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Kinder Morgan Increases Dividend by 60 Percent
Will Pay $0.20 for First Quarter
HOUSTON–(BUSINESS WIRE)–$KMI #KinderMorgan–Kinder Morgan, Inc. (NYSE: KMI) today announced that its board of
directors approved a cash dividend of $0.20 per share for the first
quarter ($0.80 annualized) payable on May 15, 2018, to common
stockholders of record as of the close of business on April 30, 2018.
This is a 60 percent increase from last quarter’s dividend, and is
consistent with the plan KMI announced during the summer of 2017. KMI
continues to expect to use cash in excess of dividend payments to fully
fund growth investments, further strengthening its balance sheet.
“The board delivered on our commitment made in mid-2017 with the $0.20
dividend we are declaring today,” said Richard D. Kinder, Executive
Chairman. “Even with the substantial dividend increase, we still expect
to internally fund all of our growth capital with some excess remaining.
In the first quarter, we used some of that excess to repurchase shares.
In addition, we remain committed to continuing the important work of
strengthening our balance sheet and attaining a Net Debt-to-Adjusted
EBITDA ratio of at or below five times. For the foreseeable future, we
expect to continue funding all growth capital through operating cash
flows with no need to access capital markets for growth capital,” Kinder
added.
Chief Executive Officer Steve Kean said, “One of the strengths of this
company is strategically positioned fee-based assets that generate
predictable cash flows, and this quarter once again demonstrated that
strength. Several business units achieved strong financial performance
in the first quarter and are poised to continue that success through the
remainder of the year. During the first quarter, we made substantial
progress on the Elba Liquefaction Project and began work on the Gulf
Coast Express Project. We had very good commercial and operating
performance, exceeding our plan for the quarter and are showing first
quarter earnings per common share of $0.22.”
Kean continued, “For the quarter, we achieved distributable cash flow
(DCF) of $0.56 per common share, representing 4 percent growth over the
first quarter of 2017, resulting in $804 million of excess DCF above our
dividend. Kinder Morgan’s top priority is generating significant
shareholder value and completing attractive return growth projects is a
key part of that commitment. We continue to have good success in this
area as we completed approximately $700 million of projects while adding
approximately $900 million of new projects to our backlog during the
first quarter. These new projects have attractive returns as
demonstrated by our average capital-to-EBITDA multiple (excluding the CO2
segment) improving during the quarter to approximately 6.0 times.”
KMI reported first quarter net income available to common stockholders
of $485 million, compared to $401 million for the first quarter of 2017,
and DCF of $1,247 million, up 3 percent from $1,215 million for the
comparable period in 2017. The increase in DCF was driven by greater
contributions from the Natural Gas and CO2 Business Units,
partially offset by higher cash taxes, greater sustaining capital, and
the impact of the KML IPO. Net income available to common stockholders
was further impacted by a $34 million unfavorable change in total
Certain Items (as described under “Non-GAAP Financial Measures” below)
compared to the first quarter of 2017. First quarter 2018 Certain Items
had minimal impact with a few largely offsetting items: legal and
environmental reserves (related primarily to the SFPP rate case) and
unsettled market value of hedges offset by favorable impacts from tax
reform on certain joint ventures. First quarter 2017 Certain Items were
positive due primarily to a favorable outcome on a bankruptcy claim.
2018 Outlook
For 2018, KMI’s budget is set to declare dividends of $0.80 per common
share and achieve DCF of approximately $4.57 billion ($2.05 per common
share) and Adjusted EBITDA of approximately $7.5 billion, and it expects
to meet or exceed those DCF and Adjusted EBITDA targets. KMI now
forecasts to invest $2.3 billion in growth projects during 2018
(excluding growth capital expected to be funded by KML), up $100 million
from the budget, to be funded with internally generated cash flow
without the need to access capital markets. KMI also expects to meet or
beat its budgeted leverage metric of a year-end Net Debt-to-Adjusted
EBITDA ratio of approximately 5.1 times.
KMI previously announced it would 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. Since then, KMI has
repurchased approximately 27 million shares for approximately $500
million. 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 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 32,970 barrels per day (Bbl/d) at $59.65/Bbl in 2018; 21,900
Bbl/d at $55.52/Bbl in 2019; 10,500 Bbl/d at $53.09/Bbl in 2020; 5,500
Bbl/d at $52.22/Bbl in 2021; and 500 Bbl/d at $52.85 in 2022. For 2018,
KMI estimates that every $1 per barrel change in the average WTI crude
oil price from the company’s budget of $56.50 per barrel 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 first
quarter of 2018 was 6 percent higher relative to the first quarter of
2017. The segment benefited from increased contributions from the Texas
Intrastate System, due to cold winter weather; from various midstream
gathering and processing assets, including Hiland, due to increased
drilling activity; from NGPL due to lower interest expense and greater
transport revenue; from Southern Natural Gas due primarily to weather;
from El Paso Natural Gas (EPNG) due to greater capacity sales; and from
Florida Gas Transmission Pipeline driven by lower taxes,” Kean said.
