Kinder Morgan has denied the rumor. Historically using cash for new projects generates better returns than for stock buybacks or to pay down debt. While the CO2 Segment faces continuing challenges, it continues to deliver good cash flow and there is no compelling Kinder Morgan Co2 Company for Kinder Morgan to sell it. I was not particularly surprised by this report because it seems that at this time of year, like the proverbial annual return of the swallows to Capistrano, a rumor suddenly appears alleging that Kinder Morgan is looking to sell its CO2 unit.
So investors should take these "potential sale" reports with a grain of salt, especially in light of direct comments from Kinder Morgan like the ones in this year's Investor Day Conference on January 23, In this business there is some oil that can only be recovered and can be recovered quite economically in this price environment only with the use of CO2. We Clothing Line Company it.
We also have a very talented and experienced EOR team. That combination makes us very happy to be in this business because it produces returns to our shareholders. We like this business. We make good returns in it. We think, deliver and act like owners. Despite the apparent quashing of the Bloomberg rumor and in view of the persistent rumblings about a possible sale of the CO2 Segment, I thought this would be a good time to provide KMI investors with some insight and detail about Kinder Morgan's CO2 business and my thoughts on the positive aspects of the business as well as its current challenges.
The Tall Cotton project is the exception because it is a "greenfield" project, meaning that there was no prior development of that field. The 49,acre unit produces from the Canyon Reef formation Kelly-Snyder fieldwhich was discovered in See Figure 2.
See Figure 3. Chevron started CO2 injection on January 26, In JuneKinder Morgan acquired an additional Initially, it is important to point out that, less than 10 years ago, it appeared that SACROC was about to enter hospice care.
As offuture production was headed down a slope which appeared to be heading towards zero by That has changed. As shown in Figure 4, production forecasts have gradually pushed out the "end of life" date for the field and the production forecast now predicts that SACROC will continue well beyond How did they do it? As these projects came on line they stemmed the precipitous decline curve.
In addition, aroundKinder initiated an infill program as well as a project called "Harvest" where Kinder Morgan Co2 Company started to go back and rejuvenate older projects. This project targeted a zone which did not flood well and thus still contained a lot of oil. InKMI started a transition zone project called "Hawaii" and, inthey added a transition zone project called "East Flank.
Clearly, even in today's oil price environment, the project should generate a very decent return. Over the past eight years or so, SACROC reservoir engineers have managed to slow the decline rate in the field as well as extend the life of the field.
As shown in Figure 7, SACROC cash flow took a big hit in after the oil price shock in late but is beginning to rebound slightly. Oil production is up dramatically this past year due, no doubt, to the new transition zone projects.
The field is named after Ira G. Yates, the rancher who owned the land where the discovery well was drilled. The field produces primarily from the San Andres formation from about 1, to 1, Kinder Morgan Co2 Company. See Figure 8. In DecemberKinder Morgan acquired a 7. Historically, other owners of the Unit included Chevron Corp. Oil in the field is recovered utilizing the difference in density between the oil-filled rock matrix and the gas-filled rock system above it.
Oil drains vertically through the matrix and then migrates laterally into fractures where it can be mobilized towards the wells. Historically, CO2 was first used in When Kinder Morgan gained control, it began replacing nitrogen injection with CO2 injection in order to maintain reservoir pressure and enhance the gravity drainage process.
This program, along with an infill program and waterflood program on the west side of the field, are not particularly showy or flashy but deliver excellent returns.
To be sure it shows a decline in both production and DCF, but one has to keep in mind that this is, after all, a diminishing asset.
Importantly, the decline rate for the Yates Field Unit is only about Image Communication Company. This is very low. Historically, the current unit consisted of three separately operated units totaling 7, See Figure InKinder Morgan initiated a CO2 project in the field. Figures 14 and 15 show the production Kinder Morgan was projecting in and But the project has failed to live up to expectations. Figure 16 shows the Production and DCF history since As you can see, oil production is beginning to fall off and with zero new dollars being invested, cash flow will soon follow.
Katz Strawn Kinder Morgan Co2 Company definitely a "problem child. Goldsmith-Landreth San Andres Unit. The field was Zurich Insurance Company Cape Town in and contains 6, The field was unitized by Amoco in Legado Resources acquired the Unit in April This was a brand new concept at the time.
Within a few months, the pilot project improved oil production by barrels a day. At that time, KMI expected production to grow to "approximately 10, bpd in about 10 years. So rather than grow production, it appears that over the past several years, capex has been used to remedy these technical issues.
The good news is that production and DCF have remained relatively flat over the past couple of years. See Figure 19 But that will not last. Tall Cotton. It is using CO2 technology, normally reserved for secondary or tertiary recovery, for primary production.
The project first started in with several test Ethical Silk Company drilled on several leases. Injection started in Novemberbut they had to wait until April for an oil response.
Phase II started in November with the addition of 24 production wells and 15 injectors. Oil Production has climbed steadily in and In October and NovemberKinder Morgan spudded the first wells in this new phase.
But, the problem is that returns at this point in time are extremely thin. This past year the Midland-Cushing differential was a real drag on returns. That's probably enough to keep Phase III moving forward, but I believe they will slow the pace of development until Midland oil prices show signs of improvement and stability. McElmo Dome is approximatelyacres and has been in operation since ExxonMobil is the other owner. Doe Canyon is approximately 55, acres and has been in operation since Occidental Petroleum acquired Kinder Morgan Co2 Company Unit in They are as follows:.
The CO2 system basically functions together as follows:. All told, the CO2 system transports 1. It is a very reliable business. Tall Cotton is an engineering success story, but margins are thin.
Figure 26 show KMI's current long-term growth outlook for Kinder Morgan Co2 Company Segment. While that may be true in the abstract, these uses of cash do not apply here. Historically, Kinder Morgan's capital projects generate better returns than stock buybacks and the company has paid down debt to where its debt-to-EBITDA ratio has reached the targeted level of 4. In looking at the likelihood of a sale one also has to consider the extremely limited number of potential buyers. Of course, Occidental Petroleum comes to mind as a potential buyer, but their CO2 unit has a lot on their plate right now and I can virtually guarantee you they would not be interested.
The good news is that the differential seems to be hovering around zero at the present time. I wrote this article myself, and it expresses my own opinions.
I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article.
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Kinder Morgan CO2 Co LP operates as a producer, transporter, and marketer of carbon dioxide in the United States. The Company owns CO2 source fields and CO2 pipelines.Employees: 29…
Kinder Morgan CO2 Company is one of the largest transporters and marketers of carbon dioxide in the United States. It maintains a network of more than 1,300 miles of carbon dioxide pipelines. The company is a part of Kinder Morgan, which is one of the largest energy transportation and storage companies in North America.Location: 4632 W US Highway 180, Snyder, 79549, TX…
CO 2 Supply. Kinder Morgan CO 2 is a leader in the production and transportation of CO 2 for use in enhanced oil recovery (EOR) projects in southeastern New Mexico, West Texas and southeastern Utah. We hold ownership interest in several CO 2 source fields including the Bravo Dome in New Mexico, and Doe Canyon Deep and the McElmo Dome in southwestern Colorado.…
Kinder Morgan CO2 Company Richard Ring (713) 369-8461 Kinder Morgan Treating Bill Stokes (713) 369-8515 Kinder Morgan Pipeline Safety Request Additional Information Emergency Contact Numbers. Natural Gas Pipeline Marketing NGPL, Horizon Pipeline, Kinder Morgan Illinois Pipeline ...…
Kinder Morgan is one of the largest energy infrastructure companies in North America. We own an interest in or operate approximately 83,000 miles of pipelines and 147 terminals. Our pipelines transport natural gas, gasoline, crude oil, carbon dioxide (CO 2) and more. Our terminals store and handle petroleum products, chemicals and other products.…