Kinder Morgan enters JV for Permian Basin oil rail service

NEW YORK Mon Feb 27, 2012 4:53pm EST

NEW YORK Feb 27 (Reuters) - Kinder Morgan Energy Partners said on Monday it was working on a joint venture on developing a multi-commodity rail service in the west Texas town of Pecos to serve the resurgent oil and natural gas industry of the Permian Basin.

The pipeline and terminal giant said that it would work with Watco, the nation's largest privately held shortline railway, and Martin Midstream Partners, a smaller master limited partnership for oil and gas services, to construct project.

Kinder Morgan has a preferred equity stake in Watco.

The first stage, a terminal expected to be operating by May, will also provide access to the Light Louisiana sweet crude oil markets which load in St. James, Louisiana.

Crude oil, natural gas liquids, sand used in hydraulic fracturing, pipes, tubes, structural steel, rig mats and other supplies can be railed in and out, and transferred to trucks for delivery to surrounding area.

Once the terminal has been fully developed, it will encompass approximately 85 acres and will be able to support unit trains. No time frame was given for when it will be fully developed but the partners envisage natural gas and crude gathering and processing systems.

In addition, the partners have held initial discussions to develop train terminal specializing in fracking sand to service Reeves County and surrounding counties.

Total railcar capacity is anticipated to be 300 to 600 per day based on demand. The terminal is strategically located along the Pecos Valley Southern Railway (PVS) and directly adjacent to the Union Pacific mainline in Pecos.

The Permian Basin is benefiting from new drilling horizontal techology, including fracking, used in tight oil formations to gather oil and gas.

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