Net Debt Reduction of Over $3.0 Billion
During 2016 Significantly Enhanced Credit Profile
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 Feb. 15, 2017, to common
shareholders of record as of the close of business on Feb. 1, 2017.
KMI declared dividends of $0.50 per share for 2016 and used cash in
excess of dividend payments to fully fund growth investments and
strengthen its balance sheet.
Richard D. Kinder, executive chairman, said, “We are pleased to
have reached significant milestones on two of our largest growth
projects. We received approval from the Canadian federal government
and the province of British Columbia to proceed with our Trans
Mountain expansion project, and we also began construction on our
Elba Island Liquefaction project. These are signature energy
infrastructure assets for North America, and we expect they will
contribute greatly to Kinder Morgan’s growth in the future.”
“For the year, we substantially reduced our debt, further
positioning Kinder Morgan for long-term value creation. We finished
ahead of our plan for 2016 year-end leverage, and we are pleased
with the progress toward reaching our targeted leverage level of
around 5.0 times net debt-to-Adjusted EBITDA,” said Kinder. “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. We
are also seeing green shoots in our sector, based on the expected
balancing of global crude oil supply and demand combined with
expectations for a more positive federal legislative and regulatory
environment. Overall, we are very confident about Kinder Morgan’s
future.”
President and CEO Steve Kean said, “We are pleased with our
operational performance for the quarter, which contributed to full
year 2016 results that were in line with our guidance provided
since April. We generated full year 2016 distributable cash flow in
excess of our dividends and growth capital expenditures, and did
not access the capital markets to fund growth projects. We continue
to demonstrate the resiliency of our cash flows, generated by our
large, diversified portfolio of predominately fee-based assets. We
generated earnings per common share for the quarter of $0.08 and
distributable cash flow of $0.51 per common share, resulting in
$867 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 project
backlog. Our current project backlog is $12.0 billion, down from
$13.0 billion at the end of the third quarter of 2016. This
reduction was primarily driven by the completion of our Southern
Natural Gas pipeline (SNG) and Elba Express Company (EEC)
expansions, our South System Flexibility project and our Cortez
Pipeline expansion, as well as the delivery of the American
Endurance tanker. Excluding the CO2 segment projects, we expect the
projects in our backlog to generate an average capital-to-EBITDA
multiple of approximately 6.7 times.”
KMI reported fourth quarter net income available to common
stockholders of $170 million, compared to a net loss available to
common stockholders of $721 million for the fourth quarter of 2015,
and distributable cash flow of $1,147 million versus $1,233 million
for the comparable period in 2015. The decrease in distributable
cash flow for the quarter was attributable to lower contributions
from SNG as a result of a 50 percent sale of the pipeline during
the third quarter of 2016 (which helped improve KMI’s leverage
metrics) and from the CO2 segment primarily due to lower realized
crude oil prices and lower volumes, partially offset by higher
contributions from the Terminals and Products Pipelines segments.
Net income available to common stockholders was also impacted by a
$988 million favorable change in total certain items compared to
the fourth quarter of 2015. Although the majority of Ruby
Pipeline’s capacity is contracted until 2021, this quarter included
a $250 million write down of the company’s equity investment in the
pipeline, driven by a delay in expected west coast natural gas
demand growth to beyond 2021. Fourth quarter 2015 certain items
included a goodwill impairment of $1,150 million.
For the full year, KMI reported net income available to common
stockholders of $552 million, compared to $227 million for 2015,
and distributable cash flow of $4,511 million versus $4,699 million
for 2015. The decrease in distributable cash flow was primarily
attributable to lower contributions from the CO2 segment, lower
contributions from SNG as a result of a 50 percent sale of the
pipeline and a full year impact of preferred stock dividends,
partially offset by increased contributions from the Terminals and
Products Pipelines segments and lower interest expense. Net income
available to common stockholders was further impacted by a $508
million favorable change in total certain items compared to 2015.
In addition to the fourth quarter certain items described above,
2016 included a partial write down of the company’s equity
investment in Midcontinent Express Pipeline (MEP).
2017 Outlook
On Dec. 5, 2016, KMI issued its preliminary 2017 financial
projections and said it expects to declare dividends of $0.50 per
share and to achieve distributable cash flow of approximately $4.46
billion and Adjusted EBITDA of approximately $7.2 billion for the
year. KMI also expects to invest $3.2 billion in growth projects
during 2017, to be funded with internally generated cash flow
without needing to access equity markets, and to end the year with
a net debt-to-Adjusted EBITDA ratio of approximately 5.4 times.
KMI’s 2017 budget assumes a joint venture partner on the company’s
Trans Mountain expansion project and contributions from that
partner to fund its share of growth capital, but does not include
any potential proceeds in excess of the partner’s share of
expansion capital to recognize the value created in developing the
project to this stage. 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
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 $53 per barrel and Henry Hub
natural gas of $3 per MMBtu, which were consistent with forward
pricing during the company’s budget process. The vast majority of
cash generated by KMI is fee-based and therefore is not directly
exposed to commodity prices. The primary area where KMI has
commodity price sensitivity is in its CO2 segment, where KMI
hedges the majority of its next 12 months of oil production to
minimize this sensitivity. For 2017, the company estimates that
every $1 per barrel change in the average WTI crude oil price
impacts distributable cash flow by approximately $6 million and
each $0.10 per MMBtu change in the price of natural gas impacts
distributable cash flow by approximately $1 million.
Overview of Business
Segments
“The Natural Gas Pipelines segment’s performance for the
fourth quarter of 2016 was impacted by the sale of a 50 percent
interest in SNG and declines attributable to reduced volumes
affecting certain of our midstream gathering and processing assets.
The segment benefited from increased contribution from Tennessee
Gas Pipeline (TGP), driven by expansion projects placed into
service,” Kean said.
Natural gas transport volumes were down 2 percent compared to
the fourth quarter of 2015, driven by lower throughput on Ruby
Pipeline due to increased Canadian imports to the Pacific
Northwest, lower throughput on the Texas Intrastate Natural Gas
Pipelines due to lower Eagle Ford Shale volumes, and lower
throughput on Wyoming Interstate Company and TransColorado
pipelines due to lower Rockies production. These declines were
partially offset by higher throughput on TGP due to projects placed
in service, and higher throughput on NGPL due to deliveries to the
Sabine Pass LNG facility and to South Texas to meet continuing
demand from Mexico. Natural gas gathered volumes were down 21
percent from the fourth quarter of 2015 due primarily to lower
natural gas volumes on multiple systems gathering from the Eagle
Ford Shale and on the KinderHawk system compared to the fourth
quarter of 2015.
Natural gas continues to be the fuel of choice for America’s
evolving energy needs, and industry experts are projecting U.S.
natural gas demand, including net exports of liquefied natural gas
(LNG) and net exports to Mexico, to increase by approximately 35
percent to almost 107 billion cubic feet per day (Bcf/d) over the
next 10 years. Of the natural gas consumed in the U.S., about 40
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, LNG exports, exports
to Mexico and continued industrial development, particularly in the
petrochemical industry. In fact, natural gas deliveries on KMI
pipelines to Mexico and LNG facilities were up 17 percent to
407,000 dekatherms per day (Dth/d) and approximately 458,000 Dth/d,
respectively, compared to the fourth quarter of 2015.
“The CO2 segment was impacted by lower commodity
prices, as our realized weighted average oil price for the quarter
was $62.30 per barrel compared to $72.86 per barrel for the fourth
quarter of 2015,” Kean said. “Combined oil production across all of
our fields was down 8 percent compared to 2015 on a net to Kinder
Morgan basis, partially driven by project deferrals at SACROC and
Yates as well as reallocating capital to higher return projects
with longer lead times. Fourth quarter 2016 net NGL sales volumes
of 10.5 thousand barrels per day (MBbl/d) were consistent with
volumes in 2015. Net CO2 volumes increased 3 percent versus the
fourth quarter of 2015. We continued to offset some of the impact
of lower realized commodity prices by generating cost savings
across our CO2 business.”
Combined gross oil production volumes averaged 53.5 MBbl/d for
the fourth quarter, down 6 percent from 57.0 MBbl/d for 2015.
SACROC’s fourth quarter gross production was 11 percent below
fourth quarter 2015 results, and Yates gross production was 7
percent below fourth quarter 2015 results. Both decreases were
partially driven by project deferrals during 2016 as well as
reallocating capital to higher return projects with longer lead
times. Fourth quarter gross production from Katz, Goldsmith and
Tall Cotton was 24 percent above the same period in 2015, but below
plan. Gross NGL sales volumes were 21.3 MBbl/d during the quarter,
which completed a record year for gross NGL production.
“The Terminals segment experienced strong performance at
our liquids terminals, which saw record volumes for the year with
over 900 million barrels of throughput handled, a 14 percent
increase from full-year 2015, and now comprise close to 80 percent
of the segment’s business. Growth in the liquids business during
the quarter versus the fourth 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 Magnolia State, Garden State,
Bay State and American Endurance tankers were delivered in May
2016, July 2016, September 2016 and December 2016, respectively.
These tankers are each contracted with major energy customers under
long-term charters.
The bulk terminals contribution was also higher in the fourth
quarter of 2016 compared to the same period in 2015, largely due to
an expense taken in 2015 associated with the bankruptcy of Arch
Coal.
“The Products Pipelines segment was favorably impacted by
greater volumes on KMCC and Double H pipelines, and favorable
performance in our Transmix business compared to 2015, largely due
to unfavorable market price impacts during the fourth quarter of
2015,” Kean said.
Total refined products volumes were down 1 percent for the
fourth quarter versus the same period in 2015. NGL volumes were up
18 percent from the same period last year due to greater volumes on
Cochin. Crude and condensate pipeline volumes were up 6 percent
from the fourth quarter of 2015 primarily due to higher volumes on
Double H and KMCC pipelines.
Kinder Morgan Canada contributions were down slightly in
the fourth quarter of 2016 compared to the fourth quarter of 2015
partly due to operating expense timing changes.
Other News
Kimberly A. Dang Elected to the KMI Board of
Directors
- The KMI board of directors unanimously
elected to the board Kimberly Dang, vice president and chief
financial officer. Dang joined KMI in 2001 and has served as chief
financial officer of the company since 2005. In 2014, Dang joined
the Office of the Chairman of KMI, which also includes Richard D.
Kinder, executive chairman, and Steven J. Kean, president and CEO.
“Kim has been an essential contributor to the company’s success
over the years, and we are delighted to have her join the KMI
board,” said Kinder.
Natural Gas Pipelines
- On Dec. 9, 2016, the FERC denied
rehearing of its June 1 Certificate Orders being sought by parties
opposing the Elba Liquefaction Project. Construction of the project
is underway. The approximately $2 billion project will be located
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 (DOE) to export to Free
Trade Agreement (FTA) countries and on Dec. 16, 2016, the DOE
issued non-FTA export authority. 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.
- On Dec. 1, 2016, the approximately $285
million EEC Modification and SNG Zone 3 Expansion Projects,
supported by long-term customer contracts, began initial
service.
- On Nov. 1, 2016, NGPL placed its
approximately $69 million Chicago Market Expansion project in
service on time and below budget. This project increased NGPL’s
capacity by 238,000 Dth/d and is supported by long-term contracts
with four customers for transportation from the Rockies Express
Pipeline interconnection in Moultrie County, Illinois, to markets
in Chicago and surrounding areas.
- KMI and Southern Company continue to
assess mutual natural gas infrastructure growth opportunities under
a previously announced joint venture transaction that closed in
September 2016, whereby Southern Company acquired a 50 percent
equity interest in SNG’s pipeline system. KMI is the operator of
the SNG pipeline system as part of the joint venture.
- FERC review and approval progress
occurred for several projects during the quarter:
- On Jan. 4, 2017, TGP received a Notice
to Proceed with construction for the entire $156 million
Susquehanna West Project, which will provide 145,000 Dth/d of
additional capacity for Statoil Natural Gas LLC to an
interconnection with National Fuel Supply in Potter County,
Pennsylvania and expects to begin service on or before Nov. 1,
2017.
