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General Category => Investment Ideas => Topic started by: junto.investing on May 02, 2012, 09:21:03 AM

Title: KMI - Kinder Morgan
Post by: junto.investing on May 02, 2012, 09:21:03 AM
Just came across this write up on VIC:

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/64602

While KMI seems fairly valued to me at the moment, the 5 year warrants with a $40 strike (KMI currently at $36; KMIIV currently at $2.35) could make an attractive investment. There's been some really good discussion on the TARP warrants - would love to hear other people's thoughts on these particular warrants.

You'll note the that the warrants are trading on a when-issued basis. So I'm assuming there's some deal risk (El Paso) there. But judging from Kinder's track record, I'd expect this deal to close in May. 
Title: Re: KMI - Kinder Morgan
Post by: twacowfca on May 02, 2012, 11:00:08 AM
Just came across this write up on VIC:

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/64602

While KMI seems fairly valued to me at the moment, the 5 year warrants with a $40 strike (KMI currently at $36; KMIIV currently at $2.35) could make an attractive investment. There's been some really good discussion on the TARP warrants - would love to hear other people's thoughts on these particular warrants.

You'll note the that the warrants are trading on a when-issued basis. So I'm assuming there's some deal risk (El Paso) there. But judging from Kinder's track record, I'd expect this deal to close in May.

I think the trade in a when issued security should be canceled if the new security isn't issued.   Check with your broker to verify this.  The big risk is that the underlying securities will reverse their recent direction when the deal goes through because the arbitrage will be wound down.  Will this hurt or help you?   The long term fly in the ointment is that high dividend paying stocks can sap away the value of holding a LEAP over time.  There is some protection adjusting the strike price after dividend increases, but this doesn't make up for the attrition on a security that is projected to pay a high dividend.
Title: Re: KMI - Kinder Morgan
Post by: enoch01 on May 24, 2012, 03:21:37 AM
That didn't take long:

http://finance.yahoo.com/news/kinder-morgan-announces-warrant-repurchase-010000561.html
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on December 04, 2013, 11:48:14 AM
Bump.  I've had this on my radar as a potential best in class play on north american energy distribution with an owner/operator at the helm and what morningstar describes as a moat due to scale (not sure I'm 100% with them on that).  Anyway, it is selling off today on disappointing outlook from the recently (last year) acquired EP.  Could be an opportunity created by integration/merger noise.  Am just flagging it for further examination.  Here's one of the stories attempting to explain today's action:  http://finance.yahoo.com/news/kinder-morgan-falls-disappointing-forecasts-183901548.html

Also note Hedgeye put out a negative report about their accounting practices, somewhat in the vein of the LINE report.  I found neither analysis very compelling, but just FYI.
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on December 04, 2013, 01:00:13 PM
I've been adding to KMR all day.  7.4% yield for 2014 and more like 7.65% with the quarterly compounding.  KMR/KMP was up last night after hours on the news of 5.58 distribution target for 2014 (which they will likely surpass) - but down big this morning once analysts chimed in. 
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on December 05, 2013, 07:52:33 AM
Thanks for the response.  Yeah, probably a more astute move to pick up the KMR, since el paso doesn't feed into it and that was the real disappointment in the guidance.  I'm hoping to get some KMI a little below its initial post IPO price from a couple years back so $30-ish.
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on December 05, 2013, 08:10:10 AM
I expect to see a few more of these, but here is the first insider purchase filing from this recent drop in KMI -
http://www.sec.gov/Archives/edgar/data/1015883/000158474613000011/xslF345X03/primary_doc.xml

I prefer KMR because of the yield, the reinvestment of distributions and the suitability for an IRA over large amounts of KMP.  Also KMR tends to trade at a large discount to KMP.  I added heavily again this morning for folks in or near retirement.
Title: Re: KMI - Kinder Morgan
Post by: buylowersellhigh on December 05, 2013, 08:16:55 AM
Doesn't KMR make sense in a taxable account more than a tax-deferred account?  With the stock distribution, you only have to worry about capital gains.  Makes for an efficient use in a taxable account.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on December 05, 2013, 08:37:35 AM
You probably know this, buylow, but KMR is an LLC which has elected to be taxed as a C corp and pays essentially stock dividends.  It does likely make more sense in a taxable account than KMP, but in a tax deferred (US) account he's probably worried about too much UBIT passing through from the subchapter K entity (KMP).  I like the KMI because the GP is at least projected to get more of the growth (although that seems to be the problem in the guidance). 

Of course, all I'm really doing is sucking my thumb (as usual)...
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on December 19, 2013, 05:15:44 PM
I expect to see a few more of these, but here is the first insider purchase filing from this recent drop in KMI -
http://www.sec.gov/Archives/edgar/data/1015883/000158474613000011/xslF345X03/primary_doc.xml

I prefer KMR because of the yield, the reinvestment of distributions and the suitability for an IRA over large amounts of KMP.  Also KMR tends to trade at a large discount to KMP.  I added heavily again this morning for folks in or near retirement.

Well, I said I expected to see a few more and it took a few days - but here's the recently reported $27 million purchase by Richard Kinder

http://www.sec.gov/Archives/edgar/data/1031190/000158474613000012/xslF345X03/primary_doc.xml

(Greehey bought $5m of NS reported today as well)
Title: Re: KMI - Kinder Morgan
Post by: fareastwarriors on January 16, 2014, 03:14:43 PM
Why Oil Tycoon Rich Kinder Feels Undervalued




http://blogs.wsj.com/corporate-intelligence/2014/01/16/why-oil-tycoon-rich-kinder-feels-undervalued/?mod=WSJBlog&mod=WSJ_corp_intel (http://blogs.wsj.com/corporate-intelligence/2014/01/16/why-oil-tycoon-rich-kinder-feels-undervalued/?mod=WSJBlog&mod=WSJ_corp_intel)
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on January 16, 2014, 03:37:00 PM
I listened to the call.  He is awesome, he says "we are as far below intrinsic value as we were back in 2006, when we took the first kmi private."  I bought x amt of shares in december, so you know how i feel.  You keep selling and i'll keep buying and we will see who comes out ahead in the long run."

Edit:  oops wsj has almost all of that.
Title: Re: KMI - Kinder Morgan
Post by: bmichaud on January 17, 2014, 05:41:26 AM
The wsj article was phenomenal. Just came on to post it but you beat me to it corpraider :)
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on January 17, 2014, 12:13:15 PM
2 million share block just traded…  Wanna bet it was Kinder again?
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 27, 2014, 10:14:03 AM
I'm honestly considering taking a huge position in KMI warrants.

Read the shareholder letters, especially the ones from the early 2000s.  Richard Kinder is somebody special.
http://www.kindermorgan.com/investor/kmi_annual_reports.cfm
He's very good at operating the business.  His capital allocation is amazing.  I like his integrity and $1 salary.

However, I'm looking to test my thesis by invalidating it.  In 2006 he wanted to take the company private.  If I had owned KMI shares at the time, I think I would have been extremely disappointed in the takeover.  It goes against what Kinder was saying about long-term shareholders.  Anybody have thoughts on that?
http://money.cnn.com/magazines/fortune/fortune_archive/2007/05/28/100034252/index2.htm
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on January 27, 2014, 11:17:58 AM
Yeah, it does give one a little pause, in that you hate to be a forced seller at what management openly states is a discount to intrinsic value (i.e. getting "dell'd"), but I mean I suppose it is better than the typical CEO who pays only lip service to the valuation gap.   
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on January 27, 2014, 11:47:18 AM
He's not exactly Warren Buffett in regard to shareholder fairness, but it's good enough in my book.  Both Buffett and Kinder had the decency to clearly tell the investor base that they believed the company was undervalued.  Buffett has come around to be morally OK with buying your shares from you now at 1.2x book since he feels he adequately got his message out and fair is fair.  But Buffett would never force his shareholders out of their shares (and pay tax on a cash deal!).

Since it was the GP and the other vehicles still existed for the public to participate in the assets, he probably felt it was fair.  They offered a ~25% premium and then raised their bid further.  He made out well because of the leverage more than the bargain purchase price of $107.5/share.

If anything, it should teach shareholders to listen to what he says on valuation…

(and on the warrants, listen to his explanation of why KMI is repurchasing warrants instead of ordinary shares - he believes the warrants are the better use of KMI repurchase funds at this point)
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 27, 2014, 01:27:31 PM
(and on the warrants, listen to his explanation of why KMI is repurchasing warrants instead of ordinary shares - he believes the warrants are the better use of KMI repurchase funds at this point)
I haven't seen that.  Can you please provide a link?  Thanks in advance.
Title: Re: KMI - Kinder Morgan
Post by: bmichaud on January 27, 2014, 01:42:32 PM
When Value Trap says he is going to potentially "load up" on warrants in a company subject of a significant short attack, my attention is piqued....

The attached Jefferies initiation on KMI has some good discussion on MCAPEX pages 8-9. Long story short, I will be studying why KMP's MCAPEX is projected to be 4.7% of EBITDA in 2014, EPB's 3.7% versus 20.2% for closest peer Spectra....

Also - EPB's MCAPEX per mile is $3,386 versus $9,953 pre-acquisition and $14,150 for Spectra.

On a "fully loaded" basis, KMI trades at 12.8X 2014E EBITDA. Due to its high quality, maybe it's worth 15 times - as such, the equity would be ~$49 per share. Perhaps this is how Mr. Kinder is evaluating the Company.
Title: Re: KMI - Kinder Morgan
Post by: bmichaud on January 27, 2014, 02:10:45 PM
was looking for a publicly traded GP comp for KMI...completely forgot about the Crosstex deal with DVN....

According to the attached Canaccord note, the implied EV/EBITDA of the newly-created GP was over 17X.

17 times 2014E fully loaded KMI EBITDA of 4,066 is 69,122. Equity is 58,529 after backing out net debt of 10,593, or $56.50.

MCAPEX completely irrelevant from a valuation standpoint, as investors should look through to underlying EBITDA, IMO.
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on January 27, 2014, 03:39:47 PM
(and on the warrants, listen to his explanation of why KMI is repurchasing warrants instead of ordinary shares - he believes the warrants are the better use of KMI repurchase funds at this point)
I haven't seen that.  Can you please provide a link?  Thanks in advance.

I wish I could remember exactly where I heard it - but it was an audio track of Richard Kinder from a conference call.  I think it might have been on a youtube video posted by this guy, but I apologize in advance because he's posted quite a few on Kinder Morgan - it was one of the presentations or conference calls that is overlaid with the powerpoint slides --->

http://www.youtube.com/user/Sumflows/videos
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on January 27, 2014, 03:56:22 PM
Yeah it was two or three quarters ago.  Basically you can tell which one they buy back (warrants versus common).
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 27, 2014, 04:05:00 PM
Last quarter (Q4 2013) they bought back both.  Or maybe they just bought back the warrants.

http://phx.corporate-ir.net/phoenix.zhtml?c=93621&p=irol-newsArticle&ID=1891159&highlight=

Quote
KMI repurchased 5.2 million shares of its common stock during the fourth quarter for approximately $172 million. KMI has fully utilized the $350 million share and warrant repurchase program authorized by the board of directors in July of 2013 and has $94 million remaining on the $250 million authorized by the board in October of 2013 for share and warrant repurchase.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 27, 2014, 04:25:09 PM
found it
http://seekingalpha.com/article/1749622-kinder-morgan-energy-partners-ceo-discusses-q3-2013-results-earnings-call-transcript

Quote
Craig Shere - Tuohy Brothers

Okay. And last question, given some of the recent headwinds kind of affecting KMI’s share price from some market perceptions. How do you think about the alternatives of repurchasing warrants versus existing shares? And how much capacity do we have to keep renewing this equity repurchases every quarter?
Richard D. Kinder - Chairman and Chief Executive Officer

Well, we look at that based on growth projections and based on what we believe the return is on purchasing warrants versus shares. And as you see today, the board authorized an additional $250 million to be used for either shares or warrants at our discretion and we just continue to look at what makes the most sense to buyback shares or buyback warrants.
Craig Shere - Tuohy Brothers

I gotcha. And speaking with some clients Rich, that the comment was made that your own repurchases were not a large percentage of your annual distributions that you get, and I just wonder if you would like to opine on the value of the equity right now?
Richard D. Kinder - Chairman and Chief Executive Officer

That’s of course you guys expertise not mine, but I believe obviously the equity is undervalued at KMI. You have a stock that is yielding 4.5% now and has growth of 14% this year in declared dividends. We said we believe long-term, it’s 9% to 10%. And at KMP, you have a security that’s yielding 6.5% with growth of 7% this year. We said long-term we believe 5% to 6% there. So to me that’s a very good investment, but that’s again not mine to opine, I’m obviously prejudiced. I think the stock in units are tremendously underpriced in my view, but again that’s for the market to determine.
Title: Re: KMI - Kinder Morgan
Post by: bmichaud on January 28, 2014, 06:41:04 AM
http://money.cnn.com/magazines/fortune/fortune_archive/2007/05/28/100034252/index.htm?postversion=2007051612

Title: Re: KMI - Kinder Morgan
Post by: bmichaud on January 28, 2014, 07:31:52 AM
Is anyone worried about the on-going warrant buyback program vis a vis ultimately being able to realize full value for the warrants? Can the Company just squeeze out minority warrant holders without a premium? Or can you simply refrain from participating in any tender offer?
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 28, 2014, 08:38:38 AM
The terms of the warrants are described here:
http://www.sec.gov/Archives/edgar/data/1506307/000119312512255687/d355500d424b3.htm#toc355500_5
There is protection from the company issuing excessive dividends.

I don't understand what you're saying about a squeeze-out.  I don't see any provision where the company can squeeze out all of the warrant holders?
Title: Re: KMI - Kinder Morgan
Post by: thomcapital on January 28, 2014, 09:17:19 AM
Is anyone worried about the on-going warrant buyback program vis a vis ultimately being able to realize full value for the warrants? Can the Company just squeeze out minority warrant holders without a premium? Or can you simply refrain from participating in any tender offer?

I asked the same question a couple times regarding some of the bank warrants outstanding. Others here (far smarter than I) said no, it's not an issue.

What is an issue - if Mr. Kinder tries another MBO at a low enough price that would put the warrants in the red.
Title: Re: KMI - Kinder Morgan
Post by: bmichaud on January 28, 2014, 09:23:43 AM
Is anyone worried about the on-going warrant buyback program vis a vis ultimately being able to realize full value for the warrants? Can the Company just squeeze out minority warrant holders without a premium? Or can you simply refrain from participating in any tender offer?

I asked the same question a couple times regarding some of the bank warrants outstanding. Others here (far smarter than I) said no, it's not an issue.

What is an issue - if Mr. Kinder tries another MBO at a low enough price that would put the warrants in the red.

Good point. He's likely to NOT pay fair value in a buyout, and a 20% premium over $36 is only $43....seems risky.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 28, 2014, 09:46:44 AM
If that was his Machiavellian master plan all along, then why repurchase warrants in the first place?

C'mon guys   ;)
Title: Re: KMI - Kinder Morgan
Post by: thomcapital on January 28, 2014, 10:04:29 AM
If that was his Machiavellian master plan all along, then why repurchase warrants in the first place?

Reading the tea leaves, I'm asking myself the same question over and over again. :)

Given the large number of warrants outstanding, it does give him an extra incentive to MBO at a "low" price, if he goes that route. I wonder if there's a way we could find out whether he personally owns any warrants or not? I'm guessing they would have showed up in his filings with the SEC, but I don't know for sure.

Besides an MBO, what are his options for moving the stock?
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 28, 2014, 10:28:59 AM
It'd be kind of unfair if you take over El Paso, issue warrants in connection with the takeover, and then take KMI private.

But there's a protection against that.  The ex-El Paso shareholders can vote against the merger because they own lots of warrants.  Plus other KMI shareholders may vote against it.
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on January 28, 2014, 11:16:35 AM
Kinder has spent at least $620 million repurchasing warrants in the open market since May 2012.  In the 4th quarter of 2013 he appeared to switch to repurchasing KMI common, spending $172 million repurchasing 5.2 million shares (avg. cost 33.08 (!!)).  Every time a warrant repurchase authorization was declared by the board it was quickly used up and replaced with another authorization.

Warrant count has gone from an initial 505 million to 348.44 million at the end of Q3.  We don't have the 10K yet, but it appears that he used almost all of his authorization in Q4 to repurchase shares at the low of the quarter.

I trust that his interests are aligned with shareholders.  I'm not worried about him trying another MBO at 43 or whatever - he's still working off the EP deal debt.  This thing will be public for a while.

edit:  just a note that there is an analyst presentation tomorrow:
http://phx.corporate-ir.net/phoenix.zhtml?c=93621&p=irol-newsArticle&ID=1892415&highlight=
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on January 28, 2014, 11:33:17 AM
I am reading this thread with great interest.  Looks like the company has a good jockey with a enviable record.  I am interested to know if someone has a valuation model for it, though.  I know that the company is yielding 4.6% and the dividend is growing in the double-digit percentage, which seems to say the current price is a good deal.

TIA.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 28, 2014, 02:17:20 PM
Hmm I'm trying to wrap my head around the accounting.  KMI is incentivized to inflate KMP's yield.  KMP is largely held by retail investors.  The retail investors will likely value KMP based on yield.  (Most institutional investors do it too.)

1- Others have accused KMP of inflating yield by under-maintaining their assets.  I think that this is a terrible argument.  Kinder Morgan has a reasonably good track record in safety as far as I can tell.

2- In some deals where KMP has acquired new assets, KMI has waived part of its incentive distribution fees in the short term.  In later years KMP will have to pay full fees.  This inflates yield in the short term at the expense of long-term yield.

3- If you look at the statement of cash flow, KMP regularly pays cash to KMI.  The 2010 cash distribution was lower than the 2009 cash distribution.

YE1996 - $0.268M
YE1997 - $2.280M  <-- Richard Kinder becomes the CEO in Feb. 1997
YE1998 - $27.450M
YE1999 - $52.674M
YE2000 - $91.366M
YE2001 - $181.198M
YE2002 - $253.344M
YE2003 - $314.244M
YE2004 - $376.005M
YE2005 - $460.869M
YE2006 - $523.198M
YE2007 - $567.7M
YE2008 - $764.7M
YE2009 - $918.4M
YE2010 - $861.7M
YE2011 - $1161M
YE2012 - $1340M

This happened because KMI waived feeds in 2010 relating to the Petrohawk/Kinderhawk acquisition.  I believe this allowed KMP to maintain the illusion of continually increasing dividends.

Or am I wrong here????

4- KMP wants investors to value the company based on distributable cash flow.  This is not a good metric when:

a- KMP is waiving fees in the short term at the expense of higher fees in the long run.

b- Some of KMP's assets have quickly depleting cash flows.  A pipeline can have a nice stream of cash flow for 60 years or more.

The E&P side of KMP will have cash flows that will decline in the near future (e.g. next several years). 

The gathering pipeline side will likely have cash flows that will decline in the near future.  The decline depends somewhat on how the contracts are structured.  Inherently, the shale gas wells themselves decline.  Once the well declines, there is no obvious alternative use for part or all of the gathering pipeline.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on January 28, 2014, 03:59:16 PM
They spent a fair amount of time giving color on the e&p assets on the last call, mainly to the hedge eye "analyst" if memory serves.  My basic recollection was they are projecting permianesque "beast mode" longevity for those assets.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 28, 2014, 08:37:31 PM
Kevin Kaiser is the Hedgeye analyst.  I disagree with his thesis that KMP is underspending on maintenance capex.

But distributable cash flow is a misleading way to look at E&P assets.  Each individual well produces less and less each yeah after enhanced oil recovery begins.  The distributable cash flow of each well will fall dramatically each year.  The right way to value E&P assets is to look at their net present value.
A saner way of valuing the E&P assets would be to break them out and to provide reserve data and NPVs at different discount rates.  For example, Berkshire Hathaway is in a number of different industries.  Buffett helps investors by breaking out the insurance companies, since they should NOT be valued based on P/E or distributable cash flow or free cash flow.
Title: Re: KMI - Kinder Morgan
Post by: bmichaud on January 29, 2014, 02:38:39 AM
Trap,

Did you look at the Jeffries note? SEP spends ~$18k per mile on maintenance and EPB spends $3. Do you not agree with how Jeffries looks at it?

I agree distributable cash flow can be misleading. I like the "fully loaded" method Jeffries employs, which gives KMI credit for ebitda based on its percentage ownership of the distributable cash flow, which takes into account the GP split.
Title: Re: KMI - Kinder Morgan
Post by: alertmeipp on January 29, 2014, 07:14:08 AM
down 3 percent with heavy volume, any news?
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on January 29, 2014, 07:31:03 AM
Ex-dividend today plus analyst meeting ongoing currently
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on January 29, 2014, 07:31:54 AM
Maybe they are announcing a buyout with a 30%+ premium paid in cash that some of us seem to fear.
Title: Re: KMI - Kinder Morgan
Post by: alertmeipp on January 29, 2014, 07:55:19 AM
well, i have some now, hard assets with stable cash flow should do us well.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on January 29, 2014, 08:41:26 AM
Here's the analyst day link with presentations.  I listened to some of it and read through the main presentation.  There is some discussion of the warrants versus stock repurchases near the end.  Also a nice chart setting forth their historic an projected costs of capital ROICs and ROE.

http://www.kindermorgan.com/investor/presentations/presentations.cfm
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 29, 2014, 09:29:29 AM
Trap,

Did you look at the Jeffries note? SEP spends ~$18k per mile on maintenance and EPB spends $3. Do you not agree with how Jeffries looks at it?

I agree distributable cash flow can be misleading. I like the "fully loaded" method Jeffries employs, which gives KMI credit for ebitda based on its percentage ownership of the distributable cash flow, which takes into account the GP split.

They held a conference call addressing that.
http://seekingalpha.com/article/1704582-kinder-morgan-energy-partners-investors-webcast-transcript

Their track record in pipeline safety seems to be fine, though I could have done more work crunching PHMSA data.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 29, 2014, 06:25:12 PM
The 2010 10-K describes how KMP was able to increase its dividend and why the distributions of cash to KMI fell:

On May 28, 2010, the Federal Energy Regulatory Commission, referred to in this report as the FERC, approved a settlement agreement that our subsidiary SFPP, L.P. reached with 11 of 12 shippers regarding various rate challenges.  We refer to this settlement agreement as the Historical Cases Settlement, and it resolved a wide range of rate challenges dating back as early as 1992.  The Historical Cases Settlement resolved all but two of the cases outstanding between SFPP and the eleven shippers, and we do not expect any material adverse impacts on our business from the remaining two unsettled cases.  The twelfth shipper entered into a separate settlement agreement with SFPP, L.P. in February 2011.  The FERC has not yet acted on the second settlement.  In 2010, we recognized a $172.0 million expense due to adjustments of our liabilities related to both the Historical Cases Settlement and other matters related to SFPP and other rate litigation, and in June 2010, we made settlement payments to various shippers totaling $206.3 million.  Our cash distributions of $4.40 per unit to our limited partners for 2010 were not impacted by these rate case litigation settlement payments because, from a cash perspective, a portion of our partnership distributions for the second quarter of 2010 was a distribution of cash from interim capital transactions, rather than a distribution of cash from operations;

I made a mistake earlier.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 29, 2014, 06:30:01 PM
One of the slides in the analysts conference goes over growth targets.
http://www.kindermorgan.com/investor/presentations/2014_Analysts_Conf_01_Overview.pdf

Long-term Growth Targets

KMI – 3-year targeted dividend/share CAGR of about 8% (2013-2016)

KMP / KMR – 3-year targeted LP distribution/unit CAGR of about 5% (2013-2016)

EPB – LP distribution/unit growth expected to resume in 2017 with growth projects coming online beginning in 2016

Key Assumptions

2013 actual results as base year

Growth varies by year

No major acquisitions assumed

----
I'm guessing that management will overdeliver like it has in the past.  Any accretive acquisitions by KMP or EPB will grow KMI's fees from its IDRs.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 29, 2014, 11:33:56 PM
Here's my writeup on the company:  http://wp.me/p1mOGr-Fl
Title: Re: KMI - Kinder Morgan
Post by: alertmeipp on January 30, 2014, 04:29:57 AM
Nice write up.

At expiration, the warrants should be worth 1.28X their original price.  (35.47 * 1.13^3.33 – 40) / 3.16

How do you get 1.13? Are u using 5% dividend and 8% growth rate?

Does warrant strike price get adjusted based on the dividend?
Title: Re: KMI - Kinder Morgan
Post by: james22 on January 30, 2014, 09:55:11 AM
How do you believe Enbridge (EEQ) compares, ItsAValueTrap?
Title: Re: KMI - Kinder Morgan
Post by: sys on January 30, 2014, 11:40:41 AM
Here's my writeup on the company:  http://wp.me/p1mOGr-Fl

thanks for sharing that, i found it useful.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 30, 2014, 12:57:44 PM
Nice write up.

At expiration, the warrants should be worth 1.28X their original price.  (35.47 * 1.13^3.33 – 40) / 3.16

How do you get 1.13? Are u using 5% dividend and 8% growth rate?

Does warrant strike price get adjusted based on the dividend?

Ugh.  I put in the wrong numbers.  Should be:

Share price $34.10... yesterday's closing price.
1.08 or 8% growth, which is management's latest guidance.  They may beat that.
Warrants last trade at 3.16
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 30, 2014, 01:11:32 PM
How do you believe Enbridge (EEQ) compares, ItsAValueTrap?
I haven't really look at that.  On the surface however:

ENB.TO / ENB is the general partner
EEQ is a limited partner
EEP is a limited partner

It seems to me that ENB is the most interesting.  Because I'm lazy, I will compare the GPs based on dividend yield.  (If they distribute virtually all of their free cash flow as dividends, and if comparing the companies based on free cash flow is reasonable, then this is ok.  This comparison is no good if one set of cash flows will deplete faster than the other or not grow as fast.)

ENB yields 3.14% - 10 year dividend growth of 12.3%
KMI yields 4.78%

I believe that KMI has grown its cash flow faster than ENB on a historical basis (just based on the IDR cash payments, without leverage; KMI has leverage).  KMI has a superstar CEO so I would expect KMI to grow its cash flows faster than ENB.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on January 30, 2014, 02:27:47 PM
Yeah, OKE is another one I watch, they are projecting huge growth in the divvy but it isn't cheap right now.  More something I just follow and would look at if it crashes after the spin their regulated business.


Glenn,  thanks for the write-up.  I bookmarked your blog and will keep an eye on it going forward. 

I agree it looks like they are stepping down the growth guidance due to digestion issues with el paso, but I would be surprised if they weren't able to grow the dividend at least 10% per annum.  Also, the fact that they are assuming no acquisitions in the guidance is a bit like living in fairyland, but I know they can't build those in.
Title: Re: KMI - Kinder Morgan
Post by: james22 on January 30, 2014, 09:35:02 PM
Thanks, ItsAValueTrap.

I do prefer KMR because of Kinder, but EEQ does trade below it's 5-year average P/B (KMR just above).

May split my allocation.
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on January 31, 2014, 09:46:47 AM
$1.58 million purchase of KMP by a VP just filed:

http://www.sec.gov/Archives/edgar/data/888228/000158474614000007/xslF345X03/primary_doc.xml

(a little late, since the trade was in December)
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on January 31, 2014, 12:10:08 PM
Do you guys know what's happening with EPB?

It seems to me that most of EPB's pipelines and infrastructure were setup to IMPORT natural gas.  Just several years ago everybody thought that the US would be a net importer of natural gas.  Cheniere (LNG is the publicly traded GP) was trying to permit a new greenfield LNG import terminal.  Now, everybody in the US is moving towards exporting natural gas.  Cheniere is currently trying to build a LNG export terminal (I believe they are fully financed or close to it).

For pipeline companies, I think that the shift in market dynamics is a bit of a bad thing.  There will be a period where volumes on the pipelines drop dramatically.  I don't know where EPB's contracts stand... if they have locked in volume commitments, then EPB will do alright.  I don't see them making money from selling excess capacity.

Short-term, there is pain.  Long-term contracts may be sheltering EPB from a lot of that pain.
Long-term, there is opportunity.  I don't know if it makes up for the pain.  If you look at LNG, LNG has done alright despite the crazy reversal in the US natural gas situation.
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on January 31, 2014, 12:40:39 PM
Here's my writeup on the company:  http://wp.me/p1mOGr-Fl

Thanks for the great write-up.
Title: Re: KMI - Kinder Morgan
Post by: sys on February 07, 2014, 12:24:51 AM
http://www.businessweek.com/news/2014-02-06/kinder-morgan-sued-by-investor-over-pipeline-distributions-1
Title: Re: KMI - Kinder Morgan
Post by: giofranchi on February 07, 2014, 12:51:04 AM
On the 2013 Broyhill Asset Management Letter Mr. Pavese writes about KMI.
The whole letter is a very good read. :)

Gio
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 07, 2014, 07:30:55 AM
Thanks for sharing.  I enjoyed it.  Hmm, they like COH too.  There must be something in the water.
Title: Re: KMI - Kinder Morgan
Post by: bobp on February 07, 2014, 07:44:17 AM
I just want to mention for future reference the first post in this topic was pointing out that the when-issued warrants were cheap. And they were. These warrants were issued to El Paso holders in the deal. I think ElPaso holders just saw the  when issued market as a chance to unload warrants at any price. These were a great example of a Greenblatt type of unloved or hated security.

