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Income Investing

Earning Their Keep

By Roger S. Conrad, on Aug. 12, 2013

In Numbers Watch, we highlighted Kinder Morgan Energy Partners LP’s (NYSE: KMP) solid second-quarter results. In the intervening weeks, the blue-chip master limited partnership (MLP) announced two exciting growth projects with joint-venture partners.

At the end of July, Kinder Morgan Energy Partners and Canada-based midstream operator Keyera Corp (TSX: KEY, OTC: KEYUF) unveiled a 50-50 project to build a crude-oil terminal near Edmonton, Alberta. This facility will have the capacity to load 40,000 barrels per day and will be served by both Canadian National Railway (TSX: CNR, NYSE: CNI) and Canadian Pacific Railway (TSX: CP, NYSE: CP). The Alberta Crude Terminal will receive volumes from the joint-venture partners’ respective gathering systems in the region.

Following on the heels of this announcement, the MLP signed a letter of intent with MarkWest Energy Partners LP (NYSE: MWE) to develop midstream infrastructure to handle natural gas and natural gas liquids (NGL) produced in the Ohio portion of the Utica Shale. NGLs are a group of heavier hydrocarbons that includes ethane, propane and butane–the building blocks of many plastics and synthetic materials.

The projects contemplated by this agreement include a gas-processing plant with a nameplate capacity of 200 million cubic feet per day. In a conference call to discuss second-quarter results, MarkWest Energy Partners’ management team indicated that the site could accommodate up to four additional processing plants of the same size.

In addition, the letter of intent includes an NGL pipeline that would transport these hydrocarbons to the Gulf Coast for fractionation, a process whereby the mixed gas stream is separated into individual components. Kinder Morgan Energy Partners and MarkWest Energy Partners are also evaluating the potential construction of a fractionation plant in either Texas or Louisiana.

Both of these joint-venture projects demonstrate the yet another avenue for Kinder Morgan Energy Partners to unlock value from its massive network of pipelines and other midstream infrastructure. 

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