KMI - Kinder Morgan

[JRM]

Any good reason why Williams has crushed KMI and even Enbridge on the upside recently?

 

My guess is WMB has less exposure to producers with significant credit risk.  I really haven't looked at Enbridge, but I probably should.

[JRM]

Anyone have any thoughts on ET? They seem to have similar issues to all the other pipelines. I think the Dakota Access Pipeline legal threat is a nothing burger. Cash flow doesn’t seem awful and I can’t imagine a world where oil and gas prices never go back up (never say never though). The dividend is also a crazy 20% yield right now. Divy doesn’t seem to be in any immediate jeopardy and insiders have been buying shares hand over fist this past year.

 

I haven't spent much time with ET or any other MLP.  I thought they were going to do a c-corp conversion this year; then I would be interested and will look closer.  I just think the MLP model doesn't give management much flexibility and usually results in bad incentives.

[Spekulatius]

Anyone have any thoughts on ET? They seem to have similar issues to all the other pipelines. I think the Dakota Access Pipeline legal threat is a nothing burger. Cash flow doesn’t seem awful and I can’t imagine a world where oil and gas prices never go back up (never say never though). The dividend is also a crazy 20% yield right now. Divy doesn’t seem to be in any immediate jeopardy and insiders have been buying shares hand over fist this past year.

 

Kelcy Warren is the main issue. He is a terrible operator and also screws his unit holders when he has a chance. Just look at the preferred he served himself in 2009.

 

He stepped down as CEO but still lingers behind the curtain.

[Viking]

I am trying to understand why the pipeline stocks are, as a group, so out of favour. The two i own are ENB and TCP; avg dividend yield is 7%. Dividend is safe and should grow in 5% range in coming years; if new big projects are approved in future years growth should be higher.

 

Pipelines look to me to be a decent bond substitute; yes, more risk but also a much higher yield. Especially if bond yields actually move lower.

 

Issues?

1.) tax loss selling? - beaten up sectors will remain in dog house for rest of year

2.) ESG risk? - is sector uninvestable?

3.) political risk? - Biden win will change current economic model for pipelines?

4.) economic risk? - virus will be with us for years; energy demand will lag for years?

5.) growth risk? - where will it come from if no new large lines are allowed to be built?

6.) leverage risk? - sector carries too much debt given current realities?

7.) interest rate risk? - expectation long government bond rates move higher in coming years?

 

Perhaps a combination of 1 through 7 is resulting in a re-rating of the PE ratio investors are willing to pay for future earnings of all pipeline companies.

 

———————

 

Interesting how utilities are performing well and renewables are on fire... tells my pipeline stock prices are being driven today primarily by sentiment not fundamentals. So i am happy to continue adding to my positions on weakness.

 

[Spekulatius]

I am trying to understand why the pipeline stocks are, as a group, so out of favour. The two i own are ENB and TCP; avg dividend yield is 7%. Dividend is safe and should grow in 5% range in coming years; if new big projects are approved in future years growth should be higher.

 

Pipelines look to me to be a decent bond substitute; yes, more risk but also a much higher yield. Especially if bond yields actually move lower.

 

Issues?

1.) tax loss selling? - beaten up sectors will remain in dog house for rest of year

2.) ESG risk? - is sector uninvestable?

3.) political risk? - Biden win will change current economic model for pipelines?

4.) economic risk? - virus will be with us for years; energy demand will lag for years?

5.) growth risk? - where will it come from if no new large lines are allowed to be built?

6.) leverage risk? - sector carries too much debt given current realities?

7.) interest rate risk? - expectation long government bond rates move higher in coming years?

 

Perhaps a combination of 1 through 7 is resulting in a re-rating of the PE ratio investors are willing to pay for future earnings of all pipeline companies.

 

———————

 

Interesting how utilities are performing well and renewables are on fire... tells my pipeline stock prices are being driven today primarily by sentiment not fundamentals. So i am happy to continue adding to my positions on weakness.