From the first post in this topic: "While KMI seems fairly valued to me at the moment, the 5 year warrants with a $40 strike (KMI currently at $36; KMIIV currently at $2.35) could make an attractive investment."

This was dead on right. The common today is two points lower at 34 and the warrants are slightly higher at 2.48 with almost 2 years less time. The WI warrants were cheap.

The gist of all this is if you see a when issued warrant in the future remember kmi.

Just came across this write up on VIC:

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/64602

While KMI seems fairly valued to me at the moment, the 5 year warrants with a $40 strike (KMI currently at $36; KMIIV currently at $2.35) could make an attractive investment. There's been some really good discussion on the TARP warrants - would love to hear other people's thoughts on these particular warrants.

You'll note the that the warrants are trading on a when-issued basis. So I'm assuming there's some deal risk (El Paso) there. But judging from Kinder's track record, I'd expect this deal to close in May.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on February 07, 2014, 09:13:59 AM
Part of the reason was that many people were shorting Kinder Morgan and going long El Paso.  The borrow on KMI got really expensive.  So some of the arbs started shorting the warrants instead of the common.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 09, 2014, 04:05:04 PM
So, it looks like corvex is putting wmb in play?  Would be interested to see what kmi could do with those assets...
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 10, 2014, 05:32:58 AM
Wow, the BWP, the pipeline company held by L slashed its distribution.  Citing "marketplace weakness" and the need to reduce leverage.

http://finance.yahoo.com/news/boardwalk-announces-fourth-quarter-2013-110000328.html
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on February 12, 2014, 06:30:18 AM
Richard Kinder seems to be indicating that the drop in EPB is enough already -

http://www.sec.gov/Archives/edgar/data/1031190/000158474614000009/xslF345X03/primary_doc.xml
Title: Re: KMI - Kinder Morgan
Post by: Ross812 on February 12, 2014, 06:46:31 AM
Wow, the BWP, the pipeline company held by L slashed its distribution.  Citing "marketplace weakness" and the need to reduce leverage.

http://finance.yahoo.com/news/boardwalk-announces-fourth-quarter-2013-110000328.html

I remember Murray Stall talking about Boardwalk in a Horizon Kinetics white paper a few months back... I seem to remember they were building a new pipeline through Kentucky and the project had not been accounted for at all in their stock price. They stated they are cutting the dividend to pursue projects. Is this just a case of dividend investors exiting when the company as a whole will increase in quality over the next few years?
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 12, 2014, 06:52:52 AM
I'll look for the paper, but the sheer lack of any sort of warning prior to an 81% distribution makes me seriously doubt anyone is awake at the switch (of course, that is my general opinion on L).
Title: Re: KMI - Kinder Morgan
Post by: Ross812 on February 12, 2014, 07:04:10 AM
I'll look for the paper, but the sheer lack of any sort of warning prior to an 81% distribution makes me seriously doubt anyone is awake at the switch (of course, that is my general opinion on L).

Agreed. I'm going to look for the white paper too and see if there is anything there the market may be missing. Reading your comment just set off an alarm bell that there was something Horizon liked about the company, that's all.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 12, 2014, 08:13:09 AM
I think this is it:  http://www.horizonkinetics.com/docs/Contrarian_Compendium_April_2013.pdf


Someone zigged when they should have zagged:

"Incidentally, it has a much higher yield than a typical MLP. In 24 months, that yield could meaningfully
increase at a very small risk to the company."


It looks like Barron's has an article quoting a couple analysts looking at the point you raise about whether this is a situation where the yield focused investors have/will oversell BWP.  Probably worth monitoring/discussing, if for no other reason than to interrupt the 7th iteration of the SHLD bankruptcy thesis related to the ABLOC. 
Title: Re: KMI - Kinder Morgan
Post by: sys on February 13, 2014, 11:08:55 AM
i've been thinking of creating a hybrid position with covered call and warrants.  more or less 10:1 warrants to shares.  the idea being to capture the dividend (hopefully more than the dividend) for the entire position with the dividend + options sale.  while capturing the capital appreciation via the warrants.

obviously the downside risk is greater than just purchasing and holding the stock alone.  does anyone feel there is an implied richard kinder takeover put that might limit that risk?

i know almost nothing about pricing leverage or using options - i'd appreciate anyone who can shoot holes in this strategy.
Title: Re: KMI - Kinder Morgan
Post by: saltybit on February 14, 2014, 10:15:12 AM
The warrants went down to 2.10 today. Anyone know why? Is it because of some fallout with BWP affecting other MLPs?
Title: Re: KMI - Kinder Morgan
Post by: sys on February 14, 2014, 11:24:40 AM
The warrants went down to 2.10 today. Anyone know why? Is it because of some fallout with BWP affecting other MLPs?

i'm curious as well.  they've been falling for a while now - while kmi scarcely moves.
Title: Re: KMI - Kinder Morgan
Post by: saltybit on February 14, 2014, 12:38:52 PM
Insider purchase of 100k warrants 2/12 (2 days ago) at 2.39...

http://phx.corporate-ir.net/phoenix.zhtml?c=93621&p=irol-sec
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on February 14, 2014, 07:07:57 PM
http://www.sec.gov/Archives/edgar/data/1420192/000095012314002334/xslForm13F_X01/form13fInfoTable.xml

Kyle Bass has a large new long position in both the stock and warrants.
Title: Re: KMI - Kinder Morgan
Post by: RandyC on February 14, 2014, 10:18:50 PM
I think Bass's "new" position on KMI stock & warrants was reported on his 12/31/13 13F?  If he still holds them he's was underwater...
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 22, 2014, 10:14:16 AM
Barron's has an article this week restating the Hedgeeye bear thesis.  A couple of thoughts:

1) HE criticizes KMP for not accounting for investments in E&P as sustaining cap ex and subtracting from its computation of distributible cash flow because they haven't increased annual production.  This point might have some merit, but it does seem as though the investments keep resulting in extending the expected life span of the E&P assets.  So while not increasing annual production they are at least corresponding (whether there is a causal link might be debatable) to a longer life for the asset and its cash flows, which is of course the very essence of an expense that should be capitalized.

2)  The criticism regarding not accounting annually for replacement of the tankers seems fully answered, to my mind, by the response from Kinder: that they are not primarily in the tanker business and thus may or may not (if I take their meaning) replace the tanker capacity with new capacity at the end of its useful life.  Its probably just as likely that they will take those cash flows and redeploy them into other ventures as they will buy a new fleet of jones act tankers in 30-40 years, so why account for the fiction of cash needed to sustain an ongoing business in shipping 40 years in the future?
Title: Re: KMI - Kinder Morgan
Post by: Spekulatius on February 22, 2014, 04:51:48 PM
Quote
2)  The criticism regarding not accounting annually for replacement of the tankers seems fully answered, to my mind, by the response from Kinder: that they are not primarily in the tanker business and thus may or may not (if I take their meaning) replace the tanker capacity with new capacity at the end of its useful life

A shallow argument, imo. Even if they choose not to replace the tankers with new tankers at the end of their useful life, they would have to replace the tankers with other assets, to replace the cash flow their cash flow. They cannot do so, if all the cash flow during the useful life of their assets is spent on distributions. This is not a sustainable business model.

FWIW, i own some KMI.
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on February 22, 2014, 06:24:27 PM
Quote
2)  The criticism regarding not accounting annually for replacement of the tankers seems fully answered, to my mind, by the response from Kinder: that they are not primarily in the tanker business and thus may or may not (if I take their meaning) replace the tanker capacity with new capacity at the end of its useful life

A shallow argument, imo. Even if they choose not to replace the tankers with new tankers at the end of their useful life, they would have to replace the tankers with other assets, to replace the cash flow their cash flow. They cannot do so, if all the cash flow during the useful life of their assets is spent on distributions. This is not a sustainable business model.

FWIW, i own some KMI.

So essentially some of the distributions the KMP unitholders receive are return OF capital, not return ON capital.

FWIW, i own some KMI leap calls.  Looks like there will be opportunities to add in light of this Barrons article.

Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 22, 2014, 06:57:30 PM
Quote
2)  The criticism regarding not accounting annually for replacement of the tankers seems fully answered, to my mind, by the response from Kinder: that they are not primarily in the tanker business and thus may or may not (if I take their meaning) replace the tanker capacity with new capacity at the end of its useful life

A shallow argument, imo. Even if they choose not to replace the tankers with new tankers at the end of their useful life, they would have to replace the tankers with other assets, to replace the cash flow their cash flow. They cannot do so, if all the cash flow during the useful life of their assets is spent on distributions. This is not a sustainable business model.

FWIW, i own some KMI.

Thanks for the response.  It is sort of a short and dismissive response from Kinder, but who knows what else they said that wasn't quoted.  I agree that if the overall actual distributed (not computed "distributable") cash flow is a 1.0 ratio and that continues to be the case throughout the useful life of the relevant capital asset, eventually the capital base of KMP would be depleted.  I think KMI is saying, however, that we needn't account for our DCF for those assets on the same convention as specialists in that arena.  It seems like they address any problems by just waiving IDRs, despite the fact that they are "distributable".  I'm sure KMI would probably argue that while the quoted analysts don't feel that's "high quality" because its not readily modeled, the cash is worth the same.  They would probably point to the track record and then buy a few million dollars more in shares.  I own no KMP, but I guess I would keep an eye on the ROICs and leverage metrics moreso than worrying about the whether cash is in DCF but kicked back through waived IDRs. 

I don't know that we'll get much of a sell off in KMI, but one can home; didn't Kinder just file a form 4 for another $3MM yesterday?
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on February 22, 2014, 07:07:17 PM
Quote
It seems like they address any problems by just waiving IDRs
That's a different issue.

When KMP/KMR buys assets, shareholders should be better off.  If the transaction is obviously accretive (e.g. it increases intrinsic value per share), then KMI won't get into hot water for making bad deals.

If KMI waives IDRs, then a non-accretive deal can turn into an accretive one.  Often these waivers are higher in the beginning and go to 0 in the future.  This helps to maintain the illusion of steadily increasing dividends at KMP.  The underlying assets actually have lumpy cash flows or cash flows that don't kick in right away (e.g. the tankers).
Title: Re: KMI - Kinder Morgan
Post by: sys on February 24, 2014, 12:12:27 AM
http://www.kindermorgan.com/investor/presentations/KMP_Responses_to_Barrons.pdf
Title: Re: KMI - Kinder Morgan
Post by: BargainValueHunter on February 24, 2014, 12:28:56 PM
http://seekingalpha.com/news/1587263-rich-kinder-buys-200k-kmi-shares-as-smart-money-moves-away-from-kmp

Quote
Rich Kinder buys 200K KMI shares as "smart money" moves away from KMP

    Rcihard Kinder discloses buying nearly 200K shares of Kinder Morgan (KMI -2.4%) worth ~$6.4M, just four days after disclosure of a 100K share purchase worth ~$3.3M.
    The purchases may add to the perception, discussed in this weekend's negative Barron's piece, of an enormous transfer of wealth from MLP Kinder Morgan Partners (KMP -5.3%) to general partner KMI and that “the smart money has gravitated toward the GP.”
    Rich Kinder owns an $8.1B stake in KMI vs. just $26M in KMP.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 24, 2014, 02:14:18 PM
I would note that KMI was down on El Paso guidance as well (its down more over the past 3 and 6 mos).  But yep, even before the last $6 mill he definitely had placed his chips.
Title: Re: KMI - Kinder Morgan
Post by: sys on February 25, 2014, 12:11:04 PM
i continue to be surprised by how poorly correlated the short-term price movements are between kmi and the warrants.
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on February 25, 2014, 01:27:45 PM
i continue to be surprised by how poorly correlated the short-term price movements are between kmi and the warrants.

53M warrant shares traded hand today... wow.
http://finance.yahoo.com/q?s=kmi-wt&d=s

Title: Re: KMI - Kinder Morgan
Post by: stahleyp on February 25, 2014, 02:51:17 PM
Wasn't the company buying the warrants at $5 or so? Wouldn't that act as a put in this case?
Title: Re: KMI - Kinder Morgan
Post by: saltybit on February 26, 2014, 09:45:35 AM
i continue to be surprised by how poorly correlated the short-term price movements are between kmi and the warrants.

It has negative correlation..  ;D Trading the other way today (common down, warrants up)
Title: Re: KMI - Kinder Morgan
Post by: ASTA on February 28, 2014, 12:12:21 PM
Any of the experts have an opinion on why Glenn Greenberg bought a 5.6% stake in KMR and not in other vehicle?   
Title: Re: KMI - Kinder Morgan
Post by: saltybit on February 28, 2014, 12:24:07 PM
Any of the experts have an opinion on why Glenn Greenberg bought a 5.6% stake in KMR and not in other vehicle?

I am not an expert, but if you look in slide 4 in Kinder Morgan's presentation http://www.kindermorgan.com/investor/presentations/Credit_Suisse_2014_Energy_Summit.pdf you will get an explanation of why KMR is better than KMP. (for now)
Title: Re: KMI - Kinder Morgan
Post by: ASTA on February 28, 2014, 01:00:56 PM
I look at this and think that if I was to buy I just go the easy way of following Kinder in to KMI. Warrants do look interesting its just that I hate leverage and tough structures I need to be comfortable to double down :D Thanks saw the slides before too. Interesting stock for sure at the moment.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 28, 2014, 01:03:53 PM
Hey, stupid question here, but since the warrants are going to be net share settled, that means a holder won't have to put up any cash on expiration to exercise (assuming the warrants are in the money), right?  Warrant holders will rather be given common shares, the FMV of which is equal to the amount by which the common price exceeds the strike on the settlement date, no  (i.e. this will be a "cashless exercise")?

PLS don't go to any trouble to figure it out, I will do the reading, just thought one of you options gurus may have this answer at hand.

Thanks.

W/R/T to KMR, he could have foreseen some of the slower growth/hiccups in El Paso.  If he wanted to invest solely in KMP/KMR, then the rationale in the slides probably explains it.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on February 28, 2014, 01:24:04 PM
SEC filing for the warrants are here:
http://www.sec.gov/Archives/edgar/data/1506307/000119312512255687/d355500d424b3.htm#toc355500_5

You get the choice of either cash or cashless exercise.

Hmm the document for some reason doesn't mention what happens to fractional shares.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 28, 2014, 01:27:42 PM
Thanks.  I bought more than I had intended.  It is hard for me to resist buying at prices below those paid by Mr. Morgan, of Kinder Morgan.  I've got to quit buying or else I'm going to have to move into Mr. Kinder's garage if things don't go well.  heh.
Title: Re: KMI - Kinder Morgan
Post by: yader on February 28, 2014, 04:21:16 PM
Corp-

Just a thought: Mr. Morgan purchased 6 mil in KMI recently.  Owning over 8 bil of KMI and so little of KMP/KMR his bias is clear.  So why isn't he purchasing the warrants?  Could it be he doesn't see 42 by 2017 but does see higher than the current valuation?
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 28, 2014, 04:30:41 PM
Yep, could be.  I can't really make the case that there is insufficient liquidity, either as I believe 54 million warrants changed hands the other day.  I think Lone Pine and Morgan bought the warrants though and both paid more than me.
Title: Re: KMI - Kinder Morgan
Post by: thomcapital on February 28, 2014, 04:58:06 PM
Corp-

Just a thought: Mr. Morgan purchased 6 mil in KMI recently.  Owning over 8 bil of KMI and so little of KMP/KMR his bias is clear.  So why isn't he purchasing the warrants?  Could it be he doesn't see 42 by 2017 but does see higher than the current valuation?

And if he doesn't see $42 by 2017, then arguably he has a big incentive to keep the stock under that level, instead. He's gotta be swinging one way or the other I would think.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 28, 2014, 05:35:30 PM
Yeah, I suppose it is possible that they are going to do a take under at $39.50.  Though it is a pity that they didn't decide upon that course of action prior to repurchases of warrants at $5+.
Title: Re: KMI - Kinder Morgan
Post by: thomcapital on February 28, 2014, 05:46:30 PM
Yeah, I suppose it is possible that they are going to do a take under at $39.50.  Though it is a pity that they didn't decide upon that course of action prior to repurchases of warrants at $5+.

I wasn't necessarily thinking of a take-under, just that if Mr. Kinder can keep the price under ~$42 in 2017, the warrants will expire out of the money and he will avoid the dilution. Who knows?
Title: Re: KMI - Kinder Morgan
Post by: alertmeipp on February 28, 2014, 06:27:17 PM
Isn't the warrant exercise price @ $40, if share price is $42, warrant should worth $2.

I think the main reason Morgan is buying common not warrants if he is mainly trying to support the common share price and send a message to the market.

He is not trying to leverage like many of us.

Regarding take under, well, there are other large shareholders as well, they will have to approve the deal.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 28, 2014, 06:41:43 PM
Yeah, I suppose it is possible that they are going to do a take under at $39.50.  Though it is a pity that they didn't decide upon that course of action prior to repurchases of warrants at $5+.

I wasn't necessarily thinking of a take-under, just that if Mr. Kinder can keep the price under ~$42 in 2017, the warrants will expire out of the money and he will avoid the dilution. Who knows?

Yeah just kidding around.  Who knows is right, but they are buying like a mofo for sure.
Title: Re: KMI - Kinder Morgan
Post by: alertmeipp on March 02, 2014, 07:08:07 PM
WB is talking about making big acquisition, he should just take KMI/KMP if he can.
Title: Re: KMI - Kinder Morgan
Post by: wellmont on March 02, 2014, 10:21:15 PM
Corp-

Just a thought: Mr. Morgan purchased 6 mil in KMI recently.  Owning over 8 bil of KMI and so little of KMP/KMR his bias is clear.  So why isn't he purchasing the warrants?  Could it be he doesn't see 42 by 2017 but does see higher than the current valuation?

dividend.
Title: Re: KMI - Kinder Morgan
Post by: xtreeq on March 04, 2014, 10:39:37 AM
Common up today but WT down - anyone have any logical explanation?

Thx
Title: Re: KMI - Kinder Morgan
Post by: alertmeipp on March 04, 2014, 01:27:53 PM
Maybe it was over priced compare to the common as well as some of the longer term options.

The volume was high,  a few millions change hand in the last hour or so. Someone is running screaming.
Title: Re: KMI - Kinder Morgan
Post by: alertmeipp on March 04, 2014, 07:49:36 PM
I just notice that the warrant was trading at 6+ bucks when the common was trading at 41 last May/June.

Say if KMI climb back to 40 by year end, what do you guys see the warrant trading at? 4 bucks?
Title: Re: KMI - Kinder Morgan
Post by: frommi on March 04, 2014, 08:43:13 PM
The warrant price is OTM that means it consists mainly of time and volatility premium. Since volatility goes down and its delta is relative small its price goes down. The smaller the distance to the execution price gets, the warrants delta gets greater and it behaves more like the underlying.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on March 05, 2014, 08:08:01 AM
$100MM additional common/warrant repurchase authorization.  I believe they had a little over $90 million left in repurchase program as of analyst day presentation. 
https://www.bamsec.com/filing/150630714000014?cik=1506307
Title: Re: KMI - Kinder Morgan
Post by: xtreeq on March 10, 2014, 12:28:04 AM
New writeup on VIC: http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/114749

Can someone here who's a member summarize what the thesis is?
Title: Re: KMI - Kinder Morgan
Post by: DCG on March 10, 2014, 05:44:25 AM
New writeup on VIC: http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/114749 (http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/114749)

Can someone here who's a member summarize what the thesis is?


You need an account to be able to view that article.
Title: Re: KMI - Kinder Morgan
Post by: xtreeq on March 10, 2014, 05:53:50 AM
New writeup on VIC: http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/114749 (http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/114749)

Can someone here who's a member summarize what the thesis is?


You need an account to be able to view that article.

Yes, I have a guest account so I will be able to see it in about a month and a half but members can already see it.
Title: Re: KMI - Kinder Morgan
Post by: ZenaidaMacroura on March 11, 2014, 10:06:51 AM
New writeup on VIC: http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/114749 (http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/114749)

Can someone here who's a member summarize what the thesis is?


You need an account to be able to view that article.

Yes, I have a guest account so I will be able to see it in about a month and a half but members can already see it.
Does anyone know what's up with the price weakness since January?  I have been looking into this one recently..
Title: Re: KMI - Kinder Morgan
Post by: yader on March 11, 2014, 10:16:04 AM
See page 7 "marketplace weakness."  Also tanker revenues/replacement.  El Paso troubles.  Take your pick.
Title: Re: KMI - Kinder Morgan
Post by: Myth465 on March 14, 2014, 05:40:31 PM
I am thinking of buying leaps.
To be honest I dont see great deep value here. Similar to PWE this is a giant liquid name on the radar of a lot of people.
Its going to trade up to $40 within the next 2 years at some point. Leaps cost nothing because of the yield. If it gets to $40 for even a day and you sell you make 2x-3x your money.

The warrants require $45 in the next 3.5 years. I prefer the leap bet, what do you guys think?
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on March 14, 2014, 07:39:27 PM
I am thinking of buying leaps.
To be honest I dont see great deep value here. Similar to PWE this is a giant liquid name on the radar of a lot of people.
Its going to trade up to $40 within the next 2 years at some point. Leaps cost nothing because of the yield. If it gets to $40 for even a day and you sell you make 2x-3x your money.

The warrants require $45 in the next 3.5 years. I prefer the leap bet, what do you guys think?
This is exactly why I bought the 2016 $30 Calls, first at $5 and second at $3.8.  My experience is that the large cap names tend to be less mis-priced and they swing back to a fair value rather quickly.  Thus, LEAP is a good tool to leverage the reversal of this minor mis-pricing.  In my mind, $40 by LEAP expiry is not a stretch goal as it implies only a 2016 yield of 5% assuming 8% annual dividend growth forecasted by the company.  The company has a long history of over-delivering its promise -- there's a slide in its presentations showing forecasted < actual KMP dividends.



Title: Re: KMI - Kinder Morgan
Post by: Myth465 on March 15, 2014, 07:50:47 AM
I like what I see so far, quick question for everyone. Why is EPB a seperate vehicle. Seems like it just complicates things. It would make sense if all pipelines were held by one MLP and all other assets the other, but EPB seems like a smaller weaker version of KMR. Why was it split out?
Title: Re: KMI - Kinder Morgan
Post by: ASTA on March 15, 2014, 07:54:06 AM
Morningstar has had some commentary lately on KMI and the rest saying KMR is the safest bet. plus Morningstar DividendInvestor decided to sell both Kinder Morgan Energy Partners and Kinder Morgan, Inc
Title: Re: KMI - Kinder Morgan
Post by: frommi on March 15, 2014, 10:15:18 AM
Morningstar has had some commentary lately on KMI and the rest saying KMR is the safest bet. plus Morningstar DividendInvestor decided to sell both Kinder Morgan Energy Partners and Kinder Morgan, Inc

Perhaps they know more than we or Mr. Kinder. (I doubt it)
KMI is where Kinder has his money, so this should be the safest bet.

A very good writeup by a forum member (Thx by the way for the work!) : http://glennchan.wordpress.com/2014/01/30/kinder-morgan-inc-kmi-you-sell-ill-buy/ (http://glennchan.wordpress.com/2014/01/30/kinder-morgan-inc-kmi-you-sell-ill-buy/)

I see the fair value of KMI at 15xFCF (it traded there already one year ago). Currently its at 8.1xFCF. I calculate my forward rate of return with PE/FCF revaluation over 5 years+dividend+dividend growth or PE/FCF revaluation+FCF yield+FCF growth. That comes out at roughly 17%+5%+8% = 30% pa.

Technically it has bounced thursday at a huge support around 30-31$ and finished an ABC-Elliottwave pattern. On friday it approved the pattern and broke the last downtrend. Fundamentals+technicals+Insider buying was my reasoning to take a greater position than normal.
Title: Re: KMI - Kinder Morgan
Post by: ASTA on March 15, 2014, 10:59:27 AM
Frommi I Agree :D
Just giving some light and different opinions that's out there plus morning star are not super bad at stock picks :D
Its just that at the moment I might sell bac and buy this its just I have not made that decisions yet.
Title: Re: KMI - Kinder Morgan
Post by: Zorrofan on March 19, 2014, 01:10:53 PM
Morningstar has had some commentary lately on KMI and the rest saying KMR is the safest bet. plus Morningstar DividendInvestor decided to sell both Kinder Morgan Energy Partners and Kinder Morgan, Inc

Perhaps they know more than we or Mr. Kinder. (I doubt it)
KMI is where Kinder has his money, so this should be the safest bet.

A very good writeup by a forum member (Thx by the way for the work!) : http://glennchan.wordpress.com/2014/01/30/kinder-morgan-inc-kmi-you-sell-ill-buy/ (http://glennchan.wordpress.com/2014/01/30/kinder-morgan-inc-kmi-you-sell-ill-buy/)

I see the fair value of KMI at 15xFCF (it traded there already one year ago). Currently its at 8.1xFCF. I calculate my forward rate of return with PE/FCF revaluation over 5 years+dividend+dividend growth or PE/FCF revaluation+FCF yield+FCF growth. That comes out at roughly 17%+5%+8% = 30% pa.

Technically it has bounced thursday at a huge support around 30-31$ and finished an ABC-Elliottwave pattern. On friday it approved the pattern and broke the last downtrend. Fundamentals+technicals+Insider buying was my reasoning to take a greater position than normal.

I finally broke down and sold some SD to buy some KMI. This pretty much guarantees that SD should soar and KMI drop even further.
Your welcome   ;D

cheers
Zorro
Title: Re: KMI - Kinder Morgan
Post by: prevalou on March 19, 2014, 02:05:41 PM
How do you get kmi at 8,1 free cash flow ? 2014 FCF seems to be $ 1,72
Title: Re: KMI - Kinder Morgan
Post by: yader on March 19, 2014, 05:20:47 PM
Prevalou,

Looks like you simply missed an 'x'.  It's currently at 8.1x (times) FCF.  Not saying they've got $8.10 of FCF.
Title: Re: KMI - Kinder Morgan
Post by: plato1976 on March 19, 2014, 08:50:31 PM
if FCF is $1.72 , it's not 8.1x FCF, right ? sounds like > 15x FCF

Prevalou,

Looks like you simply missed an 'x'.  It's currently at 8.1x (times) FCF.  Not saying they've got $8.10 of FCF.
Title: Re: KMI - Kinder Morgan
Post by: frommi on March 19, 2014, 09:51:53 PM
1.72$ is the dividend not the free cash flow.

http://www.gurufocus.com/stock/KMI (http://www.gurufocus.com/stock/KMI)
Title: Re: KMI - Kinder Morgan
Post by: prevalou on March 19, 2014, 11:04:58 PM
In the KMI case, dividend=free cash flow. Look at the 10 K. It is more reliable than Gurufocus.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on March 19, 2014, 11:30:17 PM
Dividend = distributable cash flow as defined by the company.

In my opinion, distributable cash flow slightly overstates real earnings.
Title: Re: KMI - Kinder Morgan
Post by: prevalou on March 20, 2014, 12:49:58 AM
so frommi forward rate of return becomes: -4 % (return to 15 times FCF)+5 %+8 %=9 % p.a. at best if true earnings are overstated. Not bad, but not a steal.

I have two questions :

-Is KMP and EPB debt non recourse to KMI ? (except $3.8 B El Paso)
-If KMP issues debt or shares for an acquisition, is it dilutive for KMI shareholders ?

thanks if you know the answer.
Title: Re: KMI - Kinder Morgan
Post by: Zorrofan on March 20, 2014, 04:46:07 AM
Dividend = distributable cash flow as defined by the company.

In my opinion, distributable cash flow slightly overstates real earnings.

I think Frommi gets 8.1 from the Funds from operations, which was $4 billion ($4B / 1.04B shares = $3.85 x 8.1 = $31.15 share price)
Distributable cash = free cash flow,  as defined by the company i.e. after sustaining cap-ex and this is closer to $1.85ish per share

Is the company cheap?  5% yield plus expected long-term growth between 8 & 10%?? I guess it depends if you are looking at it for retirement income, which many are, or growth....

cheers
Zorro
Title: Re: KMI - Kinder Morgan
Post by: frommi on March 20, 2014, 06:31:26 AM
Sorry i made some serious mistakes here. I just looked at the graphs at gurufocus and determined that it traded already at 15xFCF (which in reality is FFO, don`t know why gurufocus has this one wrong) and thought that be a fair multiple. But growth has fallen since then, so it is prudent not to use this number. :)

A better way is probably to use the graham formula 8+2g or more conservative 8+1.5g for a fair multiple. So this comes down to a fair value of around 35-41$. So the forward rate of return is something like 2-6%+5%+8% = 15-19%. Not bad, but not spectacular either. I probably reduce my portfolio holding a bit.

A big sorry to all, i am still learning.
Title: Re: KMI - Kinder Morgan
Post by: DCG on March 20, 2014, 07:18:11 AM
Keep in mind that they recently reaffirmed that they will be able to pay their dividend this year, so you're being pad over 5% to wait.
Title: Re: KMI - Kinder Morgan
Post by: Kiltacular on March 20, 2014, 08:13:52 AM
Dividend = distributable cash flow as defined by the company.

In my opinion, distributable cash flow slightly overstates real earnings.

Trap,

Why do you think Richard Kinder thinks KMI is cheap?
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on March 20, 2014, 08:48:22 AM
He states his opinion on various conference calls and in the Investors day presentation.

If you look at how the IDRs grow over time, it's obvious why this is a wonderful business.
Title: Re: KMI - Kinder Morgan
Post by: prevalou on March 20, 2014, 08:56:15 AM
something i can't understand: with the IDRs, KMI interest is that KMP issues a lot of equity to increase profit and free cash flows via pipelines construction or acquisition. There seems to be a big conflict of interest between KMI and KMP there. Am I mistaken ?
Title: Re: KMI - Kinder Morgan
Post by: T-bone1 on March 20, 2014, 09:02:28 AM
He states his opinion on various conference calls and in the Investors day presentation.

If you look at how the IDRs grow over time, it's obvious why this is a wonderful business.

Not expressing an opinion on KMI, but a lot of people have gotten into a lot of trouble (Fannie, Freddy, EBIX, etc.) making the assumption that something must be a "wonderful business" because of how it grows over time, without really understanding it. 

KMI has a lot going for it, but at the end of the day, it is build on a foundation of naive retirees who are willing to fund the equity portion of risky capex projects for only a 5% return . . . there is no free lunch, even if KMI gets half of everyone else's sandwich.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on March 20, 2014, 09:05:02 AM
Its not a conflict, but one could envision a scenario where a short term focused GP might favor rapid growth at the expense of the longer term return for the LPs.  Of course you could probably make a case that such short term thinking might harm both interests in a similar fashion over the longer term.  There has been nothing in the performance record to indicate this has been a problem here, to my mind.  Frankly, I might struggle to name half a dozen more long-term, rational capital allocator CEOs out there.  The external management model could be a problem in unscrupulous hands, see CWH, the BDCs, etc…

Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on March 20, 2014, 09:08:31 AM
something i can't understand: with the IDRs, KMI interest is that KMP issues a lot of equity to increase profit and free cash flows via pipelines construction or acquisition. There seems to be a big conflict of interest between KMI and KMP there. Am I mistaken ?

I do agree that it's potentially problematic.

1- The General Partner has a limited fiduciary duty to the LPs.  (Their fiduciary duty is actually lower than normal, as set out in the GP/LP agreement.)  An acquisitions that KMP makes has to be accretive.  If the GP wanted to game that system, the GP would make the limited partnership go out and buy lots of assets where the cash flows don't last that long or can decline quickly:
- Very old assets
- Mature gathering pipeline systems
- Tankers, ships, etc.  especially old ones
- Shipping assets at the top of an industry cycle
- E&P assets, especially old ones with not much reserves left

KMP does have some gathering systems, tankers, and E&P assets.  So you need to be a little bit careful.  However, most of their assets are new and/or growing their cash flows and aren't in the declining cash flow phase.

2- The GP also has an incentive to take on lots and lots of debt.  However, too much debt will hurt the creditworthiness of the business.  If the company wants to enter into long-term contracts with other companies, those other companies don't want counterparty risk.  So too much debt will affect how profitable the business is, because the company will have to give a discount on its long-term contracts so that its counterparties are compensated for their counterparty risk.

KMP and KMI have some of the highest credit ratings in their sector.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on March 20, 2014, 09:17:25 AM

"KMI has a lot going for it, but at the end of the day, it is build on a foundation of naive retirees who are willing to fund the equity portion of risky capex projects for only a 5% return . . . there is no free lunch, even if KMI gets half of everyone else's sandwich."

I don't know if I can follow you there.  The vast majority of the "risky" cap-ex projects are pre-subscribed by customers and based upon capacity utilization.  They do have some sensitivity to commodity prices and interest rates…I suppose if there were some nuclear crash in energy prices such that their customers credit was impaired…but even if they were in bankruptcy the client companies would need to move their energy to produce revenues, so it seems like that would be the last contract to be compromised even an an event of insolvency.  Even if prices crashed, one could easily see them benefitting as more demand is spurred and more energy moves.
Title: Re: KMI - Kinder Morgan
Post by: T-bone1 on March 20, 2014, 09:35:04 AM

"KMI has a lot going for it, but at the end of the day, it is build on a foundation of naive retirees who are willing to fund the equity portion of risky capex projects for only a 5% return . . . there is no free lunch, even if KMI gets half of everyone else's sandwich."

I don't know if I can follow you there.  The vast majority of the "risky" cap-ex projects are pre-subscribed by customers and based upon capacity utilization.  They do have some sensitivity to commodity prices and interest rates…I suppose if there were some nuclear crash in energy prices such that their customers credit was impaired…but even if they were in bankruptcy the client companies would need to move their energy to produce revenues, so it seems like that would be the last contract to be compromised even an an event of insolvency.  Even if prices crashed, one could easily see them benefitting as more demand is spurred and more energy moves.

I didn't mean to imply that I think the majority of these projects are "risky" in the sense that they are going to fail. 

What I meant is that they are "risky" in that the equity portion of any big capex project bears the majority of risk.  If I build a tiny $1 million pipeline and I fund it 50% with debt at 3% and I ask you to kick in another $500k a equity, what type of a return would you want?  Would you really give me money for a 5% return? 

What if the "equity" portion of this little pipeline really "yields" a 10% return, but I am only giving you half and keeping the other half (like KMI)?

My point is that you would never make that deal with your own real money for a risky (every project involves operational, financial, commodity, and other risks) project to only get a 5% return . . .

. . . yet million of retirees do that every day in vehicles like KMP, because they believe the dividends will rise forever . . .

I am unaware of any time a vehicle that only goes up, essentially formed for the purpose of allowing people to make an investment they wouldn't actually make on a flow through basis, hasn't eventually come a cropper.

What value is being created here?  How is this substantially different than a CDO or Fannie Mae or even EBIX?
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on March 20, 2014, 10:12:23 AM
KMP is like a really expensive hedge fund.  Weirdly enough, Richard Kinder has created so much value that even the KMP shareholders did really well and outpeformed the S&P 500.

He's just really good at the pipeline business.  He's also made money through buying other midstream assets when they are trading at depressed prices.  There's also the tax advantage that KMP enjoys (in some ways it's like a government subsidy).

2- In terms of stocks with high yields, I think that there is stuff out there that is much worse.

- Royalty trusts where the cash flows will drop off a cliff in the future.  The iron ore trusts that terminate at a certain date are the best example (e.g. Mesabi and GNI).
- You have REITs that revolve around negative carry trades.  They may profits for several years and then have individual years where they lose a lot of money at once.
- You have midstream MLPs that mainly consist of assets that have lower lives, e.g. ACMP.
- Stuff that's just overvalued and sell at a premium to book value, e.g. RESI.

Quote
How is this substantially different than a CDO or Fannie Mae or even EBIX?
The problem with CDOs is largely due to the detachment between the investors and the parties that originated the loans.  Loan quality was bad and the level of fraud was unusually high. 
There are other "minor" problems with CDOs in that they were poorly structured to minimize investor losses from foreclosures.  If the servicer were paid differently, the servicer would put in more effort to minimize losses from foreclosures.

Fannie Mae:  I believe the problem is that it went out and bought CDOs.  I think Buffett was right in purchasing Fannie shares.  Fannie has an unusual competitive advantage due to its government subsidy (the implicit guarantee of its debt meant that it had very low borrowing costs).

Ebix: The fat lady hasn't sung yet???  I'm shorting it, but it's possible that it's not the massive fraud that the short sellers think it is.
Title: Re: KMI - Kinder Morgan
Post by: frommi on March 20, 2014, 10:13:07 AM
The markets are very efficient in figuring a fair value for KMP/KMI out, so i wouldn`t be overly concerned about KMP shareholders being ripped. KMP shareholders got a very good return for their capital up to date. And everybody is responsible for his own actions, its not that this whole information is kept private. And KMI profits more when KMP shareprice is high, so its in KMI`s interest to not rip KMP completly off.
Title: Re: KMI - Kinder Morgan
Post by: prevalou on March 20, 2014, 10:21:13 AM
why is this in the interest of KMI that KMP shareprice is high ? Even if it is low KMP can issue more share for the same amount and it doesn't impact KMI
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on March 20, 2014, 10:25:12 AM
If KMP's share price is high, it can use its "strong currency" to make accretive acquisitions of other companies.  (e.g. arbitrage the valuation of its own shares versus other companies.)
Title: Re: KMI - Kinder Morgan
Post by: prevalou on March 20, 2014, 10:31:17 AM
I understand that but it is relevant for KMP, not KMI (except fot their LP shares of KMP). For KMI, KMP has no cost of equity, because KMP dilution does'nt impact KMI GP. Or I am mistaken ?
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on March 20, 2014, 10:37:20 AM
KMI would benefit if KMP were to issue lots of lots and shares and to grow KMI's "assets under management".
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on March 27, 2014, 12:17:20 PM
I'm starting to think that KMP is secretly one of the best E&P companies around.

It seems like they are generating massive returns on capital with their CO2 business.  I think a lot of landowners don't understand the value of their land because the land hasn't produced significant oil revenue in a long time.
Title: Re: KMI - Kinder Morgan
Post by: T-bone1 on March 27, 2014, 12:30:25 PM
I'm starting to think that KMP is secretly one of the best E&P companies around.

It seems like they are generating massive returns on capital with their CO2 business.  I think a lot of landowners don't understand the value of their land because the land hasn't produced significant oil revenue in a long time.

Correct me if I'm wrong, but I believe only a small portion of KMP's business is "upstream" or E&P (if anything). 

My understanding of the recently announced CO2 project is that they are producing CO2 from a field in AZ, building pipelines to transport it to the Permian basin, and selling the CO2 to companies doing enhanced oil recovery (CO2 flooding) in old depleted fields in the Permian.

I would also caution that while the shale boom has created more than a few unwitting "landowners" in places like NE PA (where there has never been historic production), the Permian basin is and has been one of the largest oil fields in the world for decades.  The "landowners" (leaseholders/mineral owners) in that field are huge companies like Pioneer, Chevron, Conoco etc.  They have owned these massive assets for decades in many cases and they know exactly what they own and will pay not be providing KMP/KMI or anyone else with an undeserved windfall.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on March 27, 2014, 01:41:00 PM
About 24% of KMP EBDA is attributed to CO2 transport and sales or CO2 EOR per the numerous recent investor presentations, so about $1.7 billion per annum.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on March 27, 2014, 02:09:59 PM
I would also caution that while the shale boom has created more than a few unwitting "landowners" in places like NE PA (where there has never been historic production), the Permian basin is and has been one of the largest oil fields in the world for decades.  The "landowners" (leaseholders/mineral owners) in that field are huge companies like Pioneer, Chevron, Conoco etc.  They have owned these massive assets for decades in many cases and they know exactly what they own and will pay not be providing KMP/KMI or anyone else with an undeserved windfall.

KMP does have a few competitors in the space, one of them being Denbury (DNR).  However, they've been able to put together an impressive track record.

In the investors' presentation, the presenter for the CO2 segment essentially said that the prices that they paid for land was very low and that the land was "cow pasture".

2- I do think that it is difficult for others to do CO2 EOR by themselves.  They would need to build their own pipeline from CO2 source fields to their oil reservoir.  KMP has excellent positioning because they already have their pipeline built and paid for.

With any pipeline, the dream scenario is similar to what KMP is experiencing.  You build a pipeline with excess capacity.  It turns out that demand for your pipeline is greater than originally anticipated.  You get to sell all this excess capacity at premium prices.  (Because pipelines benefit from scale, the incremental cost is much lower than a smaller pipeline / the customer's alternative.)

And if you really want to dream the dream, there is so much excess demand that it makes sense to build a second pipeline alongside the existing one.  This is happening in the KMP Canada segment.
Title: Re: KMI - Kinder Morgan
Post by: rogermunibond on March 27, 2014, 02:26:24 PM
Where do you think Denbury gets its CO2?  Besides DNR, Occidental, Chevron, Apache, Hess and Whiting are all big EOR producers.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on March 27, 2014, 02:30:41 PM
Where do you think Denbury gets its CO2?  Besides DNR, Occidental, Chevron, Hess and Whiting are big EOR producers.
http://www.denbury.com/operations/gulf-coast-region/co2-sources-and-pipelines/default.aspx

Natural sources:  Jackson Dome, located near Jackson, Mississippi
Man-made sources:  Various sources
Title: Re: KMI - Kinder Morgan
Post by: T-bone1 on March 27, 2014, 02:58:16 PM
I was just trying to make the point that CO2 is a relatively low-return midstream business (building pipelines and devliering CO2).  It is not a potentially high return exploration business (the E in E&P). 

If you look at KMI's latest project, they paid $30 million for all of the CO2 reserves (already discovered by others) and they are now spending billions to build pipelines and deliver the CO2 for a set fee.  They will make an economic return for this and it is a good business, but this has nothing to do with the E&P business (other than E&Ps being their customers)
Title: Re: KMI - Kinder Morgan
Post by: Myth465 on March 27, 2014, 06:07:48 PM
I believe Value is correct.

In my rushed DD, I did note KMI has a pretty sizable E&P business which generates great returns.

Refer to Page 11 - Only 30% of the CO2 division is related to the low margin transport business. This amounts to 7% of KMP CF.
The CO2 oil production accounts for 17% of cash flow for KMI, and 70% of the CO2 division. The division also has ROIC of 26%, about double the other businesses. I am guessing the 30% does 12-14% ROIC, and the 70% does 30% plus ROIC. This is with what looks like some pretty crappy forward hedges. Half of the expansion capital of $1 billion will go towards EOR.

http://www.kindermorgan.com/investor/presentations/0312_JPM.pdf
Title: Re: KMI - Kinder Morgan
Post by: Myth465 on March 27, 2014, 06:09:41 PM
I believe this announcement here may be incremental.

http://seekingalpha.com/pr/9374983-kinder-morgan-to-invest-approximately-1-billion-to-expand-vast-co2-network

So perhaps its $2 billion with $1.3 going to wells, and the balance going to pipelines. Though I am not sure.
Either way, the more they put into 30% ROIC projects, the more we make.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on March 27, 2014, 09:24:02 PM
To be fair, KMI calculates its returns on capital in a wonky fashion.  It's described in the appendix presentation.  They add back D&A and subtract sustaining capex.

A pipeline will see solid cash flows for maybe 60+ years.
An oil well will see declining cash flows over maybe 15-40 years.  (For EOR wells it could be less?)

Kinder Morgan's metric doesn't seem to be great for comparing the two types of assets.  A 10% return on a pipeline is much better than a 10% return on an oil well.  An oil well returning 10% one year will eventually return 9%, 8%, 7% etc. in future years.

I think a better metric would be the IRR (internal rate of return) figure given in the presentation for the CO2 segment.  It puts the total business IRR at 29.2%.

See slide 35 at
http://www.kindermorgan.com/investor/presentations/2014_Analysts_Conf_06_CO2.pdf
Title: Re: KMI - Kinder Morgan
Post by: rogermunibond on March 28, 2014, 07:52:35 AM
KMP-CO2 is pretty slim on the E of the E&P equation.  They buy long-discovered fields from the majors and work them over with CO2 flooding.  Semantics I guess.

Thanks Myth for finding that slide that splits out the oil/gas EOR side from the CO2 sales, marketing, transport side.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on April 16, 2014, 02:45:13 PM
I missed most of the CC but just tuned in to hear that $55MM of the new ($100MM) authorization during the quarter went to repurchase warrants.  The final $94MM of the prior authorization went to common early in the Q (prior to the analyst day, I believe).
Title: Re: KMI - Kinder Morgan
Post by: bizaro86 on April 16, 2014, 03:44:08 PM
An oil well will see declining cash flows over maybe 15-40 years.  (For EOR wells it could be less?)

In my experience, wells converted to EOR have lower declines than new drills. They are especially much better than new wells in tight rock/shale. KM's style of E&P is actually the only type I think can be reasonably held in an MLP.
Title: Re: KMI - Kinder Morgan
Post by: sys on April 17, 2014, 12:03:46 AM
I missed most of the CC but just tuned in to hear that $55MM of the new ($100MM) authorization during the quarter went to repurchase warrants.  The final $94MM of the prior authorization went to common early in the Q (prior to the analyst day, I believe).

interesting.  317 million warrants remain.
Title: Re: KMI - Kinder Morgan
Post by: saltybit on April 26, 2014, 03:31:27 PM
New post from Value about the warrants

http://glennchan.wordpress.com/2014/04/26/kmi-mispriced-long-term-options/
Title: Re: KMI - Kinder Morgan
Post by: sys on April 26, 2014, 04:49:14 PM
thank you, that was very useful to read.  i don't think it is valid to ignore the dividends.  i don't know anything about option pricing, but it seems to me the easiest adjustment would be to add the expected dividends to the strike price.

using the calculator you linked, and the assumptions for your conservative valuation, if i adjust the strike up by $5 for expected dividends, i get a valuation of $3.14 instead of $4.81.  still attractive to me.
Title: Re: KMI - Kinder Morgan
Post by: ItsAValueTrap on April 28, 2014, 09:42:58 AM
1- The following webpage explains dividends and options:
http://www.investopedia.com/articles/optioninvestor/03/121003.asp
"Dividends, Interest Rates And Their Effect On Stock Options"

2- Something else that would affect the value of an option would be future changes in the dividend rate.

If for some reason the company dramatically changes its dividend payout, the value of the options will be affected.  If the company is doing badly, it may or may not decide to cut its dividends.  Some companies will continue to pay a dividend even if they are distressed.  Companies that do well often increase their dividends.
Some companies go from no dividend to issuing a dividend, so that is probably the area where dividend changes might matter the most.

With Kinder Morgan, you can simplify things by assuming that the dividends will be proportional to the share price.  Dividends going down help the warrants in theory, though the share price will likely go down if dividends go down and the $40 strike price likely won't be reached.  Dividends going up hurt the warrants, though the terms of the warrants will mostly protect you if dividends go up by a lot.
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on June 05, 2014, 09:43:10 AM
http://www.sec.gov/Archives/edgar/data/315027/000158474614000021/xslF345X03/primary_doc.xml
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on June 06, 2014, 07:34:21 AM
He took down two tranches eh?  Warrants have been acting lively since that horrendously bad article on seeking alpha.
Title: Re: KMI - Kinder Morgan
Post by: Myth465 on June 08, 2014, 03:42:27 AM
The leaps are up 50% in a few months.
Wise I bought more....  ::)
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on June 10, 2014, 05:04:11 AM
The leaps are up 50% in a few months.
Wise I bought more....  ::)

Yeah, don't jinx us.  haha.  My warrants are up a similar amount.  I was planning to buy more if they dropped below the average price they were repurchased last quarter but that's a whole different zip code now.
Title: Re: KMI - Kinder Morgan
Post by: saltybit on July 16, 2014, 01:23:36 PM
2nd Quarter results:
http://phx.corporate-ir.net/phoenix.zhtml?c=93621&p=irol-newsArticle&ID=1948155&highlight=

repurchased 19M warrants this quarter
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on July 16, 2014, 02:02:04 PM
They didn't get any of mine back.  ;)
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on July 19, 2014, 10:56:08 AM
Should I be getting excited as a KMI call holder about this dialogue during the Q2 CC?

Quote
Bradley Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

My first question is actually for Rich. And as you might imagine, if you read our note this morning, it's kind of a follow-up on that. You guys are now sitting at a point where you've done billions of dollars of accretive deals over the last few years, and yet KMI remains at a discount to peers that I would imagine is pretty frustrating from your perspective. So as you sit and kind of look at where you're trading versus some of your peer companies right now, do you have any thoughts on that current discount, and whether or not you'd be willing to consider a transaction to reduce Kinder Morgan's cost of capital?
Richard D. Kinder - Chairman and Chief Executive Officer

Let me just say that we're always exploring operational and strategic opportunities to enhance the value for our investors, including myself. And that includes, among other things, evaluating potential combinations of Kinder Morgan companies. But as I've stated in the past, any such transaction or combination would have to be on terms negotiated between the companies and mutually agreed upon.
Bradley Olsen - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

And that would involve just kind of the standard conflict committee process that these arm-length transactions go through?
Richard D. Kinder - Chairman and Chief Executive Officer

That's correct.

I would think if there's any combinations between KMI/KMP/EPB, the price of KMI would go up substantially.
Title: Re: KMI - Kinder Morgan
Post by: Compounder on July 19, 2014, 02:29:13 PM
I would think if there's any combinations between KMI/KMP/EPB, the price of KMI would go up substantially.

Why would the price of KMI go up? Aren't they as GP already in an advantageous position compared to the LPs?
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on July 19, 2014, 04:13:22 PM
I would think if there's any combinations between KMI/KMP/EPB, the price of KMI would go up substantially.

Why would the price of KMI go up? Aren't they as GP already in an advantageous position compared to the LPs?

This is exactly why kmi deserves a premium on any combination. Say if kmi and kmp combine and form one entity, kmi which was in a superior position deserves to be compensated for giving up those rights.
Title: Re: KMI - Kinder Morgan
Post by: Compounder on July 19, 2014, 05:02:37 PM
I would think if there's any combinations between KMI/KMP/EPB, the price of KMI would go up substantially.

Why would the price of KMI go up? Aren't they as GP already in an advantageous position compared to the LPs?

This is exactly why kmi deserves a premium on any combination. Say if kmi and kmp combine and form one entity, kmi which was in a superior position deserves to be compensated for giving up those rights.

Got it, thanks. So it would be a one time revaluation up for the buyout of the management rights, etc.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on July 30, 2014, 04:20:13 PM
http://finance.yahoo.com/news/kinder-morgan-energy-partners-announces-140000808.html


Pretty sure this is a huge new project that wasn't included in the backlog based on a quick re-review of the last quarter transcripts.
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on July 30, 2014, 04:48:59 PM
http://finance.yahoo.com/news/kinder-morgan-energy-partners-announces-140000808.html


Pretty sure this is a huge new project that wasn't included in the backlog based on a quick re-review of the last quarter transcripts.
Definitely a project in huge demand.  Chesapeake for example suffers a heavy $2.47 discount relative to Henrys Hub last quarter for its gas in the Marcellus North region due to lack of transportation capacity.

http://seekingalpha.com/article/2357935-chesapeake-energy-commodity-price-differentials-surprise
Title: Re: KMI - Kinder Morgan
Post by: Zorrofan on July 31, 2014, 01:30:58 PM
http://finance.yahoo.com/news/kinder-morgan-energy-partners-announces-140000808.html


Pretty sure this is a huge new project that wasn't included in the backlog based on a quick re-review of the last quarter transcripts.

I notice one of the companies mentioned is Berkshire Gas company. Is that part of mid-american?
Thanks for posting this.....

cheers
Zorro
Title: Re: KMI - Kinder Morgan
Post by: fareastwarriors on July 31, 2014, 01:37:49 PM
http://finance.yahoo.com/news/kinder-morgan-energy-partners-announces-140000808.html


Pretty sure this is a huge new project that wasn't included in the backlog based on a quick re-review of the last quarter transcripts.

I notice one of the companies mentioned is Berkshire Gas company. Is that part of mid-american?
Thanks for posting this.....

cheers
Zorro

Doesn't look like it:

http://www.berkshiregas.com/wps/portal/bgc/home (http://www.berkshiregas.com/wps/portal/bgc/home)
Title: Re: KMI - Kinder Morgan
Post by: Zorrofan on July 31, 2014, 01:39:28 PM
http://finance.yahoo.com/news/kinder-morgan-energy-partners-announces-140000808.html


Pretty sure this is a huge new project that wasn't included in the backlog based on a quick re-review of the last quarter transcripts.

I notice one of the companies mentioned is Berkshire Gas company. Is that part of mid-american?
Thanks for posting this.....

cheers
Zorro

Doesn't look like it:

http://www.berkshiregas.com/wps/portal/bgc/home (http://www.berkshiregas.com/wps/portal/bgc/home)

thanks!
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on July 31, 2014, 03:12:30 PM
KMP goes north to New England and Canada and El Paso goes south...

http://finance.yahoo.com/news/kinder-morgan-details-expansion-plans-150000579.html
Title: Re: KMI - Kinder Morgan
Post by: Andy Dufresne on August 10, 2014, 02:35:27 PM
Kinder Morgan, Inc. to Purchase KMP, KMR and EPB; 2015 KMI Dividend to Increase to $2 per Share

http://phx.corporate-ir.net/phoenix.zhtml?c=93621&p=irol-newsArticle&ID=1957206&highlight=

Title: Re: KMI - Kinder Morgan
Post by: Myth465 on August 10, 2014, 03:44:17 PM
That was quick.
I sold leaps and was looking to buy back in. Will be interesting to see how it runs.

Might be a good time to look at the warrants again.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on August 10, 2014, 04:01:58 PM
They went the opposite of the direction that I anticipated.  I guess cashiering the MLPs is one way to go.
Title: Re: KMI - Kinder Morgan
Post by: Otsog on August 10, 2014, 04:25:20 PM
There is no way Richard Kinder issues that much KMI if it isn't overvalued, right?
Title: Re: KMI - Kinder Morgan
Post by: Myth465 on August 10, 2014, 06:12:16 PM
I think they have gotten the most they could out of the MLP structure.
Its now causing a discount across the brand, has layers of accts / managers, and complicates things.

Also getting an investment grade rating will make it easier to take on new projects.
My guess is whatever they give up by closing down the MLPs, they make up in stock rerating, cheaper debt, and synergies from pulling out the various management layers / sign offs.
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on August 10, 2014, 08:45:05 PM
I was hoping it is KMI that gets bought out too, but I think this isn't a bad outcome for KMI shareholders either.  The re-rating would still occur, it may just take a little more time.

http://www.kindermorgan.com/investor/presentations/KMI_Purch_MLPs_Investor_Presentation.pdf

Page 10 of the above presentation is the most interesting for KMI shareholders.  Management assumes that KMI will trade *conservatively* at 4.5% yield.  At a $2 annual dividend, this suddenly becomes a $44.4 stock --> round it down to $40 since the higher dividend begins in 2015.

Page 7 shows peer valuation.  It's not a stretch to expect KMI will trade at 4% yield post merger, i.e. $50.

Really happy with my 2016 $30 leaps.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on August 11, 2014, 05:17:31 AM
Looks to be trading up toward $44 in pre-market.  Looking forward to conference call at 8:30.
Title: Re: KMI - Kinder Morgan
Post by: Liberty on August 11, 2014, 06:12:52 AM
http://glennchan.wordpress.com/2014/08/11/my-thoughts-on-the-kmi-merger/
Title: Re: KMI - Kinder Morgan
Post by: saltybit on August 11, 2014, 06:29:26 AM
Warrants are up big premarket. (2.88 -> 4.77)
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on August 11, 2014, 07:22:00 AM
Yeah, just applying the current yield to the projected dividend, it seems like they ought to be worth in the zip code of $10 or so bucks by exercise if the projections in the deal pitch come to pass.  Of course, that assumes no accretive deals.
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on August 11, 2014, 07:34:02 AM
KMP holders seem to be getting the worst deal here, with potentially huge tax consequences depending on how long they have been deferring (how long they've been unitholders).  KMR holders did fairly well and KMR is now the more attractive security at 91.44 (vs KMI).  If KMR hits 89.46 today it will be superior to buying KMI on Friday before the deal was announced.  At this spread between KMR and KMI, there is no reason to purchase KMI unless through warrants.

Even though we (as large KMR holders) have taken a dividend cut on the deal, I like the deal quite a bit.  I would be upset if I were a KMP holder in a high tax bracket - which most probably are.  The tax bill will shock them if they've been long time holders.
Title: Re: KMI - Kinder Morgan
Post by: fareastwarriors on August 13, 2014, 06:12:14 PM
Unraveling the Tax Bill of the Kinder Morgan DealKinder Morgan Notches Tax Savings from Deals

Kinder Morgan's big reorganization should save about $20 billion in income taxes over the next 14 years. But a tax bill could be coming for some longtime holders.


http://online.wsj.com/articles/unraveling-the-tax-bill-of-the-kinder-morgan-deal-1407970549#livefyre-comment (http://online.wsj.com/articles/unraveling-the-tax-bill-of-the-kinder-morgan-deal-1407970549#livefyre-comment)
Title: Re: KMI - Kinder Morgan
Post by: peter1234 on August 16, 2014, 08:31:27 AM
Kinder Morgan CEO Wins In Deal
Richard Kinder, the CEO of Kinder Morgan, stands to collect $467 million in dividend payments next year, if his company completes a complex deal to consolidate four related pipeline companies.

http://online.wsj.com/articles/kinder-morgan-ceo-wins-big-in-deal-1408145793
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on August 29, 2014, 05:39:58 AM
NYT article linked below on anticipated consolidation in the industry discusses several potential targets for KMI:

http://nyti.ms/1mXkqmA

I would think WMB is available if they thought they could get it by DOJ, given that Keith Meister at Corvex (along with Soroban, former TPG-Axon guy) are running the show over there now.  I'm sure they would rather have Rich Kinder running those assets for them.
Title: Re: KMI - Kinder Morgan
Post by: Picasso on October 14, 2014, 07:35:59 AM
Well below the price at the time of merger.  Anyone still involved with this stock?  I have trouble finding the right way to value it.
Title: Re: KMI - Kinder Morgan
Post by: frommi on October 14, 2014, 08:00:41 AM
Yes i valued it by dividend yield+growth, but i am not really happy with that way to value it. KMP and KMI trade on a EV/EBITDA multiple of 11.5, but will the combined entity too? (That would be a bit high for me). For now i stick with the stock and look if Mr. Kinder is able to keep his promises. For a 2015 dividend yield of 5.8% with 10% growth the stock is too cheap here.
And when i understood everything right, the business is not really dependent on commodity prices.
Title: Re: KMI - Kinder Morgan
Post by: DCG on October 14, 2014, 12:00:34 PM
I still own it.
Title: Re: KMI - Kinder Morgan
Post by: Picasso on October 14, 2014, 12:15:17 PM
How are you valuing it?  I know Rich Kinder himself is trying to value it based on the dividend but I am not sure exactly how you can do that.  It would be like saying P&G pays 3% so if it has the same dividend yield as Colgate it would be 30% higher in price.

There is also higher leverage present within KMI that should make the valuation a bit cheaper to peers, no? 

I did a dividend discount model (which I HATE doing, but that is another topic)  and I come up with a $38 price at 15% growth for the next 7 years with a 75% payout rate.  At 100% payout rate I get a $50 price.  Doesn't seem that cheap unless Rich Kinder does a few good deals?
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on October 14, 2014, 02:51:28 PM
How are you valuing it?  I know Rich Kinder himself is trying to value it based on the dividend but I am not sure exactly how you can do that.  It would be like saying P&G pays 3% so if it has the same dividend yield as Colgate it would be 30% higher in price.

There is also higher leverage present within KMI that should make the valuation a bit cheaper to peers, no? 

I did a dividend discount model (which I HATE doing, but that is another topic)  and I come up with a $38 price at 15% growth for the next 7 years with a 75% payout rate.  At 100% payout rate I get a $50 price.  Doesn't seem that cheap unless Rich Kinder does a few good deals?

I think the valuation model is flawed if the IV changes with the payout rate.  Growth and payout rate go hand in hand.

For me, I look at the relative valuation with its peers (EPD, williams, etc) and see that KMI has a higher yield for a similar dividend growth profile.
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on January 21, 2015, 01:11:19 PM
KMI slipping in an acquisition announcement right before earnings release and conference call this afternoon -

Buying midstream assets from Harold Hamm -
http://phx.corporate-ir.net/phoenix.zhtml?c=93621&p=irol-newsArticle&ID=2009339


edit:  and here is the dividend increase and earnings announcement -

http://phx.corporate-ir.net/phoenix.zhtml?c=93621&p=irol-newsArticle&ID=2009368

(looks like they switched to BRK subsidiary BusinessWire in the last 24 hours)


*** Kinder stepping down as CEO, to become executive Chairman
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on June 12, 2015, 10:31:18 AM
We get the message already, Mr. Kinder...  He is one of the only people I know of who files his Form 4 with the SEC within a few minutes of making a purchase..

http://www.sec.gov/Archives/edgar/data/1031190/000158474615000012/xslF345X03/primary_doc.xml

then a few minutes later, this-

http://www.sec.gov/Archives/edgar/data/1506307/000150630715000032/kmi8-k06x11x2015.htm
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on June 21, 2015, 07:26:07 PM
Energy Transfer Equity made an unsolicited bid for Williams ~33% premium (credit to Bloomberg for naming bidder).  Williams rejected and is "evaluating options."  Was just looking at WMB as a comp for KMI last week.  Kinder and ETP mentioned as potential suitors.  At least the nice thing when CEO has real money in game is that he won't (consciously) overpay just because "everyone else has one."

Interesting that ETE wanted to scrap consolidation plan, WMB said in rejection that the consolidation would offer larger pay off than proposed ETE offer.  KMI clearly sees the benefits of such a consolidation.  WMB + KMI = ESSO part deux?

http://www.wsj.com/articles/williams-cos-rejects-48-billion-buyout-offer-1434930560?mod=yahoo_hs
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on August 05, 2015, 11:21:47 AM
What news am I missing in the MLP space today?  ETE, WMB and KMI are all getting smoked.  I'm about to pick up some WMB (you don't have to be a genius to know its in play and had an (all stock) bid of ~$64 within the last month), but spidey sense indicates there's a bus coming down the street.
Title: Re: KMI - Kinder Morgan
Post by: gokou3 on August 05, 2015, 12:13:29 PM
What news am I missing in the MLP space today?  ETE, WMB and KMI are all getting smoked.  I'm about to pick up some WMB (you don't have to be a genius to know its in play and had an (all stock) bid of ~$64 within the last month), but spidey sense indicates there's a bus coming down the street.

It seems to me that the recent ridiculous weakness in KMI is due to (still) lower oil prices and the stronger expectation that it will stay low for the forseeable future.  My understanding is KMI is largely immuned from oil price fluctuations except for its CO2 business which it has hedged out its production for this year.  I guess the market is concerned when the hedges expire, their earnings / cashflow will take a hit.  May be they worry that the low oil price will squeeze out incremental NG demand too?  I don't know, KMI is mostly just a toll bridge operator.

Long KMI, planning to add but yes I get the spidey sense that it has further to fall.
Title: Re: KMI - Kinder Morgan
Post by: Zorrofan on August 05, 2015, 12:46:37 PM
What news am I missing in the MLP space today?  ETE, WMB and KMI are all getting smoked.  I'm about to pick up some WMB (you don't have to be a genius to know its in play and had an (all stock) bid of ~$64 within the last month), but spidey sense indicates there's a bus coming down the street.

It seems to me that the recent ridiculous weakness in KMI is due to (still) lower oil prices and the stronger expectation that it will stay low for the forseeable future.  My understanding is KMI is largely immuned from oil price fluctuations except for its CO2 business which it has hedged out its production for this year.  I guess the market is concerned when the hedges expire, their earnings / cashflow will take a hit.  May be they worry that the low oil price will squeeze out incremental NG demand too?  I don't know, KMI is mostly just a toll bridge operator.

Long KMI, planning to add but yes I get the spidey sense that it has further to fall.

I was long KMI but am out for the tome being......

Here are the issues I see:

1. Rising rates as the FED finally moves in September
2. Concerns over the payout ratio being too high
3. High debt level which needs to be rolled over at higher rates down the road
4. If oil stays lower for longer producers may go bankrupt and some long-term contracts may be lost as a result
5. Some 20% of KMI relates to CO and oil production

My guess is it goes lower still....my $0.02

cheers
Zorro
Title: Re: KMI - Kinder Morgan
Post by: Picasso on August 05, 2015, 12:48:19 PM
From the 10-K:

Quote
Current or future distressed financial conditions of our customers could have an adverse impact on us in the event these
customers are unable to pay us for the products or services we provide.
Some of our customers are experiencing, or may experience in the future, severe financial problems that have had or may
have a significant impact on their creditworthiness. We cannot provide assurance that one or more of our financially distressed
customers will not default on their obligations to us or that such a default or defaults will not have a material adverse effect on
our business, financial position, future results of operations or future cash flows. Furthermore, the bankruptcy of one or more
Table of Contents
33
of our customers, or some other similar proceeding or liquidity constraint, might make it unlikely that we would be able to
collect all or a significant portion of amounts owed by the distressed entity or entities. In addition, such events might force
such customers to reduce or curtail their future use of our products and services, which could have a material adverse effect on
our results of operations, financial condition, and cash flows.

When you have the energy credit markets blowing up, this is going to track that to a certain extent.
Title: Re: KMI - Kinder Morgan
Post by: sys on August 05, 2015, 02:06:10 PM
i think kmi is more vulnerable to the cost of capital increasing than to distressed oil producers.  while either could impair their leveraged vehicle for producing cash, i think they should be able to better insulate themselves against the risk of insolvent producers by choosing their projects well.  if they only build/buy assets that are necessary to deliver/process profitably produced product to a market, then regardless of if the producers' assets change hands, those assets should continue to be exploited and whoever operates them should continue to need kmi.

i think they are more defenseless against rising interest rates.
Title: Re: KMI - Kinder Morgan
Post by: Picasso on August 05, 2015, 02:35:26 PM
Jesus, look at PAA and PAGP.  No wonder KMI was down as well.  Given how much retail loves KMI, I'm going to stay away for a while.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on August 05, 2015, 04:03:53 PM
From the 10-K:

Quote
Current or future distressed financial conditions of our customers could have an adverse impact on us in the event these
customers are unable to pay us for the products or services we provide.
Some of our customers are experiencing, or may experience in the future, severe financial problems that have had or may
have a significant impact on their creditworthiness. We cannot provide assurance that one or more of our financially distressed
customers will not default on their obligations to us or that such a default or defaults will not have a material adverse effect on
our business, financial position, future results of operations or future cash flows. Furthermore, the bankruptcy of one or more
Table of Contents
33
of our customers, or some other similar proceeding or liquidity constraint, might make it unlikely that we would be able to
collect all or a significant portion of amounts owed by the distressed entity or entities. In addition, such events might force
such customers to reduce or curtail their future use of our products and services, which could have a material adverse effect on
our results of operations, financial condition, and cash flows.

When you have the energy credit markets blowing up, this is going to track that to a certain extent.

Yeah, I could see that risk, really more of a generalized fear of the sector.  To me, at least a general proposition, they are structurally superior even to the senior secured debtors.  A debtor in possession is going to make sure they get paid if they want to bring in any revenue and keep the lights on.  I was assing around with some of the debt of the E&P companies and I thought hey I'd rather just be the creditor they need to pay even if the equity gets wiped out.  But I suppose expansion projects could be at risk.  KMI and WMB are going to my horses though, because I could see nat gas diverging as these LNG projects and power generation comes online over the next year.  Basically the inverse of what the saudi's did by running the oil price so high for so long....building a tsunami of demand rather than supply...reflexivity.

Pardon me for getting a little philosophical/grandiose...I've opened the scotch.

P.S. Thanks for flagging PAA...wow.  Looks like they'e got a specific issue with their Cal pipe, but the whole sector is getting murdered.  W/R/T KMI versus other, yeah retail may have liked it but I think Kinder cashiered a lot of the yield hounds and I do note that he is buying from motivated sellers rather than going for the ETE empire building:  Harry Hamm, divorce got you down?  In need of cash?  Call KMI.  Shell:  Bit off maybe more than you can chew with BG?   Need some cash?  KMI will take you out of Elba right as construction costs crater and you keep commitment to take output which underwrote the whole thing.
Title: Re: KMI - Kinder Morgan
Post by: Jurgis on August 05, 2015, 04:20:34 PM
Is KMI currently an MLP with K-1 tax filing?

Sorry if it's a basic question, I seem to remember they had both and then one of them bought out the other...

What is the remaining one?
Or in other words: if I buy KMI, do I have to do K-1 tax forms? ;)
Title: Re: KMI - Kinder Morgan
Post by: Picasso on August 05, 2015, 04:26:25 PM
No doubt that Rich Kinder has created the best in breed and he does savvy deals.  I think that previous weakness in KMI after the re-IPO made me nervous because it was possible that a management led buyout was always on the table.  So you had a bit of a floor on the stock especially with the massive insider buys.

Now you have a situation post rollup of the MLP's that he can't take this private for a while.  Just too much debt on KMI.

The good news is the debt for KMI still trades pretty strong.  Less than 5% for 10 year paper which is solid for BBB-.  I also agree that KMI is probably in good bargaining position during any producer bankruptcies. 

Sometimes I'm willing to be steam rolled a little for a decent long-term return, but I just don't see the rush to buy KMI here.  I just don't see how some of these big oil and gas producers don't go belly up in the next couple years based on how their debt and stock has been trading.
Title: Re: KMI - Kinder Morgan
Post by: globalfinancepartners on August 05, 2015, 06:05:24 PM
Is KMI currently an MLP with K-1 tax filing?

Or in other words: if I buy KMI, do I have to do K-1 tax forms? ;)


No.  KMI pays qualified dividends.  About a 6.8% forward looking yield, but not a ton of excess coverage.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on August 05, 2015, 06:31:42 PM
No doubt that Rich Kinder has created the best in breed and he does savvy deals.  I think that previous weakness in KMI after the re-IPO made me nervous because it was possible that a management led buyout was always on the table.  So you had a bit of a floor on the stock especially with the massive insider buys.

Now you have a situation post rollup of the MLP's that he can't take this private for a while.  Just too much debt on KMI.

The good news is the debt for KMI still trades pretty strong.  Less than 5% for 10 year paper which is solid for BBB-.  I also agree that KMI is probably in good bargaining position during any producer bankruptcies. 

Sometimes I'm willing to be steam rolled a little for a decent long-term return, but I just don't see the rush to buy KMI here.  I just don't see how some of these big oil and gas producers don't go belly up in the next couple years based on how their debt and stock has been trading.

Oh i agree.  Will probably get doubly smoked with irate pressures over intermediate term.
Title: Re: KMI - Kinder Morgan
Post by: Palantir on August 05, 2015, 08:15:40 PM
Is KMI currently an MLP with K-1 tax filing?

Sorry if it's a basic question, I seem to remember they had both and then one of them bought out the other...

What is the remaining one?
Or in other words: if I buy KMI, do I have to do K-1 tax forms? ;)

Nope, not anymore.
Title: Re: KMI - Kinder Morgan
Post by: DCG on September 08, 2015, 09:48:18 AM
Anyone buying/adding to KMI at these prices?
Title: Re: KMI - Kinder Morgan
Post by: rc197906 on September 24, 2015, 10:53:49 AM
Anyone take a look at these lately? Sold off significantly in the last couple of months.
Title: Re: KMI - Kinder Morgan
Post by: RRJ on September 29, 2015, 08:51:09 AM
I am.  I think it's been priced as if the Williams deal is bad for it, when it is a buyer of assets in the sector.  I think the downturn in the sector generally makes it easier for them to hit the dividend growth targets for next several years. 
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on October 08, 2015, 03:56:19 PM
I am.  I think it's been priced as if the Williams deal is bad for it, when it is a buyer of assets in the sector.  I think the downturn in the sector generally makes it easier for them to hit the dividend growth targets for next several years.
  Hope you loaded up and made a quick ~ 20%!
Title: Re: KMI - Kinder Morgan
Post by: DCG on November 02, 2015, 06:36:04 AM
Rough year for KMI. I'm still sitting on this and trying to decide whether to sell or stick it out. They got an unfavorable writeup in this weekends' Barrons.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on November 02, 2015, 08:04:19 AM
Yeah, AMLP is down ~25% over the past year versus down ~28% for kmi.  YTD is more stark.  I got really lucky with my warrants timing.  Still long some common.  You can obviously get a feel for what management thinks its worth from the convert range and the pricing on the insider buys, but they are wrong for now.
Title: Re: KMI - Kinder Morgan
Post by: fareastwarriors on December 04, 2015, 11:19:09 AM
52week low today. Who's buying more?
 8)
Title: Re: KMI - Kinder Morgan
Post by: ccplz on December 04, 2015, 12:11:02 PM
What's the bear thesis for Kinder Morgan? Why is the stock down 60% ytd?
Title: Re: KMI - Kinder Morgan
Post by: scorpioncapital on December 04, 2015, 12:40:24 PM
The only bear thesis I have is management is not rational.
Other than that, I can't really think of one on the assets owned.

Title: Re: KMI - Kinder Morgan
Post by: gokou3 on December 04, 2015, 01:20:14 PM
Kinder Morgan Announces 2016 Financial Expectations
http://finance.yahoo.com/news/kinder-morgan-announces-2016-financial-165700339.html

Quote
KMI has now completed its 2016 budget process and expects to generate 2016 distributable cash flow of slightly over $5 billion, which would be sufficient to support dividend growth in the range discussed in the third quarter call. Alternatively, this cash flow can be used to fund some or all of KMI’s equity needs for 2016. KMI’s board will be reviewing the dividend policy and financing plans in the coming days and the company will announce that policy and plan when finalized.


Kinder Considering Dividend Cut; Stock Down 25% this Week
http://blogs.barrons.com/incomeinvesting/2015/12/04/kinder-considering-dividend-cut-stock-down-25-this-week/?mod=yahoobarrons&ru=yahoo
Title: Re: KMI - Kinder Morgan
Post by: ccplz on December 04, 2015, 01:21:06 PM
Has anyone looked at the capital structure carefully? Are there any liquidity concerns in the medium term?

I mean it is a relatively capital intensive industry, so they are dependent on the capital markets to survive and grow.
Title: Re: KMI - Kinder Morgan
Post by: RRJ on December 04, 2015, 02:57:03 PM
I believe the message sent today by management is that they are NOT dependent on the financial markets to survive and grow.  They have $5 billion of distributable cash, confirmed for 2016 even considering current oil and gas prices, with which to fund sustaining cap-ex, the dividend, and purchase of growth.  Moody's moved their credit rating to negative after the most recent acquisition of an additional 30% of NGPL, but Fitch and S&P did nothing, finding the deal credit neutral to KMI.  They are signalling that they are likely to cut the dividend somewhat, or at least cut the heretofore planned 6% growth in the dividend, in order to alleviate Moody's and retain investment grade credit ratings for all 3 agencies.  My guess is they won't have to cut the dividend much to do so, but let's say they cut it in half to $1.00 per share, instead of the $2.00 share dividend paid in 2015. 

They use funds saved on a dividend cut to purchase assets on the cheap in this sector, or to buy back stock (probably less likely for this company).  The added assets will then allow for quicker dividend raises in following years, probably more or less catching up to the current dividend schedule.  If you assume they are back to $2.00 in 3 years (current dividend levels), and the stock is trading at a historical yield of 6%, then the share price would be at $33.33 a share.  That's a 24% compounded annual return from a buy in price of $17.39 (I bought a decent amount today at that price).  Not counting whatever dividends they've paid over those 3 years.

Another way of looking at it -- there is a $5 billion cushion they have to play with, and that's a safe $5 billion with roughly 85% of that income locked in or hedged.  This is the Amex salad oil scandal--a temporary setback for an asset that has not changed fundamentally at all.  Hell, assume the entire dividend is suspended for 2 years -- that's $10 billion worth of cushion, at the end of which you have a fantastic asset that throws off cash, has a virtual monopoly, and is a backbone of US energy use.  There could well be short term further share price drops as the income investors (retail and institutional) shift out, which just means more buying opportunity.

You have to have some faith in management, but Rich Kinder's track record is damn near impeccable.  Read some of their reports and press releases -- they are crystal clear and make perfect sense.  Do you trust GAAP one-size-fits all accounting on the depreciation schedule, or is it more accurate to trust management that has gotten it right for 15 years and knows their assets?  I trust management over GAAP mandated rules for depreciation.  They point out that much of the maintenance on individual pipelines is expensed out of earnings and so already paid for so to just blindly depreciate as GAAP mandates acts as double counting the true maintenance cap-ex.  They just show you the more accurate picture and distribute cash accordingly.  They are highly levered, granted -- perhaps a bit too close for comfort these days.  But this is like a utility, not a flyer type of leverage.  It would be a financial mistake to not leverage to a relatively high extent when the assets are so predictable here.  In the biggest decline in oil and gas prices in a while, management has held up quite well and responds rationally to my mind. 

Delaware judgment?  Headline reads $170 million, but in the article itself it says the judge holds them liable for 58% of that, so it's really $100 million, plus they are appealing (and have a decent shot at getting a reversal based solely on the dubious claim), have already reserved for this and consider it immaterial, and have insurance coverage.  Non-event, made much of by shorts. 

What am I missing here?  I think this is the best buy out there.  Please post any contrary thoughts. 
Title: Re: KMI - Kinder Morgan
Post by: scorpioncapital on December 04, 2015, 03:03:25 PM
I worry about a temporary drop in oil prices to $20 and how that will impact the flow of product through pipelines. Sure it may be temporary, but a large debt is kind of like margin in a brokerage account. You may be right but can you weather the storm?
Title: Re: KMI - Kinder Morgan
Post by: wellmont on December 04, 2015, 03:44:59 PM
kmi needs to cut divvie at least 50%. i would cut it more. they have lots of debt coming due in a couple of years. the company should just put all growth plans on hold and stabilize the ship. the balance sheet needs to get better. there is a time to play offense and a time to play defense. this is time for D. the divvie cut may present a good buying opportunity. but there is plenty of downside potential here.
Title: Re: KMI - Kinder Morgan
Post by: Picasso on December 04, 2015, 03:56:45 PM
kmi needs to cut divvie at least 50%. i would cut it more. they have lots of debt coming due in a couple of years. the company should just put all growth plans on hold and stabilize the ship. the balance sheet needs to get better. there is a time to play offense and a time to play defense. this is time for D. the divvie cut may present a good buying opportunity. but there is plenty of downside potential here.

A little late to the game on this one. 
Title: Re: KMI - Kinder Morgan
Post by: plato1976 on December 04, 2015, 06:23:13 PM
on an unleveraged metric: EV/EBITDA it's not exactly cheap?
it's sth like 12

The only bear thesis I have is management is not rational.
Other than that, I can't really think of one on the assets owned.
Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 04, 2015, 09:35:48 PM

What am I missing here?  I think this is the best buy out there.  Please post any contrary thoughts.

How do you anticipate them to fund their 2017 capital program? They pretty much told us today they'll cut the dividend. Expect the stock to keep getting pounded for a bit. The div cut will help alleviate the leverage issues, but the capital markets look closed for them so I'm interested in how you think they will fund their program.
Title: Re: KMI - Kinder Morgan
Post by: ccplz on December 04, 2015, 09:59:56 PM
EBITDA was around 6.7 bn for 2014, so EV/2014 EBITDA would be around 10x?

Although EBITDA should be materially lower this year, maybe in the 5-6 bn range? Still seems rather expensive to me on a FCF basis.

Capex is at a 3.6 bn annual run rate, which I don't think they will be able to reduce by too much.
Title: Re: KMI - Kinder Morgan
Post by: prevalou on December 05, 2015, 04:23:58 AM

What am I missing here?  I think this is the best buy out there.  Please post any contrary thoughts.

How do you anticipate them to fund their 2017 capital program? They pretty much told us today they'll cut the dividend. Expect the stock to keep getting pounded for a bit. The div cut will help alleviate the leverage issues, but the capital markets look closed for them so I'm interested in how you think they will fund their program.


Buffett could help
Title: Re: KMI - Kinder Morgan
Post by: thefatbaboon on December 05, 2015, 04:37:45 AM
 The company expects ebitda of around 7.3bn and ebda of 8.2 in 2015. Both seemed well on track in q3. (The main difference between the two is g&a is excluded from ebda).  The company turns nearly 70% of ebitda into dcf. (That's high like a tobacco company)

Conceptually, this company has been run as a partnership paying out all dcf from existing projects. And with every new project going anew to the financial market to fund, usually around 50 50 debt equity. Personally, I don't see anything wrong with this strategy except that they should retain an explicit and frequently reaffirmed right to cut the dividend when selling equity is too expensive. So when situations like today arises everyone knows that a dividend or two might be reinvested. 

I can see no evidence of a deterioration in their numbers brought on by the commodity collapse, except for the few hundred million they indicated in their sensitivity grid at the beginning of the year. They just seem to have become victims of their funding model. And a vicious cycle has developed as the equity gets expensive and become less appropriate as a source of funds for growth capex which then makes it more and more likely that they have to be funded from dcf which can only happen with a dividend cut which makes the equity more expensive. Counter intuitively acknowledging the possibility of an occasional dividend suspension would probably stop these kinds of silly panic cycles developing.

 5bn of largely multi year contracted distributable cash flow that they have signalled for 2016 seems like a lot for a 38bn+2bn market cap. I've assumed a 2bn "delay" and added it to the market cap as a sort of cost. I assume all of the 1.5bn they just raised from the mandatory convert is all used up for q4 growth capex and ngpl and other debt reduction. And that my 2bn can pay for all of 2016 growth capex and Kmi doesn't have to touch the financial markets for incremental debt or equity in 2016.

Even with a two coupon hiatus in the dividend to get this 2bn I still think kmi is attractive. But I'd like to find out if there is non acquired growth (non growth capex-ed) in existing pipeline revenue. Also, I find myself distrustful of some of the exclusions from sustaining capex. For example I think it obvious that one has to depreciate a Jones act vessel. And the fact that they don't makes me wonder about the quality of their other judgements related to sustaining capex. If someone would kindly send me some pipeline primers to read I'd be very grateful! 

I like that Sarofim has been on this board forever. He sat many years on singleton's teledyne board and held a portfolio built for decades around Philip Morris and Exxon.  So he's a money manager who understands how free-cash-flowing companies make money and he's familiar with and well connected in Houston and the energy business. He personally has 28m shares of KMI.




Title: Re: KMI - Kinder Morgan
Post by: sswan11 on December 05, 2015, 07:06:55 AM
http://www.barrons.com/articles/kinder-morgan-signals-possible-dividend-cut-1449293142?mg=id-barrons

Downside in the stock, now $17, seems limited. The shares, however, don’t look like a bargain trading for about 17 times estimated 2015 earnings (based on generally accepted accounting principles), adjusted for a tax benefit, and for about 11 times projected 2015 Ebitda (earnings before interest, taxes, depreciation, and amortization). These aren’t low multiples for a leveraged, capital-intensive business that is showing no growth in underlying cash flow. Electric utilities shares are slightly cheaper than Kinder Morgan and carry much less risk.
Title: Re: KMI - Kinder Morgan
Post by: RRJ on December 05, 2015, 07:30:54 AM
All good points to consider, folks.  My thinking is similar to thefatbaboon's below.  This probably takes a few years of cut dividends to right things.  Or they could sell off some assets to do it quickly.  Not ideal, but they do have options. 
Title: Re: KMI - Kinder Morgan
Post by: thefatbaboon on December 05, 2015, 08:15:05 AM
Sswan,
If the 5bn in dcf is accurate then I don't agree that this isn't cheap, even if it is zero growth.  its a 12.5% dcf yield. (I think one has to take into account ebitda to dcf conversion when comparing ebitda multiples across utilities)

It's interesting to compare the price Brookfield and Kmi just paid for the rest of ngpl.  They are paying a higher implied ev to ebitda multiple for this rather problematic asset than one can buy the whole of Kmi at as of Friday's market close.

Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 05, 2015, 10:22:23 AM
http://www.barrons.com/articles/kinder-morgan-signals-possible-dividend-cut-1449293142?mg=id-barrons

Downside in the stock, now $17, seems limited.

Why though? People invest in MLPs for the dividend, and if the dividend is cut, there will be shareholder turnover. This has gone from a 10% dividend growth stock to a dividend cut. At some point this will be a value, but why get into this stock before the market digests the dividend growth story?

Putting a 9% target yield (which I see as fair for a 0% growth company) after assuming a 50% dividend cut gives me a FV of $11/share.
Title: Re: KMI - Kinder Morgan
Post by: scorpioncapital on December 05, 2015, 10:37:51 AM
If I put a 9% dividend yield on every stock in the S&P500, I think every stock would have to drop by 1/2 to 2/3s.
Title: Re: KMI - Kinder Morgan
Post by: ccplz on December 05, 2015, 12:40:27 PM
The company expects ebitda of around 7.3bn and ebda of 8.2 in 2015. Both seemed well on track in q3. (The main difference between the two is g&a is excluded from ebda).  The company turns nearly 70% of ebitda into dcf. (That's high like a tobacco company)


Even if we assume they can achieve 7.3 bn in EBITDA, how did you get the 70% conversion from EBITDA to (what I'm assuming to be) FCF?

Capex run rate is around 3-4 bn, so that's a 60% conversion at most? And tax is a real cash expense.
Title: Re: KMI - Kinder Morgan
Post by: thefatbaboon on December 06, 2015, 04:33:43 AM
Rrj,

What do you think of possibility of them introducing a scrip dividend. With an undertaking by insiders and perhaps a couple of larger investors to take all scrip for a few years?
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on December 06, 2015, 05:34:16 AM
Yeah thought they might consider bringing back a kmr/scrip dividend option.
Title: Re: KMI - Kinder Morgan
Post by: ScottHall on December 06, 2015, 08:41:54 AM
The company expects ebitda of around 7.3bn and ebda of 8.2 in 2015. Both seemed well on track in q3. (The main difference between the two is g&a is excluded from ebda).  The company turns nearly 70% of ebitda into dcf. (That's high like a tobacco company)


Even if we assume they can achieve 7.3 bn in EBITDA, how did you get the 70% conversion from EBITDA to (what I'm assuming to be) FCF?

Capex run rate is around 3-4 bn, so that's a 60% conversion at most? And tax is a real cash expense.

