Skip to main content

Richard D. Kinder, Chairman and Chief Executive Officer of Kinder Morgan Energy Partners LP, addresses the Reuters Energy Summit in Houston in this June 2, 2009 file photo. Kinder told investors on a conference call August 11, 2014 that Kinder Morgan Inc as a combined company will have the opportunity to make sizable acquisitions in the natural gas and crude oil pipeline and processing sector.Richard Carson/Reuters

Kinder Morgan Inc. bills its $44-billion (U.S.) restructuring as a way to simplify its business and cut its cost of capital by putting all its subsidiaries under a single umbrella. Don't look to Canada's major pipeline companies to follow suit, however.

Enbridge Inc. uses its U.S. affiliate, Enbridge Energy Partners LP, as an alternative funding vehicle as it pursues about $37-billion (Canadian) of commercially secured growth projects. FirstEnergy Capital Corp. analyst Steven Paget points out that Enbridge recently restructured the 34-per-cent-owned unit to reduce its cost of capital.

EEP's dividend yield is 2.5 per cent higher than the parent company's, meaning that Enbridge would have to shell out plenty of cash for its subsidiary or offer its own shares, which would spell a dividend cut for those with EEP units.

"Also, that would be asking people now getting paid in U.S. dollars to either get some sort of more complicated thing or getting paid in Canadian dollars, and I'm not sure they would like that very much," Mr. Paget said.

Enbridge also owns 19.9 per cent of the Enbridge Income Fund.

TransCanada Corp., meanwhile, owns 28 per cent of TC Pipelines LP, which has ownership stakes in six U.S. pipelines, and the implications are similar for its investors as for those of the Enbridge partnerships, Mr. Paget said. TransCanada restructured its relationship with TC Pipelines to improve the capital cost issue in 2009, he noted.

On Sunday, Kinder Morgan said plans to buy back the public interests in Kinder Morgan Energy Partners, El Paso Pipeline Partners LP and Kinder Morgan Management LLC to cut the amount of cash it pays out to holders of the master limited partnerships, or MLPs, an investment structure that Kinder Morgan helped to popularize.

Kinder Morgan Energy Partners is the parent of Kinder Morgan Canada, which runs the Trans Mountain oil pipeline to Burnaby, B.C., from Alberta, and the Cochin propane and butane line between Alberta and Windsor, Ont. The company is undergoing a major expansion effort, having applied to the National Energy Board for a contentious, $5.4-billion expansion of Trans Mountain that would nearly triple its capacity.

Kinder Morgan is also planning an oil-by-rail loading terminal in Strathcona County, Alta., in partnership with Imperial Oil Ltd. Last week, it said the partners had expanded the plan to nearly double its capacity to 210,000 barrels a day. Kinder Morgan's commitment to the project is $232-million.

The consolidation at Kinder Morgan Inc. will not affect the Canadian operation's projects, said Andy Galarnyk, spokesman for Kinder Morgan Canada.

However, Rich Kinder, the company's CEO and largest shareholder, told analysts and reporters on Monday that it could open the door to acquisitions. Besides the lower cost of capital, the company expects $20-billion (U.S.) in tax savings over the next 14 years.

"I think it gives us great optionality as we look across the universe and I really do believe ... over the next few years, the need for capital in this midstream area is going to be so great, there's going to be lots of opportunities for expansions. There's also going to be lots of consolidation within the field," Mr. Kinder said in a conference call. "We have 120 MLPs out there with enterprise value of well over $800-billion. And so I think it's a fertile field to do a little grazing in."

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
ENB-N
Enbridge Inc
+0.53%36.18
ENB-T
Enbridge Inc
+0.29%48.95
IMO-A
Imperial Oil Ltd
+0.7%69.13
IMO-T
Imperial Oil
+0.15%93.43
KMI-N
Kinder Morgan
+1.05%18.34
TRP-N
TC Energy Corp
+1.41%40.2
TRP-T
TC Energy Corp
+1.19%54.44

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe