Credit Profile Significantly Enhanced with
Net Debt Reduction of Over $2 Billion since Last Quarter
Kinder Morgan, Inc. (NYSE: KMI) today announced that its board
of directors approved a cash dividend of $0.125 per share for the
quarter ($0.50 annualized) payable on Nov. 15, 2016, to common
shareholders of record as of the close of business on Nov. 1, 2016.
KMI expects to declare dividends of $0.50 per share for 2016 and
use cash in excess of dividend payments to fund growth investments
and strengthen its balance sheet.
KMI continues to make significant progress toward enhancing its
credit profile. On Sept. 1, 2016, KMI closed the previously
announced agreement to partner with Southern Company through the
sale of a 50 percent interest in the Southern Natural Gas (SNG)
pipeline system for cash consideration of over $1.4 billion plus
Southern Company’s share of SNG’s debt. KMI used the entire amount
of cash proceeds to reduce its net debt. As of the end of the third
quarter, $749 million was held in escrow to redeem debt and was not
included in net debt reduction during the quarter. The debt was
redeemed on Oct. 1, 2016, and will result in further net debt
reduction in the fourth quarter of 2016.
“During the quarter, we substantially reduced our debt, further
positioning Kinder Morgan for long-term value creation. We are
ahead of our plan for 2016 year-end leverage and we’re pleased with
the progress toward reaching our targeted leverage level of around
5.0 times net debt-to-Adjusted EBITDA,” said Richard D. Kinder,
executive chairman. “This will position us to return substantial
value to shareholders through some combination of dividend
increases, share repurchases, additional attractive growth projects
or further debt reduction.
“Additionally, we are pleased with our operational performance
for the quarter despite continued weak market conditions in our
industry. Our performance, adjusted for the SNG transaction,
remains consistent with our guidance provided since April. We
remain on track to generate full year 2016 distributable cash flow
in excess of our expected dividends and our expected growth capital
expenditures, eliminating our need to access the capital markets to
fund growth projects in 2016. Moreover, given our continued efforts
to high-grade our backlog, we do not expect to need to access the
capital markets to fund our growth projects for the foreseeable
future beyond 2016.”
President and CEO Steve Kean said, “We had a good third quarter
and once again, we demonstrated the resiliency of our cash flows,
generated by a large, diversified portfolio of predominately
fee-based assets. We generated a loss per common share for the
quarter of $0.10, primarily as a result of non-cash charges
discussed below. That said, we produced distributable cash flow of
$0.48 per share relative to our $0.125 per share dividend,
resulting in $801 million of excess distributable cash flow above
our dividend.”
Kean added, “We continue to drive future growth by completing
significant infrastructure development projects in our sizable
project backlog. Our current project backlog is $13.0 billion, down
from $13.5 billion at the end of the second quarter of 2016. This
reduction was driven by the delivery of the Garden State and Bay
State tankers as well as placing other projects in service.
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 third quarter net loss available to common
stockholders of $227 million, compared to net income available to
common stockholders of $186 million for the third quarter of 2015,
and distributable cash flow of $1,081 million versus $1,129 million
for the comparable period in 2015. The decrease in distributable
cash flow for the quarter was attributable to lower contributions
from the CO2 segment primarily due to lower commodity prices. In
total, KMI’s other business segments generated higher contributions
than the third quarter of 2015. Net income available to common
stockholders was also impacted by a $405 million unfavorable change
in total certain items compared to the third quarter of 2015,
including a partial write down of our equity investment in
Midcontinent Express Pipeline (MEP) driven by expectations for
lower future transportation contract rates as well as a non-cash
book tax expense associated with the SNG transaction.
For the first nine months of 2016, KMI reported net income
available to common stockholders of $382 million, compared to $948
million for the first nine months of 2015, and distributable cash
flow of $3,364 million versus $3,466 million for the comparable
period in 2015. The decrease in distributable cash flow was
primarily attributable to lower contributions from the CO2 segment,
higher preferred stock dividends and higher cash taxes, partially
offset by increased contributions from all of KMI’s other segments
and lower interest expense. Net income available to common
stockholders was further impacted by a $480 million unfavorable
change in total certain items compared to the first nine months of
2015, including the write down of our equity investment in MEP, the
non-cash book tax expense associated with the SNG transaction, and
a $170 million write-off of costs associated with the Northeast
Energy Direct Market and Palmetto Pipeline projects during the
first quarter of 2016.
2016 Outlook
For 2016, KMI expects to declare dividends of $0.50 per share.
KMI's budgeted 2016 distributable cash flow was approximately $4.7
billion and budgeted 2016 Adjusted EBITDA was approximately $7.5
billion. Consistent with guidance provided the last two quarters,
the company continues to expect Adjusted EBITDA to be about 3
percent below budget and distributable cash flow to be about 4
percent below budget. To be consistent with previous quarters, this
guidance does not take the SNG transaction into account. Including
the impact of the SNG transaction, the company expects Adjusted
EBITDA and distributable cash flow to each be about 4 percent below
budget. KMI does not provide budgeted net income attributable to
common stockholders (the GAAP financial measure most directly
comparable to distributable cash flow and Adjusted EBITDA) due to
the inherent difficulty and impracticality of quantifying 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 expects to generate excess cash sufficient to fund its
growth capital requirements without needing to access capital
markets and expects to end the year with a net debt-to-Adjusted
EBITDA ratio of approximately 5.3 times, consistent with where KMI
ended the third quarter and below the budgeted year-end ratio of
5.5 times. KMI’s growth capital forecast for 2016 is approximately
$2.7 billion.
The overwhelming majority of cash generated by KMI is fee-based
and therefore is not directly exposed to commodity prices. The
primary area where KMI has direct commodity price sensitivity is in
its CO2 segment, and KMI hedges the majority of its next 12 months
of oil production to minimize this sensitivity. Additionally, KMI
continues to closely monitor counterparty exposure and obtain
collateral when appropriate. Moreover, the company has operations
across a broad range of businesses and a diverse customer base,
with its average customer representing less than one-tenth of 1
percent of annual revenues. Additionally, approximately two-thirds
of KMI’s business is conducted with customers who are end-users of
the products KMI transports and stores, such as utilities, local
distribution companies, refineries and large integrated firms.
