Kinder Morgan (NYSE:KMI) isn't afraid to expand its footprint, especially when it involves carbon dioxide. The company is already the leading supplier and transporter of carbon dioxide, but that's not stopping it from investing to grow its dominance of the gas that is increasingly key to oil recovery. Fresh off announcing a billion-dollar investment to expand its carbon dioxide infrastructure, the company's Kinder Morgan Energy Partners (NYSE:KMP) master limited partnership announced earlier this week that it plans to invest another $671 million in carbon dioxide expansions.
Expanding its "carbon" footprint
Kinder Morgan Energy Partners intends to boost carbon dioxide production operations in the Cow Canyon area of the McElmo Dome source field in Colorado. The company will also expand the 500-mile Cortez Pipeline that transports carbon dioxide from Colorado to New Mexico and West Texas to be used in enhanced oil recovery projects.
The company plans to spend $344 million to increase carbon dioxide production in McElmo by 200 million cubic feet per day. The rest of the capital will be used to increase the capacity on the Cortez Pipeline from 1.35 billion cubic feet per day to 2 billion cubit feet per day.
This expansion, along with the earlier $1 billion pipeline project from a company-owned source field in Arizona to Texas, will help supply carbon dioxide to producers using the gas to unlock oil still trapped in the Permian Basin. Among those producers is Kinder Morgan, which is one of the top enhanced oil recovery producers in Texas.
Carbon's growing importance to the oil industry
The average conventional oil field in the U.S. only gives up 20%-40% of its oil through primary and secondary recovery methods. However, by flooding these fields with carbon dioxide the recovery factor can increase to 30%-60% of the original oil in place.
While estimates vary, the Department of Energy says carbon dioxide has the potential to unlock more than 60 billion barrels' worth of oil that are still trapped in American oil reservoirs. That's enough to nearly triple the country's proved oil reserves.
Kinder Morgan continues to lead
Few companies are as focused at expanding their carbon footprint to unlock this oil as Kinder Morgan Energy Partners. The nearly $1.7 billion of announced new carbon projects will fuel growth in third-party revenue, as well as the company's own carbon-enhanced oil production, which is up 5% over the past year.
While the company's carbon dioxide business isn't growing as fast as its natural gas pipelines or terminals segments, it still produced a 7% increase in earnings over the past year. That growth isn't likely to cease as these projects should fuel incremental earnings growth when complete. Furthermore, given the 60 billion barrels's worth of oil still trapped in reservoirs around the U.S., Kinder Morgan should have plenty of opportunities to supply the industry with the carbon dioxide it needs to rescue this trapped material.
America's surging shale gas and oil production is creating a multibillion-dollar growth opportunity for Kinder Morgan. However, the company's slower-growth carbon dioxide business has a strong future, too, which is why the company continues to expand its footprint. Needless to say, Kinder Morgan has no shortage of growth prospects, which should keep the company's dividend, and Kinder Morgan Energy Partners' distribution, rising for years to come.
Matt DiLallo has the following options: short January 2016 $32.5 puts on Kinder Morgan and long January 2016 $32.5 calls on Kinder Morgan. The Motley Fool recommends 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.
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