I've read in the Wall Street Journal that the stabilization and distillation required under the Pioneer and Enterprise ruling is a lot less than what the current crop of "splitters" like Kinder's are designed to do. The level of refinement under the ruling can be do in the field for tens of millions $, rather than hundreds of millions ($360 million for Kinder) for the splitters now in the works. Kinder's splitter is under LT contract with BP, I believe, so the financial risk is somewhat removed. Possibly regular splitters are still usable and may perform a needed function.
And, apparently the ultra light crude allowed under the ruling is more explosive, so pipelines aren't eager to handle it in the normal way. We need to learn more. Also, Kinder has many ways of making money in the energy industry, so the splitter many not be that significant either way.
That's what all that non-cash depreciation will do to a company. It will reduce its book value. Did its real value go down? Did the unitholder receive cash distributions related to the depreciation expense there were treated as return of capital?
Why would oil companies including Suncor, Cenovus, Nexen, Total SA, Huskey, and BP Canada have signed precedent or binding agreements to ship oil on the new or expanded Gateway and Transmountain pipelines if they were not certain that the crude product was usable and shippable in ocean going tankers? Your concern about these aspects of the projects is like me worrying that a new farm tractor that John Deere plans to sell is so heavy that it will sink into farmer's fields. The people who manage businesses aren't idiots.
As for exporting LNG, US law prohibits the export of natural gas to countries that don't have free trade agreements with the US. The free trade countries generally don't need our natural gas, or the are in North America and would get the gas pipelined to them, rather than tinkered as LNG. So federal law is what has delayed US LNG exports. Five years ago the shale revolution was not widely known. Even today, there are doubters that its for real.
Transmountain began operations in 1953, long before the Alberta tars sands projects began producing heavy crude. Transmountain's web site indicates that they transport crude, semi-refined, and refined products, each in separate batches, or runs. Tar sands bitumen, when it is piped, is piped as diluted bitumen. So the existing Transmountain line does not solely transport tar sands crude, although I believe the new twin segment would have carried tar sand crude only.
I vaguely recall that N. Gateway's condensate line from Kitimat would be flowing recycled (recovered) condensate from the tar sands crude transported into Kitimat. Transmountain's new line would have to do the same, it seems.
Avanderclausen, when you write that "kinder isn't getting paid for it", it's not clear what you are referring to.
As for the sand remaining in the diluted bitumen, that not an investor's concern. Nor is some sloshing of the product in the tankers our concern. Just imagining something that sounds disagreeable, and concluding that one doesn't like the project, on the basis of imagination, doesn't make sense. Need to specify what harm, if any, is being done.
You think Enbridge or Kinder would build or expand a pipeline and THEN find out that the port "facility" is not interested in pumping it, and that no tanker can haul it? You are not an investor, I take it. You don't know that businesses don't make colossal mistakes like that. If I suspected that businesses don't think things thru, then I wouldn't invest either. I'd be a lot poorer, and have to work for a living, if I could find employment.
I recall KM saying that the ships could be used in transporting crude or product from the Gulf of Mexico to the US west coast. So they should be able to pass thru at Panama. And Jones Act tankers should also be able to engage in international trade, except that they are more costly to operate with US crews, so why use they? All domestic shipping must use Jones tankers.
I can't find any discussion about how the Canadian government's approval of Enbridge's Gateway pipeline impacts Kinder's plans for twinning TransMountain. I suppose, at some point, unless the tars sand fields are shut down, they will be looking for more pipeline capacity to the west coast, and TransMountain will get the nod. In the mean time, TransMountain wlll continue to be the only route to the west coast for several years to come.
Arbtrdr, all's well that ends well. Maybe they are not at the end yet, but it looks like KMI is confident regarding the funding of EPB's 2014 acquisitions. The market price of EPB units didn't take a dive today. That's much better than I had expected. The equity portion will be raised over the next two years apparently. I guess they can say the acquisition is immediately accretive to EPB because they have a good fix on what the interest rate on the debt will be. And hopefully when more equity is raised at a later time, the unit price will not be depressed for irrational reasons (Hedgeye, merger with KMP, disfavored son, still lower pipeline recontracting rates, etc.).
