeline (TGP) placed in service a portion of its approximately $55 million Northeast Supply Diversification Project to support interim customer capacity requirements. The fully subscribed project is expected to be totally in service Nov. 1 and will create an additional 250,000 dekatherms per day (Dth/d) of firm service capacity from the Marcellus shale region along TGP’s system to serve existing markets in New England and the Niagara Falls area of New York.
  • The FERC issued a certificate of public convenience and necessity to TGP in August for its proposed approximately $86 million Marcellus Pooling Project (MPP). The fully subscribed project will provide 240,000 Dth/d of additional firm Marcellus transportation capacity. The expansion includes approximately 7.9 miles of 30-inch diameter pipeline looping, system modifications and upgrades to allow bi-directional flow at four existing compressor stations in Pennsylvania. Construction is anticipated to occur primarily in the summer of 2013 with an in service date of November 2013.
  • State technical reviews are nearing completion on TGP’s Northeast Upgrade Project, which will boost system capacity on TGP’s 300 Line by approximately 636 Dth/d via pipeline looping and system upgrades. This approximately $426 million project will provide for additional takeaway capacity from the prolific Marcellus shale area. The fully subscribed, FERC-certificated project has a targeted in service date of Nov. 1, 2013. Subject to final regulatory approvals, construction is anticipated to begin this quarter.
  • On Oct. 10, TGP filed a certificate application with the FERC proposing the Rose Lake expansion project, which would provide long-term firm transportation service for two shippers that have fully subscribed 230,000 Dth/d of firm capacity offered in TGP’s Zone 4 in Pennsylvania. The capacity was offered in a binding open season held in the summer of 2012. TGP proposes to retire older compressor units, add new, more efficient and cleaner burning units, and make other modifications involving three existing compressor stations that serve its 300 Line, all in northeastern Pennsylvania. The anticipated in service date for the approximately $84 million project is Nov. 1, 2014.

CO 2

  • To help meet increasing CO 2 demand, KMP continues to make progress on its previously announced $255 million expansion of its Doe Canyon Unit CO 2 source field in southwestern Colorado, which will increase capacity from 105 MMcf/d to 170 MMcf/d. In the third quarter, construction continued on both primary and booster compression. The primary compression is expected to be in service in the fourth quarter of 2013 and the booster compression is targeted to be completed in the second quarter of 2014.
  • Well testing and predevelopment activities continue on the St. Johns CO 2 source field in Arizona and New Mexico that KMP acquired earlier this year. The company anticipates that CO 2 production from this potential new source field would be transported to the Permian Basin for use by customers in tertiary recovery.

Terminals

KMP currently has more than $1.4 billion of approved major projects in this segment. The company is experiencing strong demand in particular for liquids storage capacity and coal exports in its terminals business. Approximately $880 million will be spent on three liquids projects (BOSTCO, Edmonton South and Galena Park) and over $400 million will be invested to expand coal facilities along the Gulf Coast and East Coast.

  • In conjunction with the previously announced Arch and Peabody multi-terminal long-term agreements, KMP is proceeding with Phase 3 of its approximately $190 million export coal expansion at the International Marine Terminal (IMT) located on the lower Mississippi River in Myrtle Grove, La. The project entails adding a new continuous barge unloader, a new reclaim system and an additional four million tons of coal storage capacity. The new expansion is expected to be operational late first quarter 2014.
  • KMP has entered into a long-term commercial agreement with BP North America for 750,000 barrels per day of refined products capacity at its Galena Park Terminal on the Houston Ship Channel. Construction has begun and KMP will invest approximately $75 million to build five new tanks, which will provide storage for BP’s product that will be processed at the condensate splitter that KMP’s Products Pipelines business segment is currently building near the Galena Park facility.
  • Construction continues on the approximately $430 million Battleground Oil Specialty Terminal (BOSTCO) located on the Houston Ship Channel. The first phase of the project includes construction of 52 storage tanks that will have a capacity of 6.6 million barrels for handling residual fuels and other black oil terminal services. Terminal service agreements or letters of intent have been executed with customers for almost all of the capacity. Commercial operations are expected to begin in the third quarter of 2013.
  • Construction also continues on the Edmonton terminal expansion in Strathcona County, Alberta. The approximately $284 million project entails building 3.6 million barrels of new merchant and system tank storage and is expected to be fully completed in December 2013. The project is underpinned by long-term commercial agreements with major Canadian producers. Kinder Morgan is currently in discussions with other companies for further expansion that would ultimately allow for over 6 million barrels of dedicated storage at the terminal.
  • KMP is investing approximately $20 million to expand its fertilizer handling capabilities at terminals in Fairless Hills, Pa., and West Memphis, Ark. Upon completion of these projects, the Fairless Hills Terminal will be capable of storing approximately 60,000 tons of dry-bulk and up to 25,000 tons of liquid fertilizer, while the West Memphis Arkansas Terminal will be capable of storing approximately 9,000 tons of dry-bulk fertilizer. The expansions are backed by long-term customer agreements and are anticipated to be in service in the second quarter of 2013.
  • Kinder Morgan Canada Terminals executed a long-term agreement with Thompson Creek Metals to receive mined materials at the Vancouver Wharves terminal in Vancouver, B.C., beginning in September 2013. The $13.5 million modification and expansion project includes additional rail and new enclosed conveyors, which will provide environmental benefits. The contract calls for handling 120,000 to 180,000 metric tons per year.

Kinder Morgan Canada

  • As previously announced, KMP confirmed binding commercial support for its proposed expansion of the Trans Mountain pipeline system in the second quarter. Following an open season, 10 companies in the Canadian producing and oil marketing business have signed firm contracts in support of the expansion. In August, Trans Mountain filed an application seeking National Energy Board (NEB) approval of the contract terms and toll structure that would be implemented under the expansion. Consistent with Trans Mountain’s request, the NEB has set a process for this application that results in a hearing starting on Feb. 13, 2013, with a decision anticipated by May 2013. The proposed $4.1 billion expansion would increase capacity on Trans Mountain from 300,000 bpd to 750,000 bpd. The company plans to file a Facilities Application with the NEB in late 2013, which will seek authorization to build and operate the necessary facilities for the expansion. This filing will initiate a comprehensive regulatory and public review of the proposed expansion. If the application is approved, construction is currently forecast to commence in 2015 or 2016 with the proposed expansion operating in late 2017. This summer Kinder Morgan Canada commenced an extensive and thorough engagement on all aspects of the project with local communities along the proposed route and marine corridor, including First Nations, environmental organizations and all other interested parties.

Financings

  • KMP sold common units valued at approximately $120 million under its at-the-market program during the third quarter, bringing the total to about $398 million through the first nine months of the year.
  • Kinder Morgan Management (KMR) conducted a secondary offering in August, which issued 10.1 million shares and raised almost $727 million. The funds were used in connection with the TGP and EPNG dropdowns.

Kinder Morgan Management, LLC

Shareholders of KMR will also receive a $1.26 dividend ($5.04 annualized) payable on Nov. 14, 2012, to shareholders of record as of Oct. 31, 2012. The dividend to KMR shareholders will be paid in the form of additional KMR shares. The dividend is calculated by dividing the cash distribution to KMP unitholders by KMR’s average closing price for the 10 trading days prior to KMR’s ex-dividend date.

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