 

Yes, all of the above, but there is also real risk if the energy sector  volume shrinks (shale, oils sands), so will transportation via pipelines.

 

I think there is significant risk that crude pipelines that connect shale basins will see reduced volumes and hence reduced revenues.

Oil sands are better insulated due to their long life nature, but ENB has a real issue with Line 3. Overall, the real economics for pipelines have worked across the board.

 

Even the highest quality and most bond like refined product pipelines habe seen reduced throughout due to COVID-19 and there is real risk further out with the faster than expected adoption of EV’s that the duration of the cash flow for these assets is shorter than presumed a few years ago.

 

I think it is a bit dangerous to assume that Mr Market is totally stupid in reducing the valuation of pipeline assets.

[Viking]

Yes, company specifics is also another risk. Do we see oil and gas pipeline business models/economics diverge?

 

My understanding is pipelines typically have long term contracts in place which provides some certainty in terms of volumes flowing through the pipeline and revenue.

 

My guess is we will see economic growth in the future which will result in growing demand for both oil and gas. Liquified natural gas (for export) should also provide growing gas demand in future years. What is unlikely is that more pipelines get approved moving forward. So this should help the economics of existing owners.

 

Yes, renewables will grow in importance; my guess is change will continue to be slow. All it will take is a split congress and there will be no green new deal.

 

And earnings for most pipelines continue to chug, chug along; pretty impressive given the demand destruction we saw in March/April and May. The economics/business has been pretty resilient. We will know a little more in another 2 weeks as earnings are released and we hear from management teams.

[lnofeisone]

Anyone have any thoughts on ET? They seem to have similar issues to all the other pipelines. I think the Dakota Access Pipeline legal threat is a nothing burger. Cash flow doesn’t seem awful and I can’t imagine a world where oil and gas prices never go back up (never say never though). The dividend is also a crazy 20% yield right now. Divy doesn’t seem to be in any immediate jeopardy and insiders have been buying shares hand over fist this past year.

 

Kelcy Warren is the main issue. He is a terrible operator and also screws his unit holders when he has a chance. Just look at the preferred he served himself in 2009.

 

He stepped down as CEO but still lingers behind the curtain.

 

I have both KMI and ET. KMI found discipline and is slowly and painfully deleveraging. ET should start seeing FCF starting 2021. As Spec said, KW is an empire builder and not a particularly good operator. What ET needs now is good operators.

 

As far as ESG and solar/wind, these are immensely unprofitable for utilities and ratepayers. Lazard's most recent report is a shiny brochure for the stuff they are selling and has inconsistent assumptions that paint solar/wind better than it actually is. Check out Block island where utility had to buy energy at $200 MWh in North East (where electricity could be had for about $30 MWh). Southern chose Nat Gas over solar because their analysis put solar project is at at negative NPV. Crazy headlines (e.g., LA getting solar at 2 cents per KWh is a nice headline but if you dig into the pricing it's not exactly 2 cents). Basically, nat gas is going to stick around for some time and I say that while holding small position in Orstead and in the middle of putting solar panels on the roof of our house.

[Spekulatius]

Anyone have any thoughts on ET? They seem to have similar issues to all the other pipelines. I think the Dakota Access Pipeline legal threat is a nothing burger. Cash flow doesn’t seem awful and I can’t imagine a world where oil and gas prices never go back up (never say never though). The dividend is also a crazy 20% yield right now. Divy doesn’t seem to be in any immediate jeopardy and insiders have been buying shares hand over fist this past year.

 

Kelcy Warren is the main issue. He is a terrible operator and also screws his unit holders when he has a chance. Just look at the preferred he served himself in 2009.

 

He stepped down as CEO but still lingers behind the curtain.

 

I have both KMI and ET. KMI found discipline and is slowly and painfully deleveraging. ET should start seeing FCF starting 2021. As Spec said, KW is an empire builder and not a particularly good operator. What ET needs now is good operators.

 

As far as ESG and solar/wind, these are immensely unprofitable for utilities and ratepayers. Lazard's most recent report is a shiny brochure for the stuff they are selling and has inconsistent assumptions that paint solar/wind better than it actually is. Check out Block island where utility had to buy energy at $200 MWh in North East (where electricity could be had for about $30 MWh). Southern chose Nat Gas over solar because their analysis put solar project is at at negative NPV. Crazy headlines (e.g., LA getting solar at 2 cents per KWh is a nice headline but if you dig into the pricing it's not exactly 2 cents). Basically, nat gas is going to stick around for some time and I say that while holding small position in Orstead and in the middle of putting solar panels on the roof of our house.

 

Based on what I am seeing at Berkshire Energy and NÉE, renewables are immensely profitable for utilities. NEE has been a leader with wind and a monster of a stock.

 

I agree on NG as a good and relatively clean source Of energy, but the Obstruction about building a pipeline To Long Island, where there is a shortage of NG and a lot of houses are still heated with dirty oil, is real, and imo here to stay.

 

As an investor one needs to look at what is actually happening vs what should happen.

[Castanza]

Anyone have any thoughts on ET? They seem to have similar issues to all the other pipelines. I think the Dakota Access Pipeline legal threat is a nothing burger. Cash flow doesn’t seem awful and I can’t imagine a world where oil and gas prices never go back up (never say never though). The dividend is also a crazy 20% yield right now. Divy doesn’t seem to be in any immediate jeopardy and insiders have been buying shares hand over fist this past year.

 

Kelcy Warren is the main issue. He is a terrible operator and also screws his unit holders when he has a chance. Just look at the preferred he served himself in 2009.

 

He stepped down as CEO but still lingers behind the curtain.

 

I have both KMI and ET. KMI found discipline and is slowly and painfully deleveraging. ET should start seeing FCF starting 2021. As Spec said, KW is an empire builder and not a particularly good operator. What ET needs now is good operators.

 

As far as ESG and solar/wind, these are immensely unprofitable for utilities and ratepayers. Lazard's most recent report is a shiny brochure for the stuff they are selling and has inconsistent assumptions that paint solar/wind better than it actually is. Check out Block island where utility had to buy energy at $200 MWh in North East (where electricity could be had for about $30 MWh). Southern chose Nat Gas over solar because their analysis put solar project is at at negative NPV. Crazy headlines (e.g., LA getting solar at 2 cents per KWh is a nice headline but if you dig into the pricing it's not exactly 2 cents). Basically, nat gas is going to stick around for some time and I say that while holding small position in Orstead and in the middle of putting solar panels on the roof of our house.

 

Based on what I am seeing at Berkshire Energy and NÉE, renewables are immensely profitable for utilities. NEE has been a leader with wind and a monster of a stock.

 

I agree on NG as a good and relatively clean source Of energy, but the Obstruction about building a pipeline To Long Island, where there is a shortage of NG and a lot of houses are still heated with dirty oil, is real, and imo here to stay.

 

As an investor one needs to look at what is actually happening vs what should happen.

 

Outside of major cities NG pipes are being laid all over. I just had it brought to my house for free.

[JRM]

Anyone have any thoughts on ET? They seem to have similar issues to all the other pipelines. I think the Dakota Access Pipeline legal threat is a nothing burger. Cash flow doesn’t seem awful and I can’t imagine a world where oil and gas prices never go back up (never say never though). The dividend is also a crazy 20% yield right now. Divy doesn’t seem to be in any immediate jeopardy and insiders have been buying shares hand over fist this past year.

 

Kelcy Warren is the main issue. He is a terrible operator and also screws his unit holders when he has a chance. Just look at the preferred he served himself in 2009.

 

He stepped down as CEO but still lingers behind the curtain.

 

I have both KMI and ET. KMI found discipline and is slowly and painfully deleveraging. ET should start seeing FCF starting 2021. As Spec said, KW is an empire builder and not a particularly good operator. What ET needs now is good operators.

 

As far as ESG and solar/wind, these are immensely unprofitable for utilities and ratepayers. Lazard's most recent report is a shiny brochure for the stuff they are selling and has inconsistent assumptions that paint solar/wind better than it actually is. Check out Block island where utility had to buy energy at $200 MWh in North East (where electricity could be had for about $30 MWh). Southern chose Nat Gas over solar because their analysis put solar project is at at negative NPV. Crazy headlines (e.g., LA getting solar at 2 cents per KWh is a nice headline but if you dig into the pricing it's not exactly 2 cents). Basically, nat gas is going to stick around for some time and I say that while holding small position in Orstead and in the middle of putting solar panels on the roof of our house.

 

Based on what I am seeing at Berkshire Energy and NÉE, renewables are immensely profitable for utilities. NEE has been a leader with wind and a monster of a stock.

 

I agree on NG as a good and relatively clean source Of energy, but the Obstruction about building a pipeline To Long Island, where there is a shortage of NG and a lot of houses are still heated with dirty oil, is real, and imo here to stay.

 

As an investor one needs to look at what is actually happening vs what should happen.

 

Outside of major cities NG pipes are being laid all over. I just had it brought to my house for free.

 

Probably distribution main?  Was is plastic or steel?  The hard spot is approval and easements for interstate transmission. 

[lnofeisone]

Based on what I am seeing at Berkshire Energy and NÉE, renewables are immensely profitable for utilities. NEE has been a leader with wind and a monster of a stock.

 

NEE is a monster of stock and, unfortunately for me, my only exposure to it has been through XLU, but NEE is basically 2/3 nat gas + nuclear power generator. The remaining 1/3 is so "widely" profitable because they get credits on the supply side (ITC/PTC/etc.) and mandates on the demand side (e.g., states requiring X amount of energy come from renewables). No shame in taking free money while doing some good but absent these subsidies (some are due to roll off or be drastically reduced in 2021) I expect a slow down in renewable build-outs. Highly recommend going through NEE's Ks and Qs and it's pretty clear that renewables are a tad less profitable than conventional (gas and nuclear) when credits are not part of the equation.

[NoCalledStrikes]

I am trying to understand why the pipeline stocks are, as a group, so out of favour. The two i own are ENB and TCP; avg dividend yield is 7%. Dividend is safe and should grow in 5% range in coming years; if new big projects are approved in future years growth should be higher.

 

Pipelines look to me to be a decent bond substitute; yes, more risk but also a much higher yield. Especially if bond yields actually move lower.

 

Issues?

1.) tax loss selling? - beaten up sectors will remain in dog house for rest of year

2.) ESG risk? - is sector uninvestable?

3.) political risk? - Biden win will change current economic model for pipelines?

4.) economic risk? - virus will be with us for years; energy demand will lag for years?

5.) growth risk? - where will it come from if no new large lines are allowed to be built?

6.) leverage risk? - sector carries too much debt given current realities?

7.) interest rate risk? - expectation long government bond rates move higher in coming years?

 

Perhaps a combination of 1 through 7 is resulting in a re-rating of the PE ratio investors are willing to pay for future earnings of all pipeline companies.

 

———————

 

Interesting how utilities are performing well and renewables are on fire... tells my pipeline stock prices are being driven today primarily by sentiment not fundamentals. So i am happy to continue adding to my positions on weakness.

 

8. (but should be 1.)  Overbuilding of pipelines during recent boom based on expectations of continued growth.  Without not just a resumption of activity but new oil and gas growth, pipelines  from shale basins or to export terminals will eventually be re-contracted at lower rates when existing minimum volume commitments get renegotiated over the next years. Pipeline rates will be going down.

[Castanza]

Anyone have any thoughts on ET? They seem to have similar issues to all the other pipelines. I think the Dakota Access Pipeline legal threat is a nothing burger. Cash flow doesn’t seem awful and I can’t imagine a world where oil and gas prices never go back up (never say never though). The dividend is also a crazy 20% yield right now. Divy doesn’t seem to be in any immediate jeopardy and insiders have been buying shares hand over fist this past year.

 

Kelcy Warren is the main issue. He is a terrible operator and also screws his unit holders when he has a chance. Just look at the preferred he served himself in 2009.

 

He stepped down as CEO but still lingers behind the curtain.

 

I have both KMI and ET. KMI found discipline and is slowly and painfully deleveraging. ET should start seeing FCF starting 2021. As Spec said, KW is an empire builder and not a particularly good operator. What ET needs now is good operators.

 

As far as ESG and solar/wind, these are immensely unprofitable for utilities and ratepayers. Lazard's most recent report is a shiny brochure for the stuff they are selling and has inconsistent assumptions that paint solar/wind better than it actually is. Check out Block island where utility had to buy energy at $200 MWh in North East (where electricity could be had for about $30 MWh). Southern chose Nat Gas over solar because their analysis put solar project is at at negative NPV. Crazy headlines (e.g., LA getting solar at 2 cents per KWh is a nice headline but if you dig into the pricing it's not exactly 2 cents). Basically, nat gas is going to stick around for some time and I say that while holding small position in Orstead and in the middle of putting solar panels on the roof of our house.

 

Based on what I am seeing at Berkshire Energy and NÉE, renewables are immensely profitable for utilities. NEE has been a leader with wind and a monster of a stock.

 

I agree on NG as a good and relatively clean source Of energy, but the Obstruction about building a pipeline To Long Island, where there is a shortage of NG and a lot of houses are still heated with dirty oil, is real, and imo here to stay.

 

As an investor one needs to look at what is actually happening vs what should happen.

 

Outside of major cities NG pipes are being laid all over. I just had it brought to my house for free.

 

Probably distribution main?  Was is plastic or steel?  The hard spot is approval and easements for interstate transmission.

 

Yeah just distribution under local roads. UGi was the company. I’m just saying, there are thousands of cities all over the US brining natural gas hookups to neighborhoods. Most of the time they run the line to the house for free. I find it doubtful that bat gas will be phased out anytime soon. Not to mention the costs the homeowner incurs when installing gas fireplace, furnace, stove, dryer, water heaters, etc. Purely from a consumption standpoint there is no way bar gas will be phased out anytime soon.

[kab60]

Any good reason why Williams has crushed KMI and even Enbridge on the upside recently?

 

My guess is WMB has less exposure to producers with significant credit risk.  I really haven't looked at Enbridge, but I probably should.

I think WMB is simply a better business. They're less dependent on oil and mostly driven by natural gas demand from utilities which according to forecasts should be there for a long time. Also, if green hydrogen ever takes off - lots of stuff brewing in Europe - then that'll increase demand for pipes down the line, since NG pipes without much work can hold 5-15 pct. hydrogen (https://www.energy.gov/sites/prod/files/2014/03/f11/blending_h2_nat_gas_pipeline.pdf). I think both will do fine from here, but considering there's not a large difference in valuation I'm on team WMB.

[JayGatsby]

Any good reason why Williams has crushed KMI and even Enbridge on the upside recently?

 

My guess is WMB has less exposure to producers with significant credit risk.  I really haven't looked at Enbridge, but I probably should.

Is supplier credit a material risk to KMI? Natural gas prices are even with last year, even though oil is down. People seem to be expecting a good winter for demand.

 

KMI has always traded as an oil company, even though it's a natural gas company. Even in Germany which I think is ~20% wind/solar, nat gas consumption has been flat. If EVs increase significantly you'll need more electricity and less oil. When the wind stops or clouds roll by you have to fire up the power plant unless you have massive investments in batteries. If you have enough EVs, you may be able to use those as your battery grid if they're two directional. That's my theory at least. It's kind of the value end of the EV mania although I've been in KMI for a while, with negative results (probably about flat with dividends).