“The year is shaping up very well for our Natural Gas segment,”
continued Kean. “Certainly winter weather helped, as we set records on
four of our large gas transmission systems, but supply and demand for
natural gas is elevating the value of our best in class network as well.”
Natural gas transport volumes were up 10 percent compared to the first
quarter of 2017, driven by higher throughput on TGP due to winter
weather, power demand and projects placed in service; on NGPL due to
winter weather, power demand and deliveries to Mexico; on EPNG due to
additional Permian capacity sales; and on CIG due to winter weather.
Natural gas gathering volumes were up 1 percent from the first quarter
of 2017 due primarily to higher volumes on the KinderHawk and Hiland
systems, partially offset by lower volumes on Copano South Texas.
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 first
quarter of 2017, natural gas deliveries on KMI pipelines to Mexico were
up 2 percent, and KMI transports roughly 70 percent of all U.S. natural
gas exports destined for Mexico. Deliveries to the Sabine Pass LNG
facility were approximately 600,000 dekatherms per day (Dth/d) during
the quarter.
“The CO2 segment was helped by higher commodity
prices, as our realized weighted average oil price for the quarter was
$59.72 per barrel compared to $58.14 per barrel for the first quarter of
2017, while NGL prices were up 24 percent and CO2 prices were
up 7 percent,” Kean said. “Combined oil production across all of our
fields was up 5 percent compared to 2017 on a net to Kinder Morgan
basis, primarily due to strong performance at our SACROC and Tall Cotton
assets. First quarter 2018 net NGL sales volumes of 10.2 thousand
barrels per day (MBbl/d) were flat to the same period in 2017. In total,
oil production on a net-to-Kinder Morgan basis exceeded plan for the
first quarter.”
“Terminals segment volumes across the network were up 11 million
barrels, or 5 percent, compared to first quarter of 2017, including
contributions from storage capacity increases in key liquids hubs along
the Houston Ship Channel and Edmonton, Alberta, where we placed
in-service the first 6 tanks of our 12-tank, 4.8 million barrel Base
Line Terminal crude oil merchant storage joint venture,” said Kean.
“Earnings were down 2 percent compared to the first quarter of 2017.
Earnings from expansion projects, including new build Jones Act tankers,
were slightly more than offset by divestitures, decreased contributions
from existing Jones Act tankers driven by lower charter rates, and some
softness in tank utilization at our Staten Island, New York, and Harvey,
Louisiana, locations, among other things.”
“The Products Pipelines segment contributions were up 1 percent
compared with first quarter 2017 performance due largely to increased
contributions from the Cochin and Double H Pipelines, partially offset
by decreased contributions from the KMCC pipeline,” Kean said.
Total refined products volumes were up 1 percent for the first quarter
versus the same period in 2017. Ethanol volumes were up 9 percent while
crude and condensate pipeline volumes were down 6 percent from the first
quarter of 2017.
Kinder Morgan Canada contributions were up 7 percent in the first
quarter of 2018 compared to the first quarter of 2017. This was largely
due to higher capitalized equity financing costs associated with
spending on the Trans Mountain Expansion Project.
Other News
New KMI Leadership Roles
The KMI board of directors has appointed Kimberly A. Dang as President,
Dax A. Sanders as Executive Vice President and Chief Strategy Officer,
David P. Michels as Vice President and Chief Financial Officer, and
Anthony B. Ashley, currently Vice President and Treasurer, as Treasurer
and Vice President of Investor Relations. Richard D. Kinder will remain
executive chairman and Steven J. Kean will remain chief executive
officer.
Kim Dang joined KMI in 2001 and has served as chief financial officer of
the company since 2005. Dang joined the Office of the Chairman of KMI in
2014, which also includes Rich Kinder, executive chairman, and Steve
Kean, chief executive officer. She was unanimously elected to the KMI
board of directors in January 2017. Kim’s promotion to President
signifies her growing role in the company’s strategic and policy
decisions, day-to-day management, and capital allocation decisions. Her
new role is also a key part of the company’s succession planning.
