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.
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.
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.
- 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.
- 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.
- 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.
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.