Kinder Morgan, Inc.’s (NYSE: KMI) board of directors today approved a cash dividend of $0.2625 per share for the fourth quarter ($1.05 annualized), payable on February 16, 2021, to common stockholders of record as of the close of business on February 1, 2021. This dividend represents a 5% increase over the fourth quarter of 2019.
KMI is reporting fourth quarter net income attributable to KMI of $607 million, compared to net income attributable to KMI of $610 million in the fourth quarter of 2019; and distributable cash flow (DCF) of $1,250 million, an 8% decrease from the fourth quarter of 2019.
“Despite the pandemic’s continued drag on the economy and on energy demand, our company weathered the fourth quarter well, producing substantial earnings as expected and robust coverage of this quarter’s dividend,” said KMI Executive Chairman Richard D. Kinder.
“Our assets continue to provide strong cash flow and our corporate philosophy remains sound: fund our capital needs internally, maintain a healthy balance sheet, and return excess cash to our shareholders through dividend increases and/or share repurchases. As noted in our December financial guidance, the board expects to increase the dividend by 3% for 2021, to $1.08 per share (annualized). The company also has the capacity to engage in opportunistic share repurchases up to $450 million,” Kinder concluded.
“We are optimistic that the U.S. and global economies are poised for a strong recovery as the vaccines are distributed and we return to normal activity,” said KMI Chief Executive Officer Steve Kean. “The measures we took in the face of that unprecedented challenge — maintaining capital spending discipline, reducing expenses, and increasing operational efficiency — will all contribute to a stronger company in the months and years ahead. The services we provide and the products we move remain critical to the quality of life of millions of our fellow citizens, and we expect demand for those services and products to rebound as the economic recovery takes hold.
“I remain extremely proud of our employees, who throughout a trying year kept their focus on their work providing essential energy services for businesses and consumers,” Kean concluded.
“We generated fourth quarter earnings per share of $0.27, which was flat compared to earnings per share of $0.27 in the fourth quarter of 2019,” said KMI President Kim Dang. “At $0.55 per share, DCF per share was down $0.04 from the fourth quarter of 2019. We achieved $652 million of excess DCF above our declared dividend. That excess cash resulted in part from a lower dividend than we assumed in our plan, but was also the result of our cost savings and reduced capital expenditures. Financial contributions from all of our business segments were down compared to the fourth quarter of 2019, due to lower energy demand as a result of the pandemic, lower commodity prices, and the December 2019 sale of Kinder Morgan Canada Limited (KML) and the U.S. Cochin Pipeline. This was partially offset by lower interest expense and lower sustaining capital expenditures compared to the fourth quarter of 2019,” said Dang.
“One of the major highlights of the quarter was completing construction of the Permian Highway Pipeline, which went into full commercial service on January 1, overcoming multiple permitting and legal challenges. Our project management teams and workers in the field managed to complete several other important expansion projects during the quarter while maintaining an outstanding safety record in the face of the historic pandemic,” Dang continued.
For the full year 2020, KMI reported net income attributable to KMI of $119 million compared to $2,190 million in 2019. Net income attributable to KMI for the full year 2020 included a combined $1,950 million of non-cash impairments associated with our Natural Gas Pipelines Non-Regulated and CO2 reporting units. KMI’s 2020 full year DCF of $4,597 million was down 8% from $4,993 million in 2019. Adjusted EBITDA of $6,962 million was down 9% from $7,618 million in 2019. The decreases in DCF and Adjusted EBITDA are consistent with previous guidance provided during 2020, and are primarily attributable to pandemic-related reduced energy demand and commodity price impacts, as well as the impact of the KML and U.S. Cochin sale in the fourth quarter of 2019.
For 2021, KMI’s budget contemplates $2.1 billion in net income attributable to KMI, or $0.92 earnings per share, declared dividends of $1.08 per share, a 3% increase from the 2020 declared dividends, DCF of approximately $4.4 billion ($1.95 per share), and Adjusted EBITDA of approximately $6.8 billion. KMI also expects to invest $0.8 billion in expansion projects and contributions to joint ventures during 2021. KMI expects to generate $1.2 billion of DCF in excess of discretionary expenditures and dividend payments. KMI also expects to end 2021 with a Net Debt-to-Adjusted EBITDA ratio of approximately 4.6 times.
