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  • Williams: Negative Implications Of Chesapeake Deal  [View article]
    Steve H,

    Let's make sure you are making an accurate comparison in your REIT example. WMB has not indicated that earnings would be lower. We will see how earnings look when they report third quarter numbers. And your comment about "dropped the dividend" is absolutely wrong since they not only didn't drop the dividend, they increased it.

    Sep 13, 2015. 07:12 PM | 1 Like Like |Link to Comment
  • Williams: Negative Implications Of Chesapeake Deal  [View article]
    Clearly the doubts about the dividend turned out to be misplaced. WMB made the announcement much later than usual, but the pay date is right on schedule. And the cornerstone of most dividend investor's approach is "show me the money". WMB is certainly doing that with a whopping 14% increase compared to the year ago period.

    Would we get this kind of increase if things were going poorly for Williams?

    Most analysts rightly view their Transco pipeline as one of the best positioned pipelines in the whole industry. I hope they don't sell themselves short by agreeing to a low offer from ETE. The low share prices across the whole industry make any deal mostly funded by stock a poor deal that would only make sense if the acquired company is struggling. Williams is hardly struggling.

    In terms of the deal with Chesapeake, it is probably a win-win for both companies, but with Chesapeake getting a bit more benefit than Williams. No different than a landlord agreeing to lower rates for an extension of a lease plus the occupancy of more space. Whether or not this becomes a widespread practice remains to be seen.

    Greg - long WMB
    Sep 13, 2015. 06:54 AM | 8 Likes Like |Link to Comment
  • Spectra Energy Exits Auction For Williams, Leaving Energy Transfer Equity The Only Serious Bidder  [View article]

    Thanks for the analysis. A couple things.

    1) I think that there was an error in the calculation for the third bullet point where ETE makes an offer which is 25% higher than the original.

    2). WMB announced a dividend large increase that they indicated in previous filings was contingent upon the deal to roll up WPZ going through. The record date for this increase is Sept 24 with the pay date being Sept 30. Does this then effectively mean that WMB is planning to finalize the WPZ transaction by the end of Sept? Does that create a deadline by which time ETE could acquire WMB, whether hostile or not?

    3) if ETE were to make a hostile bid, what are the chances they would succeed and would the price be higher or lower than a friendly bid?

    Greg - long WMB
    Sep 12, 2015. 04:12 AM | 5 Likes Like |Link to Comment
  • Williams And Chesapeake Strike A Deal  [View article]

    I agree with everything you've said. It's just bad corporate policy to keep investors in the dark about the dividend. They have lots of options, but the one they should not take is keeping investors in the dark.

    Sep 10, 2015. 08:08 PM | Likes Like |Link to Comment
  • Williams And Chesapeake Strike A Deal  [View article]

    The amount of the dividend will depend upon whether or not WMB acquires WPZ. If they, do the dividend will be .64 for the quarter. But if they go with the ETE offer as stated earlier, then WPZ won't be acquired. So it is unclear what will happen to the dividend.

    Sep 9, 2015. 11:00 PM | Likes Like |Link to Comment
  • Williams And Chesapeake Strike A Deal  [View article]

    That is a very good point. I'm awaiting an announcement as well. The "auction" process clearly has delayed this announcement.

    But they are the ones who arrived at this timeline, and it would be a VERY bad corporate move not to pay the dividend in a timely manner.

    Last year the dividend was declared on August 21. It went ex-div on Sept 10 and was paid on Sept 29.

    Greg - long WMB
    Sep 9, 2015. 12:19 PM | Likes Like |Link to Comment
  • Chesapeake cuts deal to lower transportation costs for its natural gas  [View news story]
    It's hard to know how much the deal benefitted each party without seeing more details than the press release shows. But my initial take is that it's like going to the landlord that owns your office building and saying, would you consider lowering my cost per square foot if I take additional office space and extend the duration of my lease?

    Both parties win. And the new arrangement makes both of the businesses more competitive.
    Sep 8, 2015. 10:28 PM | 1 Like Like |Link to Comment
  • Spectra Energy Enters The Battle For Williams  [View article]
    Apparently, the bids were due toward the end of August. I wonder when we will hear something?
    Sep 3, 2015. 09:42 PM | 3 Likes Like |Link to Comment
  • The OPEC Catalyst As U.S. Production Slowly Declines  [View article]
    While I certainly don't disagree with the idea that OPEC can influence the price of oil in the near to medium term in either direction, I think the big story over the last year is US E&P technology. OPEC has lost influence to American technology.

    Saudi Arabia has two choices in the longer term. They can keep oil prices high but continue to lose market share or they can allow oil prices to decline to the point where additional supply from new technologies becomes less cost effective (and "green" energy sources become less cost effective too).