- On Dec. 30, 2016, the FERC approved
TGP’s $69 million Triad Expansion Project in Susquehanna County,
Pennsylvania, providing 180,000 Dth/d of capacity to serve a new
power plant at Invenergy’s Lackawanna Energy Center and TGP expects
service beginning as early as Nov. 1, 2017.
- On Dec. 15, 2016, the FERC approved
TGP’s proposed $178 million, 900,000 Dth/d Southwest Louisiana
Supply Project, which will serve the Cameron LNG export complex and
is expected to be placed in service by Feb. 1, 2018.
- On Dec. 13, 2016, Kinder Morgan
Louisiana Pipeline (KMLP) filed a FERC certificate application for
the $151 million Sabine Pass Expansion Project, which would provide
600,000 Dth/d of firm capacity under a 20-year contract to serve
Train 5 which is under construction at Cheniere Energy’s Sabine
Pass Liquefaction Project in Cameron Parish, Louisiana.
- On Dec. 29, 2016, TGP reached an
agreement with the Commonwealth of Massachusetts on a proposed
consent decree to resolve the compensation issue on the award of
easements in Massachusetts for the FERC-approved $93 million
Connecticut Expansion project and expects a hearing on the proposed
consent decree in February 2017. TGP continues to seek the
remaining permits required for the start of construction. The
expansion project 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. Construction is now
anticipated to begin June 1, 2017, with a Nov. 1, 2017 in service
date.
- Progress continues on NGPL’s
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
placed in service by the fourth quarter of 2018.
- On Nov. 9, 2016, KMI and EnLink
Midstream LLC (EnLink) entered a strategic venture upon EnLink’s
contribution of $39 million and other consideration for a 30
percent interest in Cedar Cove Midstream LLC (Cedar Cove). The
joint venture will provide gas gathering and processing services
within an area of mutual interest in Blaine County, Oklahoma,
located in the heart of the STACK play. Cedar Cove currently has
gathering and processing dedications of over 50,000 gross acres,
and the system will be expanded over the next several years as this
acreage is developed. KMI will serve as the operator of the system
and both parties will jointly conduct business development
activities in the designated area.
CO2
- The northern portion of the Cortez
Pipeline expansion project was completed and the final two
facilities were placed into service in November 2016. The
approximately $227 million project increases 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.
- Drilling has been initiated on the
approximately $66 million second phase of KMI’s Tall Cotton field
project in Gaines County, Texas. Tall Cotton is the industry’s
first greenfield Residual Oil Zone CO2 project and marks the first
time a field without a main pay zone has been specifically
developed for CO2 technology. First oil production from the second
phase of the project is expected to occur in the second quarter of
2017.
- The company has benefited from cost
savings in its operations and in its expansion capital program, and
continues to find high-return enhanced oil recovery projects in the
current price environment across the portfolio.
Terminals
- In October 2016, the second of two new
deep-water liquids berths being developed along the Houston Ship
Channel was placed in service. The additional docks, at a total
project cost of approximately $72 million, are responsive to
customers’ growing demand for waterborne outlets for refined
products along the ship channel, and are 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, Canada. In March 2015, KMI 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 with tanks
phased-into service throughout that year.
- Work is nearing completion on the
Kinder Morgan Export Terminal (KMET) along the Houston Ship
Channel. The approximately $246 million project, supported by
long-term customer contracts, 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 KMI’s Galena Park
terminal. Storage tanks at KMET were placed into service in January
2017 with the terminal’s full marine capabilities to follow by the
end of the first quarter of 2017.
- Work continues on the previously
announced Pit 11 expansion project at KMI’s Pasadena terminal. The
approximately $185 million project, back-stopped by long-term
commitments from existing customers, adds 2.0 million barrels of
refined products storage to KMI’s best-in-class liquids storage hub
along the Houston Ship Channel. Commissioning is expected to begin
in the third quarter of 2017, with the tanks being phased into
service through the first quarter of 2018.
