Pipeline Giant Kinder Morgan Gains After Wednesday Selloff

Reuters A heavy crude pipeline in Alberta, Canada.

With a network of terminals and 80,000 miles of  oil and gas pipelines crisscrossing the U.S. and Canada, Kinder Morgan has the largest midstream energy business in North America.

And along comes an upstart research firm recommending a Sell. Today Kinder Morgan (KMI) and Kinder Morgan Energy Partners (KMP) shares are up about 1% apiece.

But Kinder Morgan fell 6% Wednesday, while KMP fell 4.5% on news that an independent researcher recommends the rare Sell rating on an energy master limited partnership. Deutsche Bank and Credit Suisse analysts are swinging out in defense of Kinder Morgan, though no one has seen the negative report from Hedgeye Risk Management Analyst Kevin Kaiser. It  is being withheld as Hedgeye builds sales demand with a Twitter campaign.

Those parsing what’s available seem to think the Hedgeye report takes aim at Kinder’s accounting for maintenance spending, its acquisition strategy and its commodity hedging. Sounds much like the topics in the Hedgeye case against Linn Energy (LINE).

What we do know is this from Kaiser’s Twitter feed Wednesday: 

“This AM we added SHORT KMI, KMP, KMR, EPB as new Best Idea. Full report out to clients on Tues 9/10 …. I think that this report that we will put out …  is a public service – I really do. We will post select free content in future.”

Kinder Morgan’s corporate structure is convoluted. Kinder Morgan  is the general partner, which reaps distributions from underlying businesses. It pays a 4.2% yield.  Kinder Morgan Energy Partners, the main pipeline MLP enterprise,  pays a 6.5% yield in the form of a cash distribution like most MLPs.  Kinder Morgan Management (KMR) was created to pay distributions in shares given the tax-and-accounting headaches of MLPs. But KMR still offers tax deferrals. Following an acquisition, Kinder also controls El Paso Pipeline Partners (EPB), whose yield is 5.7%. Kinder’s chief financial officer said that the enterprises could be combined at some point. Post from the industry’s biggest conference in May here.

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A few things to know about the energy MLP: