A lot is happening with energy companies these days owing to the wild movements in crude and natural gas prices and all strategic decisions seem to counter those movements. However, the same is not true for Kinder Morgan (NYSE:KMP), which is almost firewalled to those changes because of its business model. Most affected is Chesapeake Energy (NYSE:CHK), which looks to have surrendered completely to oblige to the recent lows for natural gas prices of sub $2 levels and hence, is compelled to make headwind changes in its business model to incorporate more liquid-rich plays in the portfolio.
Kinder Morgan Partners is a midstream energy company which operates in North America and Canada and owns pipelines for products, natural gas, CO2 and terminals for liquids and bulk material handling. It competes with players like Enterprise Products Partners (NYSE:EPD) and Enbridge Inc. (NYSE:ENB). Chesapeake operates in oil and natural gas exploration and production and provides drilling and trucking facilities at wells. It competes with other oil and natural gas companies like Linn Energy (NASDAQ:LINE) and Cimarex Energy (NYSE:XEC) among others.
KMP Transmountain Twin Expansion
Kinder Morgan had earlier planned in January for doubling its Transmountain pipeline capacity from Edmonton to Burnaby at a capital expenditure of $2.8 billion, but, recently it has announced that it will almost triple the capacity from 300,000 barrels per day to 850,000 barrels per day. This would happen at an additional expense of $2.2 billion , making it 550,000 barrels per day capacity addition at $5 billion. Sounds amazing for the investors. This is reported as KMP’s Canada operations. Lets see its impact on its $78.24 Trefis price estimate, which has nearly 6.2% contribution from Kinder Morgan Canada. We are in the process of altering our forecasts to incorporate these changes.
Chesapeake Triple Deal
As per Chesapeake’s asset monetization plans, it has recently completed a trio of deals totaling $2.6 billion. It sold preferred shares in its liquid rich plays in Cleveland and Tonkawa for $1.25 billion. Raised $745 million from 10-year volumetric production payment (VPP) deal with an affiliate of Morgan Stanley (NYSE:MS) in its Anadarko Basin Granite Wash play. A VPP is contract to handover a percentage of production from a well. The last deal is a purchase and sale agreement of leasehold in the Texoma Woodford play to XTO Energy, a subsidiary of Exxon Mobil (NYSE:XOM), for $590 million in cash. These deals will help Chesapeake reduce its debt burden.