HOUSTON — Pipeline giant Kinder Morgan Energy Partners will spend nearly $1 billion to move into the tanker business after agreeing to buy two companies that ship oil between U.S. ports, the companies said Monday.
Kinder Morgan said it will buy American Petroleum Tankers and State Class Tankers from affiliates of private equity firms The Blackstone Group and Cerberus Capital Management for $962 million in cash.
The tankers, which operate under the Jones Act to transport crude oil between U.S. ports, will expand Kinder Morgan’s ability to move oil throughout the country.
This will be a new area of business for the Houston-based company, which currently has a stake in or operates 54,000 miles of pipelines and 180 terminals.
“This is a strategic and complementary extension of our existing crude oil and refined products transportation business,” John Schlosser, president of Kinder Morgan’s terminals segment, said in a statement. “Product demand is growing and sources of supply continue to change, in part due to the increased shale activity. As a result, there is more demand for waterborne transportation to move these products.”
The tankers each will have a capacity of 330,000 barrels, although some of the vessels are still under construction.
“We are purchasing tankers that provide stable fee-based cash flow through multiyear contracts with major credit worthy oil producers,” Schlosser said.
American Petroleum Tankers’ fleet includes five tankers, with an average age of four years, making it one of the youngest fleets in the industry, Kinder Morgan said. State Class Tankers is building four vessels, which will be delivered in 2015 and 2016.
Booming U.S. production of oil from shale has outpaced the development of pipelines in some areas. That has left oil companies searching for ways to move oil and increasingly turning to solutions like rail cars, tankers and barges.
One area where waterborne oil shipments have jumped the most is in the Midwest.
Tanker and barge shipments of oil from the Midwest to the U.S. Gulf Coast have soared since the start of the shale oil boom. Prior to 2010, the highest level of oil shipped from the Midwest to the Gulf Coast on tankers or barges was 3.5 million barrels a month set in 2009. The most recent tanker and barge shipment rate was nearly double that, at 6.4 million barrels per month, according to data from the U.S. Energy Information Administration.