    SA has chosen to let prices slide so that they maintain market share, and eliminate sources of oil that are more expensive. The strategy might be a good one in the long haul, but a painful one for the short term for those OPEC countries that depend upon higher oil prices.

    There are so many moving parts in oil pricing even in the US shale space. Hedging has allowed some E&P companies to stay afloat for a while. That will whither away shortly. Bank financing has also extended operations. Once these props start to disappear we will see what is left. As Warren Buffett says we will see who is swimming naked when the tide rolls out.

    But what is left might be more formidable than might have been imagined a few short years ago. The efficiency and productivity achievements of the E&P industry have been nothing short of amazing. In the longer term the price of oil will depend upon how efficient the E&P technology can become. Are we in the 2nd inning or the 7th with technology improvements? How inexpensively can we find and extract oil?

    Here is an amazing story about a "walking rig". Yes, it can move from one place to another. The video is quite impressive.

    Greg - not long any oil stocks.
    Sep 2, 2015. 12:26 PM | 2 Likes Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow  [View article]

    Thanks for the info. I stand corrected. I had read about coal use in the "Northeast" and I'm thinking that included states like NY and PA. My guess is that the chart you are linking to defines the Northeast as New England.

    Aug 30, 2015. 10:49 PM | Likes Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow  [View article]

    You said:

    "For myself, I'll be putting in a $50,000 solar PV system, which will be paid in 5 years & generate additional returns for the next 15-20 yrs, well in excess of a 6% dividend. And it will provide jobs as well."

    Is your electric bill so high that you can generate $10,000 in savings per year over the first 5 years?

    I have spoken with folks who claim to recoup their solar costs in about 8-10 years after considering tax breaks. And I'm in the mid Atlantic which gets more sun than the northeast.

    I do agree that putting pipelines in certain areas is a difficult task politically. The irony in the northeast is that more coal is being burned because there is not enough nat gas.

    Aug 30, 2015. 06:41 AM | 4 Likes Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow  [View article]
    Even though I think parts of KMI's business will suffer if energy prices stay low! I think it is important to remember that:

    1) Many of KMI's customers are very happy in this environment. Notably refineries and electric utilities. There are two ends to every pipeline.

    2) the most important metric for the health of the midstream industry is volume. And volumes are much higher than a year ago. Yes, they will level off, but at fairly high levels.

    Greg - who is still expecting good dividend growth in the midstream business. And notes that lots of companies have maintained guidance. KMI's 10% per year number is a bit less than what Williams is forecasting and just a bit more than what SE is forecasting.
    Aug 29, 2015. 11:24 PM | 2 Likes Like |Link to Comment
  • The Kinder Morgan Equation Isn't Adding Up  [View article]
    Chevron and Exxon are in a completely different line of work than KMI. KMI's cash flow is FAR more steady and predictable. Just because certain companies are in the broad category of "energy" does not mean they are comparable.
    Aug 28, 2015. 11:56 PM | 3 Likes Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow  [View article]

    You said:

    "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."

    This is one of the biggest question marks. My thought is that it is impossible to know if management is properly allocating to expansion versus sustaining capex, BUT it is a practice that is hard to continue for any length of time. If you do it for too long, your ROIC decrease over time because there is no return for sustaining capex. If you inaccurately classify it as expansion capex, then that portion of capex will not be providing a return and it will reduce the overall ROIC number.

    I bring this up because KMP went for many years with excellent financial metrics. If they were incorrectly classifying maint capex, it would have caught up to them over time.

    Aug 28, 2015. 01:31 PM | 5 Likes Like |Link to Comment
  • Conversation With Kinder Morgan's Management Re: Distributable Cash Flow  [View article]

    I don't know enough about accounting to make an informed decision about whether your DCF number or KMI's is the more accurate one. Like most investors, I rely on management's numbers in conjunction with outside entities like auditors, rating agencies and analysts like Morningstar. This is the first time I have seen seriously raised questions about how KMI calculates DCF (I'm excluding the Hedgeye and Valuentum attacks because they didn't seem to have merit).

    I have a couple questions, both along the same lines.

    1) Have you seen other midstreams where you find that management's calculation of DCF or DEBT/EBITDA is different than how you might calculate? In other words is KMI alone their in methodology or is this common throughout the industry?

    2) When you listed the EBITDA/Debt numbers in the table, did you calculate those numbers for each company using the same method, or is KMI's the only one you did while the other's were the management supplied numbers?

    I'm trying to see if, in your opinion, KMI's accounting methods are an outlier in the midstream industry or common amongst many companies.

    Thanks for your well researched contributions in these two articles.

    Aug 28, 2015. 04:37 AM | 5 Likes Like |Link to Comment