Silicon Investor - Kinder Morgan Inc-(KMI)

[Jon Koplik] Oilprice.com piece on : pipelines / planned new construction / LNG plants / etc...

Jon Koplik — 11/4/2022 8:20:49 PM

Oilprice.com piece on : pipelines / planned new construction / LNG plants / etc. .............................

November 2, 2022

North America Leads $370 Billion Global Push For Oil & Gas Pipelines

By Alex Kimani

This year, the United States became the world's biggest liquefied natural gas (LNG) exporter as deliveries to energy-starved buyers in Europe and Asia surged. In the current year, five developers have signed over 20 long-term deals to supply more than 30 million metric tons/year of LNG or roughly 4 Bcf/d, to energy-starved buyers in Europe and Asia.

Unfortunately, whereas the United States has the world’s largest backlog of near-shovel-ready liquefied natural gas projects, takeaway constraints including limited pipeline capacity are seen as the biggest hurdle to growth of the sector. In the Appalachian Basin, the country’s largest gas-producing region churning out more than 35 Bcf/d, environmental groups have repeatedly stopped or slowed down pipeline projects and limited further growth in the Northeast. Indeed, EQT Corp. (NYSE: EQT) CEO Toby Rice recently acknowledged that Appalachian pipeline capacity has “hit a wall.”

Luckily, the Permian Basin and Haynesville Shale are still able to shoulder much of the growth forecast for LNG exports including pipeline development. Analysts at East Daley Capital Inc. have projected that U.S. LNG exports will grow to 26.3 Bcf/d by 2030 from their current level of nearly 13 Bcf/d. For this to happen, the analysts say another 2-4 Bcf/d of takeaway capacity would need to come online between 2026 and 2030 in the Haynesville.

And it appears the U.S. is up to the task.

According to RigZone, initial findings from Westwood’s upcoming onshore pipeline market forecast has revealed that between 2022 and 2028, the world will spend ~$369B on 310,000km of new oil and gas pipelines, with North America responsible for the lion’s share. The forecast says that 205,000km, or two-thirds of total installations, will be gas pipelines, with several projects already lined up in the United States.

Heavy investment in O&G pipelines is also anticipated in China as the country looks to boost imports, including the West-East Gas Pipelines 4 & 5 (a combined 6,323km) and the Xinjiang Coal-to-Gas pipeline (8,372km). Strong activity is also expected in Eastern Europe & FSU, driven by the construction of additional pipeline capacity in Russia to serve Asian markets. In Africa, the proposed 6,500km-Central African Pipeline System designed to link 11 countries and improve energy security in the region could potentially mark one of the biggest pipeline projects on the continent.

U.S. Gas Projects In The Pipeline

According to the Federal Energy Regulatory Commission (FERC), four U.S. LNG projects are currently under construction, and another 12 have won regulatory approval by federal regulators while four more have been proposed totaling 40 Bcf/d of potential LNG exports.

The pivotal Permian Basin is preparing to unleash a torrent of gas and gas projects to meet exploding LNG and nat. gas demand. Energy Transfer LP (NYSE: ET) is looking to build the next large pipeline to transport natural gas production from the Permian Basin. The company is also working on the Louisiana-based Gulf Run pipeline, which will transport gas from the Haynesville Shale in Texas, Arkansas, and Louisiana to the Gulf Coast.

Back in May, a consortium of oil and natural gas firms namely WhiteWater Midstream LLC, EnLink Midstream (NYSE: ENLC), Devon Energy Corp. (NYSE: DVN) and MPLX LP (NYSE: MPLX) announced that they had reached a final investment decision (FID) to move forward with the construction of the Matterhorn Express Pipeline after having secured sufficient firm transportation agreements with shippers.

According to the press release, ‘‘The Matterhorn Express Pipeline has been designed to transport up to 2.5 billion cubic feet per day (Bcf/d) of natural gas through approximately 490 miles of 42-inch pipeline from Waha, Texas, to the Katy area near Houston, Texas. Supply for the Matterhorn Express Pipeline will be sourced from multiple upstream connections in the Permian Basin, including direct connections to processing facilities in the Midland Basin through an approximately 75-mile lateral, as well as a direct connection to the 3.2 Bcf/d Agua Blanca Pipeline, a joint venture between WhiteWater and MPLX.’’

Matterhorn is expected to be in service in the second half of 2024, pending regulatory approvals.

WhiteWater CEO Christer Rundlof touted the company’s partnership with the three pipeline companies in developing “incremental gas transportation out of the Permian Basin as production continues to grow in West Texas.” Rundlof says Matterhorn will provide “premium market access with superior flexibility for Permian Basin shippers while playing a critical role in minimizing flared volumes.”

Matterhorn joins a growing list of pipeline projects designed to capture growing volumes of Permian supply to send to downstream markets.

WhiteWater revealed plans to expand the Whistler Pipeline’s capacity by about 0.5 Bcf/d, to 2.5 Bcf/d, with three new compressor stations.

MPLX has several other expansion projects under construction. The company says it expects to finish construction on two processing plants this year, and recently reached a final investment decision to expand its Whistler Pipeline.

Also in May, Kinder Morgan Inc. (NYSE: KMI) subsidiary launched an open season to gauge shipper interest in expanding the 2.0 Bcf/d Gulf Coast Express Pipeline (GCX).

Meanwhile, KMI has already completed a binding open season for the Permian Highway Pipeline (PHP), with a foundation shipper already in place for half of the planned 650 MMcf/d expansion capacity.

In an effort to increase LNG exports to the European Union to stave off an energy crisis amid Russia’s war on Ukraine, the U.S. Department of Energy has authorized additional LNG exports from the planned Golden Pass LNG Terminal in Texas and the Magnolia LNG Terminal in Louisiana.

Jointly owned by Exxon Mobil (NYSE: XOM) and Qatar Petroleum, the $10B Golden Pass LNG export project is expected to become operational in 2024, while Magnolia LNG, owned by Glenfarne Group, will come online by 2026. The two terminals are expected to produce more than 3B cf/day of natural gas, although Magnolia is yet to sign contracts with customers.

Previously, American LNG developers were unwilling to construct self-financed liquefaction facilities that are not secured by long-term contracts from European countries. However, the Ukraine war has exposed Europe’s soft underbelly and the harsh reality is forcing a rethink of their energy systems. To wit, Germany, Finland, Latvia, and Estonia recently expressed the desire to move forward with new LNG import terminals.

Meanwhile, the DoE has approved expanded permits for Cheniere Energy's (NYSE: LNG) Sabine Pass terminal in Louisiana and its Corpus Christi plant in Texas. The approvals allow the terminals to export the equivalent of 0.72 billion cubic feet of LNG per day to any country with which the United States does not have a free trade agreement, including all of Europe. Cheniere says the facilities already are making more gas than is covered by previous export permits.

© 2022 Oilprice.com.

.
.
.

[Jon Koplik] KMI share repurchase update / From KMI's 7/20/22 earnings press release : Oth...

Jon Koplik — 7/21/2022 11:48:11 AM

KMI share repurchase update / From KMI's 7/20/22 earnings press release :

Other News

Corporate

Year-to-date through July 20, KMI has repurchased approximately 16 million shares of its common stock at an average price of $17.09 per share.

( KMI share price right now is : $17.61 )

Jon.

.
.
.

[Jon Koplik] Barrons / bad tax stuff / pipeline master limited partnerships ....................

Jon Koplik — 3/20/2022 12:03:51 AM

Barrons / bad tax stuff / pipeline master limited partnerships .............................

From below :

<<<<< MLPs are pass-through entities that can pose tax complications. They issue complex K-1 partnership tax forms. Holding an MLP in a retirement account like an IRA can trigger “unrelated business taxable income,” or UBTI, that is taxable on distributions over $1,000 a year. >>>>>

Assuming that this is indeed correct, it confirms my preference for a "regular" corporation / common stock such as Kinder Morgan.

Jon.

----------------------------------

Barrons

March 19, 2022

Oil Prices Are Surging -- and Pipeline Stock Dividends Are Rising. Here’s How to Play It.

By Daren Fonda

Sanctions on Russia are upending global energy markets, pushing up crude oil above $100 a barrel and sending U.S. gasoline prices to an average $4.30 a gallon, up nearly 50% in the last year.

It has also turned the energy sector into a superstar this year. Of the 11 sectors in the S&P 500, energy has been a standout, blowing past the rest of the market with a 32% gain, against a 7% decline in the S&P 500.

Energy infrastructure stocks, including pipelines, transportation, storage, and logistics companies, have returned an average 16.6%, according to the Alerian Midstream Energy Index. That might not look great compared with the broader energy sector.

