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Best of Breed Investing: Kinder Morgan Energy Partners LP (KMP)

Investing is all about picking the right companies at the right time. You can rarely ever go wrong with a company that’s the best at what they do. Enter Kinder Morgan Energy Partners LP (NYSE:KMP), the largest midstream and the third-largest energy company (enterprise value) in North America.

Kinder Morgan Energy Partners LP (NYSE:KMP) owns over 75,000 miles of pipeline that transport natural gas, refined petroleum products, crude oil, carbon dioxide, and more. It also operates more than 180 terminals, which store products and are used to fill tankers. In these terminals, they handle several more products such as gasoline, jet fuel, coal, ethanol, petroleum coke, and steel. Kinder Morgan Energy Partners LP (NYSE:KMP) plays a major role in the energy industry.

Kinder Morgan Energy Partners LP (NYSE:KMP)Important Facts about Kinder Morgan

  • Largest natural gas pipeline and storage operator in the United States
  • Largest independent transporter of refined petroleum products in the United States
  • Largest independent terminal operator in the United States
  • Largest transporter and market of carbon dioxide in the United States
  • The only oilsands pipeline serving the West coast of Canada.

How They Make Money

This company makes money from other energy companies using their pipelines, services, and terminals. It’s basically a “toll road” for the energy companies, as Kinder Morgan Energy Partners LP (NYSE:KMP) puts it. This is a major advantage because they are not as sensitive to changes in commodity prices. Most of their contracts include set fees for several years, so there is not constant negotiation between Kinder Morgan and their customers. Therefore, as commodity prices sway back and forth, a drop in this stock is purely an opportunity to buy.

Expansion & Acquisitions

Kinder Morgan Energy Partners has been investing billions of dollars each year to build new infrastructure and expand existing assets. Each year, the total miles of pipelines and terminals seems to grow substantially. On top of their own expansion, they have been actively acquiring other pipeline companies. Most recently, Kinder Morgan purchased Copano Energy, L.L.C. (NASDAQ:CPNO) for $3.2 billion in a deal worth a little over $5 billion total. Copano is a pipeline and natural gas services company with over 7,000 miles of pipeline in Texas, Oklahoma, and Wyoming. The two companies actually held a joint venture together, servicing the Eagle Ford Shale. Kinder Morgan publicly stated that this deal was made because they are “bullish on the domestic shale plays and believe they will drive substantial future growth.” I could not agree more.

In 2011, Kinder Morgan bought El Paso Corporation for over $21.1 billion, in a deal valued at over $38 billion. Before the buyout, Kinder Morgan and El Paso were the two largest natural gas pipeline operators. This is the deal that made them become the largest pipeline company in North America. There was speculation that the deal would be blocked, but the acquisition was finalized in 2012 and they have not looked back since. I do not think Kinder Morgan Energy Partners is close to being done with acquisitions and should continue to make deals going forward.