Why The Crude and Condensate Pipeline Is Important To Kinder Morgan

Kinder Morgan Energy Partner’s (NYSE:KMP) products pipeline segment primarily transports refined petroleum products, crude oil and natural gas liquid across the United States. The business accounted for about 15% of the company’s total revenues in 2013 and we estimate that it contributes roughly 10% of the company’s market value. In this note, we take a look at the Kinder Morgan Crude and Condensate (KMCC) pipeline, which is considered an important pipeline for the company, since it originates from the  young yet prolific Eagle ford Shale in South Texas.

Trefis has a 87.50 price estimate for KMP, which is about 20% ahead of the current market price

Eagle Ford is One Of The Most Lucrative Oil Plays In The World

Despite being a relatively young play, with most wells beginning production in 2009 or later, the Eagle Ford shale has quickly emerged one of the most important and prolific shale oil basins in the United States. Crude oil production from the shale has soared from around 123,000 barrels per day in 2010 to around 1.2 million barrels per day in December 2013. ^[1] Oil produced in the play is also known to be very light and sweet, meaning that it is easier and more economical to refine. Investments in the play have remained strong, and production  is expected to exceed 1.5 million barrels per day by 2015. The shale formation has offered very attractive returns to oil companies, due to a combination of strong production volumes and improving drilling and completion efficiencies, which have helped reduced costs. Some of the most efficient operators producing from the so-called “sweet spots” of the play have been achieving a 100% pre-tax IRR. ((Eagle Ford Production to Keep Growing Through 2014, RIGZONE, March 2014))

An Important Route: Eagle Ford To the Houston Ship Channel Refining Complex

The KMCC began operations in in October 2012, connecting the Eagle Ford shale with various terminal facilities that provide access to petrochemical plants, local refineries and docks along the Texas Gulf Coast. Besides crude oil, the pipeline also transports condensates, which are light hydrocarbons often used as a raw material in oil refineries and other petrochemical industries. ^[2] The pipeline is about 178 miles long and has a total capacity of around 300 thousand barrels per day (MBbls). Like many of KMP’s other assets, the pipeline provides for stable revenues, with over two-thirds of its capacity contracted on long term commitments. ^[3] KMP has also undertaken some expansion projects for this pipeline. Earlier this year, the company completed construction on a lateral pipeline that carries crude and condensate from the KMCC to Phillips 66’s Sweeny Refinery in Brazoria County, Texas. KMP has also indicated that it would be extending the KMCC pipeline farther into the Eagle Ford Shale through a $74 million expansion project.

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1. New Frontiers: Eagle Ford vs. Permian, the great Texas oil showdown, Platts, February 2014 [↩]
2. What is Condensate, Alberta Oil and Gas Trading [↩]
3. Kinder Morgan Energy Partners Form 10-K 2013 [↩]