Kinder Morgan Declares Dividend of $0.125 for Fourth Quarter of 2017

Strong Financial Performance Despite Non-cash Tax Cuts & Jobs Act
Charge

HOUSTON–(BUSINESS WIRE)–$KMI #KinderMorgan–Kinder Morgan, Inc. (NYSE: KMI) today announced that its board of
directors approved a cash dividend of $0.125 per share for the fourth
quarter ($0.50 annualized) payable on February 15, 2018, to common
stockholders of record as of the close of business on January 31, 2018.
KMI continues to expect to increase its dividend to $0.80 per share for
2018 ($0.20 per share for Q1 2018). KMI also continues to expect to use
cash in excess of dividend payments to fully fund growth investments,
further strengthening its balance sheet.

“Kinder Morgan thrived in 2017. We had very good financial performance
despite facing continued strong headwinds (including an epic rain
event), we strengthened the balance sheet beyond our original
projections, and we announced our plan to return value to shareholders
through an increasing dividend and a $2 billion share repurchase
program. Our previously announced 2018 guidance, with $0.80 dividends to
be declared for 2018, and the early start to our share repurchases,
which we began in December 2017, shows our commitment to that plan. We
are highly confident in our ability to maintain robust dividend coverage
while delivering a substantial dividend increase to stockholders out of
operating cash flows in excess of growth capital. And of course we will
continue the important work of strengthening our balance sheet by
funding all growth capital through operating cash flows with no need for
external funding for growth capital for the third straight year,” said
Richard D. Kinder, Executive Chairman.

President and CEO Steve Kean said, “During 2017 we completed the Elba
Liquefaction Project joint venture and the IPO of our Canadian pipelines
and terminals assets (KML). Those transactions helped us outperform our
original target for strengthening our balance sheet, leading to a
year-end 2017 Net Debt-to-Adjusted EBITDA ratio of 5.1 times versus our
plan of 5.4 times. We are committed to achieving or beating our longer
term leverage target of 5.0 times. We also placed almost $1.8 billion of
projects in service throughout the year and added a substantial
additional natural gas project in Gulf Coast Express. We had good
commercial and operating performance, slightly exceeding our plan for
the year. We are pleased with the strength and resiliency of the
company’s business and with our operational performance.”

“We also had a solid fourth quarter, but because of a non-cash
accounting charge resulting from the reduction in corporate income tax
rates, we are showing a fourth quarter loss of $0.47 in earnings per
common share. While the recently enacted Tax Cuts and Jobs Act of 2017
will ultimately be moderately positive for KMI, the reduced corporate
income tax rate causes certain deferred-tax assets to be revalued at 21
percent versus 35 percent. Although there is no impact to the underlying
related deductions, which can continue to be used to offset future
taxable income, KMI will take an estimated approximately $1.4 billion
non-cash accounting charge for the 4th quarter. This charge
is our initial estimate and may be refined in the future as permitted by
recent guidance from the Securities and Exchange Commission and the
Financial Accounting Standards Board. The positive impacts of the law
include the reduced corporate income tax rate and the fact that several
of our U.S. business units (essentially all but our interstate natural
gas pipelines) will be able to deduct 100 percent of their capital
expenditures through 2022. The net impact results in postponing the date
when KMI becomes a federal cash taxpayer by approximately one year, to
beyond 2024,” continued Kean.

For the quarter, we achieved distributable cash flow (DCF) of $0.53 per
common share, representing 4 percent growth over the fourth quarter of
2016, resulting in $910 million of excess DCF above our dividend. The
discrepancy between a reported net income loss and a DCF gain
illustrates why we and those who follow our businesses view the DCF
metric as an important measure of our financial performance.”

Kean added, “We continue to drive future growth by completing
significant infrastructure development projects that we track as part of
our project backlog. Our current project backlog is essentially flat
with last quarter at $11.8 billion, with a small decrease primarily due
to projects going into service, which was mostly offset by the addition
of our Gulf Coast Express joint venture. Excluding the CO2
segment projects, we expect the projects in our backlog to generate an
average capital-to-EBITDA multiple of approximately 6.5 times.”

