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Kinder Morgan Energy Partners Message Board

  • amat_toast amat_toast Nov 24, 2012 1:53 PM Flag

    2 Risks to KMP and Other MLPs

    (1) Tax advantage is taken away from MLPs.
    (2) Federal government starts to over-regulate or actually bans fracking.

    Could folks comment on the risks here. Over-blown? Real? What would be the impact of #1? #2 would be catastrophic.

    Easy to own this stock if you are comfortable with these 2 risks. I'd list the potential for a dividend tax hike but I believe that is baked in the cake already.

    Sentiment: Buy

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    • I have owned KMP and other MLP's for a number of years and can't sell them without good reason. The ordinary income tax on the recapture would be very large. The government gets their share no matter how a tax is administered. Those people who trade MLP's should watch out, the tax man commeth.

    • Fracking won't be banned- new wastewater treatments being used. Distribution is not a dividend. Cheap energy will make companies want to do business here. Co2 business component also something to consider. Peabody Energy exporting coal through KmP's offshore terminal. IEA expects US to become largest oil producer by 2020. No need for Canada's oil, gas, most of which comes here. KMP already has the right of way with its Trans Mountain pipeline from the tar sands to Canada's west coast. Expansion of this pipeline likely as it is currently greatly oversubscribed because Canada's oil will be going to China. Good move to sell their Canada to the Midwest pipeline to Spectra Energy.

    • Fracking is regulated by the states except for ground water contamination. Little xchange for anything more than stronger rules on the well construction and testing as already proposed. Another $200K per well for the proposed rule will change little.

      As to eliminating partnerships? This one is really a non-issue. First it would only garner about $300M according to the OMB. That is meaningless in the sheme of things. Also pretty hard to discriminate and seperate MLPs from other partnerships.

      As to a dividend tax hike - I assume you already know that KMP does not pay a dividend and an increase in the dividend tax rate to 20% plue 3.8% for many would actually be a plus.

      The problem with buying KMP is two things -#1 at some point interest rates are going to rise. That will make alternative income investments more attractive putting unit pressure on MLPs and #2 that KMP is not covering its distribution. This does not bode well if NGL prices stay low or KMP has any operation issues.