As of December 31, 2020, we had over $3.9 billion of borrowing capacity under our $4 billion credit facility and nearly $1.2 billion in cash and cash equivalents. We believe this borrowing capacity, current cash on hand, and our cash from operations are more than adequate to allow us to manage our cash requirements, including maturing debt, through 2021.
Overview of Business Segments
“The Natural Gas Pipelines segment’s financial performance was down for the fourth quarter of 2020 relative to the fourth quarter of 2019,” said Dang. “The segment experienced lower contributions from multiple gathering and processing assets due to sharply reduced natural gas production and from the sale of the U.S. Cochin Pipeline in December 2019. These reduced contributions were partially offset by greater contributions from the Texas Intrastate systems, Natural Gas Pipeline of America (NGPL), and Elba Island LNG.”
Natural gas transport volumes were down 2% compared to the fourth quarter of 2019, with notable volume declines on Colorado Interstate Gas Pipeline and Wyoming Interstate Pipeline due to the production declines in the Rockies basin, and on El Paso Natural Gas due to increases in transportation alternatives for Permian basin production. These declines were partially offset by: increased volumes on the Texas Intrastate systems due primarily to increased Gulf Coast contract activity largely serving LNG and industrial markets; on Tennessee Gas Pipeline driven by increased LNG and power plant deliveries sourced largely from the Appalachian region; and, on Elba Express due to increased deliveries to Elba Island. Natural gas gathering volumes were down 20% from the fourth quarter of 2019 across nearly all our systems, most notably on the KinderHawk and Eagle Ford systems.
“Continued low refined products demand and lower crude and condensate volumes during the fourth quarter reduced contributions from the Products Pipelines segment,” Dang said. “Crude and condensate pipeline volumes were down 26% and total refined products volumes were down 13% compared to the fourth quarter of 2019. Gasoline volumes were below the comparable period last year by 10% and jet volumes were still very weak (down 47%) but diesel volumes were strong, 7% above the fourth quarter of 2019.
“Terminals segment earnings were essentially flat compared to the fourth quarter of 2019 after adjusting for the impact of the December 2019 KML sale. Refined product volumes that move through our terminals continued to reflect reduced demand due to the pandemic, though they recovered meaningfully during the second half of the year. Conversely, we saw historically-high effective utilization across our network of nearly 80 million barrels of storage capacity due to term contracts entered into during the second quarter of 2020,” said Dang. “Due to the structure of our contracts, a much more significant portion of our revenue comes from fixed monthly payments on tank leases versus the revenue we receive for moving product through our terminals. During the quarter, we also saw weakness in our Jones Act tanker business that was offset by expansion projects. Our bulk business benefited from a strong rebound in ores and metals volumes as well as gains realized in connection with the redemption of certain equity investment-interests and an asset sale.
“CO2 segment earnings were down compared to the fourth quarter of 2019 due to lower CO2 sales volumes and lower crude production, partially offset by lower operating expenditures and higher realized crude prices. Our realized weighted average crude oil price for the quarter was up 11% at $55.41 per barrel compared to $49.90 per barrel for the fourth quarter of 2019, largely driven by our improved Midland-to-Cushing basis hedges,” said Dang. “Fourth quarter 2020 combined oil production across all of our fields was down 16% compared to the same period in 2019 on a net to KMI basis, and CO2 sales volumes were down 35%.”
- In early January 2021, KMI repaid the $750 million principal amount of 3.50% senior notes due in March 2021.