People like to say this, but it's often not true. I wouldn't be surprised in KMI's case if the present value of its tax liabilities are so small that they effectively round to zero, using a reasonable discount rate.
Title: Re: KMI - Kinder Morgan
Post by: RRJ on December 06, 2015, 09:32:50 PM
Rrj,

What do you think of possibility of them introducing a scrip dividend. With an undertaking by insiders and perhaps a couple of larger investors to take all scrip for a few years?

I hadn't thought of that but something like that might accomplish two goals at once.  I'll admit I'm not quite sure how that would work so I'll research how it was used for KMR.  I think that's what another poster mentioned.   
Title: Re: KMI - Kinder Morgan
Post by: RRJ on December 06, 2015, 09:51:22 PM
http://www.barrons.com/articles/kinder-morgan-signals-possible-dividend-cut-1449293142?mg=id-barrons

Downside in the stock, now $17, seems limited.

Why though? People invest in MLPs for the dividend, and if the dividend is cut, there will be shareholder turnover. This has gone from a 10% dividend growth stock to a dividend cut. At some point this will be a value, but why get into this stock before the market digests the dividend growth story?

Putting a 9% target yield (which I see as fair for a 0% growth company) after assuming a 50% dividend cut gives me a FV of $11/share.

I do see your point.   A dividend cut obviously is tough for dividend investors to stomach and will cause turnover.   Much of it might even be forced selling by funds with certain dividend constancy parameters.  But who is to say the market has not already been digesting that?  I mean it's been hammered like what, 65%?  More?  As for valuation, I don't agree this is zero growth.  It might be zero growth for now, but this is temporary.  Their press release does not sound like management in denial, but squarely on top of their situation.  They are saying, we have rechecked the numbers twice, and we will have $5billion distributable cash flow for 2016.   We could cover our dividend with this as promised, but we have a higher priority first, which is protecting our credit rating.  Then taking advantage of growth assets on the cheap.   So we will cut the dividend for a while to do those things. 

At some point, call it four years to be safe, they will start catching up the dividend, and will have the same stellar assets with a better balance sheet and dividend coverage, and will be growing at probably 3% for inflationary average, plus 2% for anticipated natgas growth, plus 1% extra for good management and efficiencies of scale when adding assets from smaller players.  So call it 5-6% growth conservatively.  If in 4 years I am getting my current dividend of $2.00 again, assuming no growth from today (conservative), and paying $17 a share today, then I would assume the market will have reappraised this stock at some point and see some growth and price it at the historic yield of say 6%.   $2.00 / .06 = $33.33 in share price.  $17.00 to 33.33 in 4 years is not a bad return, not counting dividends received along the way.  And most importantly, this assumes no good surprises along the way, such as oil going back up.  And this is kind of a sure thing, or as sure as these things get.  I mean, are people going to be living in the US and needing energy? 

If you see war on the horizon, which Russia desperately wants to raise oil prices, that only helps to have things happen a bit quicker.  A good hedge stock for lots of international strife. 
Title: Re: KMI - Kinder Morgan
Post by: thefatbaboon on December 07, 2015, 02:29:58 AM
Im thinking that kinder will be loath to cut the dividend. And mess up the great record. Especially when the fundamentals of dcf production next year are exactly as expected. Also perhaps at the current valuation he, Sarofim, Morgan, some of the local fund/pe guys will be happy to commit to reinvest dividends via a scrip programme.

I'm pretty sure they can get to a minimum 20% reduction in total dividend in this way. Perhaps more if others sign up to scrip. Add to that a commitment to not meaningfully increase the dividend for a few years. That's a 3bn saving from expectation over 2016 and 2017. They will want Feedback from the ratings agencies that that is enough. Personally I think it might be. Just. If it isn't enough the next step would probably be to look at jv for either some existing assets or new projects.

Personally I think there is a decent chance they find a way through without a dividend cut for those who don't want one. Obviously just my guess. 
Title: Re: KMI - Kinder Morgan
Post by: RRJ on December 07, 2015, 05:31:02 AM
Fatbaboon - Yeah, I think you could be right.  I suspect their answer is "whatever it takes to truly make Moody's happy."  So they can't answer just yet until they walk them through it carefully and see what they say.  I really do think your idea of a scrip dividend plus an explicit "no growth for a few years" policy may be enough, and they might go that route.  I actually would prefer they cut it, and significantly.  I'm a buyer and if stock tanks further, all to the good for me.  I want to say my average cost in at this point is something like $21-$22.  I'd like to keep averaging down a bit. 

Saw a video of T Boone Pickens and Carl Icahn.  Pickens says oil supply is already dropping and will have to get back up to $70 a barrell in six months.  He's usually early.  Frankly, I believe management that KMI is not sensitive to oil prices near as much as folks think, so I am not sure how much of a boost it would be.  $10 million per dollar increase per barrel.  So that would be $300 million if back up to $70. 

I too am wondering about non-capex growth capacity in pipelines.  I suspect it's there, but limited.  For the same reason they are so stable with take or pay contracts -- they are longer term contracts, which they take on up to capacity.  So with increased pipeline demand it probably takes a while for contracts to roll off and get repriced at higher rates they can charge.  Plus regulators wouldn't let them increase too quickly.  Now, if you've had a period of no growth for a while and the pipes need reinvestment, then regulators would recognize that and allow some increased rates so that the reinvestment can get taken care of. 

Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 07, 2015, 04:34:52 PM
Looks like KMI is on its way to my $11 target price. Yee haw!
Title: Re: KMI - Kinder Morgan
Post by: Aberhound on December 08, 2015, 09:58:00 AM
Do I think the war/civil war in the middle east will extend to oil producing and distribution centres by may 2017? Yes. I am not so sure of the date.
Will middle east oil/gas tanker insurance get prohibitively expensive? Yes.
Do I think the priority is to cut the dividend to maintain the credit rating? Yes.
Will capex be cut as the economy deteriorates? Yes but reverses if middle east war cuts oil supplies.
Will capital continue to concentrate in the US as war increases and the world economy worsens? Yes

Kissinger explains that a Shia/Sunni war will be severe and may go nuclear. See his interview on Google Talks.

All these factors led me to buy a small amount of the warrants as the risk is assymetric and it is a cheap hedge to preserve wealth if some of these things occur.
Title: Re: KMI - Kinder Morgan
Post by: benchmark on December 08, 2015, 12:17:27 PM
Do I think the war/civil war in the middle east will extend to oil producing and distribution centres by may 2017? Yes. I am not so sure of the date.
Will middle east oil/gas tanker insurance get prohibitively expensive? Yes.
Do I think the priority is to cut the dividend to maintain the credit rating? Yes.
Will capex be cut as the economy deteriorates? Yes but reverses if middle east war cuts oil supplies.
Will capital continue to concentrate in the US as war increases and the world economy worsens? Yes

Kissinger explains that a Shia/Sunni war will be severe and may go nuclear. See his interview on Google Talks.

All these factors led me to buy a small amount of the warrants as the risk is assymetric and it is a cheap hedge to preserve wealth if some of these things occur.
Which warrant did you buy?
Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 08, 2015, 01:31:55 PM
Told you so!
Title: Re: KMI - Kinder Morgan
Post by: TwoCitiesCapital on December 08, 2015, 02:25:06 PM
http://www.barrons.com/articles/kinder-morgan-signals-possible-dividend-cut-1449293142?mg=id-barrons

Downside in the stock, now $17, seems limited.

Why though? People invest in MLPs for the dividend, and if the dividend is cut, there will be shareholder turnover. This has gone from a 10% dividend growth stock to a dividend cut. At some point this will be a value, but why get into this stock before the market digests the dividend growth story?

Putting a 9% target yield (which I see as fair for a 0% growth company) after assuming a 50% dividend cut gives me a FV of $11/share.

Told you so!

Looks like the dividend was cut by more than 50%. Would you maintain that the larger than expected cut is good for forward prospects and maintain your $11 target, or do you think this should go to $6-7 as implied by 9% on the new dividend schedule?
Title: Re: KMI - Kinder Morgan
Post by: Picasso on December 08, 2015, 02:32:02 PM
Don't know why anyone tries or tried to value this on the dividends. That's irrelevant. When someone tells me the right EV/EBITDA multiple for this business I'll start to get interested. So far everyone is still stuck in investing kindergarten thinking this is about the dividend yield.
Title: Re: KMI - Kinder Morgan
Post by: HJ on December 08, 2015, 03:22:38 PM
Don't know why anyone tries or tried to value this on the dividends. That's irrelevant. When someone tells me the right EV/EBITDA multiple for this business I'll start to get interested. So far everyone is still stuck in investing kindergarten thinking this is about the dividend yield.

Bingo! 

So what is the proper multiple for something like these guys on EV/EVITDA basis?
Title: Re: KMI - Kinder Morgan
Post by: Patmo on December 08, 2015, 04:16:44 PM
Don't know why anyone tries or tried to value this on the dividends. That's irrelevant. When someone tells me the right EV/EBITDA multiple for this business I'll start to get interested. So far everyone is still stuck in investing kindergarten thinking this is about the dividend yield.

What makes EV/EBITDA as a standalone valuation metric relevant in KMI's case? And why is dividend yield irrelevant? From your comment it seems like you are just trading one cookie cutter for another, no?
Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 08, 2015, 04:47:37 PM

Looks like the dividend was cut by more than 50%. Would you maintain that the larger than expected cut is good for forward prospects and maintain your $11 target, or do you think this should go to $6-7 as implied by 9% on the new dividend schedule?

Indeed the cut was quite aggressive, good for maintaining operations, not so good for the guys who didn't expect a cut.  Right now a $0.125/q dividend places them at a current yield of 3.4%, which would only be justified for a very fast growing name. If price doesn't move, then either the market expects uber growth, or it hasn't been truly priced in.

Can they achieve growth?

Just some back of envelope calcs - 50% cut would save them about $2.3B, and this 75% cut will save them $3.4B. They will need about $2B of that for capex just for 2016 and $1.4B to pay down debt, which is really not enough. When 2017 comes around and they need $5B in capital, it is unclear where that will come from. They could cut capex, which of course would hurt longer term growth expectations.

If they grow the dividend from the .125/q base rate, then they're going to cut into that $3.4b cushion earmarked for investment and debt reduction, so they cannot do all three. So I am suspicious about how much dividend growth can be generated. They need to reduce debt by about $10B to reach some semblance of normality, after which they can grow again.

Since the cut was aggressive, I think a lower target yield is justified. I think a 7% yield is pretty reasonable, but even that only puts it at $7 or so...
Title: Re: KMI - Kinder Morgan
Post by: Picasso on December 08, 2015, 05:37:06 PM
Don't know why anyone tries or tried to value this on the dividends. That's irrelevant. When someone tells me the right EV/EBITDA multiple for this business I'll start to get interested. So far everyone is still stuck in investing kindergarten thinking this is about the dividend yield.

What makes EV/EBITDA as a standalone valuation metric relevant in KMI's case? And why is dividend yield irrelevant? From your comment it seems like you are just trading one cookie cutter for another, no?

EV/EBITDA for a business this levered is a much, much better starting point to getting comfortable with any valuation.  It could trade for 8x EBITDA and have a stock trading like a worthless option with only time value. 

Let's say you want to value this based on dividends.  Okay fine.  We have $0.50/year for the next five years and then maybe $1/year for the next five years after.  How much do you want to pay for $7.50 of levered dividends over five years?

EV/EBITDA at least gets you to a conversation where someone could make an unlevered bid and you can explain the value.  Otherwise we're just talking about how much cash the equity stub can spit out before the bondholders decide enough is enough.  That's not margin of safety investing.
Title: Re: KMI - Kinder Morgan
Post by: scorpioncapital on December 08, 2015, 05:51:11 PM
On a sidenote does it make sense to compare return on invested capital to yield on purchase price? My theory is that you have a gradient between ROIC and yield but perhaps the gradient should be between ROE and yield.
E.g

A company has a ROIC of 15% but uses debt. Your yield if you buy the stock today is say 10%. You are going in the right direction.

However, that same company may have an ROE of 30%. Should you compare the initial yield of 10% against 30% or 15%? Seems the direction is the same but the magnitude is substantially different.

I'm thinking of this as a bond with an expanding coupon. Expanding at 15% vs 30% is a big difference.
Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 08, 2015, 06:22:53 PM
Who is going to make an unlevered bid for KMI?
Title: Re: KMI - Kinder Morgan
Post by: Picasso on December 08, 2015, 06:28:48 PM
Probably no one. But that doesn't mean you should ignore the cash flow to the enterprise value. If it's not worth it to an acquirer to take on all that debt then why would a minority equty investor feel okay paying 12x EBITDA?
Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 08, 2015, 07:23:27 PM
Who is ignoring the cash flow to the bondholders? The people valuing it by dividend yield are surely not.
Title: Re: KMI - Kinder Morgan
Post by: Picasso on December 08, 2015, 07:35:04 PM
The dividend yield on this levered entity is like being long the worst tranche of a deteriorating bond.  A yield of 7%, 10%, 15%, 30% doesn't tell you your risk.  Knowing the full value of the entity versus the crappy part of the capital structure is going to tell you what this should be trading for.

Again, target dividend yields on this stock tell you close to nothing about where it should be valued.
Title: Re: KMI - Kinder Morgan
Post by: rpadebet on December 08, 2015, 07:54:47 PM
Not sure of the value at these levels,

If bonds are yielding 9%, why should equity stub yield less? Especially when growth is some ways off in the future and the structure is so levered?

I think an EV/EBITDA of 9-10x should be base (or even optimistic) case. It would have to trade lower for this to be value.
Title: Re: KMI - Kinder Morgan
Post by: scorpioncapital on December 08, 2015, 08:22:59 PM
I'm just trying to understand the inherent return here. I mean it seems to be 5b DCF into 80 billion invested capital or 6.25%. Only marginally above the cost of debt. Of course all utilities are leveraged, but for example electric utilities have such dependable cash flows investors don't mind the low returns. Companies like Berkshire Energy also earn a low return but can deploy large amounts of (low cost?) debt to make the return attractive. What does Kinder Morgan bring to the table?
Title: Re: KMI - Kinder Morgan
Post by: Sunrider on December 09, 2015, 12:39:19 AM

Looks like the dividend was cut by more than 50%. Would you maintain that the larger than expected cut is good for forward prospects and maintain your $11 target, or do you think this should go to $6-7 as implied by 9% on the new dividend schedule?

Indeed the cut was quite aggressive, good for maintaining operations, not so good for the guys who didn't expect a cut.  Right now a $0.125/q dividend places them at a current yield of 3.4%, which would only be justified for a very fast growing name. If price doesn't move, then either the market expects uber growth, or it hasn't been truly priced in.

Can they achieve growth?

Just some back of envelope calcs - 50% cut would save them about $2.3B, and this 75% cut will save them $3.4B. They will need about $2B of that for capex just for 2016 and $1.4B to pay down debt, which is really not enough. When 2017 comes around and they need $5B in capital, it is unclear where that will come from. They could cut capex, which of course would hurt longer term growth expectations.

If they grow the dividend from the .125/q base rate, then they're going to cut into that $3.4b cushion earmarked for investment and debt reduction, so they cannot do all three. So I am suspicious about how much dividend growth can be generated. They need to reduce debt by about $10B to reach some semblance of normality, after which they can grow again.

Since the cut was aggressive, I think a lower target yield is justified. I think a 7% yield is pretty reasonable, but even that only puts it at $7 or so...

Sorry Palantir - maybe I didn't follow this properly: prior to the cut, they said they can cover the dividend and maintenance capex. They cut because of rating agency concerns and will use this to pay down debt (and possibly fund growth investments, since they can't increase leverage). So in your calculation, why do you say they need 2/3.4bn for maintenance capex? What is the 5bn in 2017 you're referring to? My understanding was that they entire amount of dividend saved can be used to reduce debt or fund growth investments (or both) as it is already after all their required maintenance. What am I misunderstanding here? Thank you. C
Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 09, 2015, 02:52:24 AM
The dividend yield on this levered entity is like being long the worst tranche of a deteriorating bond.  A yield of 7%, 10%, 15%, 30% doesn't tell you your risk.  Knowing the full value of the entity versus the crappy part of the capital structure is going to tell you what this should be trading for.

Again, target dividend yields on this stock tell you close to nothing about where it should be valued.

Not true. If you model out the company, you are able to take all these risks into account.
Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 09, 2015, 02:59:09 AM
Sorry Palantir - maybe I didn't follow this properly: prior to the cut, they said they can cover the dividend and maintenance capex. They cut because of rating agency concerns and will use this to pay down debt (and possibly fund growth investments, since they can't increase leverage). So in your calculation, why do you say they need 2/3.4bn for maintenance capex? What is the 5bn in 2017 you're referring to? My understanding was that they entire amount of dividend saved can be used to reduce debt or fund growth investments (or both) as it is already after all their required maintenance. What am I misunderstanding here? Thank you. C

So they may cover dividend and maintenance capex, but they can't cover dividend, maintenance capex, and growth capex, which is around a $2B plan for 2016. So where will they raise the money for growth? Equity financing is ruled out, so is debt financing. Only option is to use the cash saved from not paying dividend - about $3.4B or so. They need to do two things with the cash - pay growth capex and reduce debt levels. (Good target for Debt/EBITDA is <4x, right now they are above 5x). In 2017, I believe their capital program is $5B, so that problem gets bigger...hope you see the issue.
Title: Re: KMI - Kinder Morgan
Post by: Sunrider on December 09, 2015, 04:05:19 AM
Ok thank you - understand what you're saying now.

Sorry Palantir - maybe I didn't follow this properly: prior to the cut, they said they can cover the dividend and maintenance capex. They cut because of rating agency concerns and will use this to pay down debt (and possibly fund growth investments, since they can't increase leverage). So in your calculation, why do you say they need 2/3.4bn for maintenance capex? What is the 5bn in 2017 you're referring to? My understanding was that they entire amount of dividend saved can be used to reduce debt or fund growth investments (or both) as it is already after all their required maintenance. What am I misunderstanding here? Thank you. C

So they may cover dividend and maintenance capex, but they can't cover dividend, maintenance capex, and growth capex, which is around a $2B plan for 2016. So where will they raise the money for growth? Equity financing is ruled out, so is debt financing. Only option is to use the cash saved from not paying dividend - about $3.4B or so. They need to do two things with the cash - pay growth capex and reduce debt levels. (Good target for Debt/EBITDA is <4x, right now they are above 5x). In 2017, I believe their capital program is $5B, so that problem gets bigger...hope you see the issue.
Title: Re: KMI - Kinder Morgan
Post by: frommi on December 09, 2015, 04:53:01 AM
There is a lot of misinformation here. They don`t plan to pay down debt, they will simply grow EBITDA to delever. This is the malone playbook and the way Kinder has created 20% CAGRs with KMP.
Their plan for 2016 is to delever to around 5.5 x Net Debt/EBITDA without issuing more stock or debt. With 44 billion in debt that means they plan to have EBITDA of ~8 billion in 2016.

So we can calculate owner earnings:

8000 EBITDA
- ~2000 interest
- 500 taxes
- 500 maintenace CAPEX
= 5000 million owner earnings

This is exactly what they talk about when they mention DCF. Since this number will not grow without further investments (or max @ GDP growth) a fair multiple is around 8-10, which gives a fair price of 40-50 billion $ in 2016. But this ignores that they can create value by investing @ 13 % returns and take on debt @6%, so the real value is maybe 20-30% higher.

Other pipeline companies (ETP,MMP) trade @ EV/EBITDA multiples of 14-15. At 8k EBITDA this gives 14x8=60 billion fair value for the equity for next year when everything goes according to plan. Even at 12 x EV//EBITDA this is a 60% return. And since 85% of KMI is not a capital intensive business (they build pipelines that last for decades...) i don`t see that as expensive.

Somebody sold me a big chunk of his shares @ 14.4$ in pre hours, i have now skin in the game.
Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 09, 2015, 05:15:27 AM
How exactly are they going to grow ebitda? Take on more debt? How much more ebitda do you think they need to bring the multiple down to a reasonable number?
Title: Re: KMI - Kinder Morgan
Post by: frommi on December 09, 2015, 05:19:59 AM
How exactly are they going to grow ebitda? Take on more debt?

They just reinvest the part of the owner earnings that they are not paying as dividend?
Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 09, 2015, 05:53:51 AM
^ What do you estimate retained earnings to be? How much incremental ebitda do you expect to accrete from that reinvestment?
Title: Re: KMI - Kinder Morgan
Post by: frommi on December 09, 2015, 06:06:01 AM
^ What do you estimate retained earnings to be? How much incremental ebitda do you expect to accrete from that reinvestment?

5k - 1.1k=3.9k x 11-13% = 400-500 million incremental EBITDA.
Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 09, 2015, 06:09:06 AM
That makes basically no impact on leverage. This thing is levered 5.5x. Lowering to something reasonable needs at least ten times the ebitda you calced.
Title: Re: KMI - Kinder Morgan
Post by: frommi on December 09, 2015, 06:24:11 AM
That makes basically no impact on leverage. This thing is levered 5.5x. Lowering to something reasonable needs at least ten times the ebitda you calced.

rough calc:

2017: 5.2 44/8.5
2018: 4.9 44/9
2019: 4.6 44/9.5

This is the magic of increasing EBITDA with leverage, it decreases the leverage at a faster rate than paying down debt.
Title: Re: KMI - Kinder Morgan
Post by: Palantir on December 09, 2015, 06:42:43 AM
Sigh...
Title: Re: KMI - Kinder Morgan
Post by: RRJ on December 09, 2015, 12:29:15 PM
+1.  Thanks.

That makes basically no impact on leverage. This thing is levered 5.5x. Lowering to something reasonable needs at least ten times the ebitda you calced.

rough calc:

2017: 5.2 44/8.5
2018: 4.9 44/9
2019: 4.6 44/9.5

This is the magic of increasing EBITDA with leverage, it decreases the leverage at a faster rate than paying down debt.
Title: Re: KMI - Kinder Morgan
Post by: thefatbaboon on December 09, 2015, 12:59:02 PM
Does anyone remember how they justified not factoring a depreciation charge against dcf for the Tankers? 

Title: Re: KMI - Kinder Morgan
Post by: awindenberger on December 09, 2015, 01:21:47 PM
+1.  Thanks.

That makes basically no impact on leverage. This thing is levered 5.5x. Lowering to something reasonable needs at least ten times the ebitda you calced.

rough calc:

2017: 5.2 44/8.5
2018: 4.9 44/9
2019: 4.6 44/9.5

This is the magic of increasing EBITDA with leverage, it decreases the leverage at a faster rate than paying down debt.

I personally think that KMI could still go cheaper, but why do you two disagree with Frommi? KMI management said they plan to use the $3.9bil in 2016 to fund almost all of their $4.2bil in growth capex projects. If they do actually get 13% return on their new investments, EBITDA would climb almost $500mil, with debt moving up incrementally. Maybe its not exactly what Frommi used, but wouldn't it look something like this:

2017: 5.25  44.6/8.5
2018: 5.00  44.9/9
2019: 4.75  45.2/9.5

The Debt/EBITDA ratio doesnt move down quite as fast as Frommi suggested, but it is being reduced.
Title: Re: KMI - Kinder Morgan
Post by: RRJ on December 09, 2015, 01:39:17 PM
If you were asking about my post, I was actually agreeing with frommi and you on this.   I see this as a perfectly rational and not that difficult a strategy to execute. 
Title: Re: KMI - Kinder Morgan
Post by: awindenberger on December 09, 2015, 01:52:45 PM
If you were asking about my post, I was actually agreeing with frommi and you on this.   I see this as a perfectly rational and not that difficult a strategy to execute.

I was referring to Palentir's post, but thought you agreed with him actually.
Title: Re: KMI - Kinder Morgan
Post by: handycap5 on December 09, 2015, 02:12:28 PM
when i played with the numbers, i have them increasing their net debt in 2016.

a guess at 2016 might be:

EBITDA 7.8 (given)
Cash from ops (I assume this is the same as "distributable cash flow") 5.1 (given)
capex -4.7 (given)
JVs net 0.2 (guess)
acquisitions 0 (guess)
net of above 0.6 (math)
dividends to common and preferred -1.25 (given)
increase in net debt 0.7 (math)
44.7/7.8 EBITDA = 5.7x leverage.

i'm surprised they didn't cut dividend to zero and paint an attractive 2018 picture when they are delevered, pig is through the boa, and can start advertising faster growth. upside in the stock is if they can get the "ponzi scheme" MLP wheel rolling again with high priced equity issuance. limping along seems like a bad strategy, business will start to look like a capital intensive, slow growth C-corp (NO!)....

but others on this thread have been sharper with the numbers, what am i getting wrong?
Title: Re: KMI - Kinder Morgan
Post by: thefatbaboon on December 09, 2015, 02:33:33 PM
Handy you're alright except double counting the sustaining capex which is already excluded from dcf. Think that gets your increase to 0.2.
And you might want to double check your implied 44 starting net debt. Which I think will be a little lower.
Title: Re: KMI - Kinder Morgan
Post by: thefatbaboon on December 12, 2015, 04:38:59 AM
Filed an 8k yesterday about highstar getting margin called on some of their shares and going under 2.5% as a result and consequently losing a right to nominate director.
Title: Re: KMI - Kinder Morgan
Post by: Spekulatius on December 12, 2015, 04:52:57 AM
Filed an 8k yesterday about highstar getting margin called on some of their shares and going under 2.5% as a result and consequently losing a right to nominate director.

Forced selling is what we like to see. FWIW, this is a slow growing C-Corp, best to be compared with an utility company. But it's better than an utility, because the return from FERC pipelines are typically aroun 12% (with inflation adjustments as I understand it), while utilities are typically  close to 10% and often have trouble to get their rate cases through (for investment, which are regulated by the local states, not a central authority like the FERC). Also, the Ponzi scheme optionallty to grow faster via equity issuance is still out there and will come back, it's just temporarily not available because equity cost is very high right now.
Title: Re: KMI - Kinder Morgan
Post by: topofeaturellc on December 12, 2015, 06:52:31 AM
does the book PP&E line up with the FERC regulatory assets?
Title: Re: KMI - Kinder Morgan
Post by: thefatbaboon on December 12, 2015, 07:58:59 AM
Perhaps they bottom ticked it like Pearson.

Title: Re: KMI - Kinder Morgan
Post by: HJ on December 12, 2015, 08:06:13 AM
Filed an 8k yesterday about highstar getting margin called on some of their shares and going under 2.5% as a result and consequently losing a right to nominate director.

Forced selling is what we like to see. FWIW, this is a slow growing C-Corp, best to be compared with an utility company. But it's better than an utility, because the return from FERC pipelines are typically aroun 12% (with inflation adjustments as I understand it), while utilities are typically  close to 10% and often have trouble to get their rate cases through (for investment, which are regulated by the local states, not a central authority like the FERC). Also, the Ponzi scheme optionallty to grow faster via equity issuance is still out there and will come back, it's just temporarily not available because equity cost is very high right now.

Isn't it only if the industry is still a "growth industry"?  If the pipeline's already overbuilt relative to the commodity that will be produced, then you'd be better off in a utility where at least the ROE is positive.
Title: Re: KMI - Kinder Morgan
Post by: shhughes1116 on December 12, 2015, 10:09:12 AM
Filed an 8k yesterday about highstar getting margin called on some of their shares and going under 2.5% as a result and consequently losing a right to nominate director.

Forced selling is what we like to see. FWIW, this is a slow growing C-Corp, best to be compared with an utility company. But it's better than an utility, because the return from FERC pipelines are typically aroun 12% (with inflation adjustments as I understand it), while utilities are typically  close to 10% and often have trouble to get their rate cases through (for investment, which are regulated by the local states, not a central authority like the FERC). Also, the Ponzi scheme optionallty to grow faster via equity issuance is still out there and will come back, it's just temporarily not available because equity cost is very high right now.

Isn't it only if the industry is still a "growth industry"?  If the pipeline's already overbuilt relative to the commodity that will be produced, then you'd be better off in a utility where at least the ROE is positive.

I keep hearing/seeing this comment about the overbuilding of pipelines.  That comment sounds great on the surface but is really a pretty silly comment when you consider that KMI's assets are predominately midstream and interstate pipes.  The process for building out midstream and interstate pipelines for dry gas, wet gas, oil, and refined products (gas, aviation fuel, ethylene, etc) requires that you demonstrate a need for the pipeline to FERC.  That "need" is on the supply side AND the demand side, and the time horizon is generally >25 years.  When your interstate pipe ends at a utility that depends on natural gas to power a plant, you can be pretty sure someone on the other end of that pipe is going to move natural gas through your pipe to that utility.  (As we build out more highly subsidized solar and wind power, we will require even more natural gas to provide baseload power when the sun doesn't shine or the wind doesn't blow.)     

When we talk about the "overbuilding of pipelines",  the real issue here is with companies that own gathering systems in marginal basins.  Low prices will cause producers to shut-in production in these basins, and thus certain gathering systems will not be used, or will be used at a lower capacity than designed.  KMI derives very little money from gathering systems (if any at all).   
Title: Re: KMI - Kinder Morgan
Post by: Spekulatius on December 12, 2015, 03:09:17 PM
Pipelines are not overbuild. It is correct that in order to build a FERC pipeline, there needs to be a demonstrated need,but it is true that some gathering systems in high cost areas may run below capacity, if drilling in these areas dries up.
Title: Re: KMI - Kinder Morgan
Post by: muscleman on January 12, 2016, 07:57:54 PM
Sorry to ask a dumb question. KMI is no longer an MLP is it?  :P
Title: Re: KMI - Kinder Morgan
Post by: tinhb on January 12, 2016, 10:41:23 PM
http://ir.kindermorgan.com/press-release/all/kinder-morgan-inc-purchase-kmp-kmr-and-epb-2015-kmi-dividend-increase-2-share

Yeah it's no longer a MLP.

