Kinder Morgan Energy Partners LP (NYSE:KMP) is making a move into owning resource properties with the intent of leasing them to third parties to mine. The main focus appears to be coal. If Kinder sees value in coal, it might be time for investors to buy in, too.
Pipelines
Kinder Morgan Energy Partners LP (NYSE:KMP) is a giant in the mid-stream oil and gas business. It owns the terminals and pipelines that get such products from where they come out of the ground to where they can be sold. It’s a great toll-taker business model that provides relatively stable revenues.
With some 46,000 miles of pipelines and around 180 terminals, the company clearly has a size benefit. However, it also a growth issue. It is much harder to grow a company that’s already large than build one that’s small. Moreover, the mid-stream sector is no longer as cheap as it once was.
Seeing Some Value
Kinder Morgan Energy Partners LP (NYSE:KMP)’s plans to build a business that owns and leases out coal mines is a new line of business that it can grow quickly from a small base. It already has $450 million worth of coal terminal expansions under way, so it clearly likes the industry. Buying the actual coal mines, however, is a bit out of line with its mid-stream focus.
That said, using the leasing model, like Natural Resource Partners LP (NYSE:NRP), removes the operating risk from the equation. Thus, Kinder Morgan Energy Partners LP (NYSE:KMP) will be just a toll taker, which is right in line with its strengths. And the lease model has worked well for Natural Resource Partners LP (NYSE:NRP), even through the current downturn in the coal market.
Although 2012 was a particularly difficult year in the industry, Natural Resource Partners LP (NYSE:NRP)’ top line was essentially flat. It was even able to increase its dividend. The shares yield nearly 10%, which should be of keen interest to income investors, though it’s worth noting that the payout has been static for the last six quarters.
With Kinder Morgan Energy Partners LP (NYSE:KMP) looking to start up a business that does exactly what Natural Resource Partners LP (NYSE:NRP) already does, this is one limited partnership that investors should key in on now.
No Love
Coal’s problems come from two different areas. First, it is considered a dirty fuel source, which is why environmentalists and the government have been working to limit its use. Second, and more importantly, natural gas prices have hit historic lows. That’s made gas a viable alternative to coal as a fuel source for key electric utility customers. As demand for gas has increased, demand and prices for coal have fallen.
