doogoo1, if KMI had kept to the MLP model, I doubt that KMP would have survived the MLP meltdown with its unit price still in the $80+ range. If KMP was alive today, its unit price would be nearly cut in half, and it would be next to impossible for it to undertake the $14 billion capex backlog. KMP needed to issue equity that was immediately generating cash flow so that the offering was accretive to earnings, and especially to DCF. With KMP's already high cash payout, that would have become impossible.
KMI would have had to handle the capex buildout, somehow, and then drop down the projects to KMP once they are built, go into service, and are generating cash flow.
Except for the much, much vaunted EPD, I don't know of any midstream or interstate pipeline MLP that is able to move forward on multi-billion dollar capex projects in this market . Williams and Energy Transfer are going to have to focus on their capex funding, once they get their merger issues out of the way. They will be following KMI's path. Not the other way around.
piatt123, you think KMI should have been able to acquire the interstate pipelines of KMP and EPB for their book value? Any payment above net book value results in goodwill you know.
doogoo1, the step-up only happened on the "tax" books. It's always good to lower one's income taxes. There was no step-up on the financial (SEC reporting) books, or the "books" the FERC looks at for ratemaking.
Had there been a step-up on the financial books, there'd be no need to record goodwill since the physical assets would already reflect their higher fair market value.
piatt, tell the disgruntled former KMP holders that they should have gotten even less from KMI. That would have lowered some of the goodwill.
ganadero65, accounting is usually based on historical costs. Goodwill can't be merged into the costs of the individual physical assets, of which there are probably hundreds of thousands of separate assets. that would be an accounting nightmare.
How unfortunate that the shale revolution came at a time when no one wants all that natural gas, oil, and refined products. Those pipelines will lose value when renewables take over.
ganadero65, you wrote: "But what I am still curious about is at what point is it no longer legitimate to increase total asset value buy including $23 billion in goodwill? Is EPB's and KMP's current appraised value already rolled into "Property, Plant and Equipment"? If so, why isn't $23 billion nothing more than a made up number?"
The total cost of an acquisition is fixed pursuant to the purchase agreement with respect to the cash portion of the compensation, and is fixed by the fair market value of the acquirer's stock, when there is a stock swap, on the date of the merger closing. So the total cost of an acquisition is ultimately fixed. Debt assumed by the acquirer is also part of the acquisition cost.
Next, the net book value of the assets acquired is fixed, and is recorded on the acquired company's books. The excess of acquisition cost over the net book value of what is acquired has to be recorded as goodwill. The merger wouldn't even happen unless the seller's asking price is met. Nothing is made up by the acquirer after the fact.
Assigning fair market value to the various assets when doing a step up requires estimations, but that is a tax matter only.
There is nothing but historical costs and book depreciation shown in the "Property, Plant, and Equipment " numbers on the various pipeline and other operating company books. There'd be no reason to get a current appraised value of these individual companies unless they were being put up for sale separately.
I was under the impression that a big portion, or most, of the goodwill came about from the El Paso Corp acquisition in May or 2012. So 4 years would make sense.
"They are low on cash with about $170M on the balance sheet. They need cash. I suspect this asset sale was needed to cover their current liabilities."
That doesn't sound like the KMI that I've been following. An alternative reality I suppose.
doogoo1, think clearly and don't misrepresent. The cash savings is going into Construction Work in Progress (CWIP). How come you didn't mention that? You wrote that investors should be seeing noticeable improvements in the top and bottom lines (of the income statement)? Improvements equal to 100% of the cash savings? More like 10% over the 12 month period after the capex projects are put into service.
Page 6 of the 1st qtr 10-Q shows total PP&E of $41 billion at 3/31/16 vs PP&E of $40.5 billion at 12/31/15. That is a half billion $ increase, and that is after the $550 million increase in accumulated depr, depl, and amortization for the 1st Qtr of 2016. The total PP&E includes CWIP. Therefore PP&E increased by $1.050 billion before DD&A during the 1st qtr of 2016. So it looks like the balance sheet is improving very nicely.
Total growth capex is forecasted to be $2.9 billion in 2016, excluding any acquisitions. So growth capex will be swallowing all of the dividend savings, as things currently stand.
See page 101 of the 2015 Form 10-K to see how CWIP is part of total PP&E.
unkaphil60, as I recall, the 2015 impairment charge was caused in part (I don't know what part) by KMI's low stock price. They took that charge, about $1.5 billion, in the 4th quarter, and KMI closed on 12/31/15 in at about $14.32, I think.
