Kinder Morgan launches business to invest in coal

Richard Whiting is president of Kinder Morgan Resources. (Kinder Morgan photo)

Kinder Morgan Energy Partners has launched a new business to invest in coal and other mineral reserves.

Kinder Morgan Resources won’t actively mine coal or other natural resources, according to the company, but will lease the properties to operators in exchange for royalty payments.

Richard M. Whiting, whose previous experience includes stints as president and CEO of Patriot Coal Corporation and chief marketing officer of Peabody Energy Corporation, will serve as president of Kinder Morgan Resources.

The new business should expand Kinder Morgan’s presence among mineral producers and grow its terminal business, said Mark Reichman, an analyst with Simmons and Co. But he predicted it will start out relatively small.

“I think this would be a venture that would be put in place to feed the terminaling business, not really so much to be a stand-alone coal or minerals royalty business,” he said.

The new business will operate within the fast-growing Kinder Morgan Terminals, which has more than 180 terminals that store petroleum products and chemicals, as well as handling materials including coal, petroleum coke and steel products.

John Schlosser, president of the terminals business, said the new business platform will expand the services available to customers in the coal and other mining industries.

Schlosser said in a written statement that the company has more than $450 million in coal terminals expansion projects underway.

“Rick Whiting has extensive commercial and operating experience and is highly regarded in the coal industry, and we are delighted he has joined KMP to oversee our new endeavor,” he said.

Kinder Morgan has not said when it expects to make the first acquisition, or how much it expects to spend.

Company spokesman Joe Hollier said it will start with coal projects, but the new company won’t be limited to coal.

Reichman noted that Kinder Morgan Chairman and CEO Richard Kinder said during the company’s annual investor’s conference in January that the company had encouraged its management teams to explore new sources of growth.

Reichman said the company’s terminals business handled about 38 million tons of coal in 2012, along with 11.6 tons of petroleum coke and 4.4 tons of soda ash, among other commodities.

Kinder Morgan Resources will consider owning, leasing and acquiring reserves for those and other minerals, to be produced by other operators, according to the company.

Reichman said Kinder Morgan will try to avoid exposure to fluctuating commodity prices by structuring leases to require a minimum payment, with a fluctuating royalty rate above that.

“It’s not going to drive earnings,” he said. “It’s really to support growth in the terminaling business.”

The new business is the latest expansion for Houston-based Kinder Morgan, which is the nation’s largest midstream company and operates about 80,000 miles of pipelines to transport natural gas, gasoline, crude oil and carbon dioxide.

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