Kinder Morgan: Financial woes confront firm behind New England gas pipeline

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HARTFORD, CONN. >> Kinder Morgan Inc., the energy giant proposing gas pipelines in Northeast that have drawn opposition, is weathering another challenge — financial woes linked to falling energy prices and a steep drop in its stock price forcing it to find new sources of capital.

The Houston-based company announced Tuesday a 75 percent cut in its quarterly dividend to 12.5 cents per share to conserve cash for financing portions of its expansion projects. In addition to a $3.3 billion pipeline through western Massachusetts and southern New Hampshire sought by a Kinder Morgan subsidiary, it's also proposing a Northeast pipeline network in Connecticut, Massachusetts, New Hampshire, New York and Pennsylvania.

Cutting the dividend allows Kinder Morgan to avoid issuing stock to raise capital or incur debt that could jeopardize its credit rating, the company said.

Richard Kinder, executive chairman, said in a conference call Wednesday that the company's stock price has reached the point "where it is no longer an economic source of expansion capital."

Kinder Morgan also rejected interrupting "very important, very profitable" long-term projects to conserve cash, Kinder said.

Analysts said cutting the dividend will make capital available to help finance pipeline construction. Rob Desai, an analyst at Edward Jones, said it removes financing risks.

"The underlying risks still remain: low commodity prices and the risks and uncertainty associated with that," he said.

Tudor, Pickering, Holt & Co. said in a note Wednesday that the dividend cut ends an "investor/management game of cat and mouse."

It will not eliminate near-term trading volatility, but Kinder Morgan will keep $3.7 billion that will help finance capital spending without the sale of shares or adding to debt, the analysts said.

The company's stock price had been cut nearly in half, from a high of $32.68 on Oct. 8 to $15.72 on Dec. 8, when it cut its dividend. Falling oil prices have weighed on Kinder Morgan and the energy industry. However, investor concern over the company's debt also was a factor.

Investors cheered the dividend cut, sending share prices up sharply Wednesday, but still far below the Oct. 8 high. Shares closed Friday at $16.66.

Tennessee Gas Pipeline Co., a subsidiary of Kinder Morgan, is seeking to build a $3.3 billion natural gas pipeline through southern New Hampshire and western Massachusetts. The company says it hopes to start construction in January of 2017 and put the pipeline into service in November 2018.

New England is plagued by high energy prices because of natural gas pipeline bottlenecks. ISO-New England, the region's grid operator, said in its annual power system plan Nov. 5 that "significant challenges to reliability, particularly in winter, are posed by natural gas infrastructure that is inadequate" to meet rising demand for natural gas for heating and generating power.

Opponents, including Massachusetts Attorney General Maura Healey, say New England does not need additional gas pipelines to maintain a reliable source of energy for the next 15 years.

Moody's Investor Service downgraded Kinder Morgan's credit on Dec. 1 to negative from stable, but restored its stable rating on Wednesday, citing Kinder Morgan's "very significant" dividend cut.

The downgrade followed Kinder Morgan's agreement to increase its ownership in Natural Gas Pipeline Co. of America LLC to 50 percent from 20 percent for about $136 million, Moody's said. The credit agency referred to National Gas Pipeline Co. as a "distressed company" and said the negative outlook reflects Kinder Morgan's increased "business risk profile and additional pressure on its already high leverage."


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