Overview of Business
Segments
“The Natural Gas Pipelines segment’s performance for the
third quarter of 2016 was impacted by the sale of a 50 percent
interest in SNG. Excluding this sale, the Natural Gas Pipeline
segment’s performance was in-line with the same period during 2015.
The segment benefited from an increased contribution from Tennessee
Gas Pipeline (TGP), driven by expansion projects placed into
service during 2015, and increased contributions from both the
Hiland midstream assets and the Texas Intrastate Natural Gas
Pipelines. These contributions were offset by declines attributable
to reduced volumes affecting certain of our midstream gathering and
processing assets, unfavorable contract renewals on Colorado
Interstate Gas pipeline, and a customer contract buyout at Kinder
Morgan Louisiana pipeline during 2015,” Kean said.
Natural gas transport volumes were down 1 percent compared to
the third quarter last year, driven by lower throughput on the
Texas Intrastate Natural Gas Pipelines due to lower Eagle Ford
Shale volumes, lower throughput on Ruby Pipeline due to increased
Canadian imports to the Pacific Northwest, and lower throughput on
Fayetteville Express Pipeline due to lower production from the
Fayetteville Shale. These declines were partially offset by higher
throughput on TGP due to projects placed in service, higher
throughput on NGPL due to deliveries to Sabine Pass LNG facility
and to South Texas to meet demand from Mexico, and higher
throughput on Citrus pipeline due to strong weather-driven demand
in Florida. Natural gas gathered volumes were down 17 percent from
the third quarter last year due primarily to lower natural gas
volumes on multiple systems gathering from the Eagle Ford Shale and
lower volumes on the KinderHawk system compared to the third
quarter of 2015.
Natural gas continues to be the fuel of choice for America’s
evolving energy needs, and industry experts are projecting natural
gas demand increases of approximately 35 percent to over 105
billion cubic feet per day (Bcf/d) over the next 10 years. Over the
last 2.8 years, KMI has entered into new and pending firm transport
capacity commitments totaling 8.2 Bcf/d (1.9 Bcf/d of which is
existing, previously unsold capacity). Of the natural gas consumed
in the United States, about 38 percent moves on KMI pipelines. KMI
expects future natural gas infrastructure opportunities will be
driven by greater demand for gas-fired power generation across the
country, liquefied natural gas (LNG) exports, exports to Mexico and
continued industrial development, particularly in the petrochemical
industry. In fact, natural gas deliveries on KMI pipelines to
gas-fired power plants, to Mexico and to LNG facilities were up 9
percent, 6 percent, and approximately 346,000 dekatherms per day
(Dth/d), respectively, compared to the third quarter of 2015.
“The CO2 segment was impacted by lower commodity
prices, as our realized weighted average oil price for the quarter
was $62.12 per barrel compared to $74.18 per barrel for the third
quarter of 2015,” Kean said. “Combined oil production across all of
our fields was down 5 percent compared to 2015 on a net to Kinder
Morgan basis, primarily driven by lower SACROC production. Third
quarter 2016 net NGL sales volumes of 10.6 thousand barrels per day
(MBbl/d) was consistent with volumes in the same period in 2015.
Net CO2 volumes increased 3 percent versus the third quarter of
2015. We continued to offset some of the impact of lower commodity
prices by generating cost savings across our CO2 business.”
Combined gross oil production volumes averaged 53.7 MBbl/d for
the third quarter, down 6 percent from 57.3 MBbl/d for the same
period in 2015. SACROC’s third quarter gross production was 11
percent below third quarter 2015 results, and Yates gross
production was 6 percent below third quarter 2015 results. Both
decreases were partially driven by project deferrals during 2016.
Third quarter gross production from Katz, Goldsmith and Tall Cotton
was 16 percent above the same period in 2015, but below plan. KMI
had record high gross NGL production of 21.7 MBbl/d for the quarter
and is on track for record annual NGL production. The average West
Texas Intermediate unhedged crude oil price for the third quarter
was $44.94 per barrel versus $46.43 for the third quarter of
2015.
“The Terminals segment experienced strong performance at
our liquids terminals, which comprise more than 75 percent of the
segment’s business. Growth in the liquids business during the
quarter versus the third quarter of 2015 was driven by increased
contributions from our Jones Act tankers, our refined products
terminals joint venture with BP and various expansions across our
network,” Kean said. The Lone Star State, Magnolia State, Garden
State and Bay State tankers were delivered in December 2015, May
2016, July 2016 and September 2016, respectively. These tankers are
each contracted with major energy customers under long-term, firm
time charters.
Growth from the liquids terminals was partially offset by a
decline in the bulk terminals as compared to the same period in
2015, largely driven by the bankruptcies of Arch Coal and Peabody
Energy.
“The Products Pipelines segment was favorably impacted by
the startup of the second petroleum condensate processing facility
along the Houston Ship Channel during 2015, and favorable
performance in our Transmix business compared to 2015 due to
unfavorable market price impacts during the third quarter of 2015,”
Kean said.
Total refined products volumes were up 3 percent for the third
quarter versus the same period in 2015. NGL volumes were down 1
percent from the same period last year. Crude and condensate
pipeline volumes were up 6 percent from the third quarter of 2015
primarily due to higher volumes on Double H and KMCC.
Kinder Morgan Canada contributions were up slightly in
the third quarter of 2016 compared to the third quarter of
2015.
Other News
Natural Gas Pipelines
- On Sept. 1, 2016, KMI and Southern
Company closed on the previously announced joint venture
transaction involving Southern Company’s acquisition of a 50
percent equity interest in SNG. As previously announced, Kinder
Morgan will continue to operate the system, and the companies are
pursuing specific growth opportunities to develop additional
natural gas infrastructure for the strategic venture. Including
SNG’s existing debt and cash consideration for Southern Company’s
50 percent share of the equity interest, the transaction implies a
total enterprise value for SNG of approximately $4.15 billion.
- On June 1, 2016, Elba Liquefaction
Company and Southern LNG Company received FERC authorization for
the Elba Liquefaction Project. As expected, requests for rehearing
were filed by the Sierra Club and associated individuals and are
currently pending before the FERC. Construction will begin on Nov.
1, 2016. The approximately $2 billion project will be constructed
and operated at the existing Elba Island LNG Terminal near
Savannah, Georgia. Initial liquefaction units are expected to be
placed in service in mid-2018, with final units coming on line by
early 2019. The project is supported by a 20-year contract with
Shell. In 2012, the Elba Liquefaction Project received
authorization from the Department of Energy to export to Free Trade
Agreement (FTA) countries. An application to export to non-FTA
countries is pending, but is not required for the project to move
ahead. The project is expected to have a total capacity of
approximately 2.5 million tonnes per year of LNG for export,
equivalent to approximately 350 million cubic feet per day of
natural gas.
- Construction continues for Elba Express
Company (EEC) and SNG facilities that will provide additional gas
supplies for industrial customers and utilities in Georgia and
Florida, and serve the Elba Island liquefaction facility. On June
1, 2016, FERC also issued certificates for both the EEC
Modification Project and the SNG Zone 3 Expansion Project. These
projects, which are supported by long-term customer contracts,
total $302 million. The FERC approved the start of construction in
late June, and the EEC and SNG facilities are expected to be placed
in service beginning late in the fourth quarter of 2016.
- On Sept. 6, 2016, the FERC issued
separate certificate orders approving TGP’s Broad Run Expansion and
Susquehanna West Projects:
- Pending receipt of all required
permits, TGP plans to begin construction of the Broad Run Expansion
Project in December 2016 and place the project facilities in
service on or before June 1, 2018. The project will provide an
incremental 200,000 Dth/d of firm transportation capacity along the
same capacity path (West Virginia to delivery points in Mississippi
and Louisiana) as the Broad Run Flexibility Project, which was
placed in service on Nov. 1, 2015 and provided an incremental
590,000 Dth/d of capacity. In 2014, Antero Resources Corporation
was awarded a total of 790,000 Dth/d of 15-year firm capacity under
the two projects. Estimated capital expenditures for the combined
projects are approximately $800 million.
- Pending receipt of all required
permits, TGP plans to begin construction of the $156 million
Susquehanna West Project in early 2017, and place the project
facilities in service on or before Nov. 1, 2017. The project will
provide 145,000 Dth/d of additional capacity to an interconnection
with National Fuel Supply in Potter County, Pennsylvania, and is
fully subscribed by StatOil Natural Gas LLC.
- TGP continues to seek the remaining
permits required for the start of construction of its FERC-approved
$93 million Connecticut Expansion project, which will upgrade
portions of TGP’s existing system in New York, Massachusetts and
Connecticut, and provide approximately 72,100 Dth/d of additional
firm transportation capacity for three local distribution company
customers. Due to state and federal permit delays, the project’s
original in-service date of Nov. 1, 2016, has been changed to Nov.
1, 2017.
- TGP completed construction on the last
phase of its $230 million, 500,000 Dth/d South System Flexibility
Project on schedule and placed the final capacity increment in
service on Oct. 1, 2016. The project, which is supported by
long-term contracts, provides incremental supply access from TGP’s
Station 87 Pool in Tennessee to delivery points in South
Texas.
- On Sept. 29, 2016, the FERC issued an
Environmental Assessment for TGP’s proposed $178 million, 900,000
Dth/d Southwest Louisiana Supply Project, which is designed to
serve the Cameron LNG export complex. The project, which is
supported by long-term contracts, is expected to be placed in
service by Feb. 1, 2018.
- On Aug. 1, 2016, NGPL filed an
application with the FERC for facilities associated with its
approximately $212 million Gulf Coast Southbound Expansion Project.
The project, which is fully subscribed under long-term customer
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. Pending regulatory approvals, the project is expected to be
fully in service by the fourth quarter of 2018.
- Construction is nearing completion on
NGPL’s Chicago Market Expansion project. This approximately $74
million project will increase NGPL’s capacity by 238,000 Dth/d and
provide transportation service on its Gulf Coast mainline system
from the Rockies Express Pipeline interconnection in Moultrie
County, Illinois, to points north on NGPL’s system. NGPL has
executed binding agreements with four customers for incremental
firm transportation service to markets near Chicago and the project
is expected to be placed in service on Nov. 1, 2016.
- Phase 1 of the Texas Intrastate Natural
Gas system’s Crossover project was placed in service on Sept. 1,
2016, as planned. Phase 1 provides transportation capacity to serve
customers in Texas and Mexico and is supported by commitments of
over 800,000 Dth/d, including contracts with Cheniere Energy, Inc.
at its Corpus Christi LNG facility (once the facility is placed in
service) and with Comisión Federal de Electricidad (CFE). Work
continues on Phase 2 of the project, which is supported by a
long-term commitment from SK E&S LNG, LLC for service to the
Freeport LNG export facility. Phase 2 is expected to go into
service in late 2018 and will bring the total project capacity to
over 1,100,000 Dth/d. The total cost for both phases is
approximately $326 million.
CO2
- Construction is nearing completion on
the northern portion of the Cortez Pipeline expansion project. The
approximately $226 million project will increase CO2 transportation
capacity on the Cortez Pipeline from 1.35 Bcf/d to 1.5 Bcf/d. The
pipeline transports CO2 from southwestern Colorado to eastern New
Mexico and West Texas for use in enhanced oil recovery projects.
The third of five facilities was placed into service in the third
quarter of 2016, with the final two facilities expected to be in
service by the end of the year.
- We continue to find high-return
enhanced oil recovery projects in the current price environment
across the portfolio and have benefited from cost savings in our
operations and in our expansion capital program.
