As Kinder Morgan watches its stock price tank, and slashes its dividend to investors, critics of the Northeast Energy Direct project are beginning to question whether the company has the financial stability to build and operate a $3 billion natural gas pipeline through southern New Hampshire.
Kinder Morgan says its finances are strong, despite the stock market fluctuations, and it will be able to meet all of its commitments.
The nation’s largest pipeline operator announced on Tuesday that it would reduce its stock dividend by 75 percent, citing high spending on drilling projects and low cash flow amid a global oil glut.
The company’s stock hit an all-time low of $15.73 a share on Tuesday before rebounding to $17 on Wednesday. The stock had been trading in the $40 dollar range until mid-summer, when it began a precipitous decline.
Investors classify Kinder Morgan as an oil stock, and none has been doing well, amid a seven-year low price of $36.90 a barrel and an 80-year high of U.S. oil supplies.
But Kinder Morgan’s 60 percent decline so far this year is significantly worse than other energy-related stocks.
The New Hampshire Municipal Pipeline Coalition, a group of 15 towns opposed to the NED project, on Thursday expressed “grave concerns” about Kinder Morgan’s ability to finance and construct the pipeline, given what the organization called “the company’s recent financial free-fall.”
“This is news that I associate with a company in a cash crunch and struggling to meet its commitments,” said Brian McCarthy, town administrator in Pelham. “Unfortunately, our country has seen many examples of companies cutting corners on projects to save a buck. This news is not reassuring.”
McCarthy said the company’s debt is “staggering” at $44.67 billion.
Milford Town Administrator Mark Bender and Mason Selectman Charlie Moser also expressed concern.
“The regulatory agencies need to look very carefully at the finances of this project and the solvency of its sponsor,” Moser said. “If such a company came before a town board proposing a large project in Mason, we would require bonding or other financial assurances to protect our town and its residents from a firm with financial incentives to scrimp on construction costs.”
In a conference call with analysts on Dec. 9, Kinder Morgan executives said the lower dividend allows the company to retain more cash to finance projects like NED, and to reduce its existing debt.
“The company is putting a priority on reducing its financial leverage to maintain an investment grade debt rating,” reported Barrons. “It was a threat of a downgrade by Moody’s Investors Service last week that helped prompt the sharp sell-off in the stock. Moody’s rates Kinder Morgan’s debt Baa3, the lowest investment-grade mark.”
Company spokesman Richard Wheatley said on Thursday the company continues to have strong operating revenue, and expects to finish the year within 5 percent of its 2015 budget for earnings from operations. “Kinder Morgan anticipates meeting all of the rating agencies’ requirements to remain investment grade,” he said.
This article was written by Dave Solomon from The New Hampshire Union Leader, Manchester and was legally licensed through the NewsCred publisher network.