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This note was originally published October 16, 2013 at 14:36 in Energy

19 Questions for Kinder Morgan - km1

Kinder Morgan (KMI, KMP / KMR, and EPB) is scheduled to release 3Q13 distributable cash flow at 4pm EST today, closely followed by its quarterly conference call at 4:30pm EST.

In advance of the call, we've compiled a list of questions that we'd like management to answer.  As Kinder Morgan will not respond to our questions, perhaps someone else will ask them for us...

1.  Does PricewaterhouseCoopers audit, or deliver an opinion on, KM's sustaining capital expenditures?

2.  How does KM define "capacity" in its E&P business?

3.  Why does KM feel that relying upon a partnership agreement written in 1992 is relevant 21 years later, especially considering that E&P assets were not in the partnership at that time, and the industry defines maintenance CapEx for E&P assets completely differently?  

4.  Why doesn't KM acquire a large E&P company or asset given how accretive such a deal would be to KMP's DCF/unit with $0 sustaining CapEx?

5.  Or, if KM wants to de-emphasize its E&P business, why not sell those assets today?  What does KM believe fair / market value is for its E&P assets?

6.  How is the St. John's Dome project (CO2) going?  How much capital has been put into the project to date?  Discuss the well results?

7.  Please discuss KM’s intentions with respect to investing in “coal / other natural resources.”  How much capital will be dedicated to this effort?  What has been done so far?

8.  Is KM considering a corporate acquisition to kick off this new “coal / other natural resources” business?

9.  More importantly, how will KM define sustaining CapEx for this business?  Will there be a replacement reserve to reflect the fact that these will be depleting assets?  Or will it be similar to how KM currently defines E&P sustaining CapEx (i.e. $0)? 

10. Over the last several years, KM has spent an enormous amount of expansion CapEx in both its refined products and bulk terminals businesses, yet unit volumes, at each, has not increased.  This cannot be explained by a single project gone wrong or a bad economy; what, exactly, is this expansion CapEx going towards?

11. Within KMP’s Natural Gas Pipelines segment, there is a large gathering & processing (G&P) business, made more significant with the CPNO acquisition. For 2013, what is G&P sustaining CapEx vs. expansion CapEx (including JVs)?  What is G&P organic volume growth expected for 2013 and 2014, respectively? 

12. Over the long-term, how much capital would KMP need to spend on an annual basis to keep gathering throughput and NGL production flat (including CPNO)?

13. Does KMP include new well connections needed to keep gathering throughput flat in sustaining CapEx?  Does KMP include or reserve for processing capacity refurbishment / replacement in sustaining CapEx?

14. If KMP were to retire a 300 MMcf/d processing plant and build a new 300 MMcf/d processing plant next to it, would the CapEx incurred be sustaining CapEx or expansion CapEx?

15. On the 9/18/13 conference call, management noted that, “Everything that you do eventually gets into the rates you charge for your transportation services.”  How will the significant spending cuts at the former El Paso subsidiaries affect rates going forward?

16. On the 9/18/13 conference call, management cited a Goldman Sachs report that listed KMP’s 2012 maintenance CapEx as a % of EBITDA as 11.1%.  But in KMP’s 1/30/2013 IR presentation, it states that sustaining CapEx was $285MM and EBITDA (ex. items) was $4,144MM, for a ratio of 6.9%.  Which number is accurate?  Why did management cite the Goldman figure? 

17. In the FERC financials, which expense line includes “anomaly repairs” for the former El Paso subsidiaries?

18. In the FERC financials, where can we find the increase in O&M expenses to make up for the significant decline in maintenance CapEx on the former El Paso subsidiaries?

19. What does KM have for natural gas transmission contract roll-offs over the next few years?  Can KM quantify it in terms of EBITDA impact?

Kevin Kaiser

Senior Analyst

kkaiser@hedgeye.com

203-562-6500