[JRM]

This article was posted in the WMB thread about Chesapeake: https://www.spglobal.com/marketintelligence/en/news-insights/trending/iEJBUapEkb7YEr4bx_yofw2

 

In reality, its the solvency of counter-parties on each end of the pipeline; both buyers and sellers.  I think any uncertainty is more than priced in.

 

I think there is an ESG discount to the entire sector, and then individual companies have other discounts applied based on circumstances.  I don't see any reason a midstream company (generally) should trade at such a steep discount to a utility company.  Utilities should be as much at risk as anybody if everyone installs solar panels or whatever.

[KJP]

Any good reason why Williams has crushed KMI and even Enbridge on the upside recently?

 

My guess is WMB has less exposure to producers with significant credit risk.  I really haven't looked at Enbridge, but I probably should.

I think WMB is simply a better business. They're less dependent on oil and mostly driven by natural gas demand from utilities which according to forecasts should be there for a long time. Also, if green hydrogen ever takes off - lots of stuff brewing in Europe - then that'll increase demand for pipes down the line, since NG pipes without much work can hold 5-15 pct. hydrogen (https://www.energy.gov/sites/prod/files/2014/03/f11/blending_h2_nat_gas_pipeline.pdf). I think both will do fine from here, but considering there's not a large difference in valuation I'm on team WMB.

 

I agree re WMB, particularly given conditions right now.  WMB doesn't have a CO2 segment or refined products.  It also doesn't have to deal with concerns about Permian G&P and takeaway capacity; instead, WMB's G&P segment is focused on the lowest cost dry gas directed drilling (Marcellus).  It can also devote capital to building profitable spurs off of Transco into the Southeast.

[Castanza]

Looks like ET slashed their div 50% bringing it to .15 quarterly. Seems like a good move to focus on paying down debt and hoping to maintain credit rating.

[LearningMachine]

The permian pipeline should be a success: https://www.wsj.com/articles/why-a-growing-gas-glut-could-imperil-the-west-texas-oil-boom-1510870178

 

Not a lot of news on it. Total cost is $1B and KMI will own 50%. I can't tell if they only own a portion because they're trying to save cash for the dividend or if there's actually benefits of having the other owners on board.

 

I found the answer in the 2016 Annual Report: moving/hiding debt off Balance Sheet.

 

On September 1, 2016, we completed the sale of a 50% interest in our SNG natural gas pipeline system to Southern Company, receiving proceeds of approximately $1.4 billion . We used the proceeds from this transaction to reduce outstanding debt. ... As of September 1, 2016, SNG had $1,211 million of debt outstanding (including a current portion of $500 million ) which is no longer consolidated on our balance sheet.

 

This means KMI has a lot more debt hiding underneath all those 50% or less owned pipelines, including SNG, Permian, Gulf Coast Express, NGPL, Florida Gas Transmission, FEP, Gulf LNG Holdings, Ruby, WYCO, EagleHawk, Red Cedar, etc., etc..  So, when folks are doing EV/EBITDA calculations while thinking that it is unlevered EBITDA, the reality is that it is not unlevered.  In order to do a true EV/EBITDA calculation, we need to find all the debt underneath non-controlled entities.  This is why they say EBDA not EBITDA in their annual reports. Have folks looked into this before?

 

What do folks think how much of this behavior is like Enron?  One difference I see is that KMI declared it somewhere within the Annual Report of the year of transaction for SNG while Enron declared it later.  Are there other differences?  Do folks remember if Enron even declared ownership in those entities that had additional debt? Regardless of whether they are more transparent than Enron, the crux here is that there is more debt hiding underneath those entities.

