HOUSTON – Kinder Morgan, Inc.’s (NYSE: KMI) board of directors today approved a cash dividend of $0.2625 per share for the first quarter ($1.05 annualized), payable on May 15, 2020, to common stockholders of record as of the close of business on May 4, 2020. This dividend represents a 5 percent increase over the fourth quarter 2019.
KMI is reporting first quarter net loss attributable to KMI of $306 million, compared to net income attributable to KMI of $556 million in the first quarter of 2019; and distributable cash flow (DCF) of $1,261 million, an 8 percent decrease over the first quarter of 2019. The net loss was primarily due to $950 million of non-cash impairments of assets and goodwill associated with certain oil and gas producing assets in KMI’s CO2 segment driven by the recent sharp decline in crude oil prices.
“The board deliberated thoughtfully with regard to this quarter’s dividend,” said KMI Executive Chairman Richard D. Kinder. “While we have the financial wherewithal to pay our previously planned dividend increase, with significant coverage, in unprecedented times such as these, the wise choice is to preserve flexibility and balance sheet capacity. Consequently, we are not increasing the dividend to the $1.25 annualized that we projected, under far different circumstances, in July of 2017. Nevertheless, as a sign of our confidence in the strength of our business and the security of our cash flows, we are increasing the dividend to $1.05 annualized, a five percent increase. In doing so, we believe we have struck the proper balance between maintaining balance sheet strength and returning value to our shareholders. We remain committed to increasing the dividend to $1.25 annualized. Assuming a return to normal economic activity, we would expect to make that determination when the board meets in January 2021 to determine the dividend for the fourth quarter of 2020.”
“With the collapse of OPEC-plus on March 6 and the widespread shut down of the U.S. economy beginning in mid-March, we immediately re-examined our capital spending, our expenses, and how we operate. Our priorities are the protection of our co-workers and their families and the continued operation of our assets, which are essential to businesses and communities across the country. All of our businesses are running and we have modified our operations to keep our employees safe. We are reducing our expenses and sustaining capital expenditures by over $100 million combined versus our budget without sacrificing safety. We have also reduced our expansion capital outlook for 2020 by approximately $700 million, or almost 30 percent. These actions more than offset the reduction in DCF and are expected to result in an improvement in DCF less expansion capital expenditures of approximately $200 million compared to budget. In addition, the actions we have taken over the last several years to strengthen our balance sheet, including reducing our debt by almost $10 billion since the third quarter of 2015, have strengthened us for these challenging times. The services we provide continue to be needed to meet our customers’ energy transportation and storage needs. Our business model, which secures much of our cash flows on a take or pay basis independent of underlying commodity prices, positions us well even in the current environment,” said KMI Chief Executive Officer Steve Kean.
“Sharp declines in both commodity prices and refined product demand in the wake of the COVID-19 pandemic clearly affected our business and will continue to do so in the near term. Largely due to the non-cash impairments noted above, we generated a first quarter earnings per common share loss of $0.14, compared to earnings of $0.24 in the first quarter of 2019. At the same time, we saw strong financial contributions from the Natural Gas Pipelines group in the first quarter that were offset by the impact of the sale of the U.S. portion of the Cochin pipeline in the fourth quarter of 2019. Volumes on our gas pipelines were up 8 percent year over year and strength in transportation volumes has continued into April,” said KMI President Kim Dang.
“Adjusted earnings per share in the first quarter of 2020 were down 5 percent compared to the first quarter of 2019. At $0.55 per common share, DCF per share was down $0.05 from the first quarter of 2019, yet we achieved $664 million of excess DCF above our declared dividend.
“We made substantial progress on our Permian Highway Pipeline project, with the right-of-way secured and construction activities well underway all along the route. As previously announced, given the slower than anticipated pace of regulatory approvals, we expect the project to be in service early in 2021. We also made good progress on the Elba Liquefaction project, with the fifth of ten liquefaction units placed in service during the quarter, and the sixth on April 20. The remaining four units are expected to be placed in service during the spring and summer of this year,” concluded Dang.
2020 Outlook
For 2020, KMI’s budget contemplated DCF of approximately $5.1 billion ($2.24 per common share) and Adjusted EBITDA of approximately $7.6 billion. Because of the COVID-19 pandemic-related reduced energy demand and the sharp decline in commodity prices, the company now expects DCF to be below plan by approximately 10 percent and Adjusted EBITDA to be below plan by approximately 8 percent. As a result, KMI now expects to end 2020 with a Net Debt-to-Adjusted EBITDA ratio of approximately 4.6 times, consistent with our long-term objective of around 4.5 times. Because considerable uncertainty exists with respect to the future pace and extent of a global economic recovery from the effects of the COVID-19 pandemic, Table 8 below provides assumptions and sensitivities for impacts on our business that may be affected by that uncertainty.
Market conditions also result in a number of planned expansion projects no longer meeting our internal return thresholds, and we are therefore reducing the budgeted $2.4 billion expansion projects and contributions to joint ventures for 2020 by approximately $700 million. With this reduction, DCF less expansion capital expenditures is improved by approximately $200 million compared to budget, helping to keep our balance sheet strong.
KMI expects to use internally generated cash flow to fully fund its 2020 dividend payments, as well as all of its 2020 discretionary spending, with no need to access equity markets.
As of March 31, 2020, we had over $3.9 billion of borrowing capacity under our credit facility. We believe our cash from operations, current cash on hand and excess borrowing capacity are more than adequate to allow us to manage our day-to-day cash requirements as well as the debt maturing over the next 12 months.
Due to the impracticality of predicting certain amounts required by GAAP such as unrealized gains and losses on derivatives marked to market and potential changes in estimates for certain contingent liabilities, KMI does not provide budgeted net income attributable to KMI and net income, the GAAP financial measures most directly comparable to the non-GAAP financial measures of DCF and Adjusted EBITDA, respectively, or budgeted metrics derived therefrom (such as the portion of net income attributable to an individual capital project, the GAAP financial measure most directly comparable to Project EBITDA).
Overview of Business Segments
“The Natural Gas Pipelines segment’s financial performance was down slightly for the first quarter of 2020 relative to the first quarter of 2019,” said Dang. “The segment saw higher earnings due to contributions from the Elba Liquefaction and the Gulf Coast Express (GCX) projects, offset by earnings lost from the sale of the U.S. portion of the Cochin pipeline in the fourth quarter of 2019, as well as reduced contributions from Tennessee Gas Pipeline (TGP) due to historically mild weather in the Northeast and the impact of the FERC 501-G rate settlement. Excluding the impact of the Cochin sale, the segment’s financial performance in the first quarter of 2020 was slightly better than the same period in 2019.”
Natural gas transport volumes were up 8 percent compared to the first quarter of 2019, with the largest gains on GCX, TGP, Colorado Interstate Gas (CIG), El Paso Natural Gas (EPNG), and the Texas Intrastates. Gains on GCX were due to its being placed in service, TGP benefited from increased LNG deliveries, CIG from DJ growth and higher heating demand, EPNG benefited from natural gas-fired power generation replacing coal, and the Texas Intrastates from the continued growth in the Texas Gulf Coast market. Natural gas gathering volumes were up 2 percent from the first quarter of 2019 due primarily to higher volumes from our Eagle Ford and Bakken systems, partially offset by decreased volumes on our KinderHawk system. Excluding the impact of the Cochin sale, NGL transport volumes were down 6 percent compared to the first quarter of 2019, due to lower volumes on Utopia.
“The severe decline in commodity prices during the first quarter which impacted inventory value on our transmix and crude and condensate assets, as well as lower refined product demand in March, reduced contributions from the Products Pipelines segment. These impacts were partially offset by higher average tariffs on our refined product pipelines as well as higher volumes on our Bakken Crude assets,” Dang said.
Crude and condensate pipeline volumes were up 9 percent compared to the prior period, in part due to KMCC’s new connection to Permian Basin production via the Gray Oak Pipeline. In spite of the decline in volumes in March mentioned above, total refined product volumes were flat compared to the first quarter of 2019.
“Terminals segment earnings were lower compared to the first quarter of 2019 predominantly driven by the impact of the December 2019 sale of KML. Despite the emergence of COVID-19 related headwinds towards the end of the quarter, our liquids business continued to perform well and benefit from strong utilization, with the current contango commodity pricing environment driving incremental storage demand across our network of nearly 80 million barrels of storage capacity,” said Dang. “The liquids business currently accounts for approximately 78 percent of the segment total earnings.”
Excluding the impact of the sale of KML, contributions from the Terminals segment’s bulk business were essentially flat compared to the first quarter of 2019, with gains at our petroleum coke and steel handling operations largely offsetting continued weakness in export coal volumes.
“The CO2 segment was negatively impacted versus the first quarter of 2019 primarily by lower crude and CO2 volumes, as well as lower NGL prices, partially offset by higher realized crude prices. Our weighted average NGL price for the quarter was down $6.24 per barrel, or 24 percent from the first quarter of 2019. Our realized weighted average crude oil price for the quarter was up 12 percent at $54.61 per barrel compared to $48.67 per barrel for the first quarter of 2019, largely driven by our Midland/Cushing basis hedges,” said Dang. “First quarter 2020 combined oil production across all of our fields was down 6 percent compared to the same period in 2019 on a net to KMI basis.”
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Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy infrastructure companies in North America. Our mission is to provide energy transportation and storage services in a safe, efficient and environmentally responsible manner for the benefit of people, communities and businesses. Our vision is delivering energy to improve lives and create a better world. We own an interest in or operate approximately 83,000 miles of pipelines and 147 terminals. Our pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2 and other products, and our terminals store and handle various commodities including gasoline, diesel fuel chemicals, ethanol, metals and petroleum coke. For more information, please visit www.kindermorgan.com.
Please join Kinder Morgan, Inc. at 4:30 p.m. Eastern Time on Wednesday, April 22, at www.kindermorgan.com for a LIVE webcast conference call on the company’s first quarter earnings. A supplemental Investor Update presentation is also available on the same page as the webcast link.