Terminals
- Construction is nearly complete on the
second of two new deep-water liquids berths being developed along
the Houston Ship Channel, with in-service expected in the fourth
quarter of this year. The first dock was placed in service at the
end of March 2016. The docks, which are pipeline-connected to
Kinder Morgan’s Pasadena and Galena Park terminals via three
cross-channel lines, are capable of loading ocean-going vessels at
rates up to 15,000 barrels per hour. The approximately $72 million
project is a response to customers’ growing demand for waterborne
outlets for refined products along the ship channel, and is
supported by firm vessel commitments from existing customers at the
Galena Park and Pasadena terminals.
- Construction continues at the Base Line
Terminal, a new crude oil storage facility being developed in
Edmonton, Alberta. In March 2015, Kinder Morgan and Keyera Corp.
announced the new 50-50 joint venture terminal and entered into
long-term, firm take-or-pay agreements with strong, creditworthy
customers to build 12 tanks with total crude oil storage capacity
of 4.8 million barrels. KMI’s investment in the joint venture
terminal is approximately CAD$372 million. Commissioning is
expected to begin in the first quarter of 2018.
- Work continues on the Kinder Morgan
Export Terminal (KMET) along the Houston Ship Channel. The
approximately $245 million project includes 12 storage tanks with
1.5 million barrels of storage capacity, one ship dock, one barge
dock and cross-channel pipelines to connect with Kinder Morgan’s
Galena Park terminal. KMET is anticipated to be in service in the
first quarter of 2017.
- In July and September 2016, Kinder
Morgan’s American Petroleum Tankers (APT) took delivery of the
Garden State and Bay State, respectively, the third and fourth of
five 50,000-deadweight-ton product tankers from General Dynamics’
NASSCO Shipyard in San Diego, California. Each of the ECO class
vessels, with cargo capacities of 330,000-barrels and LNG
conversion ready engine capabilities, is fixed under long-term,
firm time charters with major energy companies. The construction
programs at NASSCO and Philly Shipyard, Inc. remain on-budget and
substantially on-time. Five additional vessels are scheduled to be
delivered through the end of 2017, bringing APT’s best-in-class
fleet to 16 vessels.
- In August 2016, Kinder Morgan placed in
service three 100,000 barrel tanks at its Carteret, New Jersey
terminal. The tanks, which are outfitted with internal floating
roofs and pipeline, dock and truck rack connectivity as well as
in-tank butane blending capabilities, are leased pursuant to a
long-term, firm take-or-pay storage agreement. The $32 million
project adds to Kinder Morgan’s strong position in the strategic
New York Harbor petroleum product hub.
Products Pipelines
- Work continues on the Utopia Pipeline
Project, with landowner discussions and permitting activities
underway. The approximately $500 million new pipeline will have an
initial design capacity of 50,000 barrels per day (bpd), and will
move ethane and ethane-propane mixtures across Ohio to Windsor,
Ontario, Canada. The project is fully supported by a long-term,
fee-based transportation agreement with a petrochemical customer.
The project has a planned in-service date of January 2018, subject
to permitting and land acquisition.
Kinder Morgan Canada
- On May 19, 2016, the National Energy
Board (NEB) issued a report recommending that the federal
government approve the Trans Mountain Expansion Project, subject to
157 conditions. The deadline for the Federal Government Order
in Council decision is Dec. 20, 2016. As previously announced, the
government conducted further consultation with First Nations
related to the 157 conditions and the project impact. In addition,
the federal government implemented a Ministerial Panel to hear from
the general public with respect to identifying views not heard by
the initial NEB review. The Ministerial Panel held public and by
invitation-only sessions in 19 communities in Alberta and British
Columbia and launched an online questionnaire for Canadians to
submit feedback on the project. The panel is required to produce a
report for the Minister of Natural Resources by Nov. 1, 2016.
If approved, the project is expected to be in service by the end of
2019. The in-service date for the expansion will depend on the
final conditions contained in the Order in Council from the federal
government. The proposed USD$5.4 billion expansion will increase
capacity on Trans Mountain from approximately 300,000 to 890,000
bpd. Thirteen companies have signed firm long-term contracts
supporting the project for approximately 708,000 bpd. Kinder Morgan
Canada is currently in negotiations with construction contractors
and continues to engage extensively with landowners, Aboriginal
groups, communities and stakeholders along the proposed expansion
route and adjacent marine areas.
Financings
- On Aug. 16, 2016, CIG issued $375
million of 10-year senior notes at a fixed rate of 4.15
percent.
- On Sept. 1, 2016, KMI sold a 50 percent
equity interest in SNG. As a result, KMI will no longer consolidate
SNG, including its $1,211 million of public debt outstanding as of
Sept. 30, 2016. SNG’s debt will continue to be guaranteed by KMI
until Dec. 2, 2016, when SNG’s investment grade rating requirement
imposed by the cross guarantee is expected to be met.
- On Sept. 30, 2016, KMI repaid the $332
million principal amount of Copano Energy, LLC’s 7.125 percent
senior notes due 2021, plus accrued interest and a fixed price
premium.
- On Oct. 1, 2016, KMI repaid the $749
million principal amount of Hiland Partners, LP’s 7.25 percent
senior notes due 2020. As of Sept. 30, 2016, funds for this
extinguishment, plus $54 million for accrued interest and a fixed
price premium, were held in escrow as a restricted deposit.
Kinder Morgan, Inc. (NYSE: KMI) is the largest energy
infrastructure company in America. It owns an interest in or
operates approximately 84,000 miles of pipelines and
approximately 180 terminals. KMI’s pipelines transport natural
gas, gasoline, crude oil, CO2 and other products, and its terminals
store petroleum products and chemicals, and handle bulk materials
like coal and petroleum coke. For more information please visit
www.kindermorgan.com.
