Strategic Transaction for Kinder Morgan, Tallgrass
The firms have agreed to expand crude oil takeaway capacity in the Rockies.
Tallgrass Energy (TGE) and Kinder Morgan (KMI) agreed to work together to expand crude oil takeaway capacity from the Powder River and DJ basins and move those barrels via the Seahorse Pipeline to the Gulf Coast.
Financial terms of the transaction were not disclosed, but as Tallgrass is contributing its Pony Express system and Kinder Morgan is contributing portions of its Wyoming and Cheyenne Plains Gas pipeline (which will be converted to oil), we see this transaction as quite strategic. We do not plan to change our moat rating or fair value estimate for either entity.
Broadly, this transaction reaffirms the valuable nature of the Pony Express asset. Despite investor concerns about its location in a less desirable basin (DJ) and being exposed to weaker basin economics, now Kinder Morgan has agreed the asset has a bright outlook. The transaction further confirms the skill that Tallgrass' management team has in sourcing creative solutions to midstream challenges, as it now has a significant oil exporting asset despite not being located in the Permian.
For Kinder, this represents an incremental growth opportunity--albeit small--to deploy its substantial cash generation. We expect more details and strategic outlook from Kinder management at the company's analyst day Jan. 23.
The combined pipeline system will be able to move up to 950,000 barrels per day of light and heavy crude. It also means that Tallgrass' recent open season to add 300,000 bpd to Pony Express' existing 400,000 bpd of capacity is highly likely to be successful, and it represents a major vote of confidence in obtaining incremental commitments to fill Seahorse's planned 800,000 bpd of capacity. This effort is expected to come on line in the second half of 2020.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.