Why Kinder Morgan is Targeting This Texas Oil Field

By Charles Kennedy - May 22, 2024

American oilfield services provider and pipeline operator Kinder Morgan has acquired nearly 12,000 acres of Texas oil and gas producing assets in its quest to take advantage of carbon capture incentives designed to boost output from producing fields, Reuters reported on Wednesday, citing unnamed sources familiar with the deal. 

According to Reuters, the Kinder acquisition indicates the attractive nature of incentives laid out in the U.S. Inflation Reduction Act, which offers a tax credit for carbon sequestration of $60 per metric ton. That incentive has rendered aging oil and gas fields far more attractive to companies that have the technology to improve production. 

Sources cited by Reuters said that Kinder Morgan already produces around 50,000 barrels of oil per day through the process of injecting carbon dioxide into wells to aid the path of oil to the surface. According to Reuters, that deal, which includes around 265 wells in a large, mature oilfield, is with Avad Energy Partners. One of the unnamed sources said the deal demonstrates that Kinder Morgan is “staying in the E&P business” and has “huge CO2 sources in West Texas”, which the company plans to use to further improve oil output. 

In April, Kinder Morgan said it expected natural gas demand to increase significantly over the next six years. 

The company’s Q1 2024 earnings report showed a 10% increase in earnings per share, though this increase fell slightly below expectations. Kinder Morgan also reported a net profit annual increase, from $679 million in Q1 2023 to $746 million in Q1 2024, with income from the gas pipeline playing a significant role in those numbers. 

Last November, Kinder Morgan also announced its plans to buy NextEra Energy Partners’ natural gas pipeline portfolio for $1.82 billion last November. The NextEra pipeline assets have a 4.9 billion cubic feet per day capacity, according to a Q4 2023 press release from Kinder Morgan.

In November, these assets were described by Kinder Morgan as “highly contracted”, with average contracts running for eight years and with 75% of capacity already under contract. the average length of contract at eight years and that 75% of the capacity was subject to take-or-pay contracts. 

NextEra’s pipeline network sends gas to Mexico as well as to oil producers in Southern Texas.

By Charles Kennedy for Oilprice.com