Please join Kinder Morgan at 4:30 p.m. Eastern Time on
Wednesday, Oct. 19, at www.kindermorgan.com for a
LIVE webcast conference call on the company’s third 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), and net income before interest expense, taxes,
DD&A and certain items (Adjusted EBITDA) are presented
herein.
Certain items 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,
hurricane impacts and casualty losses).
DCF is a significant performance
measure used by us and by external users of our financial
statements to evaluate our performance and to measure and estimate
the ability of our assets to generate cash earnings after servicing
our debt and preferred stock dividends, paying cash taxes and
expending sustaining capital, that could be used for discretionary
purposes such as common stock dividends, stock repurchases,
retirement of debt, or expansion capital expenditures. Management
uses this measure and believes it provides users of our financial
statements a useful measure reflective of our business’s ability to
generate cash earnings to supplement the comparable GAAP measure.
We believe the GAAP measure most directly comparable to DCF is net
income available to common stockholders. A reconciliation of DCF to
net income available to common stockholders is provided herein. DCF
per share is DCF divided by average outstanding shares, including
restricted stock awards that participate in dividends.
Segment EBDA before certain items
is used by management in its analysis of segment performance and
management of our business. General and administrative expenses are
generally not under the control of our segment operating managers,
and therefore, are not included when we measure business segment
operating performance. We believe Segment EBDA before certain items
is a significant performance metric because it provides us and
external users of our financial statements additional insight into
the ability of our segments to generate segment cash earnings on an
ongoing basis. We believe it is useful to investors because it is a
measure that management uses to allocate resources to our segments
and assess each segment’s performance. We believe the GAAP measure
most directly comparable to Segment EBDA before certain items is
segment earnings before DD&A and amortization of excess cost of
equity investments (Segment EBDA). Segment EBDA before certain
items is calculated by adjusting Segment EBDA for the certain items
attributable to a segment, which are specifically identified in the
footnotes to the accompanying tables.
Adjusted EBITDA is used by
management and external users, in conjunction with our net debt, to
evaluate certain leverage metrics. Therefore, we believe Adjusted
EBITDA is useful to investors. We believe the GAAP measure most
directly comparable to Adjusted EBITDA is net income. Adjusted
EBITDA is calculated by adjusting net income before interest
expense, taxes, and DD&A (EBITDA) for certain items,
noncontrolling interests before certain items, and KMI’s share of
certain equity investees’ DD&A and book taxes, which are
specifically identified in the footnotes to the accompanying
tables.
Our non-GAAP measures described above should not be considered
alternatives to GAAP net income or other GAAP measures and have
important limitations as analytical tools. Our computations of DCF,
Segment EBDA before certain items and Adjusted EBITDA may differ
from similarly titled measures used by others. You should not
consider these non-GAAP measures in isolation or as substitutes for
an analysis of our results as reported under GAAP. DCF should not
be used as an alternative to net cash provided by operating
activities computed under GAAP. Management compensates for the
limitations of these non-GAAP measures by reviewing our comparable
GAAP measures, understanding the differences between the measures
and taking this information into account in its analysis and its
decision making processes.
Important Information Relating to
Forward-Looking Statements
This news release includes forward-looking statements within the
meaning of the U.S. Private Securities Litigation Reform Act of
1995 and Section 21E of the Securities and Exchange Act of 1934.
Generally the words “expects,” “believes,” anticipates,” “plans,”
“will,” “shall,” “estimates,” and similar expressions identify
forward-looking statements, which are generally not historical in
nature. Forward-looking statements are subject to risks and
uncertainties and are based on the beliefs and assumptions of
management, based on information currently available to them.
Although Kinder Morgan believes that these forward-looking
statements are based on reasonable assumptions, it can give no
assurance that any such forward-looking statements will
materialize. Important factors that could cause actual results to
differ materially from those expressed in or implied from these
forward-looking statements include the risks and uncertainties
described in Kinder Morgan’s reports filed with the Securities and
Exchange Commission (SEC), including its Annual Report on Form 10-K
for the year-ended December 31, 2015 (under the headings “Risk
Factors” and “Information Regarding Forward-Looking Statements” and
elsewhere) and its subsequent reports, which are available through
the SEC’s EDGAR system at www.sec.gov and on our website at
ir.kindermorgan.com. Forward-looking statements speak only as of
the date they were made, and except to the extent required by law,
Kinder Morgan undertakes no obligation to update any
forward-looking statement because of new information, future events
or other factors. Because of these risks and uncertainties, readers
should not place undue reliance on these forward-looking
statements.
Kinder Morgan, Inc. and Subsidiaries
Preliminary Consolidated Statements of
Income
(Unaudited)
(In millions, except per share
amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2016 2015 2016
2015 Revenues $ 3,330 $ 3,707
$ 9,669 $ 10,767 Costs, expenses and
other Costs of sales 971 1,106 2,454 3,281 Operations and
maintenance 576 612 1,744 1,707 Depreciation, depletion and
amortization 549 617 1,652 1,725 General and administrative 171 160
550 540 Taxes, other than income taxes 106 108 324 339 Loss on
impairments and divestitures, net 76 385 307 489 Other income, net
(1 ) (2 ) — (5 ) 2,448 2,986 7,031
8,076 Operating income 882 721 2,638 2,691 Other
income (expense) Earnings from equity investments 137 114 343 330
Loss on impairments and divestitures of equity investments, net
(350 ) — (344 ) (26 ) Amortization of excess cost of equity
investments (15 ) (13 ) (45 ) (39 ) Interest, net (472 ) (540 )
(1,384 ) (1,524 ) Other, net 12 9 42 33
Income before income taxes 194 291 1,250 1,465 Income tax expense
(377 ) (108 ) (744 ) (521 ) Net (loss) income (183 ) 183 506 944
Net (income) loss attributable to noncontrolling interests (5 ) 3
(7 ) 4 Net (loss) income attributable to Kinder
Morgan, Inc. (188 ) 186 499 948 Preferred stock dividends (39 ) —
(117 ) —
Net (loss) income available to common
stockholders $ (227 ) $ 186
$ 382 $ 948
Class P Shares Basic and diluted (loss) earnings per common
share $ (0.10 ) $ 0.08 $ 0.17 $ 0.43 Basic
weighted average common shares outstanding (1) 2,230 2,203
2,229 2,173 Diluted weighted average common
shares outstanding (1) 2,230 2,203 2,229 2,181
Declared dividend per common share $
0.125 $ 0.510 $
0.375 $ 1.480 Segment
EBDA
%
change
%
change
Natural Gas Pipelines $ 540 $ 993 (46 )% $ 2,498 $ 2,936 (15 )% CO2
217 29 648 % 606 605 — % Terminals 286 249 15 % 831 798 4 %
Products Pipelines 293 288 2 % 765 811 (6 )% Kinder Morgan Canada
43 42 2 % 123 120 3 % Other 2 (9 ) 122 % (11 ) (55 ) 80 %
Total Segment EBDA $ 1,381 $
1,592 (13 )%
$ 4,812 $
5,215 (8 )%
Note
(1)
For all periods presented, all potential
common share equivalents were antidilutive, except for the nine
months ended September 30,
2015 during which the
KMI warrants were dilutive.
