Good question. It reminds me of issues raised by the oil wells in Iran developed by Western companies prior to 1951. Who owned those wells...Iran or the West? The freely elected president of Iran (Mosaddegh) believed the oil wells belonged to Iran and the industry should be nationalized. The ever resourceful CIA stages a coup, the Shah of Iran is installed, and the West stays in charge of Iran's oil industry. Eventually the Shah is overthrown and replaced by Kohmeni, a muslim extremist, and the Western companies flee Iran.
I just read that new applications for jobless benefits hit a 42 year low. Unemployment rate is pretty low too and markets near all time highs. Makes one wonder why the Fed is waiting to raise rates.
Reading the report it's a bit premature. The oil bearing strata is 1000+ feet thick (far above average) but no one has said the oil can be extracted.
I'm inclined to agree with you...RK will probably maintain the dividend for the next few quarters at least. But does that mean we should ignore other possibilities? Especially possibilities that would strengthen KMI in the long run. No poster, as far as I recall, has listed RK's other major options for allocating KMI profits. Guess I need to stop tying up my critical electrons with negative thoughts.
You asked: Why on earth would he stop distributing any excess to shareholders (of which he is the largest)? Here's why...he's already a billionaire (unlike us). How much more money does he need? At some point the future of KMI, not his wallet, will be his #1 priority...especially if oil/gas prices remain depressed.
All this reminds me of Seadrill Limited (SDRL) lin September 2014. Another billionaire founder (John Fredrickson) with millions of shares paying a $1 dividend every quarter. Most message board posters hooted at worries the dividend would be cut. Suddenly it went to zero! It's still zero. Fortunately KMI is in a different, much more predictable, business.
Now that KMP no longer exists RK has at least 4 options when it comes to dividend distributions.
1. Distribute profits at the current and gradually higher levels.
2.Invest profits in additional pipeline assets or making new capital investments (and reduce the need for borrowed funds to grow the company).
3.Pay down some of the outstanding debt, to raise their bond rating. That is likely to reduce the cost of future borrowing.
4. Institute a stock buy back program to reduce the number of outstanding shares.
While 2, 3, 4 would reduce distributions in the short term, it will strengthen the company long term and is likely to result in faster growing distributions over the long haul.
I found the quote below, from RK, in the July 2015 report of the April-May-June financial results. He says lower oil and gas prices are reducing pipeline shipment volumes but the impact is small because of the take-or-pay contracts with producers.
" While commodity prices continued to pressure the industry this quarter, we continued to produce strong results due mainly to our large, diversified asset portfolio and fee-based cash flows predominantly supported by take-or-pay contracts."
Yeah, that was a silly analogy! But it illustrates my flawed understanding of the "toll road" model. It sounds like there are times, during the Q2 and Q3 warm months, when a pipeline may be idle due to lack of demand.
I'm a bit surprised that Q4 and Q1 are the strongest for KMI. I thought the "toll road" model meant KMI leased their pipelines for certain time periods. The volume of product shipped was not a factor. It was like KMI rented apartments. The renter must pay even when he's not living in the apartment. Guess I was wrong.
Thanks for pointing out this article. Is there any evidence that KMI (or KMP) ever paid a dividend (or distribution) using borrowed funds, as opposed to funds from their cash flow? The original article (not the rebuttal) made this claim.
I guess you missed the sarcasm in my post. Completely agree with you. The macho KMI posters need to spend a few hours in a VA hospital.
I predicted war with Iran (on this board) last January, triggered by a partnership between Natanyahu and the Rep in congress. It didn't happen. Not enough balls I suppose. Guess we'll have to wait until Trump is in command. He'll settle this thing because he's a REAL man.
Isn't the recent "reorganization" a form of financial engineering? RK took the same set of assets (pipelines and terminals) and changed the corporate structure with the goal of reducing taxes and increasing access to capital markets while maintaining (or increasing) dividends. According to one poster it allowed KMI to reset (increase) the basis in their assets to current market value to gain higher depreciation write offs. A sweet deal! But perhaps Ichan is referring to a different kind of financial engineering.
Actually I'm not very impressed with Ichan's five concerns except for the Fed's zero interest policy. Surely that has diverted money into stocks and out of alternative investments, creating a stock bubble to some unknown extent. He didn't mention other issues: the national debt, QE, the Rep/Dem stalemate, China's slowdown, the trillions of outstanding derivatives, or a Greece default.
However, the stock market has averaged yearly gains of 20+% for the past 7 years. As you said, we are at risk of a market downturn.
Thewzrdaz has company...Carl Icahn also believes the market is at risk for a big drop. He gave five reasons: (1) A bubble caused by the Fed Reserve 0 interest rate policy (2) Tax loopholes which distort investment decisions (3) Financial engineering (is KMI guilty of this?) (4) Weaker balance sheets caused by stock buy backs (5) Strains in the junk bond market.
In the same announcement, however, he said he boosted his stake in Cheniere Energy to 11.43% (27M shares). Cheniere Energy is a LNG terminal and pipeline company on the gulf coast. So he must, at least, have positive vibes about some of the natural gas industry.
The Apple message board must be buzzing with excitement. They sold 13 million IPhone 6S and 6S+ phones is the first 3 days it was released...in the US only, and a new 3day record high. It will be released worldwide (130 countries) in a few weeks. Supposedly they make $500 profit (roughly) on every sale. A friend in Seattle was told she should make an appointment to get hers and it might be mid November before she can get the color she wants.
Sort of makes KMI seem tame doesn't it.
Just so you know, I have no idea what the future holds. But I do know the doom and gloom predictions of all the supposedly economic experts have been consistently wrong for decades. I saw a TV interview of Doug Casey just yesterday...same old storyline. He even dissed the idea of Christmas. Maybe, sometime before he dies, his dire predictions will finally come true. Who knows? But, in retrospect, it would have been far better to ignore Doug and follow the investment advice of Warren Buffet. And that's probably still true today. As for you, Dave, it sounds like you are living the good life somewhere on a sandy beach. Count your blessings.
Are you familiar with Doug Casey? He's been "sounding an alarm" for the last 45 years citing statistics just like those in your post. In 1979 he wrote a huge best seller (Crisis Investing: Opportunities and Profits in the Coming Great Depression). The market boom started in 1982 while his book was still a best seller.
He's been repeating this doom and gloom scenario over and over. He did it again in a June 2014 interview (America has Ceased to Exist: Investment Guru Doug Casey on the Coming Economic Meltdown).
So, am I saying you are wrong? You probably are wrong if the past history of similar negative predictions is any guide. For some people the glass is always half empty, not half full. You should probably quit investing in the stock market. Doug Casey, for example, owns a winery in Argentina.
I can see where that could have a huge impact on the bottom line for KMI. It must be legal to adjust an asset basis to fair market value when asset accounting is moved from one entity (KMP) to another (KMI) within the same overall corporate structure.
Thanks for your explanations!
Now I'm really confused. KMI had a special corporate subsidiary named KMI? And how can losing the tax exempt status of KMP's corporate profits possibly lower the income taxes (thereby retaining more of the total cash flow) of KMI when KMP was folded into KMI, a taxable C Corp?
You don't need to respond. I probably wouldn't understand it. I do think you were correct in saying KMP had no individual GP's. Pretty unusual for a MLP.