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Linn Energy, LLC Message Board

  • shamanhbc shamanhbc Aug 12, 2014 2:16 PM Flag

    Will Rich by an upstream next?

    Unwinding the mlp model--going the opposite of the integrated oils. Can start fresh and build a real major without all the downsteams. I think EOG or LINE would be a fit. Interested in opinions--Ruby, Coochy, rrb, Norris et al. Cheers

    Sentiment: Hold

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    • shamanhbc,

      To answer you question regarding whether KMI would be interested in EOG, LINE etc.

      I believe if Kinder were to pursue the E&P side, he would go after Denbury Resources (DNR). It fits well with his current CO2 flood investments in SACROC, Yates, Katz fields, plus Denbury has their own CO2 supply plus they own much of the distribution pipelines (the ones that didn't get dropped into Genesis when DNR owned the GP).

      Denbury in fact is entering the phase of high free cash generation, with a stated commitment of at least doubling the dividend from $.25 to $.50 and perhaps as high #$%$60/share next year. That is pushing close to 3.7% yield on present price and assuming the high end of $.60/share.

      The re-booted KMI may very well trade at a 4% yield or lower upon consummation of the KMP/KMR/EPB deals (will be interesting to see where it indeed does shake out). It remains plausible that if Kinder is interested in increasing his exposure to the production side of the business, that Denbury would be one of the more attractive public c-corp E&P's in terms of low execution risk and strong free cash flow generation and if they can ring out enough free cash flow to make it accretive, I could see it happening.

      While Kinder is a visionary and always thinking outside the box (KMR PIK creation as an example), I doubt we see him move into conventional E&P, it seems to be completely the opposite of what he has done for so long which is look for assets that throw off enormous amounts of cash with little or no execution risk. The CO2 floods have always been a natural extension of the CO2 distribution business, and one that has quietly been the growth engine at the company, consistently generating massive amounts of distributable cash, while also drawing scrutiny over the companies accounting of maintenance/growth capital in the biz.

      One area that I believe he may enter that is not "MLP qualified" is electrical distribution transmission lines. Just a guess..

      • 1 Reply to rrb1981
      • Silly of course rrb/calibain -

        KMP did acquire some very valuable production by aggregation.

        But production is a very different business than building out an integrated transportation and processing network. Most especially when they can demand and receive take or pay commitments from producers.

        The Co2 business does not get the respect it deserves. Simply because it is directly tied to production activity. In an oil industry with a still backwards future market.

        Of course getting further into production would cause the market to assign a much higher risk factor or lower earnings / EBITDA multiple.

        Mr. Kinder is clearly looking to the possibility of tucking in smaller pipes at reasonable valuations. As noted Obama administration has made it difficult to do the logical thing and build pipe. Making existing 'right of way' often more valuable than the pipe itself.

        Penn is no producing an ocean of gas which cannot be delivered effectively to New York or New England during demand spikes. Amazingly Chicago too.

        In fact I am a little surprised Mr. Kinder did not spin out the producing assets as part of the restructuring.

        KMI is not the EROC you were claiming was such a great deal on the restructuring. Twice, first round when LisXa persona was claiming the restructuring had solve all problems. Then you alone after being forced to sell of processing and transportation assets so an MLP could be left with high cost shale.

        My goodness entity. Aping or even Denisovaning is not reasoning.

        Wise up


    • Quite the opposite, and I have evidence (maybe). If Kinder intended to stay in the upstream business, it would have been far more efficient taxwise to leave those assets in KMP, structured as a stand-alone upstream. KMP wouldn't even need to keep the "Kinder" name, it would be a brand new entity, but, the KMP unitholders wouldn't get stuck with a tax bill for the value of those assets, a lot of which will be ordinary income.

      But he didn't do that, he's bringing in KMP lock, stock and barrel, and getting a partial step-up in basis for the assets attributable to the public unitholders. What I'm guessing is that he intends to sell the properties for cash money, and use that capital to fund his empire building.

      Because, that's what this is all about, Kinder wants to be like a railroad mogul of old, a James J. Hill of the 21st century, his pipelines straddling the continent; "I have made my mark on the earth and they can't rub it out.”. That's what drives him. Just speculation of course, it's not like I know the man.

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