merkhet Posted February 14, 2016 Share Posted February 14, 2016 A bit late to the game here, but I wanted to float a possible thought for the KMI warrants: Energy prices are in the dumps Energy credits are blowing up across the board As a result, KMI is not able to access the capital markets for growth This has resulted in a massive downward adjustment in their equity value However, if energy prices were to rebound sharply in some way, would that provide KMI with access to the capital markets again? And if so, wouldn't that result in a massive upward adjustment to that equity value based on the growth engine flicking on again? Link to comment Share on other sites More sharing options...
Picasso Posted February 14, 2016 Share Posted February 14, 2016 If the world was simple that would work out. But how do they tap the capital markets? Issuing more equity? They can't issue more debt without growing EBITDA. Issuing equity will kill the warrant value more than anything. As far as any energy rally.... It reminds me of the massive headwinds of a strong yen for decades. Every exporter would hedge into any yen weakness and it would just keep driving up the value of the yen. Even with the BOJ trying their best to weaken the currency all the exporters are still happy to hedge out on any yen weakness. There's just so many producers underwater waiting to hedge if they can, I don't see any sustained rally. Imo I think KMI equity will eventually be close to worthless compared to $15 and the warrants are obviously toast. Looks more to me like a hedge against short KMI credit. KMI swaps are still trading at only 500 bps when they're highly levered and at risk for the wave of defaults coming over the next few years. Link to comment Share on other sites More sharing options...
merkhet Posted February 14, 2016 Share Posted February 14, 2016 Sure, and I'm not thinking about the KMI warrants as an investment. I'm just trying to figure out its utility as a hedge in a situation other than short KMI credit. For instance, if you're structurally short oil via a long position in automakers that are shifting into SUV and truck production, then could the KMI warrants provide a good hedge against higher oil prices. This, of course, also means taking on take-or-pay counterparty risk which would seem also to be correlated somewhat with oil prices. And, of course, it's not a given that a jump back to $60 oil would necessarily push KMI equity up to where the warrants would be worth something. But perhaps there are better ways to put on a hedge for being structurally short oil. Link to comment Share on other sites More sharing options...
CorpRaider Posted February 14, 2016 Share Posted February 14, 2016 Given the other investments (ETE and AMLP), and my understanding of how he trades, I think he's just getting long the sector and those are a little kicker position. Link to comment Share on other sites More sharing options...
Guest wellmont Posted February 14, 2016 Share Posted February 14, 2016 Maybe, but it looks like he added a lot of longs, generally speaking, last quarter. If you will recall, he was calling for taking cash off the table in q4 2015. Agree. I think there was tons of forced selling in these names in q4. Ideal for Someone with liquidity. I think he is getting long the most hated names in the capital markets. Short energy is the consensus trade right now. And tepper is the absolute best at recognizing the "next" thing and when it's time to get off the consensus trade. Link to comment Share on other sites More sharing options...
CorpRaider Posted February 16, 2016 Share Posted February 16, 2016 BRK added a long KMI too. Not sure of size yet. Heard it on bloomberg tv; thought maybe they said ~1.6% of portfolio. EDIT: Looks like it was 26.5 MM shares. Might be the boss? Probably Ted or Todd. I did note that Rich Kinder talked about Buffett and moats a couple of times on the recent conference call. Link to comment Share on other sites More sharing options...
Guest roark33 Posted February 16, 2016 Share Posted February 16, 2016 https://www.sec.gov/Archives/edgar/data/1067983/000095012316015025/xslForm13F_X01/form13fInfoTable.xml here is the filing, 400m size, so probably T or T. Probably a good time to also point out that they sold out of CBI, another energy name that was probably down about 50% since their purchase. Link to comment Share on other sites More sharing options...
CorpRaider Posted February 16, 2016 Share Posted February 16, 2016 Yeah, and of course PSX hasn't done shit yet either. Big short interest + Tepper + BRK is interesting though.... Link to comment Share on other sites More sharing options...
Guest roark33 Posted February 16, 2016 Share Posted February 16, 2016 Short interest around 3.5%, that's not really a big short interest. Link to comment Share on other sites More sharing options...
CorpRaider Posted February 16, 2016 Share Posted February 16, 2016 Yeah, was 3.7% as of 01/29 but that was 19.6% higher than the 01/15 count. I saw it on the increased interest tables and it stuck in the RAM. Dunno what it is today, but the price action didn't indicate a lot of covering. Only up a buck in AH. Link to comment Share on other sites More sharing options...
Eye4Valu Posted February 16, 2016 Share Posted February 16, 2016 To kinda state the obvious, to me KMI is like a utility. Not going to give you great returns over time, but decent returns. Definitely the type of stock you reinvest the dividend in and forget about. I bought 1,000 shares a few weeks ago and transferred it over to Computershare. I then set the dividends on reinvest and quite frankly haven't paid much attention to it since. I did read some of the commentary on this thread but didn't see anything too insightful. I hope to forget about it for the next 20 years. Don't expect to make a lot of $, but do expect to make a ROI. Which is more than I can say for some of my other picks, lol! Link to comment Share on other sites More sharing options...
Guest roark33 Posted February 17, 2016 Share Posted February 17, 2016 Eye4valu: The people who bought KMI last year around 40 might disagree with you on the idea that KMI is a utility. Capital cut by more than half, dividend slashed by 75%. The counter-party risk with a pipeline is so much worse than with a utility. KMI likes to tout that the drillers need the pipeline, but if enough of them go into bankruptcy, KMI's contract isn't going to be the only contract that gets paid 100% on its pre-bankruptcy terms. KMI has just been extremely luck to have never experience a prolonged downturn in the oil market. It was created after the 1980s (1997, I believe). I hope this purchase starts to provide some people with the perspective that it is ok to question the investments of some of the "greats." Link to comment Share on other sites More sharing options...
CorpRaider Posted February 17, 2016 Share Posted February 17, 2016 This one has been pretty much a retail/insider story. Think you're looking for the SD, CHK, ZINC, shld or BAC threads. Link to comment Share on other sites More sharing options...
PatientCheetah Posted February 18, 2016 Share Posted February 18, 2016 kinder morgan's asset quality is far superior than likes of SD, CHK, ZINC, shld or BAC. maybe warren nailed it again with his macro timing - a lot smarter moneys have been flowing into natural gas stocks lately, let's not forget his timely flight from ExxonMobil or his silver/PetroChina bets. Link to comment Share on other sites More sharing options...
LC Posted February 18, 2016 Share Posted February 18, 2016 tesuji also took a stake in kmi. 20% of the fund. Link to comment Share on other sites More sharing options...
Picasso Posted February 18, 2016 Share Posted February 18, 2016 I'm sticking by my call despite all these smart guys saying otherwise. I don't see anywhere near this much value for KMI equity. This isn't a utility or real estate company for various reasons. Also I suspect Combs was the purchaser of KMI. His picks aren't that impressive in my opinion. NOV, DE, CBI etc. He seems to get caught in low PE screener value traps at cycle peaks. Not sure why people think this is a Buffett purchase. My conversations with some institutional owners of KMI showed significant denial about what is going on in their industry. Not the kind of behavior you see at the bottom of the cycle. Also, I don't think Berkshire is known for timing energy and resource investments very well. Link to comment Share on other sites More sharing options...
Guest roark33 Posted February 18, 2016 Share Posted February 18, 2016 This is a good example of what is potentially coming down the pipe for KMI. http://cases.gcginc.com/kwk/pdflib/1128_10585.pdf The E&P companies that are filling for bankruptcy are in the process of rejecting the pipeline contracts. New bidders for those assets are making the acquisitions of those wells contingent on re-cutting those deals with the pipelines. Should be interested to watch. Also, I would expect that the more solvent players would come back to the pipeline companies asking to also re-cut their deals if the marginal players are now getting better deals. This would be a standard Most Favored Nation/Customer clause in most contracts. Link to comment Share on other sites More sharing options...
RadMan24 Posted February 18, 2016 Share Posted February 18, 2016 This one has been pretty much a retail/insider story. Think you're looking for the SD, CHK, ZINC, shld or BAC threads. Was this a retail story before or after the dividend cut? Link to comment Share on other sites More sharing options...
dabuff Posted February 18, 2016 Share Posted February 18, 2016 Note Weschler still has the sizable stake (relative to his portfolio) in Sunocor, the Canadian oil sands company. Link to comment Share on other sites More sharing options...
jmp8822 Posted February 18, 2016 Share Posted February 18, 2016 This is a good example of what is potentially coming down the pipe for KMI. http://cases.gcginc.com/kwk/pdflib/1128_10585.pdf The E&P companies that are filling for bankruptcy are in the process of rejecting the pipeline contracts. New bidders for those assets are making the acquisitions of those wells contingent on re-cutting those deals with the pipelines. Should be interested to watch. Also, I would expect that the more solvent players would come back to the pipeline companies asking to also re-cut their deals if the marginal players are now getting better deals. This would be a standard Most Favored Nation/Customer clause in most contracts. That attachment makes no sense to me from a common sense perspective. The oil/gas assets are worth $150m with the current contracts, or $250m with a new contract. We the creditors, would rather the assets be worth $250m because we screwed up. Deal? Link to comment Share on other sites More sharing options...
Guest roark33 Posted February 19, 2016 Share Posted February 19, 2016 http://finance.yahoo.com/news/stampede-energy-seen-missing-penalty-164435564.html take or pay example. Link to comment Share on other sites More sharing options...
CorpRaider Posted February 19, 2016 Share Posted February 19, 2016 This one has been pretty much a retail/insider story. Think you're looking for the SD, CHK, ZINC, shld or BAC threads. Was this a retail story before or after the dividend cut? Both. Romantic comedy before; tragedy after. Link to comment Share on other sites More sharing options...
RadMan24 Posted February 22, 2016 Share Posted February 22, 2016 Even then, that C corp change has got to be helping them compared to the majority of mlps out there Link to comment Share on other sites More sharing options...
jd123 Posted December 10, 2016 Share Posted December 10, 2016 No one has commented on KMI since Feb when the market was collapsing. In light of the OPEC decision to cut and non-OPEC countries pledging to do the same, they're essentially giving into the idea that they have no choice but to let American shale take some market share. I don't know what that means for prices. Will shale cap the oil price? Will the US produce too much and suppress prices? I don't know. Therefore, I don't know what the prospects for shale or offshore drilling stocks are. There's still too many variables. All I know is that the US will produce more oil and it needs to be transported through pipelines. I must be making this too simple because KMI has not moved at all on the OPEC news. What are everyone else's thoughts? Link to comment Share on other sites More sharing options...
Cardboard Posted December 10, 2016 Share Posted December 10, 2016 "All I know is that the US will produce more oil..." This is not an assumption that I would make. It may go slightly higher than current level (200,000 - 300,000 boe/d more?) but, will certainly not get back to previous peak unless world demand really grows to accept that extra supply. These nations who took a voluntary cut will simply get back on the accelerator and prevent any large spike in price. And for the market to know that this supply is almost available immediately, it really prevents future prices to be high or for a contango to develop and with it the advantage of hedging forward. At $55 WTI, I would expect U.S. production to remain pretty stagnant as there are only so many fields worth developing at that price and just fighting the high decline rate from shale requires a fair bit of drilling on its own. Cardboard Link to comment Share on other sites More sharing options...
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