But infrastructure companies aren’t as volatile or closely correlated to crude oil prices as exploration-and-production, or E&P, companies. Infrastructure companies also tend to pay higher dividends, yielding an average 5.6% against 4.3% for the S&P 500 energy sector.

Moreover, the midstream sector has been through a rough patch and now looks financially healthier with many companies reducing debt, focusing on free cash flow, and rebasing their dividends -- following payout cuts in 2021 amid an energy downturn.

“Geopolitical developments this year have reinforced our positive outlook on the sector,” said Mizuho analyst Gabriel Moreen in an interview. “Commodity markets have tightened, cash flow improvements have been more rapid than we’d expected, and management teams are making the right strategic moves around capital -- with distribution increases, share buybacks, and deleveraging.”

High crude oil prices and dwindling supplies from Russia could also be an incentive for more domestic production, benefiting pipelines, storage, logistics, and other “midstream” segments.

“The significant rise in oil prices and potential need to replace Russian barrels … could give U.S. producers a license to grow more meaningfully,” said Stacey Morris, director of research at Alerian, in a recent commentary.

While the large-cap E&P companies have indicated they won’t boost production sharply, independent producers and smaller drillers are likely to step in, boosting medium-term domestic production.

The CEO of Pioneer Natural Resources (ticker: PXD), a leading domestic shale driller, recently said the company could boost growth above its 5% long-term target, should global prices stay elevated. U.S. shale production could hit 10% annualized growth over the next three years, he added, assuming drillers can find crews and equipment that are now in short supply.

“From a business case, we’re not going to change our 5% growth long term,” Pioneer CEO Scott Sheffield told S&P in early March. “But if there’s a coordinated effort, we would definitely participate in that.”

Dividend increases also appear to be back. Companies that have hiked their payouts recently include Energy Transfer (ET), EnLink Midstream (ENLC), and Rattler Midstream (RTLR), notes Morris. Targa Resources (TRGP) also bumped its payout, she notes.

One of Moreen’s top picks is Targa, a natural gas focused company. Exports of natural gas liquids, or NGLs, should get a lift as Europe tries to wean itself from Russian supplies, he notes.

“Targa has one of the best free cash flow profiles and balance sheets in the sector and some of the best exposure to the Permian basin in West Texas, where there’s good visibility to production growth,” he said. Moreen raised his price to target on the stock to $85 and upgraded it to a Buy rating on Friday.

Targa only yields 2.1%, but it has a low payout ratio, indicating room for dividend growth. Shares closed at $69.26 on Friday and have gained 32.6% this year.

Two other midstream companies Moreen likes are Kinder Morgan (KMI) and Williams (WMB). Both should benefit from demand for U.S. exports of NGLs to Europe as Russian supplies dry up, he says. Kinder yields 6.2% while Williams yields 5.4%.

Among master limited partnerships, or MLPs, DCP Midstream (DCP) operates a diversified mix of pipelines, storage, transportation, logistics, and “gathering” services for domestic oil-and-gas production. Its stock has been a laggard this year, gaining 14%, but it trades at 8.4 times estimated 2023 earnings, making it one of the cheaper MLPs. It yields 5%.

Two other broadly diversified MLPs to consider are Energy Transfer and Enterprise Products Partners (EPD), both yielding around 7%.

MLPs are pass-through entities that can pose tax complications. They issue complex K-1 partnership tax forms. Holding an MLP in a retirement account like an IRA can trigger “unrelated business taxable income,” or UBTI, that is taxable on distributions over $1,000 a year.

Exchange-traded funds can be a simpler way to access the sector. The Alerian MLP ETF (AMLP) is the largest fund in the space, with $6.1 billion in assets and an 8% annualized yield, based on recent distributions. Others to consider include the ETRACS Alerian Midstream Energy Index ETN (AMNA) and Global X MLP & Energy Infrastructure ETF (MLPX).

Write to Daren Fonda at daren.fonda@barrons.com

Copyright © 2022 Dow Jones & Company, Inc.

.
.
.

[Jon Koplik] Reuters -- About half of U.S. oil pipeline space is empty after boom time buildi...

Jon Koplik — 12/20/2021 11:55:56 AM

Reuters -- About half of U.S. oil pipeline space is empty after boom time building spree ...............................

December 16, 2021

About half of U.S. oil pipeline space is empty after boom time building spree

By Stephanie Kelly

NEW YORK, Dec 16 (Reuters) -- About half of U.S. oil pipeline space is sitting unused, heating up competition for barrels in higher-output areas like the Permian Basin in Texas.

Overall U.S. pipeline capacity utilization is at around 50%, compared with a range of 60% to 70% headed into early 2020 before the coronavirus pandemic hit, according to consultancy Wood Mackenzie.

Pipelines overall are now half-full, as production, which surged to 13 million barrels per day in early 2020 to make the United States the top oil producer, has averaged just 11 million bpd in 2021.

Oil and gas shippers often find themselves building pipelines amid a production boom only to find there is too much capacity when downturns occur. Numerous pipelines were built in the Permian in Texas and New Mexico - the largest U.S. oilfield - to export locales while production surged between 2017 and 2020.

Some pipeline operators in areas like the Permian Basin have responded by cutting pre-pandemic shipping rates, as the U.S. oil industry has been slow to recover from the coronavirus outbreak.

Generally, basins that are overbuilt, like the Permian, have lower uncommitted shipping rates than before the pandemic, but basins with less pipeline capacity have managed to raise rates, because there are fewer shipping options, said Ryan Saxton, head of oil data at Wood Mackenzie.

During the pandemic, companies began offering discounted rates to committed shippers as an incentive, said Jesse Mercer, senior director of oil markets at Enverus. As production continues to return, companies are likely to wind down those offers, he said.

The best-performing pipeline in the Permian right now at around 94% utilization, is Phillips 66's (PSX.N) Gray Oak Pipeline, Saxton said.

The uncommitted tariff rate to ship on Gray Oak is about $2.97 per barrel, he said, compared with the more than $4.00-per-barrel on the BridgeTex, another Permian pipeline.

In its third quarter earnings, Phillips 66 noted its midstream transportation pre-tax income rose $30 million from the second quarter, in part due to Gray Oak, one of the largest pipelines in the basin with a capacity of 900,000 bpd.

BridgeTex, a joint venture from Magellan Midstream Partners LP (MMP.N), is at around 70% utilization, Saxton said. The 440,000-bpd line delivers crude to Magellan's terminal in East Houston.

BridgeTex volumes in the third quarter 2021 fell to just over 315,000 bpd, about 5% below volumes in 2020 due to a decrease in uncommitted shipments in the quarter and unfavorable pricing differentials, Magellan said in its most recent earnings call. The company's crude transportation and terminals revenue decreased $38 million in the third quarter.

"The utilization of a pipeline directly impacts the performance of those midstream operators," Saxton said.

However, earnings are starting to recover from lower utilization, said Colton Bean, director of infrastructure research at Tudor, Pickering, Holt & Co.

North Dakota's Bakken production is lagging pre-pandemic levels, and Energy Transfer LP's (ET.N) Dakota Access Pipeline, which can carry about 570,000 bpd out of the region, is at about 77% of utilization, compared with nearly full utilization before the pandemic, Saxton said.

However, Dakota Access' uncommitted tariff rate is $6.64 per barrel, above the around $6.28 per barrel before the pandemic, Saxton said. There are fewer pipes out of the Bakken than in the Permian. Energy Transfer declined to comment for this article.

© 2021 Reuters.

.
.
.

[Jon Koplik] April, 2021 KMI news release / good general review of their business ..............

Jon Koplik — 6/28/2021 11:38:14 AM

April, 2021 KMI news release / good general review of their business ................................................

04/21/2021

Kinder Morgan Increases Dividend 3 Percent and Raises 2021 Guidance

HOUSTON -- (BUSINESS WIRE) -- Kinder Morgan, Inc.’s (NYSE: KMI) board of directors today approved a cash dividend of $0.27 per share for the first quarter ($1.08 annualized), payable on May 17, 2021, to stockholders of record as of the close of business on April 30, 2021. This dividend represents a 3% increase over the fourth quarter of 2020.

KMI is reporting first quarter net income attributable to KMI of $1,409 million, compared to a net loss attributable to KMI of $306 million in the first quarter of 2020; and distributable cash flow (DCF) of $2,329 million, compared to $1,261 million in the first quarter of 2020. The increases are primarily related to the February winter storm and therefore largely nonrecurring. We realized greater margins on KMI’s Texas intrastate pipeline systems resulting from the temporary supply and demand imbalances and substantial spot market price volatility caused by the storm; as well as favorable contributions from the CO2 segment, which curtailed oil production during the storm, allowing power it would have used to be delivered to the grid. Net income for the first quarter of 2021 is also higher relative to the prior year period due to $971 million of impairment charges taken in the first quarter of 2020.