- In December 2016, KMI’s American
Petroleum Tankers (APT) took delivery of the American Endurance,
the first of four 50,000-deadweight-ton product tankers from Philly
Shipyard, Inc. in Philadelphia, Pennsylvania. The ECO class vessel,
with a cargo capacity 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. Four additional vessels are scheduled to be delivered through
the end of 2017, bringing APT’s best-in-class fleet to 16
vessels.
- In October 2016, KMI entered into a
definitive agreement to sell 20 bulk terminals to an affiliate of
Watco Companies, LLC for cash consideration of approximately $100
million. The sale of seven of the locations closed in the fourth
quarter of 2016 with the balance expected to close by April 2017 as
certain conditions are satisfied. The terminals, which are
predominantly located along the inland river system and handle
mostly coal and steel products, contributed less than 2 percent of
the Terminals segment earnings before depreciation and amortization
in 2016.
Products Pipelines
- KMI has made significant progress
securing right-of-way for the approximately $540 million Utopia
Pipeline Project. The 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 Nov. 29, 2016, the Government of
Canada granted approval for the Trans Mountain Expansion Project,
subject to 157 conditions. This is a landmark decision
affirming both the strength of the project and the rigor of the
review process it has undergone. The subsequent Federal Government
Order in Council was received on Dec. 1, 2016. Additionally, on
Jan. 11, 2017, the project achieved another critical milestone as
the Province of British Columbia announced that the project
received its environmental certificate from the
Environmental Assessment Office, subject to 37
conditions, and has met its Requirements to Consider Support
for Heavy Oil Pipelines (British Columbia’s five conditions).
The Trans Mountain Expansion Project is an opportunity for Canada
to access world markets for its resources by building on an
existing pipeline system. Trans Mountain will continue to obtain
all necessary permits, and is planning to begin construction in
September 2017, with an in-service date for the twinned pipeline
expected in late 2019. Other next steps will include a final cost
estimate review with shippers committed to the project and a final
investment decision by KMI’s board of directors. Aboriginal support
for the project is strong and growing, with 51 Aboriginal
communities now in support of the project. The Mutual Benefit
Agreements (MBAs) that have been signed will see Trans Mountain
share over $400 million with those communities. The 51 agreements
include all of the First Nations whose Reserve lands the project
crosses and approximately 80 percent of communities in proximity to
the pipeline right-of-way. 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.
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
155 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, Inc. at 4:30 p.m. Eastern Time on
Wednesday, Jan. 18, at www.kindermorgan.com for a
LIVE webcast conference call on the company’s fourth 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 KMI 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 KMI’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, KMI 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
December 31,
Year Ended
December 31,
2016 2015
2016 2015 Revenues $
3,389
$ 3,636 $ 13,058 $ 14,403 Costs,
expenses and other Costs of sales 1,044 834 3,498 4,115 Operations
and maintenance 559 630 2,303 2,337 Depreciation, depletion and
amortization 557 584 2,209 2,309 General and administrative 119 150
669 690 Taxes, other than income taxes 97 100 421 439 Loss on
impairment of goodwill — 1,150 — 1,150 Loss on impairments and
divestitures, net 80 430 387 919 Other (income) expense, net (1 ) 2
(1 ) (3 ) 2,455 3,880 9,486 11,956
Operating income 934 (244 ) 3,572 2,447 Other income
(expense) Earnings from equity investments 154 84 497 414 Loss on
impairments and divestitures of equity investments, net (266 ) (4 )