Kinder Morgan, Inc. and Subsidiaries
Preliminary Earnings Contribution by
Business Segment
(Unaudited)
(In millions, except per share
amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2016 2015
%
change
2016 2015
%
change
Segment EBDA before certain items (1) Natural Gas Pipelines $ 957 $
975 (2 )% $ 3,045 $ 3,027 1 % CO2 229 282 (19 )% 679 849 (20 )%
Terminals 285 263 8 % 837 798 5 % Product Pipelines 294 287 2 % 877
807 9 % Kinder Morgan Canada 43 42 2 % 123 120 3 % Other (2 ) (10 )
80 % (19 ) (23 ) 17 % Subtotal 1,806 1,839 (2 )% 5,542 5,578 (1 )%
DD&A and amortization of excess investments (564 ) (630 )
(1,697 ) (1,764 ) General and administrative (1) (2) (159 ) (152 )
(493 ) (485 ) Interest, net (1) (3) (505 ) (524 ) (1,526 ) (1,565 )
Subtotal 578 533 1,826 1,764
Corporate book taxes (4) (191 ) (185 ) (626 ) (606 ) Certain items
Acquisition related costs (5) (4 ) (2 ) (12 ) (14 ) Pension plan
net benefit — 5 — 28 Fair value amortization 53 24 106 72 Contract
early termination revenue 18 — 57 — Legal and environmental
reserves (6) 1 (1 ) (55 ) (78 ) Mark to market and ineffectiveness
(7) (30 ) 118 (23 ) 162 Losses on impairments and divestitures, net
(8) (426 ) (387 ) (505 ) (516 ) Project write-offs — — (170 ) —
Other (10 ) (17 ) (22 ) (4 ) Subtotal certain items before tax (398
) (260 ) (624 ) (350 ) Book tax certain items (9) (172 ) 95
(70 ) 136 Total certain items (570 ) (165 ) (694 ) (214 )
Net (loss) income (183 ) 183 506 944 Net (income) loss attributable
to noncontrolling interests (5 ) 3 (7 ) 4 Preferred stock dividends
(39 ) — (117 ) —
Net (loss) income available to
common stockholders $ (227 ) $
186 $ 382 $ 948
Net (loss) income available to common stockholders $
(227 ) $ 186 $ 382 $ 948 Total certain items 570 165 694 214
Noncontrolling interests certain item (10) — (6 ) (9 ) (20 )
Net income available to common stockholders before certain items
343 345 1,067 1,142 DD&A and amortization of excess investments
(11) 653 708 1,961 2,004 Total book taxes (12) 230 224 745 713 Cash
taxes (13) (22 ) (3 ) (61 ) (19 ) Other items (14) 11 7 31 23
Sustaining capital expenditures (15) (134 ) (152 ) (379 ) (397 )
DCF $ 1,081 $ 1,129
$ 3,364 $ 3,466
Weighted average common shares outstanding for dividends (16) 2,239
2,210 2,237 2,189 DCF per common share $ 0.48 $ 0.51 $ 1.50 $ 1.58
Declared dividend per common share $ 0.125 $ 0.510 $ 0.375 $ 1.480
Adjusted EBITDA (17) $ 1,770 $ 1,803 $ 5,414 $ 5,425
Notes ($
million)
(1) Excludes certain items:3Q 2016 - Natural Gas
Pipelines $(417), CO2 $(12), Terminals $1, Products Pipelines $(1),
Other $4, general and administrative $(4), interest expense $31.3Q
2015 - Natural Gas Pipelines $18, CO2 $(253), Terminals $(14),
Products Pipelines $1, Other $1, general and administrative $2,
interest expense $(15).YTD 2016 - Natural Gas Pipelines $(547), CO2
$(73), Terminals $(6), Products Pipelines $(112), Other $8, general
and administrative $(32), interest expense $140.YTD 2015 - Natural
Gas Pipelines $(91), CO2 $(244), Products Pipelines $4, Other
$(32), general and administrative $(27), interest expense $40.
(2) General and administrative expense is net of management
fee revenues from an equity investee:3Q 2016 - $(8)3Q 2015 -
$(10)YTD 2016 - $(25)YTD 2015 - $(28)
(3) Interest expense
excludes interest income that is allocable to the segments:3Q 2016
- Other $2.3Q 2015 - Products Pipelines $1, Other $(2).YTD 2016 -
Products Pipelines $1, Other $1.YTD 2015 - Products Pipelines $2,
Other $(1).
