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Investors’ Blog: Walking Away is a Good Move for Kinder Morgan Shareholders


Two posts late last week on the Seeking Alpha investors’ blog show parts of the financial community getting decidedly jittery about the Trans Mountain pipeline expansion, suggesting that stepping away from the project is in the best interest of Kinder Morgan shareholders.

On Friday, Powerhedge, LLC published a capsule history of the project, dating back to a federal bill in 1951 that created the Trans Mountain Pipeline Company as a joint venture of Standard Oil Co. and Bechtel Corporation. While it assumes the federal government has formal authority to push the pipeline through, declaring the pipeline battle a “struggle between governments on ideological grounds,” it also recognizes a more nuanced picture on the ground.

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One of the unfortunate realities of projects such as this is that there are always a large number of stakeholders, each of whom have varied interests,” the company states. “The province of British Columbia continues to fight against this project. To date, seven Federal Court challenges have been filed by the municipalities of Vancouver and Burnaby, and the Tsleil-Waututh, Squamish, Kwantlen, and Coldwater First Nations over various aspects of the pipeline.

Against that backdrop, Powerhedge writes, Kinder Morgan issued its May 31 ultimatum because “its investors/financial backers in Texas are running out of money and its investors across the board are losing patience as expenses continue to mount as the legal issues drag on.” And “this is a good sign from a shareholder perspective as it shows that Kinder Morgan is looking out for their best interests. This is due to the willingness that it shows on the part of management to abandon even a potentially profitable and valuable project if the risks begin to outweigh the potential gains, as may be the case here.”

“As an investor, I also dislike continuing to fund projects that fail to show results.”

In another Friday post, a high school teacher and former analyst writing under the pseudonym Long Player asks [2] whether Kinder Morgan “blinked” with its April 8 announcement.

Management cannot allow its projects to be held hostage to political whims,” s/he writes. “Shareholders expect their money to be spent as judiciously as possible. The British Columbia government has clearly raised the stakes to the point where spending more money was not wise. Some activity will continue, which is a good faith show on the part of the company. But the amount spent so far on the TMP project will not materially increase without the necessary clarity and permits. The Canadian federal government has clearly supported the project. Now, that support needs to translate into action.