Kinder Morgan Energy Partners LP (NYSE:KMP) will continue to launch oil pipeline expansions after the company got several commitments from Asian customers. Under the new plans, Kinder Morgan will be able to ship 25-30 tankers worth of crude oil from Alberta, Canada in its nearby terminals at Westridge and Burnaby.
The pipeline that Kinder Morgan Energy Partners LP (NYSE:KMP) will be expanding is its AlbertatoMetro Vancouver pipeline which the company hopes to have fully done by 2017 and its costs are estimated to be $5 billion.
Production wise, the expansion will be able to hold 550,000 more barrels a day to bring a grand total to 850,000 barrels a day. That is a significant upgrade for the company and it will certainly help them be able to expand over into Asia to capitalize on demand in the region.
In addition to the commitments from Asian customers, Kinder Morgan Energy Partners LP (NYSE:KMP) has also received commitments from Metro Vancouver and Washington State.
The main problem that Kinder Morgan Energy Partners LP (NYSE:KMP) has ahead of itself is the environmental opposition. The longer the proposed expansion of the pipeline, the more the environmental groups are going to try to block it.
Despite the environmental groups, Kinder Morgan Energy Partners LP will be able to capitalize on this expansion and you can expect higher profitability in 2017. Until then, there are likely better opportunities out there. The important thing for Kinder Morgan is that they have firm commitments from buyers saying they will be customers once the pipeline is complete.
At this time, Kinder Morgan is a 'little' overvalued using standard valuation metrics. Starting with a high P/E of 47, this is often an unappealing start when looking at fundamentals. Price/Sales and Price/Book are also overvalued and total debt/equity comes in at a ridiculous 520.
The only good part of Kinder Morgan is the 3.2% dividend. Other than that, the stock is extremely overvalued and unappealing to own from a fundamental stand point.
Overall, this is great news for the company over the long term but the short term might not be so great for shareholders. The long term is great to look forward, to and purchasing the stock around then sounds ideal but it seems pricey unless share prices drop.
Kinder Morgan needs to focus on cleaning up its balance sheet, especially its debt load. That is a significant load which might ultimately hurt the shareholders over the long term.