Dax Sanders joined KMI in 2000, was named vice president in the
corporate development group in 2009, and became head of the group in
2013. Dax has played a crucial role in the company’s strategic
decisions, acquisitions and divestiture activity – including post
acquisition integration leadership – and in key joint ventures. In his
new role, he will continue to be responsible for corporate development
and will play an increased role in strategy formation and capital
allocation decisions. He will also continue as Chief Financial Officer
of Kinder Morgan Canada Limited (KML).
David Michels was named vice president of finance and investor relations
in 2013, having joined KMI in 2012. He also served as CFO of El Paso
Pipeline Partners (EPB) from March 2013 until November 2014, when EPB
was acquired by KMI. As Vice President and CFO, Michels will manage the
functional departments of controller, finance, tax, and treasury.
Anthony Ashley, currently vice president and treasurer of KMI, will
assume direct responsibility for investor relations along with a new
title as treasurer and vice president of investor relations.
Natural Gas Pipelines
-
The first four liquefaction units have been delivered, and
construction is progressing on the nearly $2 billion Elba Liquefaction
Project. The federally approved liquefaction project at the existing
Southern LNG Company facility at Elba Island near Savannah, Georgia,
will have a total liquefaction capacity of approximately 2.5 million
tonnes per year of LNG, equivalent to approximately 350 million cubic
feet per day of natural gas. The project is supported by a 20-year
contract with Shell, and initial in-service is expected in the third
quarter of 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.
Construction is also ongoing on the Elba Express Modification Project
which will add upstream compression facilities on the Elba Express
pipeline to provide ample feed gas for liquefaction. -
KMI began work on the Gulf Coast Express Pipeline Project (GCX
Project) in the first quarter, with landowner discussions and easement
acquisitions underway. The approximately $1.75 billion GCX Project is
designed to transport up to 1.98 Bcf/d of natural gas from the Permian
Basin to the Agua Dulce, Texas, area and is 94 percent subscribed
under long-term, binding transportation agreements. A contract for the
remaining capacity is pending. The project is expected to be in
service in October 2019, pending the receipt of necessary regulatory
approvals. KMI will build, operate and own a 50 percent interest in
the GCX Project, and DCP Midstream and an affiliate of Targa Resources
will each hold a 25 percent equity interest in the project. In
addition to transportation agreements, shipper Apache Corporation has
an option to purchase up to a 15 percent equity stake in the project
from Kinder Morgan. -
EPNG has executed firm agreements with multiple shippers to transport
over 1,000,000 Dth/d of incremental natural gas on its system in the
Permian Basin to delivery points that include the GCX Project. This
incremental transportation capacity is being made available through a
combination of existing capacity and minor modifications and
expansions to EPNG’s system in Texas. -
On Feb. 15, 2018, the FERC issued an order approving the approximately
$240 million SNG Fairburn Expansion Project in Georgia ($120 million
of which is KMI’s share) and construction is underway. The project is
designed to provide approximately 340,000 Dth/d of incremental
long-term firm natural gas transportation capacity into the Southeast
market beginning in the fourth quarter of 2018. SNG is a joint venture
equally owned by subsidiaries of KMI and Southern Company. -
NGPL has finalized terms for a second phase of its Gulf Coast
Southbound Expansion Project. The project involves capital spend of
approximately $226 million (KMI’s share: $113 million) and is
supported by a long-term take-or-pay contract to transport gas with a
third-party. Going ahead with the project is contingent on a decision
by the third-party to proceed with expansion at its facility; however,
all indications are positive and we have a high degree of confidence
in the execution of this project. -
On March 1, 2018, TGP placed its approximately $178 million Southwest
Louisiana Supply Project into service. The project is designed to
provide 900,000 Dth/d of capacity to the Cameron LNG export facility
in Cameron Parish, Louisiana. -
TGP commenced construction on its approximately $128 million Lone Star
Project after receiving FERC’s Notice to Proceed on Jan. 16, 2018. The
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 expected to be placed into commercial service in
January 2019. -
Kinder Morgan Louisiana Pipeline (KMLP) commenced construction on its
approximately $122 million expansion project to provide 600,000 Dth/d
of capacity to serve Train 5 at Cheniere’s Sabine Pass LNG Terminal.
The KMLP project is anticipated to be placed into commercial service
as early as the first quarter of 2019.
CO2
-
The approximately $66 million second phase of KMI’s Tall Cotton field
project is complete and production has grown by 58 percent year over
year. 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 Corp., construction of all major facilities is materially
complete. The first 6 tanks at the 12-tank, 4.8 million barrel
facility, which is fully contracted with long-term, firm take-or-pay
agreements with creditworthy customers, were placed into service in
the first quarter 2018, with the balance to be phased into service
throughout the year. Kinder Morgan’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.
