Despite the frequency with which sensational claims of oil dropping further, maybe to $20 or even $15 appear in the financial media, I doubt there are any rational observers who honestly expect the price to stay down forever. At some point a recovery will come, and when it does the companies that have used the current discount pricing of assets to expand will reap their rewards. That is true in terms of E&P companies, but also infrastructure providers.
When Kinder Morgan combined Kinder Morgan Energy Partners and El Paso Energy Partners into KMI last year many heads were turned. The fact that such a large proponent of the MLP structure was consolidating led to some (prematurely) forecasting the death of Master Limited Partnerships. From a business point of view, though, combining operations made perfect sense for Kinder Morgan. The resulting company is now the largest energy infrastructure company in North America and the cost of capital reduction (Down from 9 percent to around 3.5 percent, according to Stifel’s recent research report) leaves it poised for significant growth.
That process has already begun, with KMI announcing their intent to build a new storage terminal in Edmonton in a 50/50 joint venture with the Canadian company Keyera Corp. That just adds to a project backlog of around $18 Billion, and suggests that, even from a position of dominance, KMI has a lot more growth ahead in the next couple of years.
Piling on debt to fund those…