To be more exact, only the subsidiaries are MLPs. Then they are absorbed by KMI (which isn't a MLP).
Title: Re: KMI - Kinder Morgan
Post by: muscleman on January 13, 2016, 08:28:41 AM
http://ir.kindermorgan.com/press-release/all/kinder-morgan-inc-purchase-kmp-kmr-and-epb-2015-kmi-dividend-increase-2-share

Yeah it's no longer a MLP.

To be more exact, only the subsidiaries are MLPs. Then they are absorbed by KMI (which isn't a MLP).

Thank you! I thought that was the case but never really sure. I was confused by the high dividend because KMI is paying out dividends like MLPs. So KMI is not an MLP but paying most of the distributable funds out like an MLP. Isn't that highly tax inefficient?
Title: Re: KMI - Kinder Morgan
Post by: tinhb on January 13, 2016, 03:41:21 PM
Yes the disadvantage is that it is not tax-inefficient. In my opinion, they did it to simplify the structure of the company. When everything is combined together, they thought that it would have higher debt rating --> lower interest expense (which is significant given their debts). Another plus point is that when it's simpler, they hoped that it's more attractive for investors and the stock price would increase. This is important because every year they raise money from equity (around 1B if I'm not wrong). I guess Rich Kinder preferred the combined entity.

Title: Re: KMI - Kinder Morgan
Post by: muscleman on January 13, 2016, 03:57:42 PM
Yes the disadvantage is that it is not tax-inefficient. In my opinion, they did it to simplify the structure of the company. When everything is combined together, they thought that it would have higher debt rating --> lower interest expense (which is significant given their debts). Another plus point is that when it's simpler, they hoped that it's more attractive for investors and the stock price would increase. This is important because every year they raise money from equity (around 1B if I'm not wrong). I guess Rich Kinder preferred the combined entity.

Ok. So this guy raises 1 Bn per year of equity and pays out 4.5 Bn of dividend? If he is smart, this probably means he pays out a fat dividend to bump up the stock price so he can issue equity at a level much higher than intrinsic value?  :)

Title: Re: KMI - Kinder Morgan
Post by: benhacker on January 13, 2016, 05:10:39 PM
MM,

You see the news that the div was cut right?  Cut 75%...
Title: Re: KMI - Kinder Morgan
Post by: muscleman on January 13, 2016, 08:15:09 PM
MM,

You see the news that the div was cut right?  Cut 75%...

Yeah I am talking about the past before this event. Now that the stock dropped like a stone, he cannot afford to issue equities, so he decided to cut the dividend and use that cash to fund projects. I think that decision makes sense. Does anyone know how much Kinder owns the KMI stock?
Title: Re: KMI - Kinder Morgan
Post by: Picasso on January 13, 2016, 08:45:57 PM
MM, 99% of your questions can be found with simple google searches and sec filings. Just saying.
Title: Re: KMI - Kinder Morgan
Post by: muscleman on January 13, 2016, 09:48:44 PM
MM, 99% of your questions can be found with simple google searches and sec filings. Just saying.

Found that info in the DEF 14A. 244,846,090   shares or    11.4   %. Sorry my brain is sometimes short-circuiting after a tedious day of work in Amazon. Sounds like time to leave.  :)
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on January 14, 2016, 12:30:19 PM
Yeah I started to put a 10x EV/DCF (I generally buy their DCF numbers) on it but my sphincters locked up on me and I blacked out.  Even a 12x is looking at like a $7.50 zip code.

If one wanted to make a 12x EBITDA based on like DUK, PNY and SO comps, I would listen with baited breath.
Title: Re: KMI - Kinder Morgan
Post by: frommi on January 14, 2016, 09:41:56 PM
If you look at FCF vs EV shouldn't you add back interest expenses to DCF?
Title: Re: KMI - Kinder Morgan
Post by: PatientCheetah on January 21, 2016, 12:27:42 PM
any thoughts on today's results? at the cost of slower growth, the fact that KMI is self funding now and prioritizing on maintaining investment grade rating removes the debt downward spiral scenario
Title: Re: KMI - Kinder Morgan
Post by: Palantir on January 21, 2016, 12:41:53 PM
any thoughts on today's results? at the cost of slower growth, the fact that KMI is self funding now and prioritizing on maintaining investment grade rating removes the debt downward spiral scenario
Yeah but it also results in slower growth as you noted.
Title: Re: KMI - Kinder Morgan
Post by: roark33 on January 21, 2016, 12:54:21 PM
Now that they aren't being valued on a yield basis, people are starting to look at more traditional metrics, and I don't think there are cheap on any of those metrics.  Additionally, counter-party risk is a real issue that they are only slowly starting to disclose.  Coal bankruptcies cut of 65m last Q, wait till the minor E&P players start folding. 
Title: Re: KMI - Kinder Morgan
Post by: Palantir on January 21, 2016, 01:28:34 PM
Yeah, I think post distribution cut, looking at EV/EBITDA, this is probably fairly valued right now.
Title: Re: KMI - Kinder Morgan
Post by: Picasso on January 21, 2016, 02:04:27 PM
What's the right EV/EBITDA multiple for this business?  I've asked this a couple times on this thread and no one's given me a good answer.  Also when do you as a shareholder get to see some of that free cash flow?  This is an equity stub that is somehow still worth $30 billion.

I can easily make the case that it should trade at half the current price or even less.  Just as easy to make it look inexpensive if you want to give it an old 12x multiple.  Plus there are only going to be constant downward revisions to EBITDA in the future.  Rich Kinder should issue some stock here while he still has the chance.  He has way too much leverage in this environment to just hope things start to get better.

Title: Re: KMI - Kinder Morgan
Post by: Spekulatius on January 26, 2016, 12:09:14 PM
The pipeline business, as far as the larger backbone and especially FERC regulated pipelines are concerned are similar to real estate assets. They throw of predictable amounts of cash (that are indexed to inflation with a little bonus on top if FERC regulated) for a long period of time, measured in decades.
Now other assets like processing plants and interconnects are less predictable and also require more Capex to keep them current. Overall, since the business is somewhat similar, I think the leverage should be a bit less than what a real estate asset should be valued at. I think you get a very good deal, if you can buy it for 10x EBITDA. In fact, for  FERC regulated pipeline, I think it would be a fantastic deal in the current low interest environment.
Title: Re: KMI - Kinder Morgan
Post by: roark33 on January 26, 2016, 01:43:50 PM
We are going to lower our debt levels, they said....Sure....

http://www.sec.gov/Archives/edgar/data/1506307/000110465916091457/a16-2881_1ex99d1.htm
Title: Re: KMI - Kinder Morgan
Post by: Palantir on January 26, 2016, 04:15:38 PM
We are going to lower our debt levels, they said....Sure....

http://www.sec.gov/Archives/edgar/data/1506307/000110465916091457/a16-2881_1ex99d1.htm

Completely tone deaf management.
Title: Re: KMI - Kinder Morgan
Post by: jay21 on January 26, 2016, 04:28:24 PM
We are going to lower our debt levels, they said....Sure....

http://www.sec.gov/Archives/edgar/data/1506307/000110465916091457/a16-2881_1ex99d1.htm

Completely tone deaf management.

How much are they refi'ing? And upsizing at 150bps is good, no?

Sorry, dont follow this one close.
Title: Re: KMI - Kinder Morgan
Post by: roark33 on January 27, 2016, 12:26:09 AM
This is from the conference call last week, Jan. 20

"So I think the real message here guys is we are self funding now. Okay. And I got to tell you that to me that's a big relief, nobody is affected any more than I was by the division cut. Okay. But the point is we are building a very solid, stable, balance sheet with the ability to return an awful lot of cash to our shareholders over the next few years."
 
Self-funding must mean something different at KMI.  If I claim to not increase my debt, i.e. self-funding my personal expenditures, and then go add $2B onto my credit card a week later, something isn't right.

Another gem from just a week ago:

I believe that long term, the fact that we have no need access equity markets not just for ‘16, but for the foreseeable future and that we will self-fund our capital expenditures our growth capital should in the long run I think be a very solid underpinning to this company and we’re going to be able to return a lot more money to our shareholders in the long term as well as de-lever the balance sheet.
Title: Re: KMI - Kinder Morgan
Post by: Palantir on January 27, 2016, 03:46:05 AM
There's three things KMI needs to do: 1) Build stuff 2) Grow dividends 3) Maintain leverage. If they do 2, they can't do 1 & 3. If they do 1 & 2, they can't do 3.

To model this out, keep one line item for DCF (Source of cash), one line item for Total Dividends (use of cash), and one for Growth Capex (use of cash). The balance is funded by debt (source of cash).
Title: Re: KMI - Kinder Morgan
Post by: frommi on January 27, 2016, 05:09:11 AM
There's three things KMI needs to do: 1) Build stuff 2) Grow dividends 3) Maintain leverage. If they do 2, they can't do 1 & 3. If they do 1 & 2, they can't do 3.

To model this out, keep one line item for DCF (Source of cash), one line item for Total Dividends (use of cash), and one for Growth Capex (use of cash). The balance is funded by debt (source of cash).

Of course they can grow the dividend with the higher DCF of one year later, otherwise growth capex is maintenance capex.

<quote> Proceeds from the term loan will be used for general corporate purposes, including the repayment of existing borrowings. </quote>

Wheres the problem with that statement? They refinance some debt that is due in 2016.
They lowballed the guidance for 2016, but is that really surprising?
Title: Re: KMI - Kinder Morgan
Post by: Palantir on January 27, 2016, 05:49:09 AM
There's three things KMI needs to do: 1) Build stuff 2) Grow dividends 3) Maintain leverage. If they do 2, they can't do 1 & 3. If they do 1 & 2, they can't do 3.

To model this out, keep one line item for DCF (Source of cash), one line item for Total Dividends (use of cash), and one for Growth Capex (use of cash). The balance is funded by debt (source of cash).

Of course they can grow the dividend with the higher DCF of one year later, otherwise growth capex is maintenance capex.

Not if they have an increased capex program, if they do manage to grow, div growth will be weak.
Title: Re: KMI - Kinder Morgan
Post by: jay21 on January 27, 2016, 06:03:16 AM
This is from the conference call last week, Jan. 20

"So I think the real message here guys is we are self funding now. Okay. And I got to tell you that to me that's a big relief, nobody is affected any more than I was by the division cut. Okay. But the point is we are building a very solid, stable, balance sheet with the ability to return an awful lot of cash to our shareholders over the next few years."
 
Self-funding must mean something different at KMI.  If I claim to not increase my debt, i.e. self-funding my personal expenditures, and then go add $2B onto my credit card a week later, something isn't right.

Another gem from just a week ago:

I believe that long term, the fact that we have no need access equity markets not just for ‘16, but for the foreseeable future and that we will self-fund our capital expenditures our growth capital should in the long run I think be a very solid underpinning to this company and we’re going to be able to return a lot more money to our shareholders in the long term as well as de-lever the balance sheet.

I got that they are refi-ing. In other words, little to no increase in net debt. That seems in line with what they are saying in their commentary.

I mean obviously maybe not, that's why I was asking what maturities they have in 2016.
Title: Re: KMI - Kinder Morgan
Post by: frommi on January 27, 2016, 06:32:24 AM
Not if they have an increased capex program, if they do manage to grow, div growth will be weak.

Dividend growth will match DCF growth. And i am pretty sure that when the market values the equity at a higher price, that they than use equity capital to grow it even faster. But why should they talk about that now? Kinder is a pretty good capital allocator, so why the mistrust?
Title: Re: KMI - Kinder Morgan
Post by: Palantir on January 27, 2016, 06:39:43 AM
Div growth does not necessarily match dcf growth. The second par of your statement is wishful thinking, not analysis.
Title: Re: KMI - Kinder Morgan
Post by: frankhkii on January 27, 2016, 06:45:44 AM
There's three things KMI needs to do: 1) Build stuff 2) Grow dividends 3) Maintain leverage. If they do 2, they can't do 1 & 3. If they do 1 & 2, they can't do 3.

To model this out, keep one line item for DCF (Source of cash), one line item for Total Dividends (use of cash), and one for Growth Capex (use of cash). The balance is funded by debt (source of cash).

Or 4)Repurchase shares 5) Pay down debt. You analysis is too simplistic, its a long game.

I view yesterdays filing as a refinance not adding to the pile since ~$1.6B matures this year. Most of the capex number is for growth which results in more DCF in the future. They mentioned they are raising their internal hurdle rate for projects. I would imagine that calculation simplified is the current DCF yield on the equity and if it doesn't meet that I would hope they repurchase shares. These are good assets that will produce DCF for a long time so I'd much rather they repurchase shares than pay any dividend at all or raise it when the equity is at current levels.
Title: Re: KMI - Kinder Morgan
Post by: Palantir on January 27, 2016, 06:48:45 AM
Uh no, they do not need to repurchase shares.
Title: Re: KMI - Kinder Morgan
Post by: frankhkii on January 27, 2016, 07:07:23 AM
Uh no, they do not need to repurchase shares.

Maybe not "need" but its what they should do. If they "need" to grow the dividend why would it not be a better alternative to repurchase shares at the current price? Basically it is not "needed' to (re)attract yield pigs into the name, sure it could provide an exit, but it is not needed. And if these assets will produce DCF long into the future at rising rates (in the long term), repurchasing shares makes the most sense at current prices.
Title: Re: KMI - Kinder Morgan
Post by: frankhkii on January 27, 2016, 08:29:09 AM
They're only 2 questions in on the analyst day Q&A but I would recommend you listen re buybacks at the current price, both questions so far have talked about it.
Title: Re: KMI - Kinder Morgan
Post by: Palantir on January 27, 2016, 08:42:31 AM
No, the better thing to do would be to suspend distribution and use everything either on capex or just hold it on their B/S. No point repurchasing shares at 9-10x Ebitda www they can build projects at 7x.
Title: Re: KMI - Kinder Morgan
Post by: frankhkii on January 27, 2016, 08:50:41 AM
Yet you say they "need" to raise the dividend..??
Title: Re: KMI - Kinder Morgan
Post by: Palantir on January 27, 2016, 04:41:10 PM
Need to in order to be a good investment, but cannot accomplish it.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 13, 2016, 06:01:05 AM
You guys will see this but it looks like Tepper bought a lot of the common @ ~$15 and even dropped a mil or so on some warrants.

Seems like he's just making a bet on the industry as he also picked up ETE (even larger position ~4%) and AMLP.
Title: Re: KMI - Kinder Morgan
Post by: enoch01 on February 13, 2016, 06:29:44 AM
You guys will see this but it looks like Tepper bought a lot of the common @ ~$15 and even dropped a mil or so on some warrants.

Seems like he's just making a bet on the industry as he also picked up ETE (even larger position ~4%) and AMLP.

I'm guessing this is insurance against short positions.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 13, 2016, 06:37:13 AM
Maybe, but it looks like he added a lot of longs, generally speaking, last quarter.  If you will recall, he was calling for taking cash off the table in q4 2015.
Title: Re: KMI - Kinder Morgan
Post by: enoch01 on February 13, 2016, 06:43:29 AM
Maybe, but it looks like he added a lot of longs, generally speaking, last quarter.  If you will recall, he was calling for taking cash off the table in q4 2015.

No I don't recall him saying that.  However it seems to me lots of energy credit is in trouble at these commodity prices.  An astute investor such as Tepper may be short lots of it (or was in the recent past) and perhaps hedging himself (or was hedged in the recent past) with insurance on way OTM stuff like KMI warrants.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 13, 2016, 07:03:22 AM
I remember, "just don't be so freaking long, ok?"  (also refreshed myself on timing of quotes).  You could be right.  I suppose the same could be said of any of these disclosures.  We will probably find out soon enough as he does a fair amount of media these days.
Title: Re: KMI - Kinder Morgan
Post by: merkhet on February 13, 2016, 08:34:43 PM
A bit late to the game here, but I wanted to float a possible thought for the KMI warrants:
However, if energy prices were to rebound sharply in some way, would that provide KMI with access to the capital markets again? And if so, wouldn't that result in a massive upward adjustment to that equity value based on the growth engine flicking on again?
Title: Re: KMI - Kinder Morgan
Post by: Picasso on February 13, 2016, 09:38:49 PM
If the world was simple that would work out.  But how do they tap the capital markets?  Issuing more equity?  They can't issue more debt without growing EBITDA.  Issuing equity will kill the warrant value more than anything.

As far as any energy rally.... It reminds me of the massive headwinds of a strong yen for decades.  Every exporter would hedge into any yen weakness and it would just keep driving up the value of the yen.  Even with the BOJ trying their best to weaken the currency all the exporters are still happy to hedge out on any yen weakness.  There's just so many producers underwater waiting to hedge if they can, I don't see any sustained rally.

Imo I think KMI equity will eventually be close to worthless compared to $15 and the warrants are obviously toast.  Looks more to me like a hedge against short KMI credit.  KMI swaps are still trading at only 500 bps when they're highly levered and at risk for the wave of defaults coming over the next few years.
Title: Re: KMI - Kinder Morgan
Post by: merkhet on February 14, 2016, 05:40:16 AM
Sure, and I'm not thinking about the KMI warrants as an investment.

I'm just trying to figure out its utility as a hedge in a situation other than short KMI credit. For instance, if you're structurally short oil via a long position in automakers that are shifting into SUV and truck production, then could the KMI warrants provide a good hedge against higher oil prices.

This, of course, also means taking on take-or-pay counterparty risk which would seem also to be correlated somewhat with oil prices. And, of course, it's not a given that a jump back to $60 oil would necessarily push KMI equity up to where the warrants would be worth something.

But perhaps there are better ways to put on a hedge for being structurally short oil.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 14, 2016, 06:55:39 AM
Given the other investments (ETE and AMLP), and my understanding of how he trades, I think he's just getting long the sector and those are a little kicker position.
Title: Re: KMI - Kinder Morgan
Post by: wellmont on February 14, 2016, 10:23:27 AM
Maybe, but it looks like he added a lot of longs, generally speaking, last quarter.  If you will recall, he was calling for taking cash off the table in q4 2015.
Agree. I think there was tons of forced selling in these names in q4. Ideal for Someone with liquidity. I think he is getting long the most hated names in the capital markets. Short energy is the consensus trade right now. And tepper is the absolute best at recognizing the "next" thing and when it's time to get off the consensus trade.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 16, 2016, 01:23:08 PM
BRK added a long KMI too.  Not sure of size yet.  Heard it on bloomberg tv; thought maybe they said ~1.6% of portfolio. EDIT:  Looks like it was 26.5 MM shares.  Might be the boss?  Probably Ted or Todd.  I did note that Rich Kinder talked about Buffett and moats a couple of times on the recent conference call.
Title: Re: KMI - Kinder Morgan
Post by: roark33 on February 16, 2016, 01:36:49 PM
https://www.sec.gov/Archives/edgar/data/1067983/000095012316015025/xslForm13F_X01/form13fInfoTable.xml

here is the filing, 400m size, so probably T or T. 

Probably a good time to also point out that they sold out of CBI, another energy name that was probably down about 50% since their purchase.
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 16, 2016, 01:39:19 PM
Yeah, and of course PSX hasn't done shit yet either.   Big short interest + Tepper + BRK is interesting though....
Title: Re: KMI - Kinder Morgan
Post by: roark33 on February 16, 2016, 01:48:07 PM
Short interest around 3.5%, that's not really a big short interest. 
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 16, 2016, 02:05:43 PM
Yeah, was 3.7% as of 01/29 but that was 19.6% higher than the 01/15 count.  I saw it on the increased interest tables and it stuck in the RAM.  Dunno what it is today, but the price action didn't indicate a lot of covering.  Only up a buck in AH.
Title: Re: KMI - Kinder Morgan
Post by: Eye4Valu on February 16, 2016, 02:36:47 PM
To kinda state the obvious, to me KMI is like a utility. Not going to give you great returns over time, but decent returns. Definitely the type of stock you reinvest the dividend in and forget about. I bought 1,000 shares a few weeks ago and transferred it over to Computershare. I then set the dividends on reinvest and quite frankly haven't paid much attention to it since. I did read some of the commentary on this thread but didn't see anything too insightful. I hope to forget about it for the next 20 years. Don't expect to make a lot of $, but do expect to make a ROI. Which is more than I can say for some of my other picks, lol!
Title: Re: KMI - Kinder Morgan
Post by: roark33 on February 16, 2016, 04:46:13 PM
Eye4valu: The people who bought KMI last year around 40 might disagree with you on the idea that KMI is a utility.  Capital cut by more than half, dividend slashed by 75%. 

The counter-party risk with a pipeline is so much worse than with a utility.  KMI likes to tout that the drillers need the pipeline, but if enough of them go into bankruptcy, KMI's contract isn't going to be the only contract that gets paid 100% on its pre-bankruptcy terms.  KMI has just been extremely luck to have never experience a prolonged downturn in the oil market.  It was created after the 1980s (1997, I believe). 

I hope this purchase starts to provide some people with the perspective that it is ok to question the investments of some of the "greats." 
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 16, 2016, 05:55:53 PM
This one has been pretty much a retail/insider story.  Think you're looking for the SD, CHK, ZINC, shld or BAC threads.
Title: Re: KMI - Kinder Morgan
Post by: PatientCheetah on February 17, 2016, 08:03:38 PM
kinder morgan's asset quality is far superior than likes of SD, CHK, ZINC, shld or BAC. maybe warren nailed it again with his macro timing - a lot smarter moneys have been flowing into natural gas stocks lately, let's not forget his timely flight from ExxonMobil or his silver/PetroChina bets.
Title: Re: KMI - Kinder Morgan
Post by: LC on February 17, 2016, 08:53:38 PM
tesuji also took a stake in kmi. 20% of the fund.
Title: Re: KMI - Kinder Morgan
Post by: Picasso on February 17, 2016, 09:15:45 PM
I'm sticking by my call despite all these smart guys saying otherwise. I don't see anywhere near this much value for KMI equity.  This isn't a utility or real estate company for various reasons.

Also I suspect Combs was the purchaser of KMI. His picks aren't that impressive in my opinion. NOV, DE, CBI etc. He seems to get caught in low PE screener value traps at cycle peaks. Not sure why people think this is a Buffett purchase.

My conversations with some institutional owners of KMI showed significant denial about what is going on in their industry. Not the kind of behavior you see at the bottom of the cycle.

Also, I don't think Berkshire is known for timing energy and resource investments very well.
Title: Re: KMI - Kinder Morgan
Post by: roark33 on February 17, 2016, 09:35:56 PM
This is a good example of what is potentially coming down the pipe for KMI. 

http://cases.gcginc.com/kwk/pdflib/1128_10585.pdf

The E&P companies that are filling for bankruptcy are in the process of rejecting the pipeline contracts.  New bidders for those assets are making the acquisitions of those wells contingent on re-cutting those deals with the pipelines. 

Should be interested to watch.  Also, I would expect that the more solvent players would come back to the pipeline companies asking to also re-cut their deals if the marginal players are now getting better deals.  This would be a standard Most Favored Nation/Customer clause in most contracts. 
Title: Re: KMI - Kinder Morgan
Post by: RadMan24 on February 17, 2016, 09:53:32 PM
This one has been pretty much a retail/insider story.  Think you're looking for the SD, CHK, ZINC, shld or BAC threads.

Was this a retail story before or after the dividend cut?
Title: Re: KMI - Kinder Morgan
Post by: dabuff on February 17, 2016, 10:10:21 PM
Note Weschler still has the sizable stake (relative to his portfolio) in Sunocor, the Canadian oil sands company.
Title: Re: KMI - Kinder Morgan
Post by: jmp8822 on February 18, 2016, 05:24:39 AM
This is a good example of what is potentially coming down the pipe for KMI. 

http://cases.gcginc.com/kwk/pdflib/1128_10585.pdf

The E&P companies that are filling for bankruptcy are in the process of rejecting the pipeline contracts.  New bidders for those assets are making the acquisitions of those wells contingent on re-cutting those deals with the pipelines. 

Should be interested to watch.  Also, I would expect that the more solvent players would come back to the pipeline companies asking to also re-cut their deals if the marginal players are now getting better deals.  This would be a standard Most Favored Nation/Customer clause in most contracts.

That attachment makes no sense to me from a common sense perspective.  The oil/gas assets are worth $150m with the current contracts, or $250m with a new contract. We the creditors, would rather the assets be worth $250m because we screwed up. Deal?
Title: Re: KMI - Kinder Morgan
Post by: roark33 on February 19, 2016, 10:55:01 AM
http://finance.yahoo.com/news/stampede-energy-seen-missing-penalty-164435564.html

take or pay example. 
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on February 19, 2016, 11:07:30 AM
This one has been pretty much a retail/insider story.  Think you're looking for the SD, CHK, ZINC, shld or BAC threads.

Was this a retail story before or after the dividend cut?

Both.  Romantic comedy before; tragedy after.
Title: Re: KMI - Kinder Morgan
Post by: RadMan24 on February 21, 2016, 09:40:12 PM
Even then, that C corp change has got to be helping them compared to the majority of mlps out there
Title: Re: KMI - Kinder Morgan
Post by: jd123 on December 10, 2016, 09:56:40 AM
No one has commented on KMI since Feb when the market was collapsing.  In light of the OPEC decision to cut and non-OPEC countries pledging to do the same, they're essentially giving into the idea that they have no choice but to let American shale take some market share.  I don't know what that means for prices.  Will shale cap the oil price?  Will the US produce too much and suppress prices?  I don't know.  Therefore, I don't know what the prospects for shale or offshore drilling stocks are.  There's still too many variables.  All I know is that the US will produce more oil and it needs to be transported through pipelines.  I must be making this too simple because KMI has not moved at all on the OPEC news.  What are everyone else's thoughts?
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on December 10, 2016, 10:48:24 AM
"All I know is that the US will produce more oil..."

This is not an assumption that I would make. It may go slightly higher than current level (200,000 - 300,000 boe/d more?) but, will certainly not get back to previous peak unless world demand really grows to accept that extra supply.

These nations who took a voluntary cut will simply get back on the accelerator and prevent any large spike in price. And for the market to know that this supply is almost available immediately, it really prevents future prices to be high or for a contango to develop and with it the advantage of hedging forward.

At $55 WTI, I would expect U.S. production to remain pretty stagnant as there are only so many fields worth developing at that price and just fighting the high decline rate from shale requires a fair bit of drilling on its own.

Cardboard 
Title: Re: KMI - Kinder Morgan
Post by: JayGatsby on July 20, 2017, 01:29:27 PM
Seems like a fair criticism: The analyst says he is "confused about the relative attractiveness of repurchasing stock at ~11-12x EBITDA vs. investing in incremental organic expansions at ~6.9x, the stated average capital-to-EBITDA multiple of KMI’s backlog." https://seekingalpha.com/news/3280001-kinder-morgan-gains-shareholder-friendly-moves-one-analyst-doubts

You could make the same argument about the dividend. Seems like capital allocation is being driven largely by what they think their shareholder base wants (which I guess isn't totally unreasonable). Kind of the shotgun approach to capital allocation (pay dividend, and repurchase shares, and pay down debt, and fund growth).

Core business seems to be holding up as expected though.
Title: Re: KMI - Kinder Morgan
Post by: AJDelphi on November 08, 2017, 07:08:52 PM
So it looks like Kinder has weathered the lower natural gas prices just fine. Oil is important, but gas is (edit: 55%) of this business and I think some people miss that. There are some nice tailwinds with the LNG facilities coming online and with exports to power plants in Mexico too.

DCF, basically owner earnings, should be $1.99 for the year. The dividend will be $.50 this year and management plans to raise it to $.80 in 2018, and then up to $1.25 in 2020.

Backlog is $12 billion, and they expect those projects to have an average capital to EBITDA multiple of 6.8x or 14.7%. Roughly half that is the TMEP project in Canada. If they get those returns, which I suspect they will, I get to roughly $3 in DCF. I’d guess it takes 5 years or so for the backlog to be completed. In addition, they are budgeting to be able to self-fund this and not have to access the debt or equity markets. This is very different than the pre-2014 Kinder Morgan entities where I couldn't stand all the equity issuance.

If they have $3 in DCF I think this will be selling for MUCH higher than it is today. At $18 I think KMI is one of the more interesting things out there.
Title: Re: KMI - Kinder Morgan
Post by: Sullivcd on November 09, 2017, 08:01:41 AM
It doesn't appear to be super cheap when accounting for the debt load, roughly 13x ev/ebitda. 
Title: Re: KMI - Kinder Morgan
Post by: AJDelphi on November 10, 2017, 01:35:37 PM
I tend to think this business can service quite a heavy debt load as the cash flows are very stable. Not quite Utility like but still very good.