(610 ) (30 ) Amortization of excess cost of equity investments (14
) (12 ) (59 ) (51 ) Interest, net (422 ) (527 ) (1,806 ) (2,051 )
Other, net 2 10 44 43 Income (loss)
before income taxes 388 (693 ) 1,638 772 Income tax expense (173 )
(43 ) (917 ) (564 ) Net income (loss) 215 (736 ) 721 208 Net
(income) loss attributable to noncontrolling interests (6 ) 41
(13 ) 45 Net income (loss) attributable to Kinder
Morgan, Inc. 209 (695 ) 708 253 Preferred stock dividends (39 ) (26
) (156 ) (26 )
Net income (loss) available to common
stockholders $ 170 $ (721
) $ 552 $ 227
Class P Shares Basic and diluted earnings (loss) per common
share $ 0.08 $ (0.32 ) $ 0.25 $ 0.10 Basic
weighted average common shares outstanding (1) 2,230 2,229
2,230 2,187 Diluted weighted average common
shares outstanding (1) 2,230 2,229 2,230 2,193
Declared dividend per common share $
0.125 $ 0.125 $
0.500 $ 1.605 Segment
EBDA
%
change
%
change
Natural Gas Pipelines $ 706 $ 127 456 % $ 3,204 $ 3,063 5 % CO2 219
52 321 % 825 657 26 % Terminals 205 51 302 % 1,036 849 22 %
Products Pipelines 307 289 6 % 1,072 1,100 (3 )% Kinder Morgan
Canada 38 43 (12 )% 161 163 (1 )% Other (3 ) 2 (250 )% (14 )
(53 ) 74 %
Total Segment EBDA $ 1,472
$ 564 161 %
$ 6,284
$ 5,779 9 %
Note
(1)
For all periods presented, all potential
common share equivalents were antidilutive, except for the year
ended December 31, 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
December 31,
Year Ended
December 31,
2016 2015
%
change
2016 2015
%
change
Segment EBDA before certain items (1) Natural Gas Pipelines $ 984 $
1,098 (10 )% $ 4,029 $ 4,125 (2 )% CO2 238 292 (18 )% 917 1,141 (20
)% Terminals 296 257 15 % 1,133 1,055 7 % Product Pipelines 308 289
7 % 1,185 1,096 8 % Kinder Morgan Canada 38 43 (12 )% 161 163 (1 )%
Other (3 ) 5 (160 )% (22 ) (18 ) (22 )% Subtotal 1,861 1,984
(6 )% 7,403 7,562 (2 )% DD&A and amortization of excess
investments (571 ) (596 ) (2,268 ) (2,360 ) General and
administrative (1) (2) (147 ) (143 ) (640 ) (628 ) Interest, net
(1) (3) (476 ) (517 ) (2,002 ) (2,082 ) Subtotal 667 728
2,493 2,492 Corporate book taxes (4)
(213 ) (237 ) (839 ) (843 ) Certain items Acquisition related costs
(5) (1 ) (5 ) (13 ) (19 ) Pension plan net benefit — 7 — 35 Fair
value amortization 37 22 143 94 Contract early termination revenue
— 200 57 200 Legal and environmental reserves (6) 71 (16 ) 16 (94 )
Mark to market and ineffectiveness (7) (52 ) (23 ) (75 ) 139 Loss
on impairment of goodwill — (1,150 ) — (1,150 ) Losses on
impairments and divestitures, net (8) (343 ) (427 ) (848 ) (943 )
Project write-offs (1 ) (32 ) (171 ) (32 ) Other (2 ) (7 ) (24 )
(11 ) Subtotal certain items before tax (291 ) (1,431 ) (915 )
(1,781 ) Book tax certain items (9) 52 204 (18 ) 340
Total certain items (239 ) (1,227 ) (933 ) (1,441 ) Net
income (loss) 215 (736 ) 721 208 Net (income) loss attributable to
noncontrolling interests (6 ) 41 (13 ) 45 Preferred stock dividends
(39 ) (26 ) (156 ) (26 )
Net income (loss) available to common
stockholders $ 170 $ (721
) $ 552 $ 227
Net income (loss) available to common stockholders $ 170 $
(721 ) $ 552 $ 227 Total certain items 239 1,227 933 1,441
Noncontrolling interests certain item (10) 1 (43 ) (8 ) (63
) Net income available to common stockholders before certain items
410 463 1,477 1,605 DD&A and amortization of excess investments
(11) 656 679 2,617 2,683 Total book taxes (12) 248 263 993 976 Cash
taxes (13) (18 ) (13 ) (79 ) (32 ) Other items (14) 12 9 43 32
Sustaining capital expenditures (15) (161 ) (168 ) (540 ) (565 )
DCF $ 1,147 $ 1,233
$ 4,511 $ 4,699
Weighted average common shares outstanding for dividends (16) 2,239
2,236 2,238 2,200 DCF per common share $ 0.51 $ 0.55 $ 2.02 $ 2.14
Declared dividend per common share $ 0.125 $ 0.125 $ 0.500 $ 1.605
Adjusted EBITDA (17) $ 1,830 $ 1,947 $ 7,245 $ 7,372
Notes ($
million)
(1)
Excludes certain items:
4Q 2016 - Natural Gas Pipelines $(278),
CO2 $(19), Terminals $(91), Products Pipelines $(1), general and
administrative $37, interest expense $53.
