It’s been a rough road for Kinder Morgan Inc (NYSE: KMI). For many years, before the parent company consolidated all of its elements into a single entity, the master limited partnership was considered a very reliable dividend stock. Kinder Morgan LP was constantly referred to as the blue-chip of pipeline master limited partnership stocks.
Then the bottom fell out of the oil market. Prices plunged, and with them the earnings of virtually every energy-based company. As I’ve often warned investors, a stock can have a very reliable dividend, but no matter how high that dividend is, it will mean nothing if the stock loses 60% of its value.
The Troubles at Kinder Morgan Inc
KMI stock has had its ups and down since then. KMI stock generates operating income, as well as net income. The last two years, KMI stock has generated positive free cash flow, although that was not the case in 2015.
However, just as things seemed to be on the upswing for KMI stock, a very bizarre thing happened up in Canada. The company has been working on the Trans Mountain pipeline expansion project, a $6 billion infrastructure work that has received strong opposition from the current government in British Columbia, as well as protesters on the ground.
Last autumn, KMI stock spun off its Canadian subsidiary, into Kinder Morgan Canada Limited (OTCBB:KMLGF), raising $1.3 billion for the sole purpose of funding the pipeline expansion in Canada. Well, right before the IPO finished, Canada’s new Democratic Party allied with the Green party, with the goal of killing the expansion project.
Kinder Morgan has gone through the entire process, from regulatory to environmental and more, in order for the project to go through. However, late last week, KMI management has decided to pull the plug, as opposition to the pipeline reached peak shrillness.
As usual, it is the misguided stance of environmental groups that get in the way of a necessary pipeline project. The Trans-Mountain expansion project would simply parallel the nearly 700-mile existing pipeline, built back in 1953, and is the only West Coast link for Western Canadian oil. The capacity for transport would nearly triple to 900,000 barrels per day. The nixing of the pipeline, in turn, disrupts oil shipping companies. The shippers made commitments of up to 20 years that would add 80% of the capacity.
Now, let’s not kid ourselves. The move by Kinder Morgan is political, to put pressure on the provincial government. This, in turn, shifts the focus over to the federal government. The Canadian federal government does not want to send a message that Canada is unfriendly to business, particularly energy interests. Canada’s natural resources minister offered to possibly invest in the KMI pipeline project “if it would bring certainty” to the project.
Prime Minister Trudeau is in a bit of a pickle, because he approved the expansion himself in 2016.
Bottom Line on KMI Stock
Either way, I think this will work out okay for Kinder Morgan stock owners. I think the project will start back up again. Either the federal government will invest alongside KMI stock management, effectively insulating the project from provincial politics, or the federal government may simply buy out the entire project and partner with the province of Ottawa, which has expressed interest in the project.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
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