Products Pipelines
-
On Jan.23, 2018, KMI announced the Utopia Pipeline Project began
commercial service, delivering ethane from Harrison County, Ohio to
Windsor, Ontario, Canada. The pipeline system extends approximately
270 miles and has a design capacity of 50,000 Bbls/d and can be
expanded to more than 75,000 Bbls/d. As previously announced, the
project is fully supported by a long-term, fee-based transportation
agreement with a petrochemical customer.
Kinder Morgan Canada
-
On April 8, 2018, KML announced that it was suspending all
non-essential activities and related spending on the Trans Mountain
Expansion Project. KML also announced that under current
circumstances, specifically including the continued actions in
opposition to the Project by the Province of British Columbia, it will
not commit additional shareholder resources to the Project. However,
KML further announced that it will consult with various stakeholders
in an effort to reach agreements by May 31st that may allow
the Project to proceed. The company stated it is difficult to conceive
of any scenario in which it would proceed with the Project if an
agreement is not reached by May 31st. The focus in those
consultations will be on two principles: clarity on the path forward,
particularly with respect to the ability to construct through BC; and,
adequate protection of KML shareholders.
KML had previously
announced a “primarily permitting” strategy for the first half of
2018, focused on advancing the permitting process, rather than
spending at full construction levels, until it obtained greater
clarity on outstanding permits, approvals and judicial reviews. Rather
than achieving greater clarity, the Project is now facing
unquantifiable risk. Previously, opposition by the Province of British
Columbia was manifesting itself largely through BC’s participation in
an ongoing judicial review. Unfortunately BC has now been asserting
broad jurisdiction and reiterating its intention to use that
jurisdiction to stop the Project. BC’s intention in that regard has
been neither validated nor quashed, and the Province has continued to
threaten unspecified additional actions to prevent Project success.
Those actions have created even greater, and growing, uncertainty with
respect to the regulatory landscape facing the Project. In addition,
the parties still await judicial decisions on challenges to the
original Order in Council and the BC Environmental Assessment
Certificate approving the Project. These items, combined with the
impending approach of critical construction windows, the lead-time
required to ramp up spending, and the imperative that the company
avoid incurring significant debt while lacking the necessary clarity,
brought KML to the decision it announced on April 8th. Given the
current uncertain conditions, KML is not updating its cost and
schedule estimate at this time. In the event the Project is
terminated, resulting impairments, foregone capitalized equity
financing costs and potential wind down costs would have a significant
effect on KML’s results of operations. Potential impairments would be
recognized primarily in the period in which the decision to terminate
is made.
Financing
In March 2018, KMI issued $1.25 billion of 10 year senior notes at a
fixed rate of 4.30 percent and $750 million of 30 year senior notes at a
fixed rate of 5.20 percent. KMI used the proceeds from the issuance of
the notes to repay existing indebtedness and for general corporate
purposes.
Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy
infrastructure companies in North America. It owns an interest in or
operates approximately 85,000 miles of pipelines and 152 terminals.
KMI’s pipelines transport natural gas, refined petroleum products, crude
oil, condensate, CO2 and other products, and its terminals
transload and store petroleum products, ethanol and chemicals, and
handle such products as steel, coal and petroleum coke. It is also a
leading producer of CO2 that we and others use for enhanced
oil recovery projects primarily in the Permian basin. For more
information please visit www.kindermorgan.com.
Please join Kinder Morgan, Inc. at 4:30 p.m. Eastern Time on
Wednesday, April 18, at www.kindermorgan.com
for a LIVE webcast conference call on the company’s first quarter
earnings.
Non-GAAP Financial Measures
The non-generally accepted accounting principles (non-GAAP) financial
measures of distributable cash flow (DCF), both in the aggregate and per
share, segment earnings before depreciation, depletion, amortization and
amortization of excess cost of equity investments (DD&A) and Certain
Items (Segment EBDA before Certain Items), net income before interest
expense, taxes, DD&A and Certain Items (Adjusted EBITDA), Adjusted
Earnings and Adjusted Earnings per common share are presented herein.
Certain Items as used to
calculate our Non-GAAP measures, are items that are required by GAAP to
be reflected in net income, but typically either (1) do not have a cash
impact (for example, asset impairments), or (2) by their nature are
separately identifiable from our normal business operations and in our
view are likely to occur only sporadically (for example certain legal
settlements, enactment of new tax legislation and casualty losses).
Contacts
Kinder Morgan, Inc.
Media Relations
Dave Conover, (713)
369-9407
[email protected]
or
Investor
Relations
(800) 348-7320
[email protected]
www.kindermorgan.com
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