Kinder Morgan Files for Toll Terms (BP) (CVE) (DVN) (KMP) (NXY) (STO) (TSO)

Kinder Morgan Energy Partners, L.P. (KMP) filed an application with the National Energy Board (NEB) for tolls and contract terms of the planned $4.1 billion expansion of its 1,150 kilometer (715 mile) Trans Mountain oil pipeline.

The NEB is an independent federal organization that is in charge of tolling, construction and operation of Canadian pipelines that traverse international or interprovincial boundaries.

Following the completion of the project, the Trans Mountain pipeline will extend from Alberta to Canada’s West Coast. Kinder Morgan emphasized that its application is designed to provide regulatory and market assurance to the patrons that have signed up for a 20-year term. The partnership seeks the consent of the NEB for the commercial terms that highlight the economic feasibility of the project.

Kinder Morgan intends to submit an application for the pipeline construction in 2013. The pipeline expansion between Edmonton and Vancouver will carry Canadian crude to the booming Asian markets and is expected to augment the capacity to 750,000 barrels per day from 300,000 barrels.

Kinder Morgan’s project is being supported by BP Plc (BP), Canadian Oil Sands Ltd, Devon Energy Corporation (DVN), Cenovus Energy Inc (CVE), Husky Energy Inc, Statoil ASA (STO), Imperial Oil Ltd, Nexen Inc (NXY) and Tesoro Corporation (TSO).

Kinder Morgan’s pipeline expansion has been disapproved by several environmentalists as well as British Columbian local groups. They believe the expansion would raise the risks of oil spills on land and in coastal waters. Vancouver city council has also opposed this project because of increased tanker traffic at the city’s harbor to about 20–25 vessels per month from 4–5, currently.

Kinder Morgan is an attractive investment opportunity, capable of delivering high returns going forward, supported by new pipeline expansions as well as its involvement in extensive studies and commitment for increased returns to its shareholders. However, it remains vulnerable to volatile crude oil and natural gas prices, imbalance between supply and demand for its products and rising interest rates. Such factors can hurt the partnership’s volumes and margins.

Kinder Morgan currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the unit.