(4) Corporate book taxes exclude book tax
certain items not allocated to the segments of $(172) in 3Q 2016,
$95 in 3Q 2015, $(72) YTD 2016, and $136 YTD 2015. Also excludes
income tax that is allocated to the segments:3Q 2016 - Natural Gas
Pipelines $(2), Terminals $(8), Products Pipelines $1, Kinder
Morgan Canada $(5).3Q 2015 - Natural Gas Pipelines $(1), CO2 $(1),
Terminals $(8), Products Pipelines $(3), Kinder Morgan Canada
$(5).YTD 2016 - Natural Gas Pipelines $(5), CO2 $(2), Terminals
$(25), Products Pipelines $3, Kinder Morgan Canada $(17).YTD 2015 -
Natural Gas Pipelines $(5), CO2 $(3), Terminals $(21), Products
Pipelines $(7), Kinder Morgan Canada $(15).
(5) Acquisition
related costs for closed or pending acquisitions.
(6) Legal
reserve adjustments related to certain litigation and environmental
matters.
(7) Gains or losses are reflected when realized.
(8) Includes the following non-cash impairments:3Q 2016 and
YTD 2016 include a $350 million impairment of our equity investment
in Midcontinent Express Pipeline LLC. 3Q 2015 and YTD 2015 includes
$388 million of CO2 long lived asset impairments primarily related
to our Goldsmith oil and gas field.
(9) 3Q and YTD 2016
include a $276 million book tax expense certain item due to the
non-deductibility, for tax purposes, of approximately $800 million
of goodwill included in the loss calculation related to the sale of
a 50% interest in SNG, resulting in a gain for tax purposes.
(10) Represents noncontrolling interest share of certain
items.
(11) Includes KMI's share of certain equity
investees' DD&A:3Q 2016 - $893Q 2015 - $78YTD 2016 - $264YTD
2015 - $240
(12) Excludes book tax certain items and
includes income tax allocated to the segments. Also, includes KMI's
share of taxable equity investees' book tax expense:3Q 2016 - $253Q
2015 - $21YTD 2016 - $71YTD 2015 - $56
(13) YTD 2015
excludes a $195 million income tax refund received. Includes KMI's
share of taxable equity investees' cash taxes:3Q 2016 - $(25)3Q
2015 - $(2)YTD 2016 - $(59)YTD 2015 - $(8)
(14) Consists
primarily of non-cash compensation associated with our restricted
stock program.
(15) Includes KMI's share of certain equity
investees' sustaining capital expenditures (the same equity
investees for which DD&A is added back):3Q 2016 - $(24)3Q 2015
- $(16)YTD 2016 - $(66)YTD 2015 - $(50)
(16) Includes
restricted stock awards that participate in common share dividends
and dilutive effect of warrants, as applicable.
(17)
Adjusted EBITDA is net (loss) income before certain items, less net
income attributable to noncontrolling interests (before certain
items), plus DD&A (including KMI's share of certain equity
investees' DD&A), book taxes (including income tax allocated to
the segments and KMI’s share of certain equity investees’ book
tax), and interest expense (before certain items). Adjusted EBITDA
is reconciled as follows, with any difference due to rounding:
Three Months Ended September
30,
Nine Months Ended September
30,
2016 2015 2016 2015 Net
(loss) income $ (183 ) $ 183 $ 506 $ 944 Total certain items 570
166 694 214 Net income attributable to noncontrolling interests (5
) (3 ) (16 ) (16 ) DD&A and amortization of excess investments
(see (11) above) 653 708 1,960 2,005 Book taxes (see (12) above)
230 224 745 713 Interest, net (see (1) and (3) above) 505
525 1,525 1,565
Adjusted EBITDA $ 1,770 $ 1,803 $ 5,414 $
5,425
Volume Highlights
(historical pro forma for acquired
assets)
Three Months Ended September
30,
Nine Months Ended September
30,
2016 2015 2016 2015 Natural Gas
Pipelines Transport Volumes (BBtu/d) (1) (2) 28,144 28,438 28,162
28,076 Sales Volumes (BBtu/d) (3) 2,438 2,445 2,350 2,416 Gas
Gathering Volumes (BBtu/d) (2) (4) 2,935 3,541 3,044 3,554
Crude/Condensate Gathering Volumes (MBbl/d) (2) (5) 283 343 310 340
CO2
Southwest Colorado Production - Gross
(Bcf/d) (6)
1.20 1.20 1.18 1.22 Southwest Colorado Production - Net (Bcf/d) (6)
0.62 0.60 0.60 0.58 Sacroc Oil Production - Gross (MBbl/d) (7)
28.92 32.49 29.72 34.44 Sacroc Oil Production - Net (MBbl/d) (8)
24.09 27.07 24.76 28.69 Yates Oil Production - Gross (MBbl/d) (7)
17.85 18.89 18.52 18.94 Yates Oil Production - Net (MBbl/d) (8)
7.94 7.60 8.24 8.20 Katz, Goldsmith, and Tall Cotton Oil Production
- Gross (MBbl/d) (7) 6.89 5.95 6.86 5.60 Katz, Goldsmith, and Tall
Cotton Oil Production - Net (MBbl/d) (8) 5.84 4.99 5.78 4.71 NGL
Sales Volumes (MBbl/d) (9) 10.55 10.51 10.26 10.33 Realized
Weighted Average Oil Price per Bbl (10) $ 62.12 $ 74.18 $ 61.27 $
73.19 Realized Weighted Average NGL Price per Bbl $ 18.03 $ 16.29 $
16.42 $ 18.96 Terminals Liquids Leasable Capacity (MMBbl)
88.9 81.5 88.9 81.5 Liquids Utilization % 95.6 % 93.1 % 95.6 % 93.1
% Bulk Transload Tonnage (MMtons) (11) 17.2 16.9 46.3 48.9 Ethanol
(MMBbl) 17.3 15.0 48.9 47.3 Products Pipelines Pacific,
Calnev, and CFPL (MMBbl) Gasoline (12) 76.3 74.1 218.4 216.0 Diesel
28.2 28.5 80.8 80.8 Jet Fuel 24.7 23.2
69.8 67.0 Sub-Total Refined Product
Volumes - excl. Plantation and Parkway 129.2 125.8 369.0 363.8
Plantation (MMBbl) (13) Gasoline 21.1 19.1 62.5 59.5 Diesel 4.7 5.6
13.9 15.9 Jet Fuel 3.2 3.5 9.2
