Last week, a financial research firm, Hedgeye, released a scathing report on Kinder Morgan that supports many of Sightline’s conclusions. Aptly titled Is Kinder Morgan Maintaining its Stock Prices Instead of its Assets? (no longer available online), the report is mainly concerned with Kinder Morgan’s books, but it includes a few bombshells that should worry the public.
Consider just this sampling from the summary section:
We believe that Kinder Morgan’s high-level business strategy is to starve its pipelines and related infrastructure of routine maintenance spending in order to maximize Distributable Cash Flow…
In our view, Kinder Morgan cuts, defers, and eventually finances the [Limited Partnership’s] maintenance spending…
A broader, and more important concern is the reliability and safety of Kinder Morgan’s pipeline’s. In 2012, Kinder Morgan acquired El Paso, then the largest natural gas pipeline company in the US, in a +$30B deal; Kinder Morgan has already cut maintenance expenses by 70-99% and maintenance [capital expenditures] by ~60% on most of those assets. In our view, it is alarming that Kinder Morgan supporters believe that this is a sound business practice.
The report goes on to detail specific maintenance spending deferrals, and it enumerates a few of the mishaps—some of them deadly—that Kinder Morgan’s pipelines have suffered in recent years.
Update 9/26/13: CEO Richard Kinder defended the firm’s practices on a conference call, and Hedgeye hit back with a rebuttal.