In relation to Williams and Energy Transfer it’s at roughly the same valuation 13.2 and 14.1

https://www.gurufocus.com/term/ev2ebitda/NYSE:WPZ/EV-to-EBITDA/Williams-Partners-LP

https://www.gurufocus.com/term/ev2ebitda/ETP/EV-to-EBITDA/Energy%2BTransfer%2BPartners%2BLP

13 is also much cheaper than the average of 20 EV to EBITDA multiple of all industries excluding financials. The data was from Jan 2017, but with the market being up I’d suspect that ratio is higher than 20 now.

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/vebitda.html

Utilities traded at an 18 multiple, and KMI deserves a lower multiple but I think it has better growth prospects than most utilities too.

Honestly, I don’t really worry about that relative valuation that much. But more importantly the $2 in owner earnings, DCF, that I think will be at $3 in 5 years.
Title: Re: KMI - Kinder Morgan
Post by: JRM on November 12, 2017, 10:25:12 AM
I've spent a little time looking at KMI recently.  I'm trying to figure out why the market is so down on it.  This seems like a situation where retail investor sentiment is pretty depressed from the dividend cut.  I imagine institutional investors are mostly worried about interest rate sensitivity, but who knows.

I like the diversification and recent focus on natural gas.  However, I think there is a legitimate regulatory risk with any natural gas transmission company.  Under the Obama administration the Department of Transportation was close to finishing up the "mega rule" which would place much more regulatory burden on natural gas operators.  This has stalled out under the current administration, but its likely a matter of when rather than if regulations expand for natural gas operators.

These regulations will require operators of high pressure natural gas transmission lines to periodically perform internal and external corrosion assessments for  high and medium consequence areas.  I don't have a feel for how many miles of pipeline this would add to what KMI is currently responsible for assessing (currently only high consequence areas require assessment). 

One common problem for many NG transmission operators is that complete records do not exist for the 50+ year old pipe in the gound.  In liu of using the actual yield strength to calculate potential impact radii, the worst case yield strength is assumed.  This increases the miles of pipe that must be assessed and inspected.  This will likely force the operators to either replace pipe and/or redirect pipeline around HCA and MCA areas to avoid costly assessments.  The cost of the replacements would be capital rather than an O&M expense for the assessments/inspections.

This is the only risk that I think the market is largely unconcerned about (or unaware of).  I tend to think its not a huge risk, and likely would just be a short term issue if/when regulations are ratcheted up on the industry. 
Title: Re: KMI - Kinder Morgan
Post by: JayGatsby on November 13, 2017, 03:34:27 PM
I agree with AJDelphi. A 10%+ FCF yield on a business of this nature seems very good to me. They own 40% of the natural gas transmission pipelines in the US, provide insanely stable earnings, and have a very meaningful likelihood of low-risk capex projects (risk on that the regulators prevent the money from being invested). 10% is based on current tax assets which will be used up in early 2020s (2021?), if they don't keep investing in capex.

As I've said before (and others have pointed out), I don't love the capital allocation. They're a bit overly focused on the dividend and current capital allocation is the "a little bit of everything" approach. Seems like if you can pay a dividend at 13x EBITDA or build more assets at anything close to 7x EBITDA the decision is pretty simple.
Title: Re: KMI - Kinder Morgan
Post by: JayGatsby on November 16, 2017, 12:40:51 AM
Anyone have a negative view on the business? Trying to understand what I'm missing. The seekingalpha /retail crowd seems to still be negative about when they cut the dividend back in 2015. That seems like a great buying opportunity if that's what's led to the negative sentiment.

Debt load seems manageable to me given the stability of cash flows

On regulatory risk, I thought there's rules / practice that these have to be dug up / inspected every so often and examined. After that Koch pipeline blew up years back and killed the little girl I thought industry practices changed. Could be wrong though.

I've seen numbers that 10% of domestic nat gas production will be exported via LNG. The facilities are mostly under construction, but the demand and economics definitely seem to be there.
Title: Re: KMI - Kinder Morgan
Post by: JRM on November 16, 2017, 03:52:43 AM
Natural Gas pipeline operators are required to perform certain indirect and direct (dig up) inspections for lines in high consequence areas (HCA).  This is determined based on proximity to densely populated areas, public areas, and large buildings.  The regulatory change I'm talking about is pending and has not been rolled out.  It would expand assessments from HCA to HCA and MCA (medium consequence areas). 

Like I said, I don't think this is a major concern.  Probably about as much of a concern as interest rate sensitivity to rising interest rates. Most of the transmission lines are in the middle of nowhere.
Title: Re: KMI - Kinder Morgan
Post by: JayGatsby on November 21, 2017, 03:41:07 PM
The permian pipeline should be a success: https://www.wsj.com/articles/why-a-growing-gas-glut-could-imperil-the-west-texas-oil-boom-1510870178

Not a lot of news on it. Total cost is $1B and KMI will own 50%. I can't tell if they only own a portion because they're trying to save cash for the dividend or if there's actually benefits of having the other owners on board.
Title: Re: KMI - Kinder Morgan
Post by: JayGatsby on February 01, 2018, 05:30:06 PM
Strong statement: https://www.reuters.com/article/us-canada-trudeau-transmountain/canadas-trudeau-says-kinder-morgan-pipeline-expansion-to-proceed-radio-idUSKBN1FL6AQ

Quote
“That pipeline is going to get built. We will stand by our decision,” Trudeau said in an interview on 630 CHED radio in Edmonton, Alberta. “We will ensure that the Kinder Morgan pipeline gets built.”
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on February 01, 2018, 05:58:24 PM
I hope he will act on it. Canada cannot be held hostage by the U.S. and needs to diversify its clients base. Right now, the U.S. pays Canada the lowest price/barrel for oil in the world and by a very large factor.

Then U.S. refineries export gasoline all around the world and even to Canada for a significant profit.

If Canadians were deciding to limit oil exports to a certain volume to save the world, that would be one thing. But, to force yourself to ship only to one client is retarded!

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: TBW on February 02, 2018, 07:42:25 AM
If TMX gets built KMI looks cheap.  Take a look at KML.  It will be up a lot if TMX is built.
Title: Re: KMI - Kinder Morgan
Post by: TBW on February 08, 2018, 05:40:10 AM
Tried my hand at a SA article.  Think KMI is cheap

https://seekingalpha.com/article/4144461-kinder-morgan-understanding-stock-cheap?v=1518095783&comments=show

Really think KML is worth a look for those that want something riskier, but with more upside.
Title: Re: KMI - Kinder Morgan
Post by: whiterose on March 23, 2018, 01:12:31 PM
Does anyone have an idea why it keeps dropping?
They talked about buybacks, at which levels do you think it would make sense to pull the trigger?
Title: Re: KMI - Kinder Morgan
Post by: JRM on March 23, 2018, 02:38:12 PM
These seem to be the recent excuses:

1.  Uncertainty surrounding Trans Mountain Pipeline (TMEP) which is about half of project backlog for next several years.
2.  Sensitivity to rising interest rates.
3.  Steel tariffs

There are likely more, but I think this could be a double by 2021.  They are paying a well covered dividend and buying back shares at these levels.  Seems like one of the few no-brainers in the market today in the large cap space.

Title: Re: KMI - Kinder Morgan
Post by: AJDelphi on March 23, 2018, 05:31:52 PM
These seem to be the recent excuses:

1.  Uncertainty surrounding Trans Mountain Pipeline (TMEP) which is about half of project backlog for next several years.
2.  Sensitivity to rising interest rates.
3.  Steel tariffs

There are likely more, but I think this could be a double by 2021.  They are paying a well covered dividend and buying back shares at these levels.  Seems like one of the few no-brainers in the market today in the large cap space.

Totally agree that it could easily double in 3 years. They used $250 million of the buyback in Q4. Edit: And another $250 Million in January, just checked the 10-K. So $1.5 billion left. Hope they are buying more now.
Title: Re: KMI - Kinder Morgan
Post by: mwtorock on March 23, 2018, 07:06:38 PM
maybe also concerns about https://www.ferc.gov/media/news-releases/2018/2018-1/03-15-18-G-2.asp#.WrWx54jwaiO?

but i thought it should have little impact on corporate but more on MLPs. KMI even made a statement to clear the concerns.

http://ir.kindermorgan.com/press-release/kindermorgan/kinder-morgan-statement-federal-energy-regulatory-commission-notice-propo

Title: Re: KMI - Kinder Morgan
Post by: whiterose on March 24, 2018, 01:31:12 AM
It was also my understanding that the ferc decision would not affect them in a material way.

28% of their debt is floating, which means +100 bps rise = approx. +100 mio interest on it.

I'm not really concerned about the backlog, even though some (growth) projects may not get build/approved, they could then just use the allocated cash for that to aggressively pay down debt (maybe start with the floating first) -> lower leverage, less risk, better ratings, lower ERP(?) or buy back more own shares at around book value (which is possibly understated because of inflation or "real" replacement cost?)

Higher steel prices.. maybe, but to what extent is it material to projected earnings?

In their presentations they talk about internal hurdle rates of >15% but RoE over the last years was more like 10-12%..

On a side note: in another thread about which company BRK could/should buy, maybe KMI would fit the bill, but then there is Kinder himself who might not want to sell.
It could be a second BNSF, with high reinvestment capacity at stable and projectable returns.
Title: Re: KMI - Kinder Morgan
Post by: JRM on March 24, 2018, 05:22:19 AM
I didn't mention the FERC statement or any other U.S regulatory risk because I think they are complete non-factors at this point for KMI.
Title: Re: KMI - Kinder Morgan
Post by: jrallen81 on March 26, 2018, 02:03:00 PM
They are non-factors for KMI because of their reorganization as C Corp.
Title: Re: KMI - Kinder Morgan
Post by: JRM on March 26, 2018, 02:31:08 PM
In addition to that, I think there is a very low probability that the proposed PHMSA "mega-rule" is passed into law under the Trump administration.
Title: Re: KMI - Kinder Morgan
Post by: Spekulatius on March 26, 2018, 03:00:03 PM
In addition to that, I think there is a very low probability that the proposed PHMSA "mega-rule" is passed into law under the Trump administration.

The FERC ruling makes very little sense, but I think there is a concern that the overall ROE will be pushed down by the ruling. If example, if MLP do not get reimbursed for taxes, but C-Corp would, and if MLP just accepted that as is, how would C-Corps compete against MLPs in. FERC proposals, since they would be inherently more expensive for customers, everything else being equal?

Again,I don’t think the ruling makes sense and will be reversed or amended, but right now customer would need to pay less to MLPs than they would have to C-Corps, so why go with an expensive proposal?
Title: Re: KMI - Kinder Morgan
Post by: benhacker on March 26, 2018, 03:27:58 PM
In addition to that, I think there is a very low probability that the proposed PHMSA "mega-rule" is passed into law under the Trump administration.

The FERC ruling makes very little sense, but I think there is a concern that the overall ROE will be pushed down by the ruling. If example, if MLP do not get reimbursed for taxes, but C-Corp would, and if MLP just accepted that as is, how would C-Corps compete against MLPs in. FERC proposals, since they would be inherently more expensive for customers, everything else being equal?

Again,I don’t think the ruling makes sense and will be reversed or amended, but right now customer would need to pay less to MLPs than they would have to C-Corps, so why go with an expensive proposal?

I also agree with pretty much everything here... it's probably a nothing burger but I don't think C-corps can truly say "zero impact"
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on March 27, 2018, 06:53:37 PM
https://www.msn.com/en-ca/money/topstories/alberta-wins-trans-mountain-appeal-in-federal-court/ar-BBKJ7YM?ocid=spartandhp

One more victory of sanity over insanity. However, the obstructionists will continue. Their plan is more lawsuits, protests and keep pushing back even with illegal means. Stand up to them!

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 09, 2018, 06:54:30 AM
Time to send the army and impose martial law in Lower B.C.:

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aKML-2591503&symbol=KML&region=C

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 09, 2018, 06:09:00 PM
https://www.theglobeandmail.com/canada/article-tories-blast-trudeau-for-not-meeting-with-bc-premier-horgan-on/

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: RichardGibbons on April 09, 2018, 11:25:02 PM
Time to send the army and impose martial law in Lower B.C.:

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aKML-2591503&symbol=KML&region=C

I actually thought of a far easier solution to this that will avoid the constitutional crisis and keep everyone happy.

The federal government has jurisdiction over the pipeline, and they've approved it so Kinder Morgan should be allowed to build it. This will make Alberta happy.

The BC government has jurisdiction over its highways and Lion's Gate Bridge is a huge bottleneck. So, Horgan should add a second, lower level to the bridge to clear up the traffic snarls. If that makes the bridge too low for oil tankers to pass under it, well, that would be just an unfortunate, unavoidable side-effect. And even better, with all the new oil coming into Burnaby that can't be shipped out by sea, gas prices in Vancouver would fall.

Everyone gets what they want! Everyone wins! :)
Title: Re: KMI - Kinder Morgan
Post by: rb on April 09, 2018, 11:49:27 PM
Time to send the army and impose martial law in Lower B.C.:

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aKML-2591503&symbol=KML&region=C

Cardboard
It's always nice when patriotic Canadians advocate for illegal acts. Should our military also run protesters and environmentalists over with their tanks while they're there? You know... to smooth things over for future development.
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 10, 2018, 05:29:09 AM
Quite the opposite, I am advocating for the law to be upheld.

You guys have elected Trudeau and he with his cabinet selected TransMountain to be the project to be built. Northern Gateway was terminated.

Protests have taken place, local meetings were held with concerned citizens and taken into consideration in the design. Final approval was then provided by the government.

Now, if people continue to oppose by force or other means, then they are the ones committing illegal acts or just like the two MP's who were in Court yesterday.

At some point the demonstration is over and things need to carry on. Regarding some of these protesters, I believe that they should be accused of terrorism: destabilizing the country while using foreign funds.

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: TBW on April 10, 2018, 06:02:11 AM
There does seem to be a huge constitutional issue if the pipeline is built.  I agree with Cardboard, except for the last part.

You can't have small groups, with no legal authority, block decisions made by an elected government.

What practical steps can the gov't do is my question?  Do they have to grant all permits and provide necessary protection to let construction occur, as local officials are not willing to do?  PM and others seems to be saying all the things they need to, but what practical measures are required?

I think that KMI's actions here increase the likelihood that this gets built.  But I could be wrong.

It is completely bizarre to me that NDP blocks TMX yet wants LNG investment.
Title: Re: KMI - Kinder Morgan
Post by: SharperDingaan on April 10, 2018, 07:17:21 AM
Practical steps:
Fed's guarantee construction costs to build the BC loading facility - all Canada pays.
Fed campaign of 'non confidence' in the BC government; following existing precedent (Quebec). Collapse the coalition.
Targeted political departures; following existing precedent (Quebec).

Politics is a very dirty business, & the locals want to play.
Break some glass.

SD

Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 10, 2018, 09:16:30 AM
https://ca.finance.yahoo.com/news/why-canadian-shale-oil-play-120041948.html

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: RichardGibbons on April 10, 2018, 09:42:51 AM
You can't have small groups, with no legal authority, block decisions made by an elected government.

Yeah, but I think this is reflective of a bigger issue. Recently politicians in North America have been violating social/ethical norms. For instance, gerrymandering in the USA is preventing fair elections and governments are taking huge amounts of cash from special interest groups to promote the views of a minority.  Similarly, in Canada, we've had the government muzzling scientists, promising a KM review and not delivering it, and implementing policies that have allowed housing to become unaffordable to the vast majority of citizens in the two biggest cities.

The government seems to largely believe that it's irrelevant if it violates social/ethical norms, as long as it meets legal requirements. But every time it does so, it is basically saying that the social norms don't matter, without recognizing that in North America, people are more constrained by social/ethical norms than they are by the law (how many people speed or illegally smoke marijuana?). So, when the government disposes of social and ethical constraints, they should expect the people to similarly ignore those constraints, and then you get not just the legal pipeline protests, but the illegal ones as well.

I'm not arguing that people shouldn't respect the law, but rather that governments should recognize that ignoring social/ethical norms has a dangerous far-reaching results that nobody should want, and this Kinder Morgan dispute is one of them.

It is completely bizarre to me that NDP blocks TMX yet wants LNG investment.

The answer to this one is:
Title: Re: KMI - Kinder Morgan
Post by: scorpioncapital on April 10, 2018, 10:54:56 AM
I have seen great societies without natural resources, and I have seen nightmare societies with lots of natural resources.

Title: Re: KMI - Kinder Morgan
Post by: TBW on April 10, 2018, 12:00:25 PM
Richard, I think we would agree on lots of things but I think you are a bit mistaken in some of your assertions about TMX. 

A couple things to remember:

TMX was brought in conjunction with carbon tax, can't forget that.  I think carbon tax is very important and needed.  So I think the deal was pragmatic, we need capital to move away from fossil fuels, in meantime here is a pipeline that will be safer, save $4.1bil per year and we have increasing future carbon taxes (force closure of coal power plants).  While I would very much agree with you on govt and housing issues, in this case the deal appeared to be fair.  Process was lengthy and elected gov't etc, you can protest and make your voice heard but you can't break the law/constitution.

1) BC does benefit directly.  Clark negotiated that TMX pays $996mil to BC over next 20years.  Does not include other benefits jobs, etc.

2) Agree spill would be bad and worse than LNG.  However, there have been no incidents and while probability is increased, it is still low, and ignores risks to crude by rail.  I think crash of house prices as a result is exaggerated (those things will crash without a spill).

3) Not so sure I agree here.  Apples to apples basis natgas has less CO2 emissions.  But we aren't talking about that.  In this case have to build huge LNG plant (lots of Co2), LNG process to transport lots of CO2, and natgas production has had lots of methane emissions (from well, along pipe etc), that if you take into account unfortunately CO2 footprint from natgas can be much worse than it seems.  I could be wrong, but i think TMX is bringing more crude, but its adding to capacity, so not much CO2 from construction.  While it could still be true that LNG produces less CO2, not sure it is as simple as it seems.

Not to totally bash LNG, I do think BC should have at least one plant.  Just giving you some of the other issues I have been considering.

Title: Re: KMI - Kinder Morgan
Post by: RichardGibbons on April 10, 2018, 02:31:27 PM
TMX was brought in conjunction with carbon tax, can't forget that.  I think carbon tax is very important and needed.  So I think the deal was pragmatic, we need capital to move away from fossil fuels, in meantime here is a pipeline that will be safer, save $4.1bil per year and we have increasing future carbon taxes (force closure of coal power plants). 

I agree that the carbon tax is important, but I'm convinced that most people believe that linking the carbon tax to the pipeline is bogus. It's likely that Keeney will become the premier of Alberta next year, and he has come out multiple times saying that he intends to scrap the carbon tax, well before this pipeline issue began making national news again. If people actually believed that there was a real link between the carbon tax and the pipeline, then I think the debate would be very different.

I'm curious, actually. If Kenney is elected and eliminates the carbon tax, would your reaction be, "then shut down the pipeline"? I suspect that few people will have this reaction (except those who already oppose the pipeline who just want another argument against it).

1) BC does benefit directly.  Clark negotiated that TMX pays $996mil to BC over next 20years.  Does not include other benefits jobs, etc.

I missed this.  However, a present value of less than $350M (35M per year, 8% discount, 20 years) doesn't actually constitute much value. On top of that, gasoline prices to the lower mainland are expected to increase (http://www.cbc.ca/news/canada/british-columbia/robyn-allan-gas-price-rise-after-trans-mountain-pipeline-1.4587811) as a result of the new pipeline. BC consumes about 5.7B litres a year of gas. If you assume a 40% of this is in the Lower Mainland, then the estimated 2c increase in gasoline prices costs residents an extra $45M. So, it's somewhere between a wash to a mild economic disincentive for BCers.

2) Agree spill would be bad and worse than LNG.  However, there have been no incidents and while probability is increased, it is still low, and ignores risks to crude by rail.  I think crash of house prices as a result is exaggerated (those things will crash without a spill).

Crude by rail is a straw man. Equivalent quantities of dilbit won't be shipped by rail. We know this because they can already do this, but they aren't. What's more, cleaning up a spill on land is way easier than cleaning up a spill in the ocean. Looking at "no incidents", there have been about 20 oil spills since 2015. I think real estate will fall either way, but I think it will fall harder if the city stinks for a few months, beaches are covered in sludge and dead wildlife, and cancer rates for residents skyrocket for a few decades.  (Personally, I care a bit about a pipeline spill, but a lot about a tanker spill.)

3) Not so sure I agree here.  Apples to apples basis natgas has less CO2 emissions.  But we aren't talking about that.  In this case have to build huge LNG plant (lots of Co2), LNG process to transport lots of CO2, and natgas production has had lots of methane emissions (from well, along pipe etc), that if you take into account unfortunately CO2 footprint from natgas can be much worse than it seems.  I could be wrong, but i think TMX is bringing more crude, but its adding to capacity, so not much CO2 from construction.  While it could still be true that LNG produces less CO2, not sure it is as simple as it seems.

This is an intriguing argument.  I would really like to see the emissions math on this.  I've said elsewhere that I mildly support LNG because of my argument above (net improvement in emissions), but could be convinced either way.  If the LNG has the same emissions profile as tar sands (which themselves are far worse than regular oil), then that would be enough to flip me around to strongly opposing LNG.
Title: Re: KMI - Kinder Morgan
Post by: TBW on April 11, 2018, 03:35:35 AM
Fair point about Kenney.  If carbon tax was subsequently repealed I would not be happy.  I think the two should remain linked.

My opinion is that TMX will get built.  Both law and economics is on its side.
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 11, 2018, 04:07:32 AM
I had thought that the Vancouver people were better than all of us: greener, smarter, etc.

High gas prices? Traffic jams? What is this all about? You don't all drive EV's over there, share ride and use public transportation?

So is this hypocrisy or self-inflicted?

http://www.parkland.ca/en/investors/news/article?news-id=20171001005041

The Parkland refinery, which interestingly enough is in none other place than Burnaby B.C., produces 55,000 barrels/day from light sweet crude.

So here is a thought. Why doesn't B.C. start right now a project to upgrade (process heavy) and really increase capacity of that refinery?

This would really solve many problems:
1- Lower gasoline prices in Vancouver.
2- Export to the world refined products or higher value add and use best in class refining methods vs what we see in China with their tea pot refineries.
3- Heavy crude would be processed inland and avoid this dilbit spill debate over water.
4- Canada would supply the world with some of the strictest producing methods which help reduce CO2 emissions instead of letting other countries produce oil anyway while they flare natural gas.

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: CorpRaider on April 11, 2018, 05:00:32 AM
I never imagined it would be such a hard slog since there is already a pipeline there.  Canada is interesting. 
Title: Re: KMI - Kinder Morgan
Post by: TBW on April 12, 2018, 01:10:57 AM
Can't say that I am a Morneau fan, but I thought he did a good job laying out the issues here:

https://www.bnn.ca/video/morneau-government-will-use-all-tools-available-to-get-pipeline-built~1368633
Title: Re: KMI - Kinder Morgan
Post by: Spekulatius on April 12, 2018, 01:48:15 PM
I had thought that the Vancouver people were better than all of us: greener, smarter, etc.

High gas prices? Traffic jams? What is this all about? You don't all drive EV's over there, share ride and use public transportation?

So is this hypocrisy or self-inflicted?

http://www.parkland.ca/en/investors/news/article?news-id=20171001005041

The Parkland refinery, which interestingly enough is in none other place than Burnaby B.C., produces 55,000 barrels/day from light sweet crude.

So here is a thought. Why doesn't B.C. start right now a project to upgrade (process heavy) and really increase capacity of that refinery?

This would really solve many problems:
1- Lower gasoline prices in Vancouver.
2- Export to the world refined products or higher value add and use best in class refining methods vs what we see in China with their tea pot refineries.
3- Heavy crude would be processed inland and avoid this dilbit spill debate over water.
4- Canada would supply the world with some of the strictest producing methods which help reduce CO2 emissions instead of letting other countries produce oil anyway while they flare natural gas.

Cardboard

A refinery is way dirtier than a pipeline and even nowadays, they stink to heaven. People who have been to Bakersfield , CA or New Jersey know.

I think Richard makes a good point about the piplinene not being in the self interest of the local population. BC and Vancouver are wonderful places and a spill would be tragedy.
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 12, 2018, 03:31:48 PM
You are wrong. Local populations don't dictate whatever they want based on their self interest or desire.

When they put up windmills, there are often people who are upset since it ruins their view, landscape and brings even noise. However, these mostly go forward and these people concerns are ignored.

There are nuclear plants close to communities. Is there anything more risky to human health than radiation? Yet they are there too and some pretty close to New York city unless you are unaware.

Florida, the Gulf of Mexico and California have beautiful beaches yet there are oil vessels carrying crude moving all around. Examples of that are worldwide.

Regarding a refinery or oil vessels, they are already there in Vancouver! So the stink and risk is already in place.

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: scorpioncapital on April 12, 2018, 03:34:26 PM
It's very simple, BC was not offered enough of a bribe as is commonly done pretty much everywhere in the world. Don't fall for this enviromementalist stuff, they are the most money hungry of all ;)

Title: Re: KMI - Kinder Morgan
Post by: Spekulatius on April 12, 2018, 05:43:10 PM
You are wrong. Local populations don't dictate whatever they want based on their self interest or desire.

When they put up windmills, there are often people who are upset since it ruins their view, landscape and brings even noise. However, these mostly go forward and these people concerns are ignored.

There are nuclear plants close to communities. Is there anything more risky to human health than radiation? Yet they are there too and some pretty close to New York city unless you are unaware.

Florida, the Gulf of Mexico and California have beautiful beaches yet there are oil vessels carrying crude moving all around. Examples of that are worldwide.

Regarding a refinery or oil vessels, they are already there in Vancouver! So the stink and risk is already in place.

Cardboard

It’s a big difference if something is already there or if you build something new. Also keep in mind that while there are tankers in the Bay Area (Richmond) and LA to supply refineries, Offshore drilling pretty much stopped after an oil spill near Santa Barbara.

Local residents cannot always stop new projects,  it they can fight them with tooth and nails - sometimes they win, sometimes they lose. I am not saying it is right or wrong, but there is solely self interest at work, and I have to say, I can’t blame them.

I am fairly sure that most board members would do the same if they were in the same situation, I don’t have the impression that most here would put community interest before themselves, not if they work in the financial sector for sure. 8)
Title: Re: KMI - Kinder Morgan
Post by: RichardGibbons on April 12, 2018, 08:58:02 PM
I think it's kind of interesting that Cardboard and Andrew Weaver (BC Green Party Leader) think refining the dilbit might solve this problem (https://www.bnn.ca/video/trans-mountain-approval-process-was-a-sham-andrew-weaver~1368409?sc=G5B16KL#_gus&_gucid=&_gup=twitter&_gsc=G5B16KL). Cardboard wants the refinery in BC, while Weaver wants it in Alberta.

Cardboard, how would you feel about the dilbit being refined in Alberta and only refined products being sent over the new pipeline? I'm curious if there is actually a compromise here.

That solution wouldn't make me completely happy (because I care about CO2 emissions), but it would be far more palatable than the current situation.

(I think the reason that this isn't a no-brainer solution for the pro-oil folks is because it's more costly to ship refined products.)
Title: Re: KMI - Kinder Morgan
Post by: Spekulatius on April 13, 2018, 04:29:22 AM
I think it's kind of interesting that Cardboard and Andrew Weaver (BC Green Party Leader) think refining the dilbit might solve this problem (https://www.bnn.ca/video/trans-mountain-approval-process-was-a-sham-andrew-weaver~1368409?sc=G5B16KL#_gus&_gucid=&_gup=twitter&_gsc=G5B16KL). Cardboard wants the refinery in BC, while Weaver wants it in Alberta.

Cardboard, how would you feel about the dilbit being refined in Alberta and only refined products being sent over the new pipeline? I'm curious if there is actually a compromise here.

That solution wouldn't make me completely happy (because I care about CO2 emissions), but it would be far more palatable than the current situation.

(I think the reason that this isn't a no-brainer solution for the pro-oil folks is because it's more costly to ship refined products.)

Building a refinery is very expensive and I think it is actually more dangerous to transport refined products, even in a pipeline, because they are more volatile and flammable. I agree that every solution should be discussed.
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 13, 2018, 06:06:48 AM
I am open to all kinds of solutions. And unless you missed it, the Sturgeon refinery is starting up this summer in Alberta.

Let's face it folks. The world wants oil and WILL get it no matter what Vancouver people think, say or do. That is the reality. So isn't better for Canada to be in the game and do it in a responsible manner than let other countries do it with much less care: flaring natural gas, little to no SOx regulation?

Right now Canada is U.S.'s ....... for oil. We give it away to them, they refine it and export it to the world. Even some to Canada! Then they fund protest groups so that it remains landlocked so that the good times can continue.

