Test drilling began Friday night. Kinder Morgan (NYSE:KMI) intends to work 24 hours a day over the next 10 to 12 days to complete its work.
KMI is test drilling 250 meters into the ground as part of its survey work for a proposed expanded pipeline, which would see it bore a tunnel under the mountain to reroute its existing Trans Mountain pipeline.
KMI received a court injunction a week ago to have protesters removed from the site. More than 30 protesters have been arrested since Thursday.
Kinder Morgan (KMI -0.9%) confirms that shareholders and unitholders at KMI, Kinder Morgan Partners (NYSE:KMP), Kinder Morgan Management (NYSE:KMR) and El Paso Pipeline (NYSE:EPB) approved all proposals related to bringing all four pipeline companies under one roof.
KMI also projects a 16% dividend increase to $2/share for 2015, and expects to grow the dividend by ~10%/year during 2015-20 while producing excess coverage of more than $2B.
Kinder Morgan Partners (KMP +0.8%) rises to new 52-week highs a day ahead of the shareholder vote on the merger that would consolidate Richard Kinder's oil pipeline empire into a single entity.
The closing of the Kinder Morgan (KMI +0.6%) merger is expected to occur on Nov. 26, which would make it the final trading day for KMP, El Paso Pipeline (EPB +0.7%) and Kinder Morgan Management (KMR +0.6%).
Kinder Morgan (KMI +0.6%) is upgraded to Outperform from Market Perform with a $46-$48 valuation range, based on a 4.5% yield and projected 10% annual dividend growth, at Wells Fargo.
The analyst notes that KMI's underperformance since the post-merger high following its mid-August MLP consolidation acquisitions provides an attractive entry point for investors, particularly for those searching for tax efficient yield in a C-corp structure.
The other Kinder properties are slightly higher: KMP +0.4%, KMR +0.7%, EPB +0.2%.
"Investors beware," Andrew Bary warns in his weekend Barron's article discussing whether Richard Kinder's (KMI -1.1%) "brilliant financial move" to buy up its MLPs actually can create value.
KMI looks expensive, Bary concludes, with an enterprise value/EBITDA ratio similar to that of Facebook and significantly greater than Google.
The blue chips Kinder compares itself to - including GE and Coca-Cola - comfortably cover their dividends with after-tax earnings, and some are supplementing dividends with stock buybacks, while funding all or the bulk of their capital expenditures with internally generated funds; KMI expects to cover its dividend next year from cash flow, but it probably won't do so from after-tax earnings, Bary says.
Creditors of KMI and EPB have seen the market value of their notes rise $468M, while securities of investment-grade Kinder Morgan Partners lost $85M since the Aug. 10 announcement that the three units plus the debt-free Kinder Morgan Management (KMR +3.2%) would be rolled into one.
Collapsing the corporate structure makes KMI less risky, says Moody's Stuart Miller, in part because it will give the pipeline and terminals company direct access to KMP's cash flows.
Moody’s is planning to raise KMI and EPB to Baa3 and decrease KMP to that level.
For KMP and EPB, the transaction will be considered as a sale of the units and trigger a taxable event, Wells explains; while some of the tax will be offset by the cash proceeds from the offering, unitholders will still be forced into a taxable event; for KMR unitholders, however, the merger represents a tax-free event.
The premium received by KMP unitholders would be essentially fully offset by tax obligations upon conversion of KMP to KMI shares, Wells says; even after KMP’s strong price performance since the merger, the gain is effectively offset by tax obligations.
"There are a lot of growth opportunities" following Richard Kinder's suggestion that he'll be looking to acquire rival pipeline operators, says Global Hunter analyst Sunil Sibal, who considers MarkWest Energy (NYSE:MWE) and Targa Resources (NYSE:TRGP) as prime buyout candidates.
MWE processes and transports natural gas from U.S. shale basins including the Marcellus and Utica, while TRGP has a footprint in the Permian and Bakken, as well as one of the Gulf coast’s two commercial export terminals for natural gas liquids - "assets which are very desirable in the current production growth environment,” Sibal says.
