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Kinder Plays Rockefeller While Chesapeake Burns

Pipelines can move product at half the cost of rail, and at a tiny fraction of what trucks cost. This, too, has been true since the 19th century. Developing pipeline technology was, for John D. Rockefeller, the trump card in gaining control of the market. Kinder now has the Rockefeller position, and for as long as the boom lasts he will be in control of it.

What all this tells me is that there are no new rules in the oil patch. The old rules always apply. Boom leads to bust, bust leads to consolidation around downstream assets, and the biggest winner is someone who doesn't get their hands dirty.

You can participate with Rich Kinder in one of three ways. Kinder Morgan Partners (KMP) owns interests in the Master Limited Partnerships, or MLPs, that actually own the assets. Kinder Morgan Inc. (KMI - Get Report) holds the general partnership interests in those MLPs, and some MLP assets. Kinder Morgan Management (KMR) owns MLP interests and distributes its dividends as stock. It's pretty complicated, but compared with Rockefeller's Standard Oil it's dead simple.

Right now KMP is yielding a dividend of 5.76%, and the shares are on sale due to the near-term dilution of the Capano deal. If you believe in the boom, it's a screaming buy.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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CHK $5.41 -1.46%
KMP $102.03 1.98%
KMI $24.10 -1.27%
KMR $104.71 3.78%
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