 

Of course, another reason for not having a control position could be that they can avoid some liability from pipelines by making it less likely that court will pierce the corporate veil from the legal entity that owns the pipeline to parent entities (KMI and other partners).

 

[lnofeisone]

I found the answer in the 2016 Annual Report: moving/hiding debt off Balance Sheet.

 

On September 1, 2016, we completed the sale of a 50% interest in our SNG natural gas pipeline system to Southern Company, receiving proceeds of approximately $1.4 billion . We used the proceeds from this transaction to reduce outstanding debt. ... As of September 1, 2016, SNG had $1,211 million of debt outstanding (including a current portion of $500 million ) which is no longer consolidated on our balance sheet.

 

This means KMI has a lot more debt hiding underneath all those 50% or less owned pipelines, including SNG, Permian, Gulf Coast Express, NGPL, Florida Gas Transmission, FEP, Gulf LNG Holdings, Ruby, WYCO, EagleHawk, Red Cedar, etc., etc..  So, when folks are doing EV/EBITDA calculations while thinking that it is unlevered EBITDA, the reality is that it is not unlevered.  In order to do a true EV/EBITDA calculation, we need to find all the debt underneath non-controlled entities.  This is why they say EBDA not EBITDA in their annual reports. Have folks looked into this before?

 

Hardly hiding. Maybe hiding in plane sight?  ;D In that same report search for a section called "Off-balance sheet arrangements." KMI clearly spells out how much they owe. You can pull up every 10K after that too and it's right there and KMI is paying down the balances. It's a bit more work to actually figure out how much of it is attributed to what pipeline but all the relevant information is there.

[LearningMachine]

Hardly hiding. Maybe hiding in plane sight?  ;D In that same report search for a section called "Off-balance sheet arrangements." KMI clearly spells out how much they owe. You can pull up every 10K after that too and it's right there and KMI is paying down the balances. It's a bit more work to actually figure out how much of it is attributed to what pipeline but all the relevant information is there.

 

Actually, they do not spell out the debt for the off balance sheet arrangements.  For example, if you look at Off Balance Sheet Arrangements on Page 61 of the 2016 Annual Report (https://s24.q4cdn.com/126708163/files/doc_financials/annual_reports/KMI-2016-10K_Final_with_Exhibits.pdf), here is what you see:

We have invested in entities that are not consolidated in our financial statements. For information on our obligations with respect to these investments, as well as our obligations with respect to related letters of credit, see Note 13 “Commitments and Contingent Liabilities” to our consolidated financial statements. Additional information regarding the nature and business purpose of our investments is included in Note 7 “Investments” to our consolidated financial statements.

 

The debt figures mentioned on that same page 61 are under a different section titled "Contractual Obligations and Commercial Commitments", not under "Off Balance Sheet Arrangements", and those figures actually match with their Balance sheet debt, which does not consolidate debt for equity investments.

 

In order to figure out what they are talking about for Off Balance Sheet Arrangements, you have to then go to Note 7 and Note 13.  If you then search for each of the pipelines under Note 7, you cannot find the debt for underlying entity anywhere in the Annual Report.  For example,  try searching for Citrus Corporation, Ruby, Gulf LNG, NGPL Holdings, Plantation, MEP, Double Eagle Pipeline LLC, etc.  You won't find the debt for them.  They talk about the equity portion of those investments, but not about the debt taken by those entities themselves. 

 

The only one for which you can find the debt amount at the pipeline entity level is SNG, and that too only in the Annual Report for 2016 when the transaction was done, or earlier Annual Reports.

 

The SNG pipeline entity level debt info no longer appears in future Annual Reports.

 

[LearningMachine]

Using SNG as an example, here is how KMI is causing SNG debt to disappear off its balance sheet and off its annual reports even though it still exists at the SNG entity level:

 

• 2015 Annual Report: Page 107 lists SNG notes debt of $1,211 million.
  
• 2016 Annual Report: Page 59 says "As of September 1, 2016, SNG had $1,211 million of debt outstanding (including a current portion of $500 million) which is no longer consolidated on our balance sheet."  Page 101 confirms SNG debt disappearing off KMI's Balance Sheet starting 2016, even though it still exists at SNG entity level as Page 59 mentions.
  
• 2017 Annual Report: Page 106 or any other page no longer mentions anything about $1,211 debt still existing at SNG entity level.
  

 

Similarly, for all other equity investments mentioned under "7. Investments" section, you cannot find entity level debt info anywhere in the report.

[JRM]

Using SNG as an example, here is how KMI is causing SNG debt to disappear off its balance sheet and off its annual reports even though it still exists at the SNG entity level:

 

• 2015 Annual Report: Page 107 lists SNG notes debt of $1,211 million.
  
• 2016 Annual Report: Page 59 says "As of September 1, 2016, SNG had $1,211 million of debt outstanding (including a current portion of $500 million) which is no longer consolidated on our balance sheet."  Page 101 confirms SNG debt disappearing off KMI's Balance Sheet starting 2016, even though it still exists at SNG entity level as Page 59 mentions.
  
• 2017 Annual Report: Page 106 or any other page no longer mentions anything about $1,211 debt still existing at SNG entity level.
  

 

Similarly, for all other equity investments mentioned under "7. Investments" section, you cannot find entity level debt info anywhere in the report.

 

It looks like they have about $33B in debt from consolidated entities and about $44B total for consolidated and unconsolidated entities.  Am I interpreting this wrong?  It would be nice if they broke it out better.  I'm not sure they're trying to hide anything, but rather attempting to simplify their reporting; possibly too much.

[peridotcapital]

Using SNG as an example, here is how KMI is causing SNG debt to disappear off its balance sheet and off its annual reports even though it still exists at the SNG entity level:

 

• 2015 Annual Report: Page 107 lists SNG notes debt of $1,211 million.
  
• 2016 Annual Report: Page 59 says "As of September 1, 2016, SNG had $1,211 million of debt outstanding (including a current portion of $500 million) which is no longer consolidated on our balance sheet."  Page 101 confirms SNG debt disappearing off KMI's Balance Sheet starting 2016, even though it still exists at SNG entity level as Page 59 mentions.
  
• 2017 Annual Report: Page 106 or any other page no longer mentions anything about $1,211 debt still existing at SNG entity level.
  

 

Similarly, for all other equity investments mentioned under "7. Investments" section, you cannot find entity level debt info anywhere in the report.

 

You could just download the SNG financial statements from KMI's web site to find out how much debt is currently outstanding ($1,214M as of 6/30/20) and multiply that by KMI's ownership percentage.

 

Claiming lack of transparency regarding the financials is pretty suspect considering there are rules about consolidating financials under GAAP and KMI publishes the pipeline company financials on their web site.

[KJP]

How do they address this in their presentations?  The latest 10-Q shows consolidated debt of ~$33 billion, which is consistent with the net debt figure they use in their latest presentation.  See slide 33 here https://s24.q4cdn.com/126708163/files/doc_presentations/2020/11/November-2020-Investor-Presentation-Vf.pdf

 

The presentation claims they're at ~4.3x net debt to adjusted EBITDA (slide 10), which implies about $7.6 billion in adjusted EBITDA.  Back on slide 33, they show the calculation for getting to adjusted EBITDA of $7.6 billion.  The calculation starts at net income (which includes GAAP reporting with respect to unconsolidated entities) and includes an add back of $487 million named "JV DD&A and income tax expense."  Footnote e explains that this add back "represents unconsolidated JV DD&A and income tax expense, reduced by consolidated JV partner's DD&A". 

 

I read these disclosures as including KMI's proportionare share of unconsolidated JVs' EBITDA for the purposes of calculating the company's adjusted EBITDA but excluding KMI's proportionate share of unconsolidated JV debt when calculating net debt.  Is that correct?