In this issue:

This week’s $71 billion Kinder Morgan (NYSE: KMI) merger with its MLP affiliates was billed as a big win all around. But a close reading of the numbers reveals a bargain for current KMI shareholders, starting with the CEO and founder Richard Kinder. We knew all along he wouldn’t sell himself short.

Meanwhile, the natural gas that Kinder Morgan ships around the country (among other things) has had a rough summer as cool temperatures curb air-conditioning demand. But given the longer-term fundamentals prices are highly likely to recover some of the recent losses. And in the meantime hyper-efficient producers like Cabot Oil & Gas (NYSE: COG) keep developing links between their Marcellus wells and northeast population hubs where gas should be in demand again this winter.   

Oil prices have also come under pressure of late, as signs of ample global supplies offset geopolitical concerns. Once concern that’s not going away is Russian aggression in Ukraine and the possible effect of Western sanctions on Russia’s long-term production outlook. Putin’s response so far has been to court big Western oil companies involved in efforts to increase Russian energy outputs. And despite political pressure from Washington, the execs are so far returning the dictator’s affections. It’s a profitable relationship that, by the looks of things, will grow much more awkward.

Portfolio Action Summary

• Kinder Morgan (NYSE: KMI) buy below target increased to $45 from $40 in the Conservative Portfolio.

 
Commodity Update

Crude oil prices continue to weaken as the oil markets seem to be largely unconcerned that current geopolitical events pose a significant threat to supplies. Since our last report the front month contract of West Texas Intermediate (WTI) declined below $100 for the first time in months, trading Tuesday at $97.08 per barrel (bbl). Brent crude fell to $102.58, leaving the Brent-WTI spread at $5.50/bbl. Natural gas briefly traded very near the levels of a year ago for the first time since the winter inventory drawdown, but bounced back in recent days to $3.97 per million British thermal units (MMBtu). The current price is $0.63/MMBtu higher than the price a year ago, and natural gas inventories remain 20% below the five-year average for this time of year.

In Other News

• The Energy Information Administration (EIA) reported that natural gas production in the Marcellus Shale region exceeded 15 billion cubic feet per day (Bcf/d) for the first time ever

• Oil field services companies warned that Russian sanctions will have at least some impact on their bottom line

• Kinder Morgan announced that it will abandon the Master Limited Partnership (MLP) structure that it largely pioneered. Its buyout of the affiliated MLPs will create the fourth-largest energy company in the US

• Oil prices fell to the lowest level in more than six months, with Credit Suisse recently warning that US crude prices could come under further downward pressure in 2015

• Despite sanctions, Russian President Vladimir Putin praised the commencement of drilling of a $700 million Arctic Ocean oil well by a joint venture between Exxon Mobil (NYSE: XOM) and Russia’s Rosneft