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Ron Hiram  

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  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow [View article]
    I think your assessment is overly harsh. First, proceeds from the increase in debt of ~$2B and issuance of equity of ~$2.6B were used to fund ~$5B in acquisitions, expansions and contributions to equity investments in 1H15. So the base of EBITDA producing assets has also increased. Second, I calculate sustainable DCF coverage for the 9 months ending 6/30/15 at 0.96, so if business conditions do not deteriorate KMI is close to 1x coverage. Third, additional assets will be placed into service in the remainder of 2015, in 2016 and beyond. I think the real issue is whether business conditions will be sufficiently favorable to meet the projected 10% per annum dividend growth target without blowing through coverage ratios.
    Aug 28, 2015. 03:08 PM | 3 Likes Like |Link to Comment
  • A Closer Look At Suburban Propane Partners' Results And Cash Flows As Of 6/30/15 [View article]
    I would describe the distributions from MLPs as tax deferred rather than not non-taxable. NGLS and SPH are in totally different businesses and i would not expect their growth patterns to be correlated. Both are sensitive to oil prices, but not in the same way. As I pointed out in the article, SPH benefited from lower prices. Past patterns of distribution increases notwithstanding, further increases may be tougher for NGLS to achieve on a sustainable basis. SPH may be in a better position to maintain its distribution in the face of further sharp declines in oil prices.
    Aug 28, 2015. 01:52 PM | 1 Like Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow [View article]
    1) KMI and other MLPs calculate DCF differently from the way I do, but also differently from each other. I calculate sustainable DCF in the same way for KMI and all the other MLPs I follow.
    2) The EBITDA number I use in the comparison table is the number supplied by management (=Adjusted EBITDA). The debt number I use in the comparison table is not supplied by management; it comes directly from the balance sheets. For my own purposes, I also look at the ratio using strict EBITDA (i.e., not Adjusted) in the numerator, but inserting another column would be overkill and explaining the differences could be too time consuming.
    I suggest you also read my response to NC Investor.
    Aug 28, 2015. 09:06 AM | 1 Like Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow [View article]
    KMI already filed its 2nd quarter 10-Q and paid the dividend. My analysis will not impact its distribution policy.
    Aug 28, 2015. 08:34 AM | 1 Like Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow [View article]
    See my response to HighOnDividends
    Aug 28, 2015. 08:29 AM | Likes Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow [View article]
    The physical life of a pipeline is considered virtually unlimited given proper maintenance, repair & replacement programs. Pipeline companies and partnerships make dividend or distributions payments to their shareholders or unit holders from “adjusted OCF” (i.e., reduced or increased by various amounts deemed appropriate by management). The rationale is that because the capital investments they make have such long useful lives, it is appropriate to pay for them by issuing long-term debt or equity and that requiring them to cover the payments via FCF as if they had 5 or 10 year lives is too onerous and overly conservative. If you buy into that theory, the simple answer regarding KMI is that it is in the pipeline business and that is what really matters – not whether it is structured as a company or MLP. But it is not really a simple answer because KMI’s dividends are covered by “adjusted OCF”, not OCF. The distinction is important because there is no strict definition of what these “adjustments” should include. That means management has wide latitude to decide and it is exceedingly difficult to make comparisons. Worse, even for items on which there is consensus for inclusion, there is no standard measurement method. For example, one of the two major issues around maintenance capital expenditures is whether amounts classified as expansion cap ex should really have been classified as maintenance cap ex. Correct classification can have a huge impact on DCF and on coverage ratios. But there is no reliable, consistent and standard method of determining into which bucket (expansion vs. sustaining) a capital investment should be placed. I don’t see a way of finding out if management inappropriately allocated more than it should have to the expansion bucket, and is thus overstating an MLP’s DCF and its DCF coverage ratio.
    Aug 28, 2015. 08:25 AM | 8 Likes Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow [View article]
    I did not get additional information on this variance.
    Aug 28, 2015. 05:46 AM | Likes Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow [View article]
    Management contacted me after seeing the article on SA.
    Aug 28, 2015. 05:35 AM | 3 Likes Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow [View article]
    The DD&A ($338m), Certain Items ($107m) and Other ($347m) are absent from KMI's cash flow statement. I do not include them in DCF. As I noted, if the cash is not there, how can it be distributed? In other words, I stand behind the analysis in the August 2 article and behind the conclusion that KMI fell a little short of sustainable DCF coverage in the 9 months ended 6/30/15.
    KMI's management includes the 3 items because it sees things differently. I believes management's assessment is that inclusion provides investors a more representative, accurate, and/or realistic picture of DCF.
    Aug 28, 2015. 05:34 AM | 4 Likes Like |Link to Comment
  • A Closer Look At Energy Transfer Partners' Distributable Cash Flow As Of Q2 2015 [View article]
    I realize some consider my definition of sustainable DCF overly conservative. It is based on the premise that: a) cash consumed by working capital is not available to be distributed and therefore my calculation, unlike reported DCF, does not add it back; b) cash generated by liquidating working capital is not a sustainable source of DCF (here my treatment does not differ from reported DCF).
    In any event, I always look at both reported DCF and what I call sustainable DCF.
    Aug 19, 2015. 03:11 AM | 2 Likes Like |Link to Comment
  • A Closer Look At Plains All American Pipeline's Distributable Cash Flow As Of 2Q 2015 [View article]
    Supply & Logistics accounts for $41m of the total $114m of adjustments that are added to "Total Segment Profit" in order to derive "Adjusted Segment Profit". The principal components of the additional $114m are $60m of derivative losses added back and $65m of losses related to the spill that are added back. I did not see a breakdown of the adjustments by segment, so I cannot give a breakdown by segment of the $114m.

    For Supply & Logistics, the $84m Adjusted number is the lowest quarterly level I have seen in a while. The TTM number, including 2Q15, is $629m. Management's $525m mid-point forward guidance is substantially below that.
    Aug 18, 2015. 05:28 AM | Likes Like |Link to Comment
  • A Closer Look At Plains All American Pipeline's Distributable Cash Flow As Of 2Q 2015 [View article]
    Distribution growth is a much bigger factor in GP valuation models than it is for the underlying limited partnerships. The negative effect of slower or zero growth on unit price is therefore much greater at the GP unit level than at the LP unit level.
    Aug 12, 2015. 04:17 AM | 5 Likes Like |Link to Comment
  • A Closer Look At Kinder Morgan's Distributable Cash Flow As Of 2Q 2015 [View article]
    Web site down due to a technical problem I am as yet unable to resolve. I don't cover SE.
    Aug 7, 2015. 03:12 AM | Likes Like |Link to Comment
  • A Closer Look At Kinder Morgan's Distributable Cash Flow As Of 2Q 2015 [View article]
    Not an issue in my view because KMI consolidated KMP, EPB, KMR before the merger.
    EBITDA as reported by KMI includes its share of equity investees' DD&A and is before "certain items". On a TTM basis the difference is $490 million.
    Aug 6, 2015. 11:25 AM | Likes Like |Link to Comment
  • A Closer Look At Kinder Morgan's Distributable Cash Flow As Of 2Q 2015 [View article]
    Since there is no standard definition of DCF, it is not an issue of "right/wrong". Reasonable people can have different interpretations of DCF. Mine focuses on sustainability. In any event, I am waiting to hear back from a VP in KMI's IR dept.
    Aug 6, 2015. 03:03 AM | 1 Like Like |Link to Comment
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