On Monday Aug. 11 Kinder Morgan announced that the company would be consolidating its various divisions into one publicly traded corporation. KMI will be the third largest US producer, transporter and refiner of oil and natural gas. Previously, the various business divisions of Kinder Morgan had been separated into different MLPs or master limited partnerships. An MLP is a specific type of investment vehicle, and to put it simply, instead of the company paying tax on corporate earnings the earnings are distributed to the shareholders of the MLP who are then required to pay taxes on the distributions through a special tax form, K-1. MLPs have been a popular corporate structure since the Oil & Gas boom however the capital structures make investment and M&A activity more difficult given the accounting and tax implications.
Along with the previous announcement, KMI also stated it had identified over 1200 potential acquisition targets representing $875 billion. These existing assets do not include the close to 1 trillion dollars in investment that the US needs in order to fully capitalize on the domestic energy opportunity. These announcements confirm the opportunity for automation suppliers within the Oil & Gas space signaling that continued investment in new products and sales teams is a sound strategy. Existing Oil and Gas companies will be looking to increase spending in order to grow their production, distribution and storage volumes not only to increase value to current shareholders, but also to make the organizations more attractive for potential acquisition.
There have been quite a few other recent developments within this area including the recent lift on bans outlawing the export of domestic oil and natural gas. This had led to large investment in storage and shipping ports as well as oil tankers. Oil tankers represent a huge opportunity specifically for level and ITG sensor manufacturers because there are so many sensing applications for liquid or gas storage on the ship. Ship builders are reporting record demand for new vessels due to not only oil but also from record volumes of iron ore shipments in 2014. Pressure, temperature, and flow sensors should also see a boost to sales given the increased demand for pipelines and refining facilities.
The KMI development is signaling a sea change for the oil & gas industry because it radically changes how these companies operate and invest in new projects. The new capital structure, while being slightly less profitable for shareholders, will streamline investment initiatives and new projects. This bodes well for the sector as a whole and signals the continued, long term opportunity for automation suppliers with application solutions for the domestic oil and gas industry.