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Kinder Morgan Energy Partners Message Board

epholder 1661 posts  |  Last Activity: Feb 7, 2016 11:54 AM Member since: Dec 4, 2002
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  • epholder epholder Feb 7, 2016 11:54 AM Flag

    Dorfman was never indicted, and never served time. If firms and individuals traded ahead of the publishing of the Barrons article, would that be illegal? I don't think the SEC could move this fast. The article came out this weekend.

    I just wish Kaiser would understand what he is writing about. He is still concerned because KMI's total annual capex (maintenance and growth) exceeds annual depreciation expense. Of course it does when the company builds new projects or makes acquisitions during an industry expansion.

  • In his 6/19/15 Seeking alpha article entitled "5 More Reasons Why We thing KM's Shares Will Collapse," Nelson wrote the following, about 7 paragraphs from the bottom of the article:

    "But does Kinder Morgan have a way out?

    The first option for consideration would be for the board to scrap its dividend growth plans to reduce its level of implied leverage. But this may not matter. In cutting the dividend, the board would just reduce its firm value in the context of wrongly applied dividend discount models, and this would then further reduce its attractiveness as a credit because the price in which it can raise equity to support its capital position would then be substantially reduced. In this event, the credit rating would likely face pressure anyway -- thereby starting the spiral lower."

    "Raise equity to support its capital position." ???? Who knows what Nelson is thinking here?

    KMI cut its dividend. It is not raising equity to support its capital position(?), or to fund its capex. Moody's reversed its negative outlook within a few minutes of learning that KMI cut its dividend. Nelson was in a world of his own.

  • Reply to

    Valuentum 11 June 2015 Article

    by jjludemann Jan 28, 2016 10:16 PM
    epholder epholder Jan 28, 2016 11:21 PM Flag

    jjludemann, good work. That's a project that I had wanted to do, but I always get a head ache when I try to make sense a mentally disturbed person's ramblings. Nelson's other big argument was effectively that KMI should never pay a dividend if it has to issue debt that year to fund capital expansion. He, in essence, claimed that KMI was a Ponzi scheme. Borrowing money from debt holders to pay dividends to shareholders.

  • Reply to

    Valuentum 11 June 2015 Article

    by jjludemann Jan 28, 2016 10:16 PM
    epholder epholder Jan 28, 2016 11:11 PM Flag

    unkaphil60, too many have already been hurt. Those long-term KMI shareholders who would have wanted to continue holding the stock but were scared out of it by Valuentum and Barrons have been hurt. This will become apparent in 3 or 4 years. By then KMI will be at or above its all time highs, and Brian and Barrons won't want to bring any of this stuff up.

  • Reply to

    what are oil sands marginal costs?

    by kenberthiaume123 Jan 28, 2016 1:11 PM
    epholder epholder Jan 28, 2016 10:58 PM Flag

    ken123, Canadian producers need access to Asia where they can get higher prices. As for refining it in NW Canada, just like Coca Cola is bottled locally, rather than everything bottled in Atlanta, crude oil is usually shipped to the country or vicinity where the end products will actually be used. Otherwise each of the multiple products made from crude has to be shipped separately in smaller, less cost effective tankers to whatever location on earth that they are going to.

  • Reply to

    Transmountain expansion.

    by thewzrdaz Jan 27, 2016 8:52 AM
    epholder epholder Jan 27, 2016 5:38 PM Flag

    What border are you referring to? TM is entirely within Canada. The Pacific coast near Vancouver, BC is the destination point.

  • epholder epholder Jan 23, 2016 3:32 PM Flag

    I agree. 100% payout is not what any C-corp should be doing.

    As for the utility comparison, think of a local distribution company utility. It's franchise might be in a decaying urban, post industrial wasteland of a city. It's customers aren't paying their bills. It's earnings might be constantly held back by a watchdog public service commission. KMI is not in that situation. It can go anywhere to invest. Many of it's assets are not rate regulated. Utility is not quite the best way to describe KMI in my books.

  • epholder epholder Jan 23, 2016 3:17 PM Flag

    Yes, it is correct that RK can not specify a certain dividend amount that will be targeted for payout four years hence. RK does acknowledge the situation that they foresee beginning in 2020-2021. That is, a lot of cash flow, and no anticipated huge new capital projects. So it's a fair question, what is going to be done with the excess cash flow?