Natural Gas Pipelines
- The Permian Highway Pipeline (PHP) was placed in full commercial service on January 1, 2021. The approximately $2 billion pipeline is designed to transport up to 2.1 billion cubic feet per day (Bcf/d) of natural gas through approximately 430 miles of 42-inch pipeline from the Waha area to U.S. Gulf Coast and Mexico markets. PHP is fully subscribed under long-term, firm transportation agreements. Kinder Morgan Texas Pipeline (KMTP), EagleClaw Midstream and Altus Midstream each hold an ownership interest of approximately 26.7%, and an affiliate of an anchor shipper has a 20% interest. KMTP operates the pipeline.
- KMI’s Crossover II project was placed in service on November 6, 2020. The approximately $260 million expansion project increases the delivery capacity on our Texas intrastate system by 1.4 Bcf/d. This expansion capacity serves LNG, industrial, electric generation and local distribution company expansions along the Texas Gulf Coast.
- Kinder Morgan Louisiana Pipeline began construction on its approximately $145 million Acadiana expansion project to provide 945,000 dekatherms per day (Dth/d) of capacity to serve Train 6 at Cheniere’s Sabine Pass Liquefaction facility in Cameron Parish, Louisiana. The project is anticipated to be placed into commercial service as early as the first quarter of 2022.
- Construction continues on NGPL’s Gulf Coast Southbound project. In mid-December, NGPL placed compressor stations 300 and 301 into service ahead of schedule. The full project is expected to be placed into service in the first quarter of 2021 and is supported by a long-term take-or-pay contract. The approximately $203 million project (KMI’s share: $101.5 million) will increase southbound capacity on NGPL’s Gulf Coast System by approximately 300,000 Dth/d to serve Cheniere’s Corpus Christi Liquefaction facility in San Patricio County, Texas.
- In the fourth quarter of 2020, KMI closed on the sale of its idled three million barrel petroleum storage facility in Staten Island, NY. The approximately 250-acre site was sold to affiliates of NorthPoint Development, LLC (NorthPoint), a Kansas City, Missouri-based industrial real estate developer, for gross proceeds of $85 million. As part of the sale, NorthPoint assumed the costs and lead responsibility for site investigation and remediation obligations.
- KMI’s Class A Preferred Shares and Class C Common Shares in Watco Companies L.L.C (Watco) were redeemed in the fourth quarter of 2020 for total gross proceeds of approximately $125 million. KMI remains invested in Watco, one of the largest short-line rail operators in North America, through its Class B Convertible Preferred Shares.
- Major elements of the butane-on-demand blending system at KMI’s Galena Park Terminal, including the construction of a 30,000-barrel butane sphere and a new inbound C4 pipeline connection, were successfully completed and placed in service in the fourth quarter of 2020. The balance of the work, including tank and piping modifications to extend butane blending capabilities to 25 tanks, two ship docks, and six cross-channel pipelines, is expected to be complete in the first quarter of 2021. The approximately $52 million project is supported by a long-term agreement with an investment-grade midstream company.
- Construction is complete on an expansion of KMI’s market-leading Argo ethanol hub. The project, which spans both the Argo and Chicago Liquids facilities, included the addition of 105,000 barrels of ethanol storage capacity and enhancements to the system’s rail loading, rail unloading and barge loading capabilities. The approximately $18 million project improved the system’s inbound and outbound modal balances, adding greater product-clearing efficiencies to this industry-critical pricing and liquidity hub.
- Construction is complete on a facility upgrade at the Battleground Oil Specialty Terminal Company LLC (BOSTCO) terminal, a leading fuel oil storage terminal on the Houston Ship Channel. The approximately $17 million project added piping to allow for segregation of high sulfur and low sulfur fuel oils. KMI owns a 55% interest in and is the operator of BOSTCO.
- The CO2 segment remained focused on production optimization, project execution and continuous operational improvement. As a result of these actions, the CO2 segment’s 2020 Free Cash Flow exceeded budget expectations.
Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy infrastructure companies in North America. Access to reliable, affordable energy is a critical component for improving lives around the world. We are committed to providing energy transportation and storage services in a safe, efficient and environmentally responsible manner for the benefit of the people, communities and businesses we serve. We own an interest in or operate approximately 83,000 miles of pipelines and 144 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.