So when the company's stock price causes a goodwill writedown, we should know not to place too much long-term importance on such an occurence. The stock price is subject to much hysteria. It touched the upper $11's in early 2016.
doogoo1, you write again that "reduced dividends for 3 Qs should be very noticable on balance sheet." Certainly. You saw the $1.05 billion gross additions to PP&E in the 1st Qtr before the $550 increase in Accumulated Depreciiation, Depletion, and Amortization. What more do you want? What is it that you can't come to grips with?
So what area in the U.S. does KMI operate crude oil rail terminals? I trust that Alberta will hold up well, and we will know when a new oil pipeline gets approved.
Are you saying that doogoo1's sounding of the alarm about the decline in KMI's crude by rail terminals business in the U.S. is mistaken because KMI's crude oil rail terminals are located solely in Alberta?
I would surely hope that KMI's common stock holders, maybe not its bond holders, are very happy that KMI is moving forward on its Gulf Coast Southbound project, rather than paying down low cost, investment grade debt.
Such a great project, that Gulf Coast Southbound, moving Marcellus/Utica natural gas that can't get to northern New England (because a single major customer chose a competitor) in the other direction. West on REX and southbound on NGPL to serve new gas fired power generators, petrochemical plants, LNG exports, and Mexico. I am also so glad that KMI now has co-control of NGPL and Myria no longer controls it. The pipeline is already built, and just gets its flow direction reversed on one of its legs. Glad that KMI didn't let NGPL slip away.
The point I was trying to make was that doogoo1's post about the steep decline in crude oil shipments by rail was not valid regarding KMI because KMI apparently has no crude by rail terminals in the U.S. (they'd have to be in the Bakken, right?). KMI has rail terminals in Alberta, but we should assume that their future has been taken into consideration in light of the Trans Mountain expansion.
A lot of the wolf cries have to be ignored because the cries come first, and the research regarding KMI's actual asset locations comes second, if at all.
Doing a financial trade is not KMI's business. Building the infrastructure to connect the new shale gas reserves to growing markets is clearly KMI's most important long-term objective. I don't think that allowing NGPL to go into bankruptcy would have been a safe gamble for KMI. Some other group might have started a bidding war for control. When you consider what NGPL is. It couldn't be duplicated today. Think of what it can do regarding Marcellu/Utica gas that can't be piped into New England. KMI is in a good spot.
KMI traded at $11.20 back in January was it? Its $18.60 now. The stock price can be subject to hysteria. Investors don't have to be. In a few years long-term investors will be very happy with what KMI has done.
doogoo1, here's the EPD related article that you cited in the 7/06/16 "From Seeking Alpha" topic:
US Crude-by-Rail Movements Keep Falling: MLP Impact
By Kurt Gallon | Jul 4, 2016 2:06 pm EDT
US crude-by-rail movements
"According to a monthly report published by the EIA (Energy Information Administration) on June 30, movement of crude oil by rail in the United States, including imports from Canada, fell 25.1% month-over-month to 12.8 MMbbl (million barrels) by the end of April 2016. Except for March, crude oil movements by rail have continued to decline over the past six months. The movement of crude oil by rail in the United States has decreased 40.6% since the beginning of 2016."
It's movement of crude by rail in the US that the article discusses. Canadian crude that moves by rail to another location in Canada is not addressed. We should assume that KMI is well aware that an expanded Trans Mountain could negatively impact its crude by rail terminals in Edmonton, Alberta. KMI likely regards its Canadian crude by rail terminals as an interim solution. Not a forever core business. Contracts probably protect against revenue loss from volume declines, and have fixed fees not tied to volumes.
When the market begins to realize that KMI will be paying a $3 annual dividend four years or so from now, that $20 billion decline (if it is $20 B) will be fully recouped and then some.
Also, KMI doesn't need a 25% restoration of its income. It never lost that much income. As we all know, DCF is what matters to KMI investors and that figure held up very well in the worst of times (low oil prices) which are now fading in the rear view mirror.
Oh the "Moodys downgrade" from stable outlook to negative outlook. I wonder if KMI will ever be able to get that downgrade reversed? Wait a minute. It was reversed by Moodys in less than a week, and that was about 7 months ago.
So that's the "Moodys downgrade" story for anyone who doesn't follow this stock. I doubt that includes anyone reading these posts.
I've found from the January Analysts Presentation that KMI also has the Deer Park Rail Terminal at Pasadena, TX which handles numerous different commodities, including bulk, and also handles what is called base oil. I doubt that its business is tied much to any under performing shale oil fields that have been shut in, or have curtailed production.