“Apart from the storm and throughout the quarter, our assets continued to provide strong cash flow as we remain guided by a sound corporate philosophy: fund our capital needs internally, maintain a healthy balance sheet, and return excess cash to our shareholders through dividend increases and/or share repurchases,” said KMI Executive Chairman Richard D. Kinder.

“The bulk of our improvement in net income and DCF is due to the strong performance of our Natural Gas Pipelines segment in the face of challenging circumstances presented by the February winter storm. That performance was a result of actions we took following previous weather events, as well as actions we took immediately prior to and during this storm to ensure that our systems could remain operational,” said KMI Chief Executive Officer Steve Kean. “Those actions included enhanced weatherization at storage and other facilities, ensuring critical facilities had backup generation so they wouldn’t lose power, and deploying additional personnel and equipment at normally automated facilities to maintain operations and be positioned to make any necessary repairs if roads became impassable.

“Our storage assets performed exceptionally well, allowing us to deliver gas into the market throughout the storm. These storage withdrawals, along with gas we purchased before and during the event, enabled us to deliver significant volumes of gas at contractual or prevailing prices. These volumes were directed primarily to serve gas utilities and power plants, including some customers who traditionally find their gas supplies elsewhere,” continued Kean. “I am extremely proud of our co-workers throughout the organization in commercial, control rooms, scheduling and contract administration, field operations, and others, who ensured that natural gas reached our wholesale customers even as their own homes were without power and heat.”

“We generated first quarter earnings per share of $0.62, well up compared to a loss per share of $0.14 in the first quarter of 2020,” said KMI President Kim Dang. “At $1.02 per share, DCF per share was up $0.47 from the first quarter of 2020. We achieved $1,714 million of excess DCF above our declared dividend.

“As noted above, that excess cash resulted largely from the outstanding performance of the people in our Texas intrastate pipeline systems and the facilities they kept operational throughout the storm. In addition to the steps Steve outlined, system deliverability and resiliency was also enhanced by our investments in expansion projects and asset maintenance in Texas. These investments, by Kinder Morgan and our joint venture partners, totaled more than $5 billion in the last three years alone.

“We are particularly proud of the fact that the Permian Highway Pipeline, which went into commercial service six weeks prior to the storm, played a key role in keeping more lights and heat on in Austin than would otherwise have been the case,” Dang continued.

2021 Outlook

For 2021, KMI now expects to generate net income attributable to KMI in a range of $2.7 billion to $2.9 billion, declared dividends of $1.08 per share, a 3% increase from the 2020 declared dividends, DCF in a range of $5.1 billion to $5.3 billion, and Adjusted EBITDA in a range of $7.6 billion to $7.7 billion. KMI also now expects to end 2021 with a Net Debt-to-Adjusted EBITDA ratio in a range of 3.9 to 4.0.

As of March 31, 2021, we had over $3.9 billion of borrowing capacity under our $4 billion credit facility and over $1.3 billion in cash and cash equivalents. We believe this borrowing capacity, current cash on hand, and our cash from operations are more than adequate to allow us to manage our cash requirements, including maturing debt, through 2021.

Overview of Business Segments

“The Natural Gas Pipelines segment’s financial performance was well up for the first quarter of 2021 relative to the first quarter of 2020,” said Dang. “The segment provided higher contributions from the Texas intrastate systems and Tennessee Gas Pipeline (TGP), due to their performance during the February winter storm, partially offset by lower contributions from our Oklahoma gathering systems, also due to the storm.”

Natural gas transport volumes were down 3% compared to the first quarter of 2020, with notable volume declines on Colorado Interstate Gas Pipeline (CIG) due to production declines in the Rockies basin; on El Paso Natural Gas due to lower Permian supplies and power generation shifting to coal due to higher natural gas prices (particularly during the winter storm), and milder weather in the southwest later in the quarter; and on Fayetteville Express Pipeline due to contract expirations. These declines were partially offset by: increased volumes on TGP due primarily to weather-related increased usage across the system and increased deliveries to LNG and Mexico customers; on the Permian Highway Pipeline going into service; and, on Elba Express due to increased deliveries to Elba Island. Natural gas gathering volumes were down 25% from the first quarter of 2020 across nearly all our systems, most notably on the KinderHawk and Eagle Ford systems.

“Contributions from the Products Pipelines segment were down compared to the first quarter of 2020 on lower refined products demand as well as lower crude and condensate volumes that were exacerbated by temporary supply and demand interruptions from the February winter storm,” Dang said. “Crude and condensate pipeline volumes were down 28% and total refined products volumes were down 10% compared to the first quarter of 2020. Gasoline volumes were below the comparable period last year by 7% and jet volumes were still very weak (down 40%) but diesel volumes were up by 6% compared to the first quarter of 2020. We did see favorable pricing impacts compared to the first quarter of 2020, when severe declines in commodity prices necessitated inventory value write-downs during that quarter in our transmix and crude and condensate assets.

“Terminals segment earnings were down compared to the first quarter of 2020. Extended refinery outages resulting from the winter storm impacted refined product and petroleum coke volumes at our Houston Ship Channel and Port Arthur, Texas-area facilities, reducing associated ancillary and product handling fees for the quarter. Lingering demand reduction attributable to the pandemic continued to affect refined product volumes that move through our terminals as well as demand for our Jones Act tankers, which experienced lower fleet utilization in the quarter compared to the prior year period,” said Dang. “Conversely, effective utilization across our network of nearly 80 million barrels of storage capacity remains near historic highs due to term contracts entered into during the second quarter of 2020. Due to the structure of our contracts, a much more significant portion of our revenue comes from fixed monthly payments on tank leases versus the revenue we receive for moving product through our terminals.”

“CO2 segment earnings were up compared to the first quarter of 2020 due to its returning power to the grid by curtailing oil production during the winter storm under its existing contract with its power provider, partially offset by lower CO2 sales and crude volumes and lower realized crude prices. Our realized weighted average crude oil price for the quarter was down 7% at $51.05 per barrel compared to $54.61 per barrel for the first quarter of 2020,” said Dang. “First quarter 2021 combined oil production across all of our fields was down 19% compared to the same period in 2020 on a net to KMI basis, but only down 15% net of curtailed volumes. CO2 sales volumes were down 26%.”

Other News

Corporate

In February 2021, KMI issued $750 million in 3.60% senior notes due February 2051.

During the first quarter of 2021, KMI repaid a combined $1.9 billion in principal amount of senior notes consisting of (1) $750 million of senior notes due February 2021; (2) $400 million of senior notes due March 2021; and (3) $750 million of senior notes due March 2021 (which were repaid at the beginning of January 2021).

On March 12, 2021, KMI announced the formation of a new Energy Transition Ventures group within the company to identify, analyze and pursue commercial opportunities emerging from the low-carbon energy transition. The group, led by Jesse Arenivas, President of Energy Transition Ventures and CO2, and Anthony Ashley, Vice President of Energy Transition Ventures, will focus on broadening KMI’s reach beyond the low-carbon energy initiatives currently in development by our business units.

Natural Gas Pipelines

Construction continues on Kinder Morgan Louisiana Pipeline’s approximately $145 million Acadiana expansion project. The project is designed to provide 945,000 dekatherms per day (Dth/d) of capacity to serve Train 6 at Cheniere’s Sabine Pass Liquefaction facility in Cameron Parish, Louisiana. The project is anticipated to be placed into commercial service as early as the first quarter of 2022.

On March 8, 2021, KMI and Brookfield Infrastructure Partners L.P. (Brookfield) completed the sale of a combined 25% interest in Natural Gas Pipeline Company of America LLC (NGPL) to a fund controlled by ArcLight Capital Partners, LLC. KMI received net proceeds of $413 million for our proportionate share of the interests sold. KMI and Brookfield now each hold a 37.5% interest in NGPL. KMI will continue to operate the pipeline.

NGPL’s Gulf Coast Southbound project was placed in service on March 1, 2021. The approximately $203 million project (KMI’s share: $101.5 million) increases southbound capacity on NGPL’s Gulf Coast System by approximately 300,000 Dth/d to serve Cheniere’s Corpus Christi Liquefaction facility in San Patricio County, Texas. It is supported by a long-term take-or-pay contract, which commenced on April 1, 2021.

On March 11, 2021, CIG joined in an announcement that it will be a partner in a responsibly sourced gas (RSG) pilot project along with Project Canary, Colorado Springs Utilities, Bayswater Exploration & Production, LLC and Rimrock Energy Partners. RSG is produced and transported by companies who have committed to reducing methane emissions and whose operations have been independently verified as meeting certain environmental, social and governance standards. Project Canary is a company that provides continuous emissions monitoring data and technologies. CIG will be transporting the RSG to Colorado Springs Utilities for distribution to local consumers and communities in Colorado. Kinder Morgan’s low fugitive methane emissions rate, resulting from years of efforts to reduce emissions across our systems, enabled us to participate in this project. We are pursuing similar opportunities across the Kinder Morgan footprint to bring lower carbon fuels to markets.

