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Consolidation must-know: A look into Kinder Morgan’s origins

Keisha Bandz - Author

Aug. 18 2020, Updated 5:29 a.m. ET

The man behind the Kinder Morgan Empire

Kinder Morgan Inc. (KMI) was formed in 1997 when current CEO Richard Kinder, and former vice chairman William Morgan acquired the general partner of a small limited partnership—Enron Liquids Pipeline L.P.

With $40 million worth of cast-off assets from Enron, Kinder built his empire from the ground up. And what an empire! Along the way, he pioneered the MLP structure that has been dominating the pipeline industry lately.

The fact that the company focuses solely on North America, during the oil and gas shale boom, is helping matters along as well.

The fact that the very man who pioneered the MLP structure is discarding it has taken the energy industry by surprise. However, the markets reacted favorably to the news even as KMI’s valuation surged by $800 million.

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Kinder, as the chairman and CEO of KMI, takes a $1-a-year salary and doesn’t rely on bonuses from any of the four companies under KMI. His earnings come from his ownership stakes in all the companies in the form of dividends. His dividend income last year was a whopping $380 million, which is likely to rise given the new development. According to a report compiled by Bloomberg, annual dividends will increase by $100 million thanks to the deal.

Kinder Morgan’s meteoric rise

During the past 15 years, KMP has invested tens of billions to facilitate joint ventures, expansions, and acquisitions to achieve increased growth.

One of its most noteworthy acquisitions was the purchase of El Paso Pipelines (or EPB) in May 2012. KMI paid approximately $38 billion (including debt assumed) to acquire EPB in what was then considered to be the biggest U.S. pipeline deal.

The fact that KMI was willing to take on significant debt supports the fact KIM believes in buying assets when they’re bogged down or have no takers—much like the Enron assets that Richard Kinder took it upon himself to build from.

Cut to recent events. KMI made another crucial purchase in the form of its Copano acquisition last year. Copano Energy LLC, a pipeline operator, gave KMI strong access to gathering and processing infrastructure at key shale basins.

Another recent acquisition by KMI is its $962 million purchase of a fleet of crude tankers from Cerberus Capital Management LP and Blackstone Group LP.

Key stocks and ETFs

Kinder Morgan Energy Partners (KMP), KMI’s flagship MLP, competes with Williams Partners, Spectra Energy Partners, and Enterprise Product Partners (EPD). The general partner (or GP) for Williams and Spectra Energy Partners are Williams Company Inc. (WMB) and Spectra Energy (SE), respectively.

Most of these companies are components of the Energy Select Sector SPDR ETF (XLE).


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