10.8 Sub-Total Refined Product Volumes -
Plantation 29.0 28.2 85.6 86.2 Total (MMBbl) Gasoline (12) 97.4
93.2 280.9 275.5 Diesel 32.9 34.1 94.7 96.7 Jet Fuel 27.9
26.7 79.0 77.8
Total Refined Product Volumes 158.2 154.0 454.6 450.0 NGLs (MMBbl)
(14) 9.9 10.0 28.9 29.4 Crude and Condensate (MMBbl) (15)
28.8 27.3 87.6 70.9
Total Delivery Volumes (MMBbl) 196.9 191.3 571.1 550.3
Ethanol (MMBbl) (16) 10.1 10.7 30.9 31.1 Trans Mountain
(MMBbls - mainline throughput) 30.7 29.5 88.1 86.9
(1) Includes Texas Intrastates, Copano South Texas, KMNTP,
Monterrey, TransColorado, MEP, KMLA, FEP, TGP, EPNG, CIG, WIC,
Cheyenne Plains, SNG, Elba Express, Ruby, Sierrita, NGPL, and
Citrus pipeline volumes. Joint Venture throughput reported at KMI
share. (2) Volumes for acquired pipelines are included for all
periods. (3) Includes Texas Intrastates and KMNTP. (4) Includes
Copano Oklahoma, Copano South Texas, Eagle Ford Gathering, Copano,
North Texas, Altamont, KinderHawk, Camino Real, Endeavor, Bighorn,
Webb/Duval Gatherers, Fort Union, EagleHawk, Red Cedar, and Hiland
Midstream throughput. Joint Venture throughput reported at KMI
share. (5) Includes Hiland Midstream, EagleHawk, and Camino Real.
Joint Venture throughput reported at KMI share. (6) Includes McElmo
Dome and Doe Canyon sales volumes. (7) Represents 100% production
from the field. (8) Represents KMI's net share of the production
from the field. (9) Net to KMI. (10) Includes all KMI crude oil
properties. (11) Includes KMI's share of Joint Venture tonnage.
(12) Gasoline volumes include ethanol pipeline volumes. (13)
Plantation reported at KMI share. (14) Includes Cochin and Cypress
(KMI share). (15) Includes KMCC, Double Eagle (KMI share), and
Double H. (16) Total ethanol handled including pipeline volumes
included in gasoline volumes above.
Kinder Morgan, Inc. and Subsidiaries
Preliminary Consolidated Balance
Sheets
(Unaudited)
(In millions)
September 30, December 31, 2016
2015 ASSETS Cash and cash equivalents $ 357 $ 229
Other current assets 3,006 2,595 Property, plant and equipment, net
38,780 40,547 Investments 7,358 6,040 Goodwill 22,163 23,790
Deferred charges and other assets 9,940 10,903
TOTAL ASSETS $ 81,604 $
84,104 LIABILITIES AND SHAREHOLDERS’
EQUITY Liabilities Short-term debt $ 2,944 $ 821
Other current liabilities 3,100 3,244 Long-term debt 36,708 40,632
Preferred interest in general partner of KMP 100 100 Debt fair
value adjustments 1,710 1,674 Other 2,074
2,230 Total liabilities 46,636 48,701
Shareholders’ Equity Accumulated other
comprehensive loss (557 ) (461 ) Other shareholders’ equity
35,163 35,580 Total KMI equity 34,606 35,119
Noncontrolling interests 362 284 Total
shareholders’ equity 34,968 35,403
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $
81,604 $ 84,104 Net
Debt (1) (3) $ 39,248 $ 41,224
Adjusted EBITDA Twelve Months
Ended
September 30, December 31, Reconciliation of Net
(Loss) Income to Adjusted EBITDA (2) 2016 2015
Net (loss) income $ (228 ) $ 208 Total certain items 1,920 1,441
Net income attributable to noncontrolling interests (18 ) (18 )
DD&A and amortization of excess investments 2,638 2,683 Book
taxes 1,007 976 Interest, net 2,042 2,082
Adjusted EBITDA $ 7,361 $
7,372 Net Debt to Adjusted EBITDA (3)
5.3 5.6 Year ended December 31,
2016 Reconciliation of Forecasted GAAP Capital
Expenditures to Growth Capital Forecast for 2016 Forecasted
capital expenditures(4) $ 2,728 Growth capital expenditures of
unconsolidated joint ventures and acquisitions, net of divestitures
450 Less: Sustaining capital expenditures (455 )
Growth
Capital Forecast for 2016 $ 2,723
Notes
(1) Amounts exclude: (i) the preferred interest in general
partner of KMP, (ii) debt fair value adjustments and (iii) the
foreign exchange impact on our Euro denominated debt of $47 million
and less than $1 million as of September 30, 2016 and December 31,
2015, respectively, as we have entered into swaps to convert that
debt to US$. (2) Adjusted EBITDA is net (loss) income before
certain items, less net income attributable to noncontrolling
interests (before certain items), plus DD&A (including KMI's
share of certain equity investees' DD&A), book taxes (including
income tax allocated to the segments and KMI’s share of certain
equity investees’ book tax), and interest expense (before certain
items), with any difference due to rounding. (3) As of September
30, 2016, $749 million of cash was held in escrow to redeem debt,
which occurred on October 1, 2016, and therefore, not included in
cash and cash equivalents or the calculation of Net Debt. Had this
cash been included in cash and cash equivalents as of September 30,
2016, Net Debt would have been $38,499 million and the Net Debt to
Adjusted EBITDA ratio would have been 5.2 times for the twelve
months ended September 30, 2016. (4) Excludes accrued capital
expenditures and contractor retainage.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161019006214/en/
Kinder Morgan, Inc.Media RelationsDave Conover,
713-369-9407dave_conover@kindermorgan.comorInvestor
Relations713-369-9490km_ir@kindermorgan.comwww.kindermorgan.com
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