Terminals

Construction of the butane-on-demand blending system at KMI’s Galena Park Terminal is complete. The project included the construction of a 30,000-barrel butane sphere, a new inbound C4 pipeline, as well as tank and piping modifications that extended butane blending capabilities to 25 tanks, two ship docks, and six cross-channel pipelines. The approximately $48 million project is supported by a long-term agreement with an investment-grade midstream company.

CO2

The CO2 segment’s ongoing production optimization focus generated increased SACROC base production versus plan. Additional volumes have also been realized due to lower decline rates in the East Flank and Hawaii project areas. This trend overcame the winter storm curtailment, as the operations groups were able to restore production quickly with minimal impact to the reservoir and to operating expenses. CO2 shipments were also up for the quarter versus plan, a result of increased third party and KMI customer demand.

Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy infrastructure companies in North America. Access to reliable, affordable energy is a critical component for improving lives around the world. We are committed to providing energy transportation and storage services in a safe, efficient and environmentally responsible manner for the benefit of the people, communities and businesses we serve. We own an interest in or operate approximately 83,000 miles of pipelines and 144 terminals. Our pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2 and other products, and our terminals store and handle various commodities including gasoline, diesel fuel, chemicals, ethanol, metals and petroleum coke. For more information, please visit www.kindermorgan.com.

Please join Kinder Morgan, Inc. at 4:30 p.m. Eastern Time on Wednesday, April 21, at www.kindermorgan.com for a LIVE webcast conference call on the company’s first quarter earnings.

.
.
.

[Madharry] given the treaty and the lack of evidence this seems like a pipe dream.

Madharry — 5/31/2021 11:53:44 AM

[Jon Koplik] WSJ Opinion / another ridiculous "assault" on a pipeline ..........................

Jon Koplik — 5/22/2021 2:18:26 PM

WSJ Opinion / another ridiculous "assault" on a pipeline ...................................

Opinion
Review & Outlook

May 21, 2021

Gretchen Whitmer’s Pipeline War

Michigan’s Governor assaults Canada and the Midwest economy.

By The Editorial Board

The cyber attack on the Colonial Pipeline has led to surging gasoline prices on the East Coast. But that isn’t stopping Michigan Gov. Gretchen Whitmer from trying to shut down another crucial pipeline, no matter the harm across the Midwest and Canada.

Enbridge Energy’s Line 5 transports more than half a million barrels a day of oil and natural gas liquids through Canada and the Great Lakes region. Late last year Ms. Whitmer moved to revoke and terminate an easement that lets the pipeline operate for 4.5 miles across the Straits of Mackinac. She’s seeking a state court injunction to force Enbridge to shut down Line 5 and “permanently decommission” the pipeline.

Ms. Whitmer claims Enbridge has created an “unacceptable risk of a catastrophic oil spill in the Great Lakes that could devastate our economy and way of life.” But the Pipeline and Hazardous Materials Safety Administration, the federal regulator that oversees Line 5, said in January that it is “presently aware of no unsafe or hazardous conditions that would warrant shutdown of Line 5.”

No mode of moving energy is risk-free, but pipelines are much safer than rail. Enbridge says that over two decades Line 5 has seen five incidents that resulted in the release of 882 gallons of product. Compare that to the 2013 Lac-Mégantic disaster, where a train carrying oil derailed, spilling some 1.6 million gallons and causing an explosion that killed some 47 people.

Enbridge is seeking permits to build a new pipeline to replace Line 5, but the project is years from completion. Consumer Energy Alliance, an advocacy group, says a shutdown of Line 5 could cause propane shortages in Michigan’s Upper Peninsula, and Midwestern farmers could face rising costs for diesel fuel and more. A report by the group found that, even by conservative estimates, Michigan, Ohio, Pennsylvania and Indiana would lose more than 33,750 jobs and $265.7 million in annual state tax revenue from the pipeline’s closure.

Refineries in Michigan, Ohio and Pennsylvania would lose much of their crude oil supply. United Steelworkers Local 912 President Justin Donley has warned that closing Line 5 would jeopardize the Toledo Refining Company, which isn’t equipped to receive oil by truck. The result would be a “devastating loss of income” for nearly 350 union workers and “further economic collapse of the Northern Ohio/Southern Michigan economy,” he said.

Ms. Whitmer is also causing a foreign policy flap. A 1977 treaty between the U.S. and Canada bars a “public authority in the territory of either” signatory nation from taking actions that would have the effect of “impeding, diverting, redirecting or interfering with in any way the transmission of hydrocarbon in transit” by pipeline between the two countries. The treaty makes exceptions for emergencies or natural disasters and temporary shutdowns for safety concerns, but not for gubernatorial whim.

The Canadian government raised these treaty concerns this month in an amicus brief filed in U.S. federal court. Refineries in Ontario depend on the pipeline, and so does the Toronto Pearson International Airport for jet fuel. “A Line 5 shutdown would severely disrupt the supply and increase the price consumers pay for fuel across Quebec and Ontario,” the Canadians argued, adding that “in western Canada, the loss of Line 5 would have a devastating impact on the industry and economy.”

Enbridge has kept the pipeline open and is counter-suing in federal court. But Ms. Whitmer’s pipeline war is a reminder that for today’s progressives, fossil fuels are enemy number one no matter the economic cost.

Copyright © 2021 Dow Jones & Company, Inc.

.
.
.

[Jon Koplik] I am the new "Emcee" / "Moderator."

Jon Koplik — 5/22/2021 2:17:22 PM

[Jon Koplik] Welcome people who have not been interested in KMI !

Jon Koplik — 5/22/2021 2:16:32 PM

[fred woodall] Goldman's Michael Lapides on KMI Goldman Report Investment View We initiate ...

fred woodall — 10/10/2018 7:42:47 AM

Goldman's Michael Lapides on KMI

Goldman Report

Investment View

We initiate coverage on Kinder Morgan Inc. (KMI) with a Buy rating and add KMI to the Americas Conviction List, with a 12-month price target of $24/share, which combined with a dividend yield of 4.4%, implies 37.3% total return potential. KMI should benefit from increased financial flexibility given its improving balance sheet & cash flow profile, and KMI trades at a ~1.5-2x discount to large cap peers.

As a diversified midstream company, KMI should have operating leverage to rising natural gas, crude oil, and refined products production levels across broad portions of the US. KMI remains a leader in natural gas pipeline and gas/crude/refined product storage infrastructure, with a small but growing LNG presence. Crude oil prices are a small driver of earnings given KMI’s CO2 segment – which produces oil using CO2 for enhanced oil recovery (EOR) – but we note KMI remains largely hedged through 2019 and the CO2 segment represents less than ~12% of total reported EBDA.

Our forecasts for adjusted EBITDA come in roughly at $8,054mn/$8,295mn/$8,503mn for 2019/2020/2021 – which compares to FactSet consensus EBITDA of $7,595mn/$7,829mn/$8,134mn with the difference likely on returns for select new projects (LNG, gas pipeline infrastructure, terminals), volumes for its liquids segments and storage terminals, and oil prices received for the CO2 segment.

As our top pick, we view KMI as a top tier investment opportunity for income oriented and total return focused investors. We developed a screen of large-cap ($10bn+) S&P 500 constituents in yield or dividend focused sectors (REITs, Telecom, Consumer Staples, Utilities, Financials) and compared their current dividend yield with the 2-year dividend CAGR through 2020. As highlighted below, KMI screens as one of the better ideas on this metric among the larger cap US stocks given 25% dividend growth through 2020 and a current dividend yield of 4.4%.

[Asgard Chicken] What do you think about this article?It seems to me that Kinder Morgan is trying...

Asgard Chicken — 8/30/2017 8:34:34 AM

What do you think about this article?It seems to me that Kinder Morgan is trying to recover from high debts.

fool.com

[JakeStraw] Kinder Morgan Inc.'s Q4 Results Are Right on the Money fool.com The natural gas ...

JakeStraw — 1/19/2017 8:04:46 AM

Kinder Morgan Inc.'s Q4 Results Are Right on the Money
fool.com
The natural gas pipeline giant’s fourth-quarter results came in as expected, enabling the company to meet its updated full-year expectations.

[JakeStraw] Kinder Morgan, Inc.'s Best Business Segment in 2016 fool.com The energy infrastr...

