Most investors likely know something about Kinder Morgan (NYSE: KMI) since it is one of the largest and most popular energy infrastructure companies in North America. If nothing else, many know the company for its above-average dividend, which it supports with a vast portfolio of pipelines and storage terminals that generate stable fee-based cash flow. That said, while many know the basics, few probably know these four interesting facts about the company.
No. 1: Kinder Morgan's roots trace back to Enron
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Before forming Kinder Morgan, Executive Chairman Richard Kinder was the president of Enron. However, he stepped down in 1997 -- several years before Enron's implosion -- and teamed up with William Morgan and other investors to buy the general partner of a small publicly traded pipeline company called Enron Liquids Pipeline. They called their new endeavor Kinder Morgan Energy Partners and set out with a plan to use the master limited partnership (MLP) structure as a growth vehicle to build and buy energy infrastructure assets. At the time, the company only had 175 employees and an enterprise value of $325 million. However, $59 billion of investments and acquisitions later, and the company is one of the largest operators of energy infrastructure assets in North America.
No. 2: Its top two executives only get paid $1 per year
While many top executives rake in millions of dollars in compensation each year, co-founder and Executive Chairman Rich Kinder only earns $1 per year in salary and doesn't receive a bonus or stock grants. Likewise, CEO Steve Kean only receives $1 in compensation each year. The reason these men get paid so little is that both own a large chunk of the company's stock, so their compensation comes from creating value for investors -- including themselves -- via dividends and capital appreciation. In fact, management and directors of the company collectively own 14% of its outstanding shares, with Kinder's stake alone currently worth $6.6 billion according to Forbes. That significant insider ownership is why the company's tag line is "Run for Shareholders, By Shareholders."
No. 3: The company operates enough pipelines to circle the Earth more than three times
Kinder and his team have grown Kinder Morgan from a small pipeline company into one of the largest in North America. It currently controls 84,000 miles of pipeline, which if laid end-to-end, would circle the earth more than three times. Most of those pipes transport natural gas. In fact, at roughly 70,000 miles, it operates the largest gas pipeline network in North America that currently moves 38% of the gas consumed in the U.S. on a daily basis.
Kinder Morgan expects that system to continue growing, driven by the expectation that natural gas demand in the country will increase by 35% over the next decade. The company already has $3.4 billion of new natural gas pipelines under construction and several other projects in development, including a more than $1 billion pipeline project with DCP Midstream (NYSE: DCP) to move gas out of the Permian Basin. The DCP Midstream-partnered project, if approved, would add another 430 miles of pipe to the company's network by 2019.
No. 4: It's the 13th largest oil producer in Texas
While the natural gas pipeline business currently supplies about 55% of Kinder Morgan's earnings each year, another important contributor is the company's oil business, where it gets about 7% of its profit by using carbon dioxide to coax oil out of Texas' legendary Permian Basin. In fact, last year the company produced more than 20 million barrels of oil, which made it the 13th largest oil producer in Texas, accounting for about 2% of the state's total output. That output should head higher in the future since the company plans to spend $1.1 billion over the next five years to unlock more oil trapped underneath the Lone Star State, as long as oil cooperates.
Focused on growing what matters most
While Kinder Morgan had relatively humble beginnings, the company is now a force in the energy infrastructure segment. That said, the focus of management throughout the years hasn't just been to grow the size, but to increase value so that shareholders -- including management -- could enjoy the benefits of this wealth creation. It has done that by building and buying assets where it can generate high risk-adjusted returns and predictable cash flow streams because that's the best way to grow the value of the company and create wealth for investors.
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Matt DiLallo owns shares of Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan, long January 2018 $30 calls on Kinder Morgan, and short December 2017 $19 puts on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.