    Two of the four alternatives can be downplayed immediately. Who is going to be enthusiastic now about the possibility of share buybacks of a fully priced stock several years down the road? As for debt reduction, assuming there's no financial crisis on the horizon, one or two years of cash flow would be more than sufficient to trim the debt to very safe levels, assuming higher EBITDA in those years. So debt reduction is not a long-term game plan.

    Fully funding any post 2020 capex with internal funds would be desirable. But DCF is likely to dwarf new capex projects in those future years. This is where the big risk comes into play. We all know what trouble utilities and energy companies have gotten themselves into in prior decades when they began to think of themselves as growth companies. Investments in fiber optics, in Latin America with it's currency risks, in energy trading. Management straying from their core competencies has great risks.

    Maybe the use of "special dividends" would work well for KMI. In years when there are no foreseeable large capex projects, the cash hoard could be paid out in large part by a special dividend. In years when capex requirements are greater, no special dividend is paid.

    If the pig going thru the python analogy is still valid, then long-term shareholders have to be thinking about how the FCF will be used. Dividends seem to be the inevitable answer. Unless RK wants to start selling some of his KMI holdings, cash dividends are the only way he can go from being a paper billionaire to a more diversified cash rich billionaire.

  • epholder epholder Jan 22, 2016 1:47 AM Flag

    If management can predict cash flow for those future years, they should also have a rather firm belief about what they want to do with that money. They stopped building new railroads a long, long time ago, but railroads are still being heavily used. Same with pipeline infrastructure. The build out stops, but the cash flow keeps coming in. What to do with that cash? Management should know that they will soon run out of good investment opportunities, and at that point, it is time to pay the cash to shareholders.

  • epholder epholder Jan 22, 2016 1:35 AM Flag

    It was an opportunity for KMI management to convey what their view of the company's future is. They didn't need to commit to a specific dividend rate for any particular year, of course. However, for them to cite investment theory that there should be no difference (to the investors) between the four alternative uses for cash flow post 2020 probably causes some investors to think that management itself is a bit confused and doesn't know which way to go. If this management believes perpetual growth (in this industry) or share buybacks are as good as cash dividends, that is very unnerving. I'm not going to lose the cash that is paid to me via dividends, but investments made by the company during the tail end of boom years have great risk.

  • epholder epholder Jan 22, 2016 1:16 AM Flag

    paidtopump2001, thanks for the kind words.

    Your concern about "never ending growth" might be part of the reason for the KMI share price collapse. KMI management has described the capex backlog as the "pig going thru the python." That means it is not unending. Only four more years, really. Now if they could describe the company's physical asset and dividend growth plans with the same clarity, maybe they could win back investor confidence.much sooner.

  • epholder epholder Jan 22, 2016 12:14 AM Flag

    Fair or not, KMI management needs to know what investors (not day traders) are thinking. They seem to be flummoxed by what's happened to the share price. The conference caller's question will help management to understand why KMI stock is priced as it is. Rich and Kim stuck to the scripted corporate response, probably on the instruction of their legal department. Rich wouldn't or couldn't explain why giving a direct answer would have been an insult. I suppose it's something that can't be articulated to shareholders.

    As for the rating agencies, in four years they won't be needed. This shale revolution build out won't go on forever. Once the new or reconfigured infrastructure is in place, that will be it. What will KMI do with all that cash flow, and EPS ratios that will never be anything to crow about, due to depreciation expense.

    Once the capex backlog is out of the way, KMI needs to pay out the cash. If something happens in the industry where massive new build outs are again necessary, then KMI can again redirect its cash flow to capex. I'm sure RK doesn't want to see the cash flow of future years being wasted. But this growth thing isn't going to go on forever, so I don't see why this can't be acknowledged.

  • The individual shareholder essentially asked if Rich would give a hint as to whether or not shareholders can expect that $3 dividend starting four years from now, once the pig is thru the python. Seems so logical a question, yet Rich and the Kim Dang dug in their heels, sticking to a real "corporate" answer. New capex, debt reduction, share buybacks, or dividend increases was their answer. They'll do whatever is best at the time, they said.

    Rich had no problem projecting the dividend five years ahead, back in 2014, when it was the wrong thing to do, in hindsight. Now he can't do it when it would be the right thing to do. He could at least say what he favors, but can't promise.

    A return to the large dividend payout is about the only thing that long term investors would hold on for. Sure debt reduction might be very necessary if a huge interest rate increase looms, or if a business segment earnings are significantly damaged. But if business goes on as expected, KMI needs to pay out the dividend to get the stock price up.

    There's not going to be a new shale revolution starting four years from now. Heaven help us if KMI becomes a permanent growth company, branching into non-core businesses where the investments have to be written off after a few years. If KMI chooses continual share buybacks, that would signal the top of the market for KMI, since that is when most share buybacks are done. That cash has essentially gone up in smoke when the stock ultimately crashes (oh how we know they do crash).

    Rich shouldn't be afraid to say that once the pig has gone thru the python, he'd prefer to see the dividend at $3 per share, like he had planned in the first place. That would be an intention, but not a promise.

  • Reply to

    Dividends do inpact equity valuation

    by norrishappy Jan 21, 2016 3:05 PM
    epholder epholder Jan 21, 2016 4:47 PM Flag

    "But they have decided to concentrate the bulk of that money on DEBT repayment.."

    afamilyman, you are going to have to start reading about the company. Read the Business Wire earnings announcement. Read Rich Kinders summary comments to the earnings announcement. There is no debt repayment going on. The freed up cash flow is being used to fund capex.

  • Reuters quotes Kim Dang as saying "Let me give you this warning, if commodity and equity prices continue to fall, then we may have impairments in future quarters."

    Footnote 9 to the financial results indicates that the goodwill write down was on non-regulated natural gas pipeline assets. The regulated pipeline assets are where the big investment is. Most of the goodwill on KMI's books resulted from the El Paso acquisition in 2012. I didn't think El Paso had non-regulated pipeline assets, so goodwill associated with what specific assets would have been written down now?

    Also, doesn't it seem capricious that the price of KMI stock on a certain date (end of the quarter) can trigger an impairment charge. One would think that at the bottom of the financial crisis in March of 2009, when the Dow was at 6600, there would have been lots of goodwill writedowns, solely because of a stock market crash.

  • Reply to


    by thewzrdaz Jan 12, 2016 8:47 PM
    epholder epholder Jan 17, 2016 6:20 PM Flag

    In the case of a FERC regulated gas pipeline, there is no question as to the book value of the pipeline, even after it is acquired by another company. The historical book cost carries over to the new owner. Because the book cost of a pipeline is a component in determining the regulated rates the pipeline can charge its customer, the historical book cost cannot be fiddled with. Otherwise pipeline owners could jack up the rates the can charge their customers just by selling and buying back the pipeline with a cooperating second party.

    In most cases an acquired pipeline is going to be far more valuable to a buyer than what its net book cost after depreciation shows. A buyer like KMI who can obtain synergies from the acquisition because it can connect the acquired pipeline to its large existing network, providing more expanded service to producers and end users over its entire network.

    Thus KMI will pay market value for the acquired pipeline, and the excess of market value over book depreciated cost is goodwill. What aspect of this accounting treatment is the wiz going to quarrel with?

  • Reply to

    What if yesterday was the bottom?

    by epholder Jan 14, 2016 2:27 PM
    epholder epholder Jan 14, 2016 5:34 PM Flag

    Oil may be in the $20 range six months from now, but by then, KMI will have three conference calls (quarterly earnings reports) to demonstrate that it is not significantly harmed by low commodity prices. At some point KMI's share price has to disconnect with the price of oil.

  • epholder epholder Jan 14, 2016 2:36 PM Flag

    It's the thinking and reasoning of the commenters that matters when reading Seeking Alpha and the never commented on Motley Fool articles. What other source of gauging investor sentiment do we have? We can't call up the executives of the companies we invest in. Neither can the authors of those online blogs.

    the authors write the articles with the catchy titles and the commenters comment.

  • They don't ring a bell, you know. This is how most investors miss their chance. At the low they think it will only go lower, so they don't buy. Then it quietly jumps up more than expected, and it confirms to them that they have to wait. But it keeps moving in the wrong direction. Higher highs, never coming back to them. So they wait and wait, and then it is too late. Not really too late, but too late for them because their sentiment changes too slowly.

  • epholder epholder Jan 14, 2016 2:11 PM Flag

    Today's article by Achilies Research at Seeking Alpha (Throwing in the Towel on KMI), the author actually recommends this, has overwhelmingly positive sentiment comments by mature investors who have their own money on the line.