JakeStraw — 12/15/2016 10:28:46 AM

Kinder Morgan, Inc.'s Best Business Segment in 2016
fool.com
The energy infrastructure giant continued to benefit from the stable earnings of its core natural gas pipeline business.

[JakeStraw] Kinder Morgan Inc. was upgraded by analysts at Credit Suisse Group AG from a "ne...

JakeStraw — 10/20/2016 11:55:18 AM

Kinder Morgan Inc. was upgraded by analysts at Credit Suisse Group AG from a "neutral" rating to an "outperform" rating. They now have a $26.00 price target on the stock, up previously from $23.00.

Kinder Morgan Inc. was upgraded by analysts at Stifel Nicolaus from a "hold" rating to a "buy" rating. They now have a $24.00 price target on the stock, down previously from $25.00. They noted that the move was a valuation call.

Kinder Morgan Inc. was upgraded by analysts at Wolfe Research from a "market perform" rating to an "outperform" rating.

[JakeStraw] 4 Reasons Kinder Morgan's Stock Could Rise fool.com

JakeStraw — 9/21/2016 8:29:33 AM

[Paul Lee] not a pretty view valuentumbrian.tumblr.com

Paul Lee — 10/22/2015 6:20:27 PM

[JakeStraw] Kinder Abandons MLP Structure It Helped Popularize blogs.barrons.com

JakeStraw — 8/11/2014 10:52:08 AM

[Brumar89] 5 Catalysts That Will Send Kinder Morgan Higher in 2012 1 comment | by: Invest...

Brumar89 — 12/25/2011 10:56:27 AM

5 Catalysts That Will Send Kinder Morgan Higher in 2012

1 comment | by: Investment Underground December 25, 2011 |

According to Credit Suisse, Kinder Morgan ( KMI) should grow twice as fast as Kinder Morgan Energy Partners ( KMP).

Kinder Morgan ( KMI) recently announced that they are expecting more than 16% growth in the declared dividends; most of the growth is expected to come from Kinder Morgan Energy Partners ( KMP).

Here are the five catalysts that will drive Kinder Morgan’s ( KMI) shares in 2012:

Construction of a new storage facility

Construction of a new processing facility

Competitive advantage from the Merger with El Paso

98% of KMI’s cash flow comes from KMP; KMP has a very stable fee based business model with minimal risk exposure to commodity prices.

KMI’s unique corporate structure can draw institutional owners. Other MLPs lack this

A New storage Facility:

The construction of a new storage facility in the Edmonton Terminal has been announced which will add 2.4 million barrels of storage and will cost approximately $210 million. The seven storage tanks, which will be a part of this storage facility, will be constructed by late 2013 in Alberta, Canada. The completion of this project will strengthen the advantage of Kinder Morgan in this area. Subscriptions to the Trans Mountain Pipeline have already exceeded the capacity by 63%, as mentioned by Kinder Morgan Energy Partners LP. This 715-mile system delivers to refineries in central British Columbia, Vancouver, and Washington.

The new processing facility:

Kinder Morgan is also setting up a new $130 million processing facility, which will increase daily output. It will initially produce 25,000 barrels per day, later it will be increased to 100,000 barrels per day. The pipeline is set to have roughly 70 miles of construction and will help transport crude/condensate to the Houston Ship Channel. The project is estimated to be completed by January, 2014.

I believe, both these projects will add to the top line and one can see rising stock price as we approach closer to the completion dates.

Strategic benefits from the Merger with El Paso ( EP):

El Paso, another energy-based company, has reported an increase of 18% in its oil and natural gas reserves. This is good news for Kinder Morgan Inc., as it is expected to close its deal early 2012. This pending deal, announced in October, will prove to be a new growth source for KMI. To buy the company, Kinder Morgan had to decrease the offer price so in order not to adversely affect the dividends and debt ratio.

The merger between the two companies will make Kinder Morgan the largest pipeline company in the world, thus there are plenty of opportunities for investors to jump on board. As recently mentioned, this will constitute around 67,000 miles of natural gas pipelines, accounting for roughly 22% of the total natural gas pipelines in the U.S. Market share for the company will substantially rise, giving it access to markets all over the U.S. Since the existing pipelines are regulated, it will pose to be a huge competitive advantage for the company, keeping its stock prices on the high end.

Currently, KMI is trading at $30.74 per share and is expected to reach a price target of $32.50. The company has a P/E ratio of 45.55x and dividend yield of 4.10%. Market capitalization of KMI is $21.70 billion. Investors should keep in mind that Kinder Morgan Energy Partners, LP and Kinder Morgan Management, LLP ( KMR) are pari passu securities. We expect biggest upside in KMI and KMP. Credit Suisse analyst argues that KMP’s assets are “core to North American Energy Infrastructure”

There is a lot of M&A activity going on in the MLP space. Energy Transfer Equity ( ETE) has recently announced its merger approval with Southern Union ( SUG) which will be value additive for shareholders. We expected a good year out of Energy Transfer Equity and were right. ETE has two segments: investments in Energy Transfer Partners ( ETP) and Regency. Unless the constant dividend structure is changed, it is best to avoid ETP’s stock since dividends have failed to grow. Following points should be kept in mind for those who plan to invest in Energy Transfer Partners ( ETP):

JP Morgan argues that ETP has a high GP burden which will serve as a hurdle for above average growth

The sizeable asset base is a challenge in this environment

ETP’s risk profile will improve as they divest propane business

After the deal with Lone Star JV, ETP’s ability to win new business related to NGL-has increased significantly.

Both ETP and ETE are in process on completing other deals which will be accretive in coming years.

Energy Transfer Partners ( ETP) is looking to sell their propane division for $2.9 billion, signaling a positive benefit for the stockholders and other investors of the company. After the closure of their public offering in November, the company is looking to use the net proceeds to pay back its debt, finance capital expenditures, and for general partnership purpose. Zacks Equity Research has given the company a neutral rating in the long run with a hold rating in the short run. They are worried about the completion times of its growth projects.

KMI’s earnings per share are expected to grow at 26.06% per year over the next five years while those of ETE are expected to grow at 20.81%.

seekingalpha.com

[Glenn Petersen] Kinder’s Major Bet on a Boom in Fracking By CLIFFORD KRAUSS New York Times Dece...

Glenn Petersen — 12/16/2011 9:18:29 AM

Kinder’s Major Bet on a Boom in Fracking

By CLIFFORD KRAUSS
New York Times
December 15, 2011

HOUSTON — The oil and gas business is full of gamblers who drill deep and often, praying for gushers but frequently ending up with dry holes.

Then there is Richard D. Kinder, chief executive of Kinder Morgan, who has personally made billions of dollars operating the industry’s equivalent of a toll road: pipelines.

Now, with Kinder Morgan’s $21 billion deal to buy a leading rival, the El Paso Corporation, he is doubling down.

Hydraulic fracturing techniques — despite causing a growing controversy — are creating a once-in-a-generation boom in oil and gas drilling in the United States, and the opportunity to build many more pipelines to carry new supplies to market.

Public concerns about the environmental risks posed by hydraulic fracturing, or fracking, raise the possibility of tough new restrictions, higher costs and even outright bans on new wells in some areas. But companies like Kinder Morgan and its competitors think the need for new energy sources means pipelines are a relatively low-risk way to play the boom.

If they are right, Kinder Morgan will collect new tolls for decades, along with the ones it is already pocketing.

The nation’s 450,000 miles of transport pipelines provide a steady flow of profits, and big players like Kinder Morgan are geographically diversified, diluting the impact of a drilling slowdown in any one region. Transmission rates are set by the Federal Energy Regulatory Commission and do not vary with fluctuating oil and gas prices. A special federal tax break unavailable to most industries bolsters investors’ returns. And before a single mile of a new pipeline is built, the operator typically lines up contracts with oil and gas companies that commit them to use it, guaranteeing revenue in advance.

Fed by such advantages, Kinder Morgan’s pipeline partnership yielded investors a 17.7 percent compound annual return from 2007 to 2010, compared with 3.5 percent for an index of large integrated oil companies, says IHS Herold, a consulting firm.

“Kinder has made a low-return, humdrum business into a river of money,” said Robin West, chief executive of the consulting firm PFC Energy. “The North American energy scene is being transformed, and this company reflects the colossal scale of the emerging industry.”

Kinder Morgan’s proposed purchase of El Paso, announced in October, is so big that it faces months of antitrust scrutiny. The deal would create the largest pipeline owner in the country, with 80,000 miles of pipelines crossing 35 states and linking new oil and gas fields from Texas to Pennsylvania to most major markets. Although regulators would still set transport prices, the company would have more power to direct what flows through its pipes and where.

“By restricting supplies or not expanding pipelines in the future, they are potentially going to keep natural gas from going to consumer markets where gas is needed, and that could impact prices indirectly,” said Ed Hirs, an economist at the University of Houston.

