Mitigate the Barrage - KMI - Pipelines
KMI had some interesting things to report when they released their 2nd quarter results on Wednesday afternoon.
But first, a brief rant. I really hate wasting time on quarterly reports, but for educational purposes I will try to do better in the next few weeks. Quarterly calls are difficult to listen to, because Wall Street asks such terrible questions. Rather than ask important strategic questions, they focus on minutiae. You can almost feel the analysts clicking on their spreadsheets, rather than discussing important long-term issues. Everything that is wrong with Wall Street, can be heard on these calls. Many of the calls are so bad, it makes my teeth hurt. The KMI call was a classic.
KMI won two important US Supreme Court cases in the quarter. In the smaller case, KMI was one of the named plaintiffs, but their case was consolidated under Ohio vs EPA. The Court blocked the Good Neighbor Plan. You have to love it when your company sues to stop something called the Good Neighbor Plan.
Much more important was the decision in the Chevron deference case. This case could be the most important Supreme Court ruling in the last 20 years. In very simple terms, the Court ruled Congress must make the regulatory rules, and cannot defer that responsibility to agencies like the EPA. The whole “Trump train” started rolling in 2016 when Trump agreed to choose Federalist Society judges hand picked to change Chevron deference rules. No industry has crushed more by silly regulations than the natural gas pipeline business. KMI meaningfully increased its estimate of future EBITDA from new capital projects, in the same quarter these rulings came down.
The analysts did not ask single question about these important changes. Instead they were asking about gas flow rates on small and inconsequential projects.
The company said it very clearly, these new rulings will,
“mitigate the barrage” of recent regulations
KMI still has to deal a problematic FERC, but things are getting better and you get paid 5.6% to wait. Should Trump win the FERC will not swing back to Republican until 2026.
Other pipeline ideas:
Enbridge - ENB - $36 - The upside here comes from higher oil prices, and more crude coming from Canada. There is a safe 7% yield, but the long-term outlook is a little murky. Barrow Hanley is a large owner. I prefer the others, but reasonable people, with a higher oil price outlook, could own this stock.
Energy Transfer LP- ET - $16 - I do not want to mess with the LP issues, and I do not think ET management any better than average.
Williams - WMB - $43 - This was going to be the first stock I wrote about in when starting this project in late 2022. I have long admired this management team. I became too concerned about FERC issues, and missed a good buying opportunity. Now with only a 4% yield, investors understand the growth possibilities. I will not chase the stock near its highs.
TC Energy - TRP - $40 - This is the old Trans Canada Pipeline. Understanding US pipeline regulation is tough enough, I will take a pass on Canadian regulations.
Cheniere Energy - LNG - $182 - This was a great idea 5 years when the stock was $50. Wall Street never understood this company. Let’s try to find another LNG stock.
Equitrans Midstream - ETRS - $12 - This is a very complicated story. All the politics around the Mountain Valley Pipeline is very confusing. I want to learn to more.
Antero Midstream - AM - $15 - I will write a separate post about this stock. At first glance it seems to be 6%+ yielder with some upside. The midstream business has a history of volatility, but the structure here seems to limit risk.