The sheer size of Kinder Morgan (KMI 0.17%) may surprise you. In fact, by combining the enterprise values of its various publicly traded entities, which include El Paso Pipeline Partners (EPB), and Kinder Morgan Energy Partners LP (NYSE: KMP), the end result is that Kinder Morgan is the third-largest energy company in North America.
To meet the demand generated from America's oil and gas production boom, Kinder Morgan is preparing to invest billions in new projects over the next several years. These projects will pave the way for Kinder Morgan's future cash flow and distribution growth, and are the primary reason why Kinder Morgan Partners expects to increase its distribution by 5% this year.
Billions in the project pipeline
Kinder Morgan management has identified $13.5 billion in expansion investments in its pipeline and terminals business set for the near future. The company wrapped up a very successful 2013, and its ongoing investments should ensure growth going forward. Kinder Morgan's five core businesses produced $5.55 billion in earnings excluding depreciation, a 27% increase from the prior year.
This year, Kinder Morgan will invest approximately $3.6 billion to expand which will benefit the company this year and beyond. As a result, Kinder Morgan expects another strong year of growth. Its 2014 guidance calls for $6.4 billion in earnings before depreciation and amortization, which would represent 15% growth.
As part of its $3.6 billion in spending this year, it's planning to build a petroleum condensate processing facility designed to split condensate into its various components. This is a $370 million undertaking that will be supported by a long-term, fee-based agreement with BP North America. The project fits perfectly with Kinder Morgan's existing business model, which is predominantly composed of fee-based arrangements that result in predictable and steady cash flow
The condensate processing facility will hold a total capacity of 100,000 barrels per day, with potential for even greater volumes. Kinder Morgan expects the first unit to be in service in the first quarter of this year, and a second unit in the middle part of next year.
Longer-term, Kinder Morgan's project line-up is equally impressive. One of which is the Elba Liquefaction Project and Elba Express Compression Project. This project will add considerable liquefaction and export capability to an existing liquefied natural-gas terminal in Georgia, and consists of two phases.
The first involves installation of six liquefaction units equal to an output capacity of 210 MM cubic feet per day of LNG. Phase two will include installation of up to four additional liquefaction units capable of handling 140 MM cubic feet per day. Construction is set to commence in the first quarter next year and it should be placed into service during the first quarter of 2017.
Another is the conversion of Kinder Morgan's 1,005-mile existing Tennessee Gas natural gas pipeline to a natural-gas liquids service. This will allow Kinder Morgan to transport natural-gas liquids from the Utica and Marcellus shales to the Gulf coast. Kinder Morgan will also build 200 miles of new pipeline as part of the project. This also represents significant potential to boost Kinder Morgan's production, as initial design capacity is pegged at 150,000 barrels per day, and would be expandable to 400,000 barrels per day once additional pump stations are installed.
The Foolish conclusion
Kinder Morgan operates an extensive group of pipelines and storage terminals across the United States. Going forward, management has billions more in planned investments designed to further capitalize on the domestic oil and gas boom.
Kinder Morgan plans to build out or convert pipelines and treatment facilities specifically suited to handle oil and gas from some of the most promising fields in the U.S., such as the Utica and Marcellus Shales. These projects, along with previous investments that should contribute this year, are why Kinder Morgan Partners management expects cash flow growth and plans to increase its distribution by 5% this year. As a result, you should be excited about Kinder Morgan's project line-up and its potential for future distribution growth.
Whether they are distributions or dividends, yield is yield