Analysts say antitrust regulators may require Kinder to divest itself of some pipelines, particularly in and around Colorado, though most expect the deal to be approved eventually.

Mr. Kinder and other Kinder officials declined interview requests. But Larry S. Pierce, a company vice president, denied in an e-mail that his company would restrict gas flows. “Pipelines make money by providing transportation service, not by deciding where the gas goes,” he said.

The increased scale would certainly put Kinder Morgan in a prime position to benefit from a coming wave of pipeline construction. Thousands of miles of new pipelines will be needed to serve wells in fast-growing shale fields like the Bakken in North Dakota, the Eagle Ford in south Texas and the Niobrara in Colorado. In some states, pipeline capacity is so scarce that much of the natural gas coming from wells is simply burned as waste.

All told, spending on new pipelines in the United States could reach more than $200 billion by 2035 (in 2010 dollars), according to the Interstate Natural Gas Association of America Foundation.

“Rich Kinder likes to identify tsunamis,” said Yves Siegel, a senior energy analyst at Credit Suisse, “and this is a tsunami that he believes in.”

If the El Paso deal was approved, analysts say, other big pipeline companies, like Williams Partners and Oneok, would need to scramble to keep up with the supersize Kinder Morgan, which would have easier access to capital and a far larger cash stream to buy or build the new networks.

In acquiring El Paso, Kinder Morgan gets pipelines that are likely to deliver growing cash flows. El Paso’s 14,000-mile Tennessee Gas Pipeline, which stretches from the Gulf of Mexico to Canada, cuts directly through the Marcellus shale field in Pennsylvania, where hundreds of gas wells have been drilled but not yet hooked up to a pipeline. Kinder would also acquire pipelines from West Texas to California that promise future growth as Southwestern states retire aging nuclear power plants in favor of gas-fired electrical generation.

Still, Kinder Morgan knows all too well that unexpected developments can upset the best of plans. When it began building the Rockies Express pipeline several years ago to connect isolated Colorado gas fields with eastern markets, it looked like a sure bet. But with the upsurge of gas production in the Marcellus shale field, demand for western gas had slipped by the time the pipeline was ready in 2009. (The El Paso deal would improve the value of that investment by allowing Kinder to synchronize pipelines owned by the two companies to redirect some Rocky Mountain gas to the Midwest, energy experts say.)

After a string of pipeline accidents in recent years, Congress is expected to pass a bill to tighten safety regulations and double the maximum fine for negligent behavior by pipeline operators to $2 million. Kinder Morgan talks up its safety record, but it has had its share of violations and accidents over the last decade. The company this year has been assessed $573,400 in proposed penalties from the federal Pipeline and Hazardous Materials Safety Administration for violations, although the company noted that the penalties were for terminal, not pipeline, infractions.

“As they get far bigger, how are they going to assure the public’s safety when they seem to have trouble handling the infrastructure they already have?” said Frank J. Gallagher, editor of NaturalGasWatch.org, who is a critic of the expansion of the natural gas industry.

Environmentalists and advocates of renewable energy also say the pipeline industry gets an unfair advantage because of the estimated $2 billion a year in federal tax breaks it receives through use of a corporate structure known as the master limited partnership.

Although Mr. Kinder didn’t invent the tax break, he has been a pioneer in using it. Mr. Kinder co-founded Kinder Morgan in 1997, after he had a falling out with Enron’s chairman, Kenneth L. Lay, and bought Enron’s small pipeline business for $40 million with another Enron colleague. From that perch, Mr. Kinder, a lawyer by background, used the partnership structure to assemble a pipeline network. He owns more than a third of the company.

Master limited partnerships trade on financial markets like stocks, but they are taxed as partnerships. That means the companies do not pay income taxes but instead pass through a share of profits and losses to the owners of the units, who then pay individual income taxes.

The structure has allowed Kinder Morgan and other pipeline companies to secure capital at a lower cost than normal corporations because they can offer investors higher after-tax returns.

In the late 1980s, Congress tightened regulations on such partnerships out of concern that many corporations would turn to them to avoid corporate income taxes. But it carved out an exception for the energy industry, which lobbied hard on the issue. The number of these partnerships in the energy industry has increased to 72 in 2010 from six in 1994, according to the Congressional Research Service.

Annual rates of return on pipelines are generally around 7 percent, hardly spectacular in the oil business. But pipelines often pay for themselves in 10 years or so, and they can produce revenue for decades after that.

“You can go to the movies and be making money,” said Mark Routt, a senior consultant at KBC Advanced Technologies. “You just sell the pipeline capacity over and over again.”

But Nathanael Greene, director of renewable energy policy at the Natural Resources Defense Council, said the industry was so profitable that Congress should either repeal the tax break or allow renewable projects like solar and wind to use the partnership structure, too.

Right now, he said, Congress is “picking winners in the worst sort of way because not only does it make things uneven now but locks in that advantage in a pipeline that lasts for decades.”

Mr. Pierce, the Kinder Morgan executive, defended the partnership structure as a useful policy tool to help build pipelines.

“Congress has made a conscious decision that the benefits of incremental energy infrastructure outweigh the slight decrease in federal revenue,” he wrote in an e-mail. He said that extending master limited partnership treatment to renewable energy sources would be “sound policy, in our opinion.”

nytimes.com

[Brumar89] More on the relationship of KMI to KMP & KMR: Three Ways to Invest in Kinder ...

Brumar89 — 11/1/2011 6:36:46 PM

More on the relationship of KMI to KMP & KMR:

Three Ways to Invest in Kinder Morgan KMI's IPO provides investors with a way to invest in KMP's general partner.

Jason Stevens, 02/11/2011

With the IPO of Kinder Morgan Inc., investors can now choose between three stocks that derive their value from the same set of cash flows. Kinder Morgan Energy Partners KMP, the granddaddy of master limited partnerships, operates a diverse set of midstream assets that we believe would be nearly impossible to replicate. Kinder Morgan Management KMR was created in 2001 as a way to provide investors a way to invest in Kinder Morgan without the tax complications of an MLP. Today's IPO of Kinder Morgan Inc. KMI provides a third opportunity.

Wide-Moat Assets, Quality Cash Flows
Before we get into the structure of each of these stocks, it's important to understand the core assets that generate cash flows underlying all three investment opportunities. At its heart, Kinder Morgan is a pipeline company. The original partnership was created in 1997 by Rich Kinder and William Morgan, when the two got together to purchase a pipeline from Enron. Back then, Enron was busy inventing fabulous--and later fraudulent--business models that focused on "asset-lite" strategies. Enron just didn't see the value in old-fashioned hard assets. Kinder did.

Through a series of acquisitions, Kinder Morgan Energy Partners quickly became one of the major pipeline operators in the country. Today it operates refined products, natural gas, and carbon dioxide pipelines; liquids and bulk storage terminals; rail and truck facilities; and produces crude oil in three West Texas fields. It spearheaded the Rockies Express pipeline, one of the largest natural gas pipelines built in the United States, and has built out a strong position in gas gathering and transportation in most of the major shale plays in the country. In 13 years, Kinder Morgan has increased its enterprise value by more than 900% and has managed to grow distributions to limited partners at a compound average annual rate of 12.6%.

In our view, three factors helped facilitate such rapid growth. First, Kinder recognized the inherent value of wide-moat pipelines and terminals and acquired several at very attractive prices. By focusing on franchise assets with high utilization, attractive regulated rates of return, and opportunities to expand, Kinder built a strong platform for stable and growing cash flows. Second, the MLP structure made financing attractive projects and acquisitions cheaper for Kinder Morgan than c-corp competitors could afford. The fact that Kinder did not pay entity-level taxes meant it could pay more for an asset and still realize higher returns. Third, in this industry size begets size. Cash flows increased as Kinder Morgan built or acquired additional assets, which enabled increasing distribution payments. In turn, the combination of above-average yields and well-above-average distribution growth helped to guarantee an active market for new equity issues, making it easier to finance new growth.

While we think the days of 12% annual distribution growth are a thing of the past for Kinder Morgan, largely due to its size, we continue to think the partnership will be able to increase its limited partner distributions at a healthy 4%-5% a year. This growth, combined with a yield around 6%, adds up to very attractive total return prospects, particularly in this market.

Three Ways to Play
Kinder Morgan has a long history of multiple investment options. The partnership created KMR in 2001 as a way to provide access to KMP's growth without the hassles of owning MLPs. And of course, despite the term "initial public offering," KMI is nothing new. KMI first went public in 1999, when Kinder acquired a gas distribution company in Kansas. In 2007, Rich Kinder and a group of private equity backers took the company private. Now, four years later, it is returning to the public market.

The key differences between the three stocks are captured in Table 1. Kinder Morgan Energy Partners, or KMP, is a master limited partnership. As a partnership, it pays no entity-level taxes, instead passing taxable income and depreciation through to partners on a pro rata basis. Stockholders own units representing limited partnership interest rather than shares of a company. Common units pay cash distributions quarterly, and the partnership sends out K-1 forms instead of 1099s. Until 2004, mutual funds could not own partnership units, and many mutual funds do not to this day.PAGEBREAK

Partly in response to the limits to institutional ownership, Kinder formed Kinder Morgan Management. KMR is a company that solely owns i-shares, a class of limited partner units of KMP. When KMP pays distributions to its unitholders, KMR pays its shareholders in additional shares. A KMR shareholder receives additional shares instead of cash, where the number of shares is equal to the equivalent cash distribution from KMP. What this structure does is allow shareholders to avoid partnership tax accounting, and shareholders receive standard 1099s instead of K-1s at tax time. Because of the way the entity is structured, shares of KMR should be worth exactly the same amount as units of KMP.

Like KMR, KMI helps investors avoid MLP tax complications. KMI is a standard corporation; it pays income tax and pays cash dividends instead of cash distributions, like KMP, or stock dividends, like KMR. At tax time investors will receive a 1099. What sets KMI apart from KMP and KMR is its structure. While KMP and KMR both derive their value from cash flows that accrue to KMP's limited partners, the bulk of KMI's value stems from its ownership of KMP's general partner.

Incentive Math
KMI owns the general partner (GP) and incentive distributions of KMP, 7% of KMP's outstanding limited partner (LP) units, and 4% of KMR's outstanding shares. It also owns 20% of NGPL, a major natural gas interstate pipeline, but the vast majority of KMI's cash flows come from its ownership interests in KMP. By our calculations, KMI's general partnership stake provides about 85% of its cash flow.

The reason that the general partner stake contributes so much lies in the incentive structure common to most master limited partnerships: incentive distribution rights. IDRs grant the general partner an increasing claim on the partnership's total cash distribution as the level of distribution payment to limited partners increases. This can be confusing, so we'll get specific. Table 2 illustrates KMP's incentive distribution structure.

If KMP declared a distribution less than $0.15125 per limited partner unit, limited partners would received the declared distribution and the general partner would receive 2% of the total cash paid out. Assume for a moment that KMP has 100 LP unitholders and declared a $0.15 distribution per unit. LP unitholders would, in aggregate, receive $15, and the GP would receive $0.31. The total cash payout of $15.31 would go 98% to the LP unitholders and 2% to the GP.

That doesn't amount to much, but incentives kick in as the LP distribution increases. As the distribution level reaches $0.17 per LP unit, the LP unitholders receive $17 in aggregate, while the GP gets $0.64. Again this isn't much, but look at the percent increase: the LP distribution increased 13.3%, while the GP distribution increased by 106%, and the GP now receives 4% of the total cash payout.

Moving up the splits, the same math plays out until you get to the high splits. For KMP, any LP distribution above $0.23375 is in the high splits. Let's assume KMP declared a $0.34 distribution, twice the level of the last example. LP unitholders would get $34, a 200% increase, while the GP would receive $13.25, nearly 20 times as high a payout.

You can see how this math works out against KMP's actual distribution history in the chart below. As the LP distribution increased each year, the GP's share of total distributions increased very rapidly at first, and since about 2002 it has been asymptotically closing on 50%. Currently the GP's share of total distributions is about 44%.

The other variable to consider is that the incentive is based on total cash payout. In the example above we kept KMP's hypothetical units outstanding set at 100. But as the unit count increases, the total cash payout also increases. This means that the GP's cash distribution increases whenever KMP issues more units, even if the LP's distribution does not.

It's a Drag
In our view, high distribution splits create a real drag on LP distribution growth. Deep in the high splits, IDRs burden an MLP with a high claim on the cash flow it generates. By our calculations, KMP must increase its distributable cash flow by around 10% annually to be able to raise LP distributions at a 5% clip. Since it's challenging for a partnership as large as KMP to grow cash flows by 10% or more, year after year, high splits translate into lower LP distribution growth over time. We think we're seeing that play out now.

As you can see in the chart below, we anticipate KMP will be able to increase its LP distributions by around 4.5% a year over the next five years. But based on the math we've just walked through, the general partner's distributions will grow a little bit more than twice as fast.

This math underscores the great strength--and the potential weakness--of KMI as an investment option. Clearly, KMI's ownership of KMP's general partner and incentive distribution rights provides for strong cash flow growth, which in turn should allow KMI to grow its own dividend payments at a healthy clip. However, high incentive splits place a sizable burden on KMP's ability to raise its LP distributions over the long run. Over time, we would not be surprised to see a move to reduce or eliminate KMP's incentive distribution rights, as several other MLPs have done in the recent past. We see this as the greatest risk to KMI's long-term growth story. As the old saying goes, if something can't continue forever, it won't.

Jason Stevens is a stock analyst with Morningstar.

morningstar.com

[Brumar89] Why Dividend Stock Kinder Morgan Is A Buy And 4 Ancillary Stocks to Sell 19 co...

Brumar89 — 11/1/2011 6:35:39 PM

Why Dividend Stock Kinder Morgan Is A Buy And 4 Ancillary Stocks to Sell

19 comments | by: Todd Johnson November 1, 2011 | includes: EP, EPB, EPD, KMI, KMP, KMR, MWE

Clearly, KMI will see faster growth in distributions than KMP & KMR ... partially compensated by a lower current yield. I have a good bit in KMR, will probably add KMI in the future.

This article highlights the rationale to own Kinder Morgan, Inc. ( KMI) and sell equities associated with Kinder Morgan. Kinder Morgan's role as General Partner has Incentive Distribution Rights (IDR) which explicitly indicate the shortcomings of not owning Kinder Morgan, the General Partner. Kinder Morgan's incentive distribution rights remove any motive to own Kinder Morgan Energy Partners LP ( KMP). I will opine why other negatively impacted companies are Kinder Morgan Management LLC ( KMR), El Paso Corp. ( EP), and El Paso Pipeline Partners, L.P. ( EPB).

Click to enlarge

2011 Kinder Morgan IPO

It has been a busy year for Kinder Morgan, Inc., one of the largest pipeline transportation and energy storage companies in the U.S, and, so far, it has worked out especially well for investors. In February, Kinder Morgan completed its public offering, which actually is a re-IPO after its common stock was originally bought up by private equity firms in 2007. It was the second largest energy deal in recent years, outside of the Conoco IPO completed in 1998. And, as expected, its stock performed well and investors have been rewarded this year with dividend yield of 3.9%. Its stock price has been on a small coaster ride of late, but it has recently closed near its IPO price of $30.

El Paso Acquisition

The second big event for Kinder Morgan was its recent acquisition of El Paso Corporation ( EP) creating the largest midstream and the fourth largest energy company in North America. The combined company will be the largest owner of natural gas pipelines with nearly 70,000 miles transportation pipelines. It is also the largest independent transporter of petroleum products in the U.S. El Paso is also the second largest oil producer in Texas at 50,000 barrels a day. So, at $38 billion, this was no small deal by any measure.

2012 Dividend Yield

As for the acquisition of El Paso, Kinder Morgan expects natural gas to be a core component of energy production in the future. El Paso has a near monopoly on the oily shale production and distribution in the western U.S. which holds an abundant supply of natural gas. Although KMI also acquired a significant amount of debt with the El Paso purchase, it will be unloading many of its less profitable operations and focusing on those that are now generating significant cash flow. KMI has already had a tremendous history of growth and KMP has demonstrated an almost uncommon ability to produce an increasing stream of distributions, both of which are expected to accelerate with the acquisition of El Paso.

KMI management is now forecasting dividend growth of 12% with an expected doubling of its current dividend by 2015. With that kind of growth, investors could also expect significant capital appreciation as well. For high-yield investors, KMI may not be the perfect stock to own. No stock really is, however, it may be the perfect supplement to a high-yield portfolio over the next five years.

2011 Dividend Yield

So what does the re-emergence of KMI as a listed stock and its new dominance of the energy industry mean for yield-seeking investors? Plenty, if you consider its long range prospects for increasing its cash yield from operations and its master limited partnership (MLP), Kinder Morgan Energy Partners ( KMP). For a taste of what’s to come, KMI’s management just announced a 3% dividend increase which brings its yield up to 4.21%.

First, as the general partner of KMP, its highly successful natural gas pipeline company formed as an MLP. Essentially, KMI has increased its stake in KMP and is the largest recipient of its $4.64 dividend yielding 6.1%, which will be distributed to KMI shareholders. KMP has been the chief cash cow for KMI with a solid record. Under this new, more traditional corporate structure, KMP investors who received KMI shares in the IPO will benefit because of the more favorable tax treatment of KMI dividends.

Own Kinder Morgan

Kinder Morgan had its initial public offering (IPO) this year. I address this offering in the article, " Kinder Morgan, Inc.: The Positives and the Negatives". This is the security to buy as it holds financial incentives far outweighing the benefits of Kinder Morgan Energy Partners LP, Kinder Morgan Management LLC, El Paso Corp., and El Paso Pipeline Partners, L.P.

Kinder Morgan operates in the best interests of Kinder Morgan. This operation comes at the expense of associated parties. As discussed in a September 21st investor presentation, page 22, KMI receives a disproportionate amount of distribution income:

Kinder Morgan Energy Partners LP

Kinder Morgan Energy Partners LP is the nation’s largest pipeline master limited partnership. The partnership is suffering due to the high level of Incentive Distribution Rights paid to General Partner Kinder Morgan. The below table highlights the extent in which Kinder Morgan Energy Partners LP is paying Kinder Morgan 45% of its distributions.

This high payout to the General Partner has caused the following problems:

Kinder Morgan Energy Partners LP is having problems paying its quarterly distributions. The General Partner is extracting 45% at current levels.
Kinder Morgan Energy Partners LP has a higher cost of equity capital. Companies, without General Partner Incentive Distribution Rights, can operate increasingly more efficient.

Kinder Morgan Management LLC

Kinder Morgan Management LLC shares are legally pari passu with KMP shares. KMP receives distributions in cash. KMR receives distributions in the form of KMR shares.

I believe Kinder Morgan will, upon acquisition completion, engulf El Paso Corp. and El Paso Pipeline Partners, L.P. assets in a business-as-usual manner. This opinion is based upon Kinder Morgan's actions with other non General Partner financial interests. The bottom line is -- own Kinder Morgan shares.

Selected Pipeline and Terminal Cost Structures

This chart shows Kinder Morgan's extraction of Kinder Morgan Energy Partners' current distributions. KMI, as the General Partner, is receiving 45% of KMP's distribution income. This reference can be found on an Enterprise Products Partners LP presentation, page 8:

Click to enlarge

Enterprise Products Partners LP

Enterprise Products Partners is an integrated provider of natural gas and natural gas liquids processing, fractionation, and storage services transportation. The company has zero General Partner fees. This allows the company to have a lower cost of equity capital. Dividends have increased for the past 28 quarters.

Markwest Energy Partners ( MWE)

Markwest Energy Partners is engaged in the gathering, processing and transportation of natural gas; the transportation, fractionation, storage and marketing of natural gas liquids; and the gathering and transportation of crude oil. The enterprise also benefits by the lack of General Partner Incentive Distribution Rights. The equity offers a 5.8% dividend yield. Markwest is recognized as a growing and efficiently run enterprise focused upon shareholder returns.

Summary

I recommend that investors consider buying Kinder Morgan. My opinion is to avoid the affiliated Kinder Morgan Partnership equities. The Kinder Morgan General Partner legal structure provides incentives to benefit the General Partner. My advice is to avoid Kinder Morgan Management LLC, El Paso Corp., and El Paso Pipeline Partners, L.P., and Kinder Morgan Energy Partners LP.

Disclosure: I am long KMI, MWE, EPD.

seekingalpha.com

...

Bruce, awesome info. Thanks for sharing. I agree. You hit the issues head on.

KMP has 2 of past 4 quarters where the GP IDR was so excessive to mitigate any KMP growth. KMP was to the point (prior to EP) where dividends would have to stop growing; or KMI would need to reduce IDR take.

Thanks for the comments. Good stuff.

Todd

1 Nov, 09:28 AM! Report Abuse1

kwm3 Comments (477)

good point: KMI can, and will, reduce its IDRs as necessary, so watch out. There were many Form 4s filed a few months ago reflecting large open market purchases of KMR--something that's worthile to note.

1 Nov, 11:35 AM! Report Abuse3

Todd Johnson Comments (2469)

Kwm3 - excellent point. I agree with you. I believe KMI's recent IPO may put some type of covenant on selling the IDR's -- but in time the IDR's will be removed if KMI is expected to compete against other entities with zero IDR's. Investors are not stupid.

1 Nov, 11:59 AM! Report Abuse1

Would have been better if the financial comparison chart had used DCF (distributable cash flow) instead of EPS. EPS not a very good metric for comparing MLPs. That said, the MLPs without GPs have a significantly lower cost of capital, while the others (especially Kinder) has a higher cost. Would it not make sense that ALL the Kinder family would have slower growth than those that have lower costs? Would not the high cost of capital slow growth in KMP/KMR et. al. and thus slow the growth in KMI even if it is leveraged?

1 Nov, 10:44 AM! Report Abuse3

Todd Johnson Comments (2469)

Todd Johnson
I invest in stocks to earn, as a goal - not as a promise, positive absolute returns. I buy stocks, MLPs, closed end funds, options, inverse funds, special situation stocks, spin offs, bonds, metals, oil. My methods are nothing fancy. The only investing aspect that matters is risk-tolerance and... More

arbtrdr - very, very true on a graph with d-cash flow.

Your conclusion is accurate. I believe, however, Kinder Morgan owns the premium pipeline assets in the country. I could ignore Kinder Morgan entirely but I still want exposure to the assets.

In time, I truly believe the IDR's will be bought back & KMI will operate like EPD. Richard Kinder, GS will benefit - in the IDR buyback -- but in time it only makes sense.

1 Nov, 11:57 AM! Report Abuse1

Benzz Comments (30)

Todd, I agree with you 100% but perhaps for a different reason. It was said above that "kinder morgan is for kinder morgan". I would modify that slightly to say that "kinder morgan is for Richard Kinder". His treatment of the EPB unitholders shows that KMI is the only safe place to be.

1 Nov, 11:30 AM! Report Abuse2

Todd Johnson bennzz - excellent point.

1 Nov, 11:54 AM! Report Abuse0
HaroldL Comments (14)

"I believe that Kinder Morgan will, upon acquisition completion, engulf El Paso Corp. and El Paso Pipeline Partners, L.P. assets in a business-as-usual manner."

Can anyone say what it would mean in this case to "engulf" EP and EPB? Its no suprise that EP will no longer trade as a stock, so being engulfed is a given for that company. Now what would happen to EPB? Would KMI really have the incentive to harm the value of EPB's limited partner units? It will own 42% of them if it does no more EPB unit offerings.

1 Nov, 12:05 PM! Report Abuse0

Todd Johnson Comments (2469)
HaroldL,

The KMI GP IDR fee structure will leech income on associated parties. An acquisition, or a GP IDR change, or a KMP dividend cut or 'zero increase' in distribution, were the only options. KMP wasn't quarter by quarter (2 of 4 if memory serves) earning adequate income for distributions - due to IDR.

EP & EPB will be impacted to the extent KMI can make money. the outcome is either negative or at best neutral (for EP/EPB). KMI's involvement can't be to EPB's benefit.

Todd..great column. I was on the fence with KMI..(always looking for higher dividends, distributions) but I think this is a wise move. Never thought I'd look "down" on 4%+.

1 Nov, 01:41 PM! Report Abuse1

Todd Johnson Comments (2469)

Hi jg. Thanks for the feedback. It helps make writing worthwhile. ;)

I own higher yielding names, but KMI is where the lion's share of gains will come from in the future. Share holders will not tolerate - for the long term - KMI's excessive IDR fees. The direction clearly if for fewer GP IDR entities and more EDP's of the world.

I've owned KMP (or KMR) for over 5 years and seen frequent negative references to Rich Kinder's attitude toward unit holders and/or GP KMI's excessive IDR fees, and more recently, the unsustainability of the distribution. I've also owned EPD over that period of time and seen generally positive analyst comment on its management, financial structure, distribution coverage and reasonably benevolent attitude toward unit holders. Past performance is certainly no guarantee of future etc..., but looking back at a 5 year chart, both KMP and EPD have similar share appreciation – about 60% over that period – until KMP reached about 70% after announcing plans to purchase EP. Don't know what this new twist will add, but the market has not been making the value distinctions between the two that critical analysis would indicate is justified.

navigate

1 Nov, 02:54 PM! Report Abuse0

Todd Johnson Hi navigate, SEC filings, and sell-side analysts have made the distinction. KMP is not earning its dividends. It may not be priced in today, but it's unsustainable & obvious. It's embarrassing because Rich Kinder is successful and wealthy. To charge the fees he is - at the present time is outrageous.

Just my opinions & thoughts based upon buy side research amigos, and SEC filings.

Zacks, valueline can all confirm the KMP distribution issues as well.

Todd

1 Nov, 06:13 PM! Report Abuse0