Kinder Morgan (NYSE:KMI) is the country's third-largest energy company by enterprise value. The partnership has an incredibly diverse asset base that targets some of the most important oil and gas plays in the United States, including the Permian Basin and the Eagle Ford Shale. All told, the company operates more than 75,000 miles of pipeline and 180 terminals.
Being on top doesn't make it any easier to stay there, and the midstream market is becoming increasingly competitive. However, I think Kinder Morgan is one of the best midstream investment options out there, and I created a premium report on the company to help guide investors on whether it merits consideration for their portfolios.
Following is an excerpt from the report, laying out the company's opportunity. We hope you enjoy it.
Kinder Morgan is a holding company. It forgoes the direct ownership of assets, and instead makes its money by owning stakes in the other Kinder Morgan companies: Kinder Morgan Energy Partners (NYSE:KMP), Kinder Morgan Management (NYSE:KMR), and El Paso Pipeline Partners (NYSE:EPB). It also owns a 20% stake in a natural gas interstate pipeline called NGLP.
On a rare occasion, such as now, KMI will own assets, albeit briefly, with the intent to drop them down to either KMP or EPB. For example, KMI purchased the assets of El Paso during that acquisition and is in the process of selling them to the other Kinder Morgan companies.
But really, KMP is KMI's primary asset. KMI owns the general partner and incentive distribution rights in KMP, but it also owns 11% of the limited partner units, and together its ownership in KMP amounts to more than 95% of KMI's cash flow. In other words: When KMP makes money, so does KMI.
In many ways, the Kinder Morgan family is at the top of the midstream heap. It operates the largest natural gas network in the U.S., controlling 75,000 miles of pipeline with assets in every major natural gas play. With 180 terminals, it is the largest independent terminal operator in the States as well. It is the largest independent transporter of petroleum products and carbon dioxide. And, despite the fact that pipelines and terminals are its bread and butter, Kinder Morgan is also currently the fifth-largest oil producer in the state of Texas.
The partnership has considerable assets in Texas and Florida. These regions are particularly important to natural gas pipeline operators because they are the two top markets in the country for natural-gas-generated electricity. In the U.S., the use of natural gas in power generation rose 14% between 2008 and 2011. By March of 2012, the power sector was consuming an unprecedented level of natural gas. However, by March of 2013 the price of natural gas had risen to $4.00 per MMBtu, resulting in a 16% decline in natural gas usage.
Despite this, volumes for gas-fired power generation on EPB's Southern Natural Gas system were up 4% in the first quarter, hammering home the importance of connecting to the right markets. Ultimately, the geographical breadth of Kinder Morgan's asset footprint cannot be underestimated if this trend continues.
Kinder Morgan's carbon dioxide business is a great strength, but it is also the business segment most exposed to commodity risk, which we will look at later. The country's leading transporter and marketer of carbon dioxide has assets in all the right places to serve oil producers looking for help in enhanced oil recovery. Kinder Morgan has an ownership stake in the two largest CO₂ domes, which provide a combined 1.5 billion cubic feet of CO₂ per day to operators in Utah, Oklahoma, and the Permian Basin.
Things are going so well for Kinder Morgan's CO₂ business that the company has had to turn customers away. As a result of increasing demand in the Permian Basin, Kinder Morgan has acquired and begun to develop the St. Johns CO₂ field. Stretching across Arizona into New Mexico, St. Johns is expected to provide about 400 million cubic feet of CO₂ per day to producers in the Permian.
Finally, Kinder Morgan's Texas intrastate assets have always been important revenue generators for the partnership. The partnership continued to improve its footprint here with its January 2013 announcement that it would acquire Copano Energy. Copano has nine processing plants, including the third-largest facility in Texas, which will expand Kinder Morgan's midstream capabilities and overall presence in the Eagle Ford Shale.
Looking for more guidance?
That was just a sample of our new premium report on Kinder Morgan. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that, but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. To get started, simply click here now.
Motley Fool contributor Aimee Duffy has no position in any stocks mentioned. The Motley Fool recommends El Paso Pipeline Partners and Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.