The Kinder Morgan companies open lower, giving back a bit of yesterday's big gains following the plan to consolidate their collection of pipeline companies: KMI -1%, KMP -1.4%, KMR -1.1%, EPB -1%.
Some investors in Kinder’s MLPs could be left with big, unexpected tax bills; taxes on the substantial quarterly payouts from MLPs are deferred, and when the units are sold or exchanged - as they will be in the reorganization - the deferred taxes come due.
Some investors were planning on holding the units and not paying a tax until they sold it or died, "so it's probably going to be a bit of a surprise for those people,” says Twenty-First Securities' Robert Gordon.
Kinder Morgan confirms the deal will be a taxable transaction for owners of KMP and EPB, while KMR owners will have a tax-free transaction; according to estimates released by the company, the tax owed by an average investor in KMP units could range from $12.39 to $18.16 per unit, depending on the individual’s tax rate.
A lower equity cost of capital will greatly improve Kinder’s ability to maximize return on investment capital on both organic and acquisition-driven capital expenditures, the firm says; the substantial tax depreciation from existing basis and future capex - the five-year forecast organic backlog alone currently reflects ~$17B, with no acquisition capex forecast - also creates meaningful value.
Another reason for the deal: the consolidated company will be more tax efficient - even with the restructuring, Kinder Morgan says it actually will cut its tax bill by $20B over 14 years despite relinquishing the MLP tax benefits.
The source says KMI now is likely to focus squarely on the midstream space, buying up more energy infrastructure in the U.S. amid the country’s oil and gas boom.
Not a bad way to start one's week: Rich Kinder made $1.5B this morning from the mega-deal that will streamline all the publicly traded Kinder Morgan entities into one company.
The stocks - Kinder Morgan (KMI +8.1%), Kinder Morgan Partners (KMP +16.5%), Kinder Morgan Management (KMR +22.9%) and El Paso Pipeline Partners (EPB +20.1%) - are all sharply higher, as the general view is that investors like the streamlined structure and that the company will now have a lower cost of capital.
Kinder is the largest KMI shareholder with 243.1M shares, a ~24% stake.
KInder Morgan (NYSE:KMI) +20.1%, Kinder Morgan Partners (NYSE:KMP) +27.1%, Kinder Morgan Management (NYSE:KMR) +34.6%, El Paso Partners (NYSE:EPB) +30.5% premarket on news of the consolidation of the Kinder companies that will create the largest energy infrastructure company in North America, with an 80K-mile network of pipes that together would be long enough to circle the Earth three times.
Kinder appears to have solved its biggest problem in one stunning swoop: how to maintain growth; to increase distributions by a projected 5%-6%, Kinder would have to put $3B-$4B to work each year on attractive projects, a daunting task for any firm.
"This is a very simple and elegant solution to a problem of complexity," says Baird analyst Ethan Bellamy; he does not think other MLPs will follow in Kinder's footsteps because other companies still benefit from the financial structure as a way to attract investment.
Consolidating its oil-and-gas pipeline empire into a single company, Kinder Morgan (NYSE:KMI) will purchase Kinder Morgan Energy Partners (NYSE:KMP), Kinder Morgan Management (NYSE:KMR), and El Paso Pipeline Partners (NYSE:EPB).
The MLP structure is limiting, says Richard Kinder. Combining the four companies into one unit "will allow us to further expand the reach of the kind of projects we can do."
KMP unitholders will receive 2.1931 KMI shares and $10.77 in cash for each KMP unit, or $89.98, a 12% premium to Friday's close (based on KMI's Friday close).
KMR shareholders will receive 2.4849 KMI share for each share of KMR, or $89.75, a 16.5% premium to Friday's close (based on KMI's Friday close).
EPB unitholders will receive .9451 KMI shares and $4.65 in cash for each EPB unit, or $38.79, a 15.4% premium to Friday's close (based on KMI's Friday close).
In conjunction with the deal, KMI expects a $2 annual dividend in 2015, a 16% boost to 2014's anticipated payout. The dividend is expected to grow about 10% per year through 2020.