And it goes further than that. As a country, we are not even smart enough to be self sufficient. Canada imports over 700,000 barrels/day of oil to feed East Coast refineries, even some comes from the U.S.!

https://www.neb-one.gc.ca/nrg/ntgrtd/mrkt/snpsht/2017/02-04cndncrlmprtsdcln-eng.html

Is this done for economical reasons? No. Western Canadian Select sells right now for $52 U.S. (after quite a rally to reduce the discount!!!), Edmonton light sells for $61 U.S. and we pay $72 U.S. to import through the St Lawrence River. It took years to reverse the direction of flow of Line 9 from Sarnia to Montreal and expand capacity by a tiny 60,000 barrels/day (don't even think the expansion is done yet). Then people complain at the pump  ::)

Cardboard

Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 13, 2018, 08:17:54 AM
While they are worried about dilbit spills in double-hull vessels, see what our Vancouverites are up to:

https://georgiastrait.org/2013/12/the-greenest-city-or-the-biggest-coal-exporter-in-north-america/

Coal country baby!!! They must love Trump over there.

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 13, 2018, 09:18:56 AM
Climate Barbie agrees. Our reputation is at stake.

https://www.bnn.ca/business-day-pm/environment-minister-trans-mountain-s-construction-about-more-than-just-a-pipeline-being-built~1369730

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: RichardGibbons on April 13, 2018, 09:56:14 AM
While they are worried about dilbit spills in double-hull vessels, see what our Vancouverites are up to:

https://georgiastrait.org/2013/12/the-greenest-city-or-the-biggest-coal-exporter-in-north-america/

Coal country baby!!! They must love Trump over there.

Hmm, so your argument is essentially, "environmentalists lost the fight against coal (https://www.theglobeandmail.com/news/british-columbia/environmentalists-industry-tussle-over-proposed-increase-in-bc-coal-exports/article5785635/), therefore they shouldn't fight Kinder Morgan."  No wait, that doesn't make sense.  "Environmentalists lost the fight against coal, so they're hypocrites." No, that doesn't makes sense either. "Environmentalists lost the fight against coal, and dilbit isn't as bad as...."  No, that's not right....

I'm pretty confused about what your argument is here. Are you just suggesting that we should lower coal exports? Because if that's your point, I'm good with that.
Title: Re: KMI - Kinder Morgan
Post by: Zorrofan on April 13, 2018, 11:08:12 AM
While they are worried about dilbit spills in double-hull vessels, see what our Vancouverites are up to:

https://georgiastrait.org/2013/12/the-greenest-city-or-the-biggest-coal-exporter-in-north-america/

Coal country baby!!! They must love Trump over there.

Hmm, so your argument is essentially, "environmentalists lost the fight against coal (https://www.theglobeandmail.com/news/british-columbia/environmentalists-industry-tussle-over-proposed-increase-in-bc-coal-exports/article5785635/), therefore they shouldn't fight Kinder Morgan."  No wait, that doesn't make sense.  "Environmentalists lost the fight against coal, so they're hypocrites." No, that doesn't makes sense either. "Environmentalists lost the fight against coal, and dilbit isn't as bad as...."  No, that's not right....

I'm pretty confused about what your argument is here. Are you just suggesting that we should lower coal exports? Because if that's your point, I'm good with that.

Why are environmentalists opposed to oil sands production in Alberta, with some of the highest environmental standards in the world, but silent on the issue of oil being imported into Canada from developing countries with environmental standards that are much lower or even non-existent?  Why don't they protest about China and India continuing their coal plant build-out?
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 13, 2018, 06:27:11 PM
Anyone up for a swim this summer at Kitsilano beach?

https://www.thestar.com/vancouver/2018/04/11/untreated-sewage-pollutes-water-across-the-country.html

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: RichardGibbons on April 13, 2018, 06:32:04 PM
Why are environmentalists opposed to oil sands production in Alberta, with some of the highest environmental standards in the world, but silent on the issue of oil being imported into Canada from developing countries with environmental standards that are much lower or even non-existent?  Why don't they protest about China and India continuing their coal plant build-out?

One issues with the tar sands is that they're intrinsically bad for CO2--the highest CO2 emissions in North America. The number I've seen tossed about is that oil sands are 20% higher in emissions than traditional oil. I'm not sure how the math on emissions works on dilbit shipped east from Alberta compared to lighter oil shipped from the Middle East or Africa, but if you find the calculations, I'd be interested.

That said, the likely reason the environmentalists don't protest these other things you're talking about is because they want their protests to have an effect. Canadians protesting Chinese coal plants and oil imports is unlikely to have any effect. (And really, at this point, China seems to understand the problem with pollution better than the USA.)
Title: Re: KMI - Kinder Morgan
Post by: RichardGibbons on April 13, 2018, 06:56:31 PM
My favorite bit of hypocrisy in this pipeline dispute is Notley banning BC wines because she considered it illegal for provinces to ban shipment of other province's products.

My second favorite bit of hypocrisy in this is Horgan saying, "We want to see if what we want to do is legal", while Notley and Trudeau loudly proclaim that it's illegal but then try really hard not to actually argue their case in front of the Supreme Court. If it's so obvious, they should be delighted that Horgan wants to put the question before the courts and do what they can to clear the way.

(I imagine that Notley and Trudeau are kind of creeped out by this decision (https://www.theglobeandmail.com/news/british-columbia/court-rules-bc-must-consult-with-first-nations-on-northern-gateway/article28153791/) that says that not only can BC have special environmental requirements, but also that it must take them into account when reviewing pipelines and not defer environmental issues to the federal government. It's not the exact same issue, but it is similar.)
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 16, 2018, 07:59:23 AM
Following the law?

When a project has been approved by a government, both provincial and federal, and that the company has already spent $1 billion on it then it seems that we have breach of contract.

What it means IMO is that Kinder Morgan Canada should sue B.C. for all its costs and lost future revenues/profits. Moreover, the Canadian government and Alberta should also sue B.C. for all its costs and future lost taxes/royalty revenues.

The Canadian government should also pass a new law declaring illegal any existing and future coalition government. After all, we are a democratic society. It should not be permitted for independent parties to unite and form an illegitimate government after voters have cast their vote.

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: RichardGibbons on April 16, 2018, 08:43:31 AM
Following the law?

When a project has been approved by a government, both provincial and federal, and that the company has already spent $1 billion on it then it seems that we have breach of contract.

You do know that the only thing stopping Kinder Morgan from building the pipeline now is Kinder Morgan, right?  (Well, there are protesters, but the ones who are protesting illegally are being arrested, which seems reasonable.)

The Canadian government should also pass a new law declaring illegal any existing and future coalition government. After all, we are a democratic society. It should not be permitted for independent parties to unite and form an illegitimate government after voters have cast their vote.

LOL, yeah OK.  We should get rid of democracy--stop the MLAs who received the majority of the both votes and the seats from forming government--because Cardboard doesn't like the results.
Title: Re: KMI - Kinder Morgan
Post by: jeffmori7 on April 16, 2018, 07:32:07 PM
Hey Cardboard, I don't know how is your French, but here is a paper I pretty much agree with: http://mi.lapresse.ca/screens/a12d1969-dd02-4953-b002-6540401f1697__7C___0.html?utm_medium=Facebook&utm_campaign=Microsite+Share&utm_content=Screen

We have had those discussions in the past about environmentalists blocking pipelines. While I am not pro-pipelines, I do agree that it is much better to work toward reducing our petrol consumption, making them obsolete, than fighting ad nauseam to block them. What I am afraid though is that we are not doing enough and that IMO should be part of the governement job to accelerate the transition toward a zero carbon world. Seeing the PLC wanting to invest in pipelines is quite weird. I can understand them not wanting to be at war with Alberta, but there are some limits. And when Trudeau says that we don't have to compromise between environment and economy, he forget to say that's what we've been doing for a many decades already.

And I do agree that it is quite hypocritical from BC (or Quebec) on that matter to be heavily against pipelines while not putting all efforts to reduce our needs for oil. Still, it is legitimate to ask questions about assets that are riky, particularly when you are just a way of passage and that it doesn't provide a lot of benefit to you, as would have been the case for Energy East in Quebec for example.
Title: Re: KMI - Kinder Morgan
Post by: scorpioncapital on April 17, 2018, 03:33:37 AM
It's funny even Russian assets are outperforming Canadian, both very resource dependent economies. I find it ironic that people think Canada has less political and economic risk than so called emerging markets where holding up a project like this has virtually zero chance of ever happening. So much for the conventional wisdom :)





Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 17, 2018, 06:10:49 AM
Jeffmori7,

That is a good article and quite balanced. I am surprised that you pretty much agree with it.

As the article states, oil demand worldwide and even in NA keeps on growing. It will be close to 2 million barrels/day this year.

So Canada as a nation has to ask itself: Should we keep our resources in the ground while everybody else including Norway keep on expanding their production and make large profits for their population?

And for Canada another very specific question needs to be asked: Should we continue to accept a very significant discount (20-30%) for all our actual exported production while everyone else is obtaining Brent pricing?

Considering that Canada is only producing around 4% of global production, it will not impact pricing nor reduce supply much (as someone else will pick it up) if we keep on restricting our supply to hold some higher moral ground on CO2 emissions than other countries.

So yes, the long term solution is about transitioning power generation and transportation to non-fossil fuels. However, this will not happen overnight as it will require new technologies to be developed.

Also, something wonderful that has happened with ICE vehicles over the last 10 years is a significant reduction in consumption. A car that used to consume 12 litres/100 km is now at 8. However, the trend that we are seeing is that consumers are now buying the larger vehicles since consumption is less! How do you fight this? More taxes on larger vehicles?

Regarding Energy East you are quite wrong in your conclusion. This would have essentially stopped imports of oil into Quebec, Ontario and the Maritimes. Pretty large savings for consumers considering that even if less "trapped", pricing to Eastern refineries of WCSB oil would have been quite a bit lower than Brent. This would have had major benefits for Canada and Quebec.

Finally, Quebec receives around $13 billion/year from Alberta and Saskatchewan in equalization payments since they collect royalties from oil production. If Quebec did not receive these amounts, $7/day/child daycare could become a thing of the past and a myriad of other services could also disappear. So I believe that Quebec is addicted to this money and it comes from oil... In a way, the more oil is produced, the more Quebec benefits.

Then ask yourself this question: In a few decades from now when fossil fuels is no longer burned. Do you believe that Quebec will send equalization payments to Alberta each year since it is blessed with a geography proper to hydro-electric power?

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 17, 2018, 09:54:51 AM
Since B.C. wants to act like its own country, it is time for the Prairies to unite and form their own union.

https://www.bnn.ca/saskatchewan-threatens-to-cut-off-oil-to-b-c-amid-pipeline-fight-1.1059468

Put a pipeline from Edmonton to Churchill, Manitoba, get nuclear powered ice breakers like the Russians and ship oil to Europe year around.

Then they can keep their equalization payments and provide more to their own folks.

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: John Hjorth on April 17, 2018, 01:56:05 PM
That's actually an interesting idea, Cardboard. Where there is will there is always a way.

In fact, you actually don't need an ice breaker to do this. If a ship is heavy enough [deplacement empty], and with enough output [power] from the propulsion engine, that ship can be designed with ice breaking capabilities. It would be yummy for every very skilled naval achitect and structural ship design engineer to design such an enormous nuclear powered sucker. It's all about hull shape [primary the bow] and stregth of hull structure [dimensions of applied materials and choise of structural design].

- - - o 0 o - - -

Right now, a row of six AOPS [Arctic and Offshore Patrol ship] are under construction at Halifax Shipyard [a sub of J.D. Irving Inc.] in Halifax, NS. Those six thingies are about 100 metres of length [so basically rowing boats compared to a tanker], purpose: To maintain Candian sovereignty in the waters surrounding Canada, to be equipped basically with a sling gun in the bow, only. With ice breaking capabilities.

Video on Vimeo: https://vimeo.com/227461019 (https://vimeo.com/227461019) .
Title: Re: KMI - Kinder Morgan
Post by: rb on April 17, 2018, 02:16:57 PM
Yep, ice breaking supertankers. What could possibly go wrong?
Title: Re: KMI - Kinder Morgan
Post by: John Hjorth on April 17, 2018, 02:23:43 PM
Yep, ice breaking supertankers. What could possibly go wrong?

A lot, as it already has in history. Just put Mr. Taleb on the design team, too. As a free gift for us all, he will - at least for some period - not have time attacking BS'ers on Twitter and some other places, i.e. FB and Medium.

Not more crazy than building sky scrapers in Los Angeles.
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 17, 2018, 02:25:18 PM
So the Prairies don't need to order ice breakers. There are already two of these 6 that belong to them once finished.

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: RichardGibbons on April 17, 2018, 03:24:56 PM
The really interesting thing about this thread is the way it illustrates the tragedy of the commons.  Because Cardboard's argument is right: it's in Alberta's best interest to pump and sell as much oil as they can. It's also in America's best interest, Russia's best interest, and China's best interest....  It's in the best interest of any state that produces oil.

I've been wondering for a long time whether individual economics would trump shared destruction. I was pretty confident that the human species is smart enough to see the threat and work together to address the issue. But to me now, it looks like that won't actually be what happens.

Thus, instead of this problem being solved by the world co-operating, I now think it'll be solved by a subset of the population creating the technology that makes Alberta's oil non-economic. Alberta, having spent its resources on outdated technology, will have a much higher chance of becoming the province that needs equalization payments. It reminds me of another recent tragedy of the commons, the Atlantic fisheries.

It's not clear to me how much damage will be done before we reach the place where the demand for oil plummets, but I think it's unlikely to be something that threatens the extinction of humanity as some environmentalist rhetoric seems to imply.
Title: Re: KMI - Kinder Morgan
Post by: Cardboard on April 17, 2018, 04:16:27 PM
Regarding extinction of humanity don't you think that a conflict with Russia, AI taking over, a virus or a large solar mass ejection toward Earth have a much greater chance of wiping out most humans and in a much more immediate future?

I was left wondering recently why Elon Musk spends any time on Model 3 production issues while he appears scared to death about the threat of AI? Seems like a very poor use of his time.

Cardboard
Title: Re: KMI - Kinder Morgan
Post by: rb on April 17, 2018, 04:28:07 PM
Regarding extinction of humanity don't you think that a conflict with Russia, AI taking over, a virus or a large solar mass ejection toward Earth have a much greater chance of wiping out most humans and in a much more immediate future?

I don't.

I was left wondering recently why Elon Musk spends any time on Model 3 production issues while he appears scared to death about the threat of AI? Seems like a very poor use of his time.

Cardboard
Elon Musk does what he does because Elon Musk is full of shit. But then he has to be in order to get people and institutions to keep giving him billions of dollars.
Title: Re: KMI - Kinder Morgan
Post by: Spekulatius on April 17, 2018, 04:47:12 PM
Yep, ice breaking supertankers. What could possibly go wrong?

The cost would go wrong. They probably would cost a billion or more a piece. And you can’t decomission them at those scrap yards in India or Bangladesh either.
Title: Re: KMI - Kinder Morgan
Post by: RichardGibbons on April 17, 2018, 05:15:12 PM
Regarding extinction of humanity don't you think that a conflict with Russia, AI taking over, a virus or a large solar mass ejection toward Earth have a much greater chance of wiping out most humans and in a much more immediate future?

I think it's fairly certain that hundreds of millions will die as a result of global warming.  I think more could die out from a conflict with Russia or a virus, but the probability of either one occurring is lower.  I think the solar mass ejection has a much lower chance of happening than anything else on the list.

I was left wondering recently why Elon Musk spends any time on Model 3 production issues while he appears scared to death about the threat of AI? Seems like a very poor use of his time.

I know you wrote this not because you care about insight but rather because you wanted to insult Musk, but I think there actually is a real answer to your question.

With the Model 3, Musk has reached the same conclusion as me (way earlier than me). The only way to resolve the tragedy of the commons for global warming is to make the oil business non-economic, and one guy with a lot of money and a lot of charisma can make a difference there. The AI issue has the same tragedy of the commons, but it isn't at all obvious how a single person can act to address that problem (aside from diversifying human life across different planets). So, he focuses on the problem he can solve.
Title: Re: KMI - Kinder Morgan
Post by: John Hjorth on April 17, 2018, 06:46:39 PM
Richard,

I actually can't come up with any kind of energy, that does not finally ends up as heat [perhaps plus some more [Read: Pollution in some way, beside heating]]: Kinetic energy, potential energy, light energy, etc.

World energy consumption is just going up and up. There was a slight dip in 2009, because of lower economic activity, caused by GFC, though.

It's a great space to invest in, because demand is just going up and up. One just has to master taxes & subsidies in the space, combined with politics. Personally, I'm just too dumb for that.
Title: Re: KMI - Kinder Morgan
Post by: Cigarbutt on April 17, 2018, 06:48:36 PM
The really interesting thing about this thread is the way it illustrates the tragedy of the commons. 

I've been wondering for a long time whether individual economics would trump shared destruction. I was pretty confident that the human species is smart enough to see the threat and work together to address the issue. But to me now, it looks like that won't actually be what happens.

Thus, instead of this problem being solved by the world co-operating, I now think it'll be solved by a subset of the population creating the technology ...

-Cooperation or disruption from smaller groups?

Quote from Yuval Harari (author of Sapiens):

Question: We’ve evolved into incredibly social beings. What’s the best explanation for that?

Answer: "The Sapiens secret of success is large-scale flexible cooperation. This has made us masters of the world. But at the same time it has made us dependent for our very survival on vast networks of cooperation. This process has accelerated over the millennia, so that today nearly all of the things we need for survival are provided by complete strangers. I don’t know how to produce the food I eat, how to sew the clothes I wear, or how to build the house in which I live. I write history books, get paid for it, and buy 99 percent of what I need from strangers."

And the sentence that followed: "It is no wonder that the size of the Sapiens brain has been decreasing over the last 10,000 years."

-On the rise of smaller groups.

https://phys.org/news/2016-06-cooperation-emerges-groups-small-memories.html
It's about a math model based on multi-level game theory and it looks like the authors may be "looking for" a conclusion

If you have no time to go through the actual papers, the message may be that incentives (carrot and stick) matter.



Title: Re: KMI - Kinder Morgan
Post by: RichardGibbons on April 17, 2018, 10:25:09 PM
I actually can't come up with any kind of energy, that does not finally ends up as heat [perhaps plus some more [Read: Pollution in some way, beside heating]]: Kinetic energy, potential energy, light energy, etc.

World energy consumption is just going up and up. There was a slight dip in 2009, because of lower economic activity, caused by GFC, though.

Yeah, I'm not too concerned with the heat from human energy usage making any real difference to global temperatures, since the sun delivers more energy to earth in an hour (https://www.technologyreview.com/s/414792/solar-power-will-make-a-difference-eventually/) than humanity consumes in a year.

There is exponential growth in human energy usage, but my belief today, based on the work of Hans Rosling, is that the earth's population is topping out pretty soon, so I think that'll slow down the exponential growth. Thus, I don't think the heat of human energy usage will be a problem for a while, only the emissions which result in the retention of the sun's energy.
Title: Re: KMI - Kinder Morgan
Post by: jeffmori7 on April 18, 2018, 07:54:02 AM
I actually can't come up with any kind of energy, that does not finally ends up as heat [perhaps plus some more [Read: Pollution in some way, beside heating]]: Kinetic energy, potential energy, light energy, etc.

World energy consumption is just going up and up. There was a slight dip in 2009, because of lower economic activity, caused by GFC, though.

Yeah, I'm not too concerned with the heat from human energy usage making any real difference to global temperatures, since the sun delivers more energy to earth in an hour (https://www.technologyreview.com/s/414792/solar-power-will-make-a-difference-eventually/) than humanity consumes in a year.

There is exponential growth in human energy usage, but my belief today, based on the work of Hans Rosling, is that the earth's population is topping out pretty soon, so I think that'll slow down the exponential growth. Thus, I don't think the heat of human energy usage will be a problem for a while, only the emissions which result in the retention of the sun's energy.

In this regard, I encourage everyone to look at the Population and Energy sections from www.ourworldindata.org
Title: Re: KMI - Kinder Morgan
Post by: JRM on May 29, 2018, 06:45:33 AM
Here's a letter sent to all KMI employees this morning:

Quote
We are very pleased to share the news that we have found a path forward on the Trans Mountain Expansion Project (TMEP) on which so many of you have been working so hard for so long.  Today, Kinder Morgan Canada Limited (KML) announced that the Government of Canada will purchase Trans Mountain and TMEP for C$4.5 billion.  KML will also work with the Government of Canada to seek a third party buyer for the Trans Mountain Pipeline system and TMEP through July 22, 2018.  We expect to close the transaction late in the third quarter or early in the fourth quarter of 2018, subject to KML shareholder and regulatory approvals.
This is great news for the people of Canada, our customers, and for KMI and KML.  Those of you who had been working on TMEP will now be able to carry on, because the Government of Canada has also agreed to fund the resumption of planning and construction work until the transaction closes. The transaction is expected to close in the fourth quarter of 2018. 
Further, one of the conditions of the sale is that KMC personnel who work on Trans Mountain, the Puget Pipeline or the TMEP will transfer to the new owner.  Other KMC employees will join a new KMI company that will manage the remaining assets: the Cochin pipeline, the Edmonton terminals, and Vancouver Wharves.  In short, we expect no reduction in force associated with this transaction.  Your supervisor and/or Human Resources will provide more information in the coming weeks on your individual situation.
As to the financial impacts, at KMI we still expect to meet or exceed our 2018 distributable cash flow (DCF) per share target, despite losing the EBITDA associated with the Trans Mountain system.  The transaction will also have a positive impact on our consolidated balance sheet.  KML will obviously forego a substantial portion of its budgeted EBITDA, but it will receive significant cash proceeds and retain a solid midstream business that we can build upon.   More details on the transaction and on its financial impacts for both companies can be found in the press releases posted at www.kindermorgancanadalimited.com and www.kindermorgan.com.
One question you may have is about future growth, given how big TMEP is.  We’ve looked hard at that and believe that both companies will be able to find attractive projects or acquisitions to drive solid growth.
Thanks to all who worked strenuously to achieve this successful outcome. 
Title: Re: KMI - Kinder Morgan
Post by: longlake95 on May 29, 2018, 07:02:42 AM
Seems like KMI got a very fair price - 3.1b USD or 9% of market cap.
Title: Re: KMI - Kinder Morgan
Post by: JRM on May 29, 2018, 07:04:16 AM
If I'm reading it correctly Canada is buying the existing pipeline and the new pipeline.
Title: Re: KMI - Kinder Morgan
Post by: bizaro86 on May 29, 2018, 07:18:25 AM
If this doesn't get built now I hope the feds take the $4B off of BC transfer payments.

I'm not sure whether this makes it more likely to go ahead or more likely to get stalled politically. On the one hand, the government cares more about appearances than KMI. On the other, some activist BC judge is probably less likely to shut down the Government of Canada than KMI.
Title: Re: KMI - Kinder Morgan
Post by: TBW on May 29, 2018, 07:50:27 AM
Unclear how the govt funds it. Kml had debt lined up. Does govt use that at better rates? Or does it wait for a bidder to come in next 2 months? No one is paying a high price at this point. So does govt raise project debt?

Seems like a good deal for kmi and KML.

I don't understand KML reaction. They have 220 to 270mil of ebitda remaining and getting $12 per share in after tax cash from govt. To me worth somewhere in the $22 to $23 range
Title: Re: KMI - Kinder Morgan
Post by: SharperDingaan on May 29, 2018, 09:14:34 AM
Unclear how the govt funds it. Kml had debt lined up. Does govt use that at better rates? Or does it wait for a bidder to come in next 2 months? No one is paying a high price at this point. So does govt raise project debt?

Seems like a good deal for kmi and KML.

I don't understand KML reaction. They have 220 to 270mil of ebitda remaining and getting $12 per share in after tax cash from govt. To me worth somewhere in the $22 to $23 range

It's likely the government simply makes the service payments on directly related KMI debt (defeasement), & borrows the difference at floating rate. As/when the debt rolls off it's refinanced with GOC long-term bonds. Straight forward.

The peoples pipeline goes ahead, and the port facilities get expanded/re-located. Over time, new (& bigger) pipe replaces older pipe and improves overall safety. End of discussion, and Petrocan/NEP finally forgiven. Elegant.

SD
   
Title: Re: KMI - Kinder Morgan
Post by: sculpin on May 29, 2018, 09:15:37 AM
Macro Enterprises - Canadian Transmountain pipeline builder

Canadian pipeline builder Macro - no debt, about $1.30 net cash per share & very large contracts to build Transmountain. $2.60 on the TSX today.

Paradigm...

Macro Enterprises Inc.
Rating: Buy
unchanged
12-Month Target: $3.25

Ticker MCR-T

Jason Tucker, Analyst | 403.513.1031 | jtucker@paradigmcap.com

Significant Upside with Limited Downside

Investment Thesis. Macro is active in liquids-rich plays like the Montney and has a growing
presence in Fort McMurray. Over the long term, Macro remains well positioned to benefit from
increased activity related to LNG export facilities and the required infrastructure.

Event

Macro Enterprises Inc. (MCR) announced first-quarter results that were below our
expectations. We continue to believe Trans Mountain will be built in some form or
fashion, but the delays will hamper the company’s 2018 financial performance.

Highlights

 Industry Slows | MCR reported first-quarter revenue of $8.8mm, an EBITDA loss
of $1.6mm and an EPS loss of $0.07, compared to our expectations of $12mm,
($0.5mm) and a loss of $0.05, respectively. We had anticipated stronger MSArelated
revenue for the quarter.

 Busy, Little, Bidding Beavers | MCR remains active on the bidding front,
including bids in conjunction with its current joint-venture partner. The company
remains optimistic that overall activity will pick up in H2 with several large projects
set to be awarded and commence construction in the near term.

 We Hear You Nancy | You can no longer resist the urge of the dark side —
you've taken a point of view that Trans Mountain won't get built and neither do
other major oil pipelines or any pipelines related to LNG exports on Canada's west
coast (yes Canada's west coast). At that point you may wonder, what exactly is
the base business and what does this company look like should the bidding
process not go in MCR's favour? First, we remind you of the company's net cash
position and fleet of equipment. Then, if we assume a run rate quarterly revenue
from MSA work for the company of ~$15mm, throw in some small project work to
the tune of $5mm per quarter (actual was ~$3.5mm in Q1/18, so not far off a
worst-case scenario) and you have a moderate annual revenue estimate of
$80mm. Using a 10% EBITDA margin, you are left with a company that if sold at
5.0x EV/EBITDA multiple would fetch $2.18/sh (1.5% downside). Should the buyer
pay book value ($4.72/sh) for the assets that would imply 123% upside.

 However... | If MCR were successful in winning two additional major projects of
similar size to Trans Mountain, MSA work normalized back to ~$20mm per quarter
as activity picks up and small projects account for $10mm per quarter, this would
imply $420mm in annual revenue. Assume of gross margin of 10% (given larger
projects come at lower gross margin) and SG&A of $10mm annually, the same
5.0x take-out metric equates to a share price of $5.75, representing 160% upside.

Valuation & Conclusion

Delays and a reduction in project work and MSA-related spending will impact MCR’s
Q2 results for MCR. However, longer term, we believe the company is ideally
positioned to benefit from a significant increase in large project work. Our forecast
continues to include revenue from Trans Mountain but does not include any additional
large project awards. Successful bids would represent upside to our current forecast.
We maintain our Buy recommendation and $3.25 target price (5.5x EV/EBITDA based
on our 2019 estimates).

Title: Re: KMI - Kinder Morgan
Post by: Spekulatius on May 29, 2018, 10:09:11 AM
I can’t understand the reaction of KML.TO to this news either and hence bought some KML stock. Looks like a fair deal and win- win to me.
Title: Re: KMI - Kinder Morgan
Post by: Spekulatius on May 29, 2018, 04:44:38 PM
KML looks quite interesting. If KM CA makes ~200M in EBITDA it means that KML share would be 39% of this or 60M or roughly 60c/share. Now KML will receive 12.5 CAD in cash proceeds for a 16.2CAD share price.

The question is what is KMI going to do with KML. The current structure makes no sense and is also tax inefficient. KMI could either buy thr minority KML holders out, or they could sell the bulk all or of the remainder of the company to KML shareholders. Current equity of KMI in their Canadian business is 2.1B CAD, so KML with 1.25B CAD and adding the remainder in debt could buy them out (depending on premium to book).

This would make sense to KMI because KMI itself is cheap (they could buy back stock with the proceeds or deleversge) and holding KML as a Canadian C-Corp isn’t tax efficient for KMI.
Title: Re: KMI - Kinder Morgan
Post by: wisowis on July 19, 2018, 05:45:59 PM
Q2 Results for KML: https://ir.kindermorgancanadalimited.com/2018-07-18-Kinder-Morgan-Canada-Limited-Declares-Dividends-and-Announces-Results-for-Second-Quarter-of-2018

- Adjusted EBITDA was $107.8 million, up from $91.5 million in the previous period.
- For the first half of 2018, KML generated net income of $58.1 million, Adjusted EBITDA of $205.8 million, and DCF of $168.8 million.
- KML expects the transaction to close late in the third quarter or early in the fourth quarter of 2018. 
- Eliminates 3% market discount for the DRIP.
Title: Re: KMI - Kinder Morgan
Post by: JRM on July 20, 2018, 04:34:26 AM
It sounds like KMI management is open to selling KML based on answers given to the analysts during the conference call.