Regarding raising EPB's distributions, it was the announcement on December 5th that EPB's distribution would be frozen for two years that broke the "spell." The news was sudden and abrupt, and within a month EPB was down 10 points. Had KMI been able to guide the distribution down with a small 1 cent quarterly increase, maybe the market would not have panicked the way it did, and the spell would not have been broken. The one cent increase would have cost nothing, and we'd have a unit price that would get the acquisition done immediately in the standard 50-50 debt equity ratio.
As for getting rid of the GP interest, I'll have to read more about what happened at EPD. I regard the MLP's as tools of the sponsors. There's never really a conflict of interest. If the sponsor hurts the common unitholders, the sponsor will feel the pain, and will correct their mistake.
I have a high regard for Kinder Morgan management, but they are human and can make mistakes. I bet if they could go back to December 4th, they would do things differently regarding EPB, rather than go thru that unexpected 12 point decline in EPB's price in barely 6 months.
This acquisition threat was one of the concerns that forced and held down the unit price of EPB, especially in the December thru February period. If you held EPB units, would you be eager to have your units acquired at these low prices when the units were trading 10 points higher just around 6 months ago? EPB has an independent management committee. They'd be nuts to think that now is a good time to sell.
Would you answer that getting a couple points of premium now is better than getting a far lower price in a year or two when this MLP has collapsed after repeated distribution cuts? Is that what's in store for EPB? Is it desperate, backed against the wall? I think yesterday's news announcement, and todays favorable price action on EPB units indicates that EPB is going to be fine.
Once Shell gets permission to deliver LNG to Europe (due to the Crimea annexation), EPB's Elba facility will be one of the crown jewels in the Kinder family. EPB unit holders would be fools to allow a merger with KMP at these currently depressed prices.
The law of small numbers, apparently. 2.5 million EPB units are now shorted. That's 1.147% of the total outstanding. Up some 45% from the 1.72 million units shorted as of mid March. That was .0079% of total outstanding units. Very small numbers.
The nice entry point to go full in was during March. Starting to average in now is a bit late, but better than doing nothing. First quarter earning ought to be very agreeable. A lot of gas has moved thru the pipelines during this extraordinary winter.
Arbtrdr, you are saying that tax law requires that any preferred stock issued by an MLP to be treated as paying interest rather than dividends? If the dividend were deferrable, non-cumulative, not trust originated, and the issue had perpetual life, it would still be paying interest?
Even if its interest, as so many preferred payments are, it would still attract a different type of buyer. No K-1's, a higher level of claim on the cash, institutional ownership. This issue certainly wouldn't
have to pay an 8.5%. EPB's problem includes lack of near term growth, and preferred investors don't care about growth.
There are many positive aspects of EPB issuing preferreds. The cash payout would be lower, and the cash savings could be used to provide a small increase currently in the EPB unit distribution. The freeze in distribution is what caused the whole the group of Kinder securities to nose dive in the past 4 months. The plunge in EPB's unit price cost KMI over a billion in lost market value for it's 41% ownership of all EPB limited units. Just a few tens of millions scrounged up to pay a small increase in the distribution would have prevented a $1 billion market loss.
Issuing more limited EPB units at these prices, increasing the IDR take for KMI, but diminishing the future prospects for the limited owners leaves a foul taste in the mouths of the retail investors. Those IDR's aren't doing KMI much good. Its viewed as a parasite that doesn't know when to easy up on its host so it isn't bleed to death.
The best thing about preferreds is they can be redeemed at par, at a future time when the MLP unit is not grossly undervalued in the market for primarily irrational reasons.
KMI management has proven that they know how to destroy market value. Now they can show that they know how to raise capital wisely when conditions demand it.
To raise the equity portion of the funding for the 2014 acquisitions of Ruby and Gulf LNG, EPB could issue preferred stock with a 5 year call provision. A sizable portion of the dividend would be return of capital, so there'd be a tax deferral feature, and capital gain treatment upon sale, so the yield at par could be in the mid to upper 6% range. Less than the mid to upper 8% range now being paid on the limited MLP units. The preferreds could be redeemed at par in 5 years after distribution growth has long since resumed and the MLP unit price is likely to be generously valued in the market place.
Issuing more MLP units in 2014 at current prices is too costly, and does permanent damage to the partnership.
First stock you ever bought? The stock doesn't know that you own it. Hold on, collect the distributions, and positive sentiment will return when you are least expecting it, like a butterfly floating into a room with an open window.
Seriously, what it will take is the market consensus that K-M will proceed with its capital expansion plans regardless of the unit price of its MLPs. Quarterly conference calls will begin to tell the story.