KMI reported a fourth quarter net loss available to common stockholders
of $1,045 million, compared to net income available to common
stockholders of $170 million for the fourth quarter of 2016, and DCF of
$1,190 million, up 4 percent from $1,147 million for the comparable
period in 2016. The increase in DCF was driven by greater contributions
from the Natural Gas, Terminals and Products Pipelines Business Units,
as well as from Kinder Morgan Canada, partially offset by decreased
contributions from CO2. Net income available to common
stockholders was impacted by a $1,276 million unfavorable change in
total Certain Items (as described under “Non-GAAP Financial Measures”
below) compared to the fourth quarter of 2016. Fourth quarter 2017
Certain Items were driven largely by the non-cash accounting charge
resulting from the 2017 Tax Cuts and Jobs Act as previously discussed.

For the full year, KMI reported net income available to common
stockholders of $27 million, versus $552 million for 2016, and DCF of
$4,482 million ($2.00 per share) that was down slightly from $4,511
million for the comparable period in 2016. The decrease in DCF was
driven by the sale of 50 percent of Southern Natural Gas (SNG) in 2016,
negative impacts of Hurricane Harvey, a contribution to KMI’s pension
plan, and the KML IPO, partially offset by increased contributions from
the Terminals Business Unit, growth projects in the Natural Gas Business
Unit, lower interest expense, and lower general and administrative
expenses. Excluding the impact of Hurricane Harvey, the SNG sale and the
KML IPO, DCF was up over 1 percent from 2016. Net income available to
common stockholders was also impacted by a $512 million increase in
total Certain Items compared to 2016. Certain Items in 2017 were driven
by the revaluation of certain deferred-tax assets described above,
partially offset by asset impairment charges taken during 2016.

2018 Outlook

For 2018, KMI’s budget is set to declare dividends of $0.80 per common
share, achieve DCF of approximately $4.57 billion ($2.05 per common
share) and Adjusted EBITDA of approximately $7.5 billion. KMI also
budgeted to invest $2.2 billion in growth projects during 2018
(excluding growth capital expected to be funded by KML), to be funded
with internally generated cash flow without the need to access equity
markets, and to end the year with a Net Debt-to-Adjusted EBITDA ratio of
approximately 5.1 times.

KMI previously announced it will further enhance shareholder value
through a $2 billion share buy-back program. KMI’s Board of Directors
authorized the program to begin in December 2017, and during that month
KMI repurchased approximately 14 million shares for approximately $250
million. In 2018, KMI plans to further utilize this program
opportunistically.

KMI does not provide budgeted net income attributable to common
stockholders (the GAAP financial measure most directly comparable to DCF
and Adjusted EBITDA) due to the inherent difficulty and impracticality
of predicting certain amounts required by GAAP, such as ineffectiveness
on commodity, interest rate and foreign currency hedges, unrealized
gains and losses on derivatives marked to market, and potential changes
in estimates for certain contingent liabilities.

KMI’s expectations assume average annual prices for West Texas
Intermediate (WTI) crude oil of $56.50 per barrel and Henry Hub natural
gas of $3 per MMBtu, consistent with forward pricing during the
company’s budget process. The vast majority of cash KMI generates is
fee-based and therefore not directly exposed to commodity prices. The
primary area where KMI has commodity price sensitivity is in its CO2 segment,
with the majority of the segment’s next 12 months of oil and NGL
production hedged to minimize this sensitivity. The segment is currently
hedged for 31,419 barrels per day (Bbl/d) at $59.58/Bbl in 2018; 17,401
Bbl/d at $54.85/Bbl in 2019; 9,300 Bbl/d at $52.86/Bbl in 2020; and
4,300 Bbl/d at $51.92/Bbl in 2021. For 2018, KMI estimates that every $1
per barrel change in the average West Texas Intermediate crude oil price
from the company’s budget of $56.50 would impact budgeted DCF by
approximately $7 million and each $0.10 per MMBtu change in the price of
natural gas from the company’s budget of $3 per MMBtu would impact
budgeted DCF by approximately $1 million.

Overview of Business Segments

“The Natural Gas Pipelines segment’s performance for the fourth
quarter of 2017 was 4 percent higher relative to the fourth quarter of
2016. The segment benefited from increased contributions from Tennessee
Gas Pipeline (TGP), driven by incremental short-term capacity sales and
projects placed in service; from Natural Gas Pipeline of America (NGPL)
due to lower interest expense; from the Elba Express pipeline resulting
from the completion of expansion projects; from SNG due to completion of
an expansion project and lower interest expense; and from Hiland
Midstream due to increased gathering volumes and the effect of
renegotiated contracts. These benefits were partially offset by lower
contributions from certain midstream gathering and processing assets and
from Colorado Interstate Gas Company (CIG) as a result of a 2016 rate
case settlement,” Kean said.

Natural gas transport volumes were up 8 percent compared to the fourth
quarter of 2016, driven by higher throughput on TGP and Elba Express due
to projects placed in service, on NGPL due to incremental demand from
LNG facilities and to Mexico, and on El Paso Natural Gas (EPNG) due to
additional Permian capacity sales. The increases were partially offset
by lower throughput on Cheyenne Plains due to mild weather and fuel
switching to coal in the Rockies market. Natural gas gathering volumes
were down 2 percent from the fourth quarter of 2016 due primarily to
lower natural gas volumes on multiple systems gathering from the Eagle
Ford Shale and on the KinderHawk system, partially offset by increases
in Hiland and Altamont volumes due to increased drilling activities in
the basins.

Natural gas is critical to the American economy and to meeting the
world’s evolving energy and manufacturing needs. Objective analysts
project U.S. natural gas demand, including net exports of liquefied
natural gas (LNG) and net exports to Mexico, will increase by more than
30 percent to approximately 105 billion cubic feet per day (Bcf/d) by
2027. Of the natural gas consumed in the U.S., about 40 percent moves on
KMI pipelines. While a substantial majority of natural gas is consumed
in industrial, commercial and residential heating uses, KMI expects
future natural gas infrastructure opportunities will also be driven by
greater demand for gas-fired power generation across the country, LNG
exports, exports to Mexico, and continued industrial development,
particularly in the petrochemical industry. Compared to the fourth
quarter of 2016, natural gas deliveries on KMI pipelines to Mexico were
up 6 percent, and deliveries to the Sabine Pass LNG facility increased
by 33 percent. KMI transports roughly 70 percent of all U.S. natural gas
exports destined for Mexico.

“The CO2 segment was impacted by lower
commodity prices, as our realized weighted average oil price for the
quarter was $59.32 per barrel compared to $62.30 per barrel for the
fourth quarter of 2016,” Kean said. “Combined oil production across all
of our fields was up 2 percent compared to 2016 on a net to Kinder
Morgan basis. Fourth quarter 2017 net NGL sales volumes of 10.1 thousand
barrels per day (MBbl/d) were down 3 percent from 2016, due to an
operational interruption during the quarter.”

Combined gross oil production volumes averaged 54.1 MBbl/d for the
fourth quarter, up 1 percent from 53.5 MBbl/d for the same period last
year. SACROC’s fourth quarter gross production was 1 percent above
fourth quarter 2016 results and slightly above 2017 budget, and Yates
gross production was 5 percent below fourth quarter 2016 results and
below plan. Fourth quarter gross production from Katz, Goldsmith and
Tall Cotton was 18 percent above the same period in 2016, but below
plan. Gross NGL sales volumes were 20.5 MBbl/d during the quarter, 4
percent below fourth quarter 2016. Southwest Colorado and the Cortez
Pipeline set annual records in 2017.

“The Terminals segment earnings contributions were up 4 percent
compared to the fourth quarter of 2016 despite several divestitures and
a negative impact on earnings associated with Hurricane Harvey.

“Growth in the liquids business during the quarter versus the fourth
quarter of 2016 was primarily driven by increased contributions from our
Jones Act tankers, including the fourth quarter delivery of our final
new-build tanker, the American Pride, as well as various
expansions across our network, including the Kinder Morgan Export
Terminal and the Pit 11 project at our Pasadena Terminal, which combined
added 3.5 million barrels of storage to our best-in-class refined
products storage hub along the Houston Ship Channel,” Kean said.

A 9 percent increase in the bulk business during the quarter versus the
fourth quarter of 2016 was attributable primarily to increased volumes
and earnings from our petroleum coke and steel handling activities that
more than offset the impact of various non-core asset divestitures.

“The Products Pipelines segment contributions were up 2 percent
compared with fourth quarter 2016 performance due largely to increased
contributions from SFPP, CalNev, and Kinder Morgan Southeast Terminals,”
Kean said.

Total refined products volumes were up 4 percent for the fourth quarter
versus the same period in 2016. Crude and condensate pipeline volumes
were up 2 percent from the fourth quarter of 2016.

Kinder Morgan Canada contributions were up 22 percent in the
fourth quarter of 2017 compared to the fourth quarter of 2016. This was
largely due to higher capitalized equity financing costs associated with
spending on the Trans Mountain Expansion Project, timing of operating
costs, and foreign exchange effects driven by a stronger Canadian dollar
in 2017.

Other News

Natural Gas Pipelines

• Substantial progress is being made on the nearly $2 billion Elba
  Liquefaction Project as construction is well underway. The federally
  approved liquefaction project at the existing Southern LNG Company
  facility at Elba Island near Savannah, Georgia, is supported by a
  20-year contract with Shell. Total liquefaction capacity will be
  approximately 2.5 million tonnes per year of LNG, equivalent to
  approximately 350 million cubic feet per day of natural gas. Initial
  in-service is expected in mid-2018 with final units coming on line by
  mid-2019. Elba Liquefaction Company, L.L.C. (ELC), a KMI joint venture
  with EIG Global Energy Partners as a 49 percent partner, will own 10
  liquefaction units and other ancillary equipment. Certain other
  facilities associated with the project are 100 percent owned by KMI.
  Additional upstream compression facilities are being constructed by a
  KMI affiliate at two compressor stations on the Elba Express pipeline
  to facilitate transportation of ample feed gas for liquefaction.
• On Dec. 21, 2017, Kinder Morgan Texas Pipeline (KMTP), DCP Midstream
  and an affiliate of Targa Resources Corp. announced their final
  investment decision to proceed with the Gulf Coast Express Pipeline
  Project (GCX Project) after having executed definitive joint venture
  agreements and having secured sufficient firm transportation
  agreements with shippers. Approximately 85 percent of the project
  capacity is subscribed and committed under long-term, binding
  transportation agreements, and the partners expect that the remaining
  capacity will be subscribed by early 2018. The approximately $1.7
  billion GCX Project is designed to transport up to 1.92 billion cubic
  feet per day (Bcf/d) of natural gas from the Permian Basin to the Agua
  Dulce, Texas, area. The project is expected to be in service in
  October 2019, pending the receipt of necessary regulatory approvals.
  As previously announced, KMTP will build, operate and own a 50 percent
  interest in the GCX Project, and DCP Midstream and Targa will each
  hold a 25 percent equity interest in the project. In addition to their
  transportation agreements, shipper Apache Corporation has an option to
  purchase up to a 15 percent equity stake in the project from KMI.
• On Nov. 20, 2017 and Dec. 15, 2017, the FERC issued two Certificates
  of Public Convenience and Necessity to:
  • Kinder Morgan Louisiana Pipeline (KMLP) for its proposed project
    to provide 600,000 Dth/d of capacity to serve Train 5 at
    Cheniere’s Sabine Pass LNG Terminal. The approximately $122
    million KMLP project is expected to be placed into commercial
    service as early as the first quarter of 2019, earlier than
    initially planned, and
  • TGP for its Lone Star Project. The approximately $150 million
    project will provide 300,000 Dth/d of capacity under a long-term
    contract to Cheniere’s planned Corpus Christi Liquefaction Project
    in South Texas and is anticipated to be placed into commercial
    service in January 2019.
• Construction is nearly complete on the approximately $178 million
  Southwest Louisiana Supply Project, and it is expected to be placed
  into commercial service with initial deliveries beginning in the first
  quarter of 2018. The project will provide 900,000 Dth/d of capacity to
  the Cameron LNG export facility in Cameron Parish, Louisiana.
• Three fully-subscribed TGP projects were made available for service in
  the fourth quarter of 2017:
  • The approximately $104 million Connecticut Expansion Project
    provides 72,100 Dth/d of capacity for three local distribution
    company customers in the Northeast. Deliveries under the long-term
    contracts began in the fourth quarter of 2017.
  • The approximately $104 million Orion Project provides 135,000
    Dth/d of capacity for three customers. Deliveries under the
    long-term contracts began in the fourth quarter of 2017.
  • The approximately $57 million Triad Project provides 180,000 Dth/d
    of capacity for one customer. Deliveries under the long-term
    contract will begin on June 1, 2018.
• On Dec. 21, 2017, Sierrita Gas Pipeline, LLC filed a Certificate
  Application with the FERC for its approximately $56 million Sierrita
  Gas Pipeline Expansion. This expansion project will increase the
  Sierrita pipeline’s capacity by approximately 323,000 Dth/d to 524,000
  Dth/d and consists of a new 15,900 horsepower compressor station in
  Pima County, Arizona. Pending regulatory approvals, the project is
  expected to be placed into service in the second quarter of 2020. KMI
  is a 35 percent owner and the operator of Sierrita Gas Pipeline.
• On Nov. 8, 2017, NGPL received a Certificate of Public Convenience and
  Necessity for its approximately $212 million Gulf Coast Southbound
  Expansion Project, and construction is underway following receipt of
  FERC’s Notice to Proceed. The project, which is fully subscribed under
  long-term contracts, is designed to transport 460,000 Dth/d of
  incremental firm transportation service from NGPL’s interstate
  pipeline interconnects in Illinois, Arkansas and Texas to points south
  on NGPL’s pipeline system to serve growing demand in the Gulf Coast
  area. The project is anticipated to be fully in service by the fourth
  quarter of 2018.
• On Nov. 27, 2017, the FERC approved Wyoming Interstate Company, LLC’s
  Offer of Settlement in a proceeding pursuant to Section 5 of the
  Natural Gas Act, and on Jan. 5, 2018, the FERC approved NGPL’s Offer
  of Settlement in a separate proceeding pursuant to Section 5 of the
  Natural Gas Act. These settlements will not have a material adverse
  impact on KMI’s results of operations or cash flows from operations.

CO2

• The approximately $66 million second phase of KMI’s Tall Cotton field
  project is more than 90 percent complete and the field is experiencing
  continued strong production results of approximately 3,000 Bbls/d of
  oil. Tall Cotton is the industry’s first greenfield Residual Oil Zone
  CO2 project, marking the first time CO2 has been
  used for enhanced oil recovery in a field without a main pay zone.
• KMI continues to find high-return enhanced oil recovery projects in
  the current price environment across its robust portfolio of assets.

Terminals

• At the Base Line Terminal, a 50-50 joint venture crude oil merchant
  storage terminal being developed in Edmonton, Alberta, Canada, by KML
  and Keyera, construction of all major facilities is materially
  complete, including off-site pipe rack and bridges required to connect
  the terminal with the North 40 Terminal, Edmonton South Terminal, and
  Edmonton Rail Terminal. Commissioning of the 12-tank, 4.8 million
  barrel new-build facility, which is fully contracted with long-term,
  firm take-or-pay agreements with creditworthy customers, is underway,
  and the first 4 tanks were placed into service in January 2018 with
  the balance to be phased into service throughout the year. KMI and
  KML’s investment in the joint venture terminal is approximately C$398
  million, including costs associated with the construction of a
  pipeline segment funded solely by KML. The project is forecast to be
  on schedule and on budget.
• Construction is complete on the Pit 11 expansion project at KMI’s
  Pasadena terminal. The approximately $186 million project,
  back-stopped by long-term commitments from existing customers, adds
  2.0 million barrels of storage to KMI’s best-in-class refined products
  storage hub along the Houston Ship Channel.
• On Nov. 20, 2017, KMI’s American Petroleum Tankers (APT) took delivery
  of its final product tanker, the American Pride, from Philly
  Shipyard, Inc. (PSI) and later in the fourth quarter placed the vessel
  on-hire pursuant to a term charter agreement with a major refiner.
  APT’s construction program at PSI is complete following the delivery
  of the final tanker, bringing APT’s best-in-class fleet to 16 vessels.
  The entire fleet, including each of the 330,000-barrel capacity and
  LNG conversion-ready new-build tankers, is fixed under charter with
  major energy companies.

Products Pipelines

• Construction is nearing completion on the $550 million Utopia Pipeline
  Project, and the pipeline is expected to be placed in service in
  January 2018. With an initial design capacity of 50,000 Bbls/d, the
  267-mile Utopia Pipeline transports ethane from Ohio to Windsor,
  Ontario, Canada. The project is fully supported by a long-term,
  fee-based transportation agreement with a petrochemical customer.

Kinder Morgan Canada

• On Dec. 15, 2017, KML completed its offering of cumulative redeemable
  minimum rate reset preferred shares, Series 3 (the “Series 3 Preferred
  Shares”) for aggregate gross proceeds of $250 million. KML issued 10
  million Series 3 Preferred Shares with a coupon rate of 5.20 percent,
  including 2 million Series 3 shares issued due to the full exercise of
  the underwriter's option, as a result of strong investor demand. KML
  ended the year with no outstanding debt by carefully managing funds
  while seeking clarity on the remaining permitting, regulatory and
  judicial review processes for TMEP.
• On Dec. 4, 2017, KML announced that TMEP had made incremental progress
  during 2017 on permitting, regulatory condition satisfaction and land
  access.

Contacts

Kinder Morgan, Inc.
Dave Conover, 713-369-9407
Media Relations
[email protected]
or
Investor
Relations
800-348-7320
[email protected]
www.kindermorgan.com

Read full story here