Last modified: 2/4/2016 5:22:28 PM
Despite a decision to cut dividends by 75 percent amid a major drop in stock prices this week, pipeline builder Kinder Morgan has signaled that it doesn’t plan on pulling out of or scaling back on any of its ongoing or planned expansion projects, including the controversial Northeast Energy Direct pipeline set to pass through Franklin County.
Calling the Houston-based energy giant’s continued growth the “lifeblood of the company,” Kinder Morgan executive chairman Richard Kinder told analysts during a conference call this week that the company opted to make the dividend cuts instead of giving up its backlog of projects, which he called “very important, and very profitable.” That way, the company can redirect that distributable income toward funding projects instead of relying on borrowing or selling shares on the stock market.
“Rather than giving up our growth, we believe the better answer is to use part of our distributable income to fund those new projects and growth,” he said. “The current reduced price of our stock has raised the cost of our equity to the point where it is no longer an economic source of expansion capital.”
Kinder Morgan, one of the largest pipeline companies in North America, currently has about $43 billion in debt. The company’s shares have dropped 60 percent since the beginning of the summer and 35 percent in the past week alone. The stock fell from just under $45 in May to just short of $15 in November. The company’s stocks, which trade under the ticker KMI, hit a low of $15.72 on Tuesday before recovering a bit to close at $17.01 Thursday afternoon. Prices fluctuated between the high and low $16 range for most of Friday’s trading, coming to rest at $16.67 at the market’s close.
Reports attributed the company’s situation to its exposure to changes in oil and gas prices, which have dropped far below what the company had anticipated they would be earlier this year. According to some analysts, the supply-driven slump could be a long-term event, the Wall Street Journal reported.
Kinder noted the entire midstream energy industry has been affected by the energy market slump, not just Kinder Morgan.
“By reducing (our dividend), we’ll have more than enough money to meet our expansion capital needs and manage our debt consistent with investment-grade metrics,” Kinder said.
Kinder told analysts that the company’s decision means it will not need to access equity markets for the foreseeable future and will need to rely much less on the debt market to sustain growth. It will also be able to maintain a stable credit rating and continue to grow its cash flow. He said the company expects to meet its 2015 budget within 5 percent of projections and grow its cash flows by 6 to 10 percent next year.
Opponents say
The NED’s opponents, however, maintain that the developments on Wall Street call into question Kinder Morgan’s ability to finance the new pipeline.
Pipeline Awareness Network for the Northeast director Kathryn Eiseman called Kinder Morgan’s competence to build the pipeline into question Friday.
“It was already a sketchy proposition to have New England ratepayers on the hook for billions of dollars to pay for this project. Kinder Morgan’s financial tailspin should be a wake-up call to everyone,” said Eiseman. “Kinder Morgan has already been faulted for funneling shareholders money that should have been going to infrastructure maintenance. Do our political leaders really support a multi-billion dollar project that’s being put forth by a company that appears headed towards junk-bond status?”
The New Hampshire Municipal Pipeline Coalition, an opposition group composed of several southern New Hampshire towns, characterized the company as “another example of a U.S. company that grew quickly, by adding significant long-term debt, and then is challenged when inevitable business pressures arise” in a statement Thursday.
The NED pipeline would cross about 80 miles of southern New Hampshire after crossing the border from Massachusetts in Northfield before dipping back south to end in Dracut. A similar coalition formed in Massachusetts in October.
“Let’s put this into perspective,” said Mark Bender, town administrator for Milford, N.H. “Kinder Morgan is the company trying to convince 19 southern New Hampshire towns and over 100,000 residents that they should be entrusted to construct and operate an 80-mile, high pressure, 30-inch pipeline through our communities, conservation lands, private property, rivers and aquifers. However, recent assurances they made to their own stockholders about dividend increases were flipped on their head Tuesday. This sends up a number of red flags for me.”
Kinder Morgan’s Northeast Energy Direct pipeline project is currently under review by the Federal Energy Regulatory Commission. The 400-mile-long, 30-inch diameter transmission pipeline would carry 1.2 billion cubic feet of gas from Pennsylvania’s Marcellus shale fields to Dracut each day, passing through eight Franklin County towns along the way.
The project has encountered substantial opposition from local residents, town governments, activist groups and environmental organizations since it was announced nearly two years ago.
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