4Q 2015 - Natural Gas Pipelines $(971),
CO2 $(240), Terminals $(206), Other $(3), general and
administrative $2, interest expense $(13).
YTD 2016 - Natural Gas Pipelines $(825),
CO2 $(92), Terminals $(97), Products Pipelines $(113), Other $8,
general and administrative $5, interest
expense $193.
YTD 2015 - Natural Gas Pipelines $(1,062),
CO2 $(484), Terminals $(206), Products Pipelines $4, Other $(35),
general and administrative $(25),
interest expense $27.
(2)
General and administrative expense is net
of management fee revenues from an equity investee:
4Q 2016 - $(9)
4Q 2015 - $(9)
YTD 2016 - $(34)
YTD 2015 - $(37)
(3)
Interest expense excludes interest income
that is allocable to the segments:
4Q 2016 - Products Pipelines $(1), Other
$2.
4Q 2015 - Other $3.
YTD 2016 - Other $3.
YTD 2015 - Products Pipelines $2, Other
$2.
(4)
Corporate book taxes exclude book tax
certain items not allocated to the segments of $60 in 4Q 2016, $204
in 4Q 2015, $(12) YTD 2016, and $340
YTD 2015. Also excludes income tax that is
allocated to the segments:
4Q 2016 - Natural Gas Pipelines $(2),
Terminals $(17), Products Pipelines $2, Kinder Morgan Canada
$(3).
4Q 2015 - Natural Gas Pipelines $1, CO2
$2, Terminals $(8), Products Pipelines $(1), Kinder Morgan Canada
$(4).
YTD 2016 - Natural Gas Pipelines $(7), CO2
$(2), Terminals $(42), Products Pipelines $5, Kinder Morgan Canada
$(20).
YTD 2015 - Natural Gas Pipelines $(4), CO2
$(1), Terminals $(29), Products Pipelines $(8), Kinder Morgan
Canada $(19).
(5) Acquisition related costs for closed or pending
acquisitions.
(6) Legal reserve adjustments related
to certain litigation and environmental matters.
(7)
Gains or losses in our DCF are reflected when realized.
(8)
Includes the following non-cash
impairments:
4Q 2016 and YTD 2016 include a $250
million impairment of our equity investment in Ruby Pipeline,
L.L.C. YTD 2016 also includes a $350 million impairment of our
equity investment in Midcontinent Express Pipeline LLC. 4Q 2015 and
YTD 2015 includes $235 million and $632 million of CO2 long lived
asset impairments primarily related to our Goldsmith oil and gas
field and CO2 source and transportation projects. Also, 4Q 2016, 4Q
2015, YTD 2016 and YTD 2015 amounts include net (gains)/losses of
$(2), $25, $22 and $26, respectively, primarily related to
impairments and disposals of long-lived assets recorded by our
equity investees that are included within the Earnings from equity
investments amounts on the Preliminary Statements of Income.
(9) 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:
4Q 2016 - $85
4Q 2015 - $83
YTD 2016 - $349
YTD 2015 - $323
(12)
Excludes book tax certain items and
includes book tax allocated to the segments. Also, includes KMI's
share of taxable equity investees' book tax expense:
4Q 2016 - $23
4Q 2015 - $16
YTD 2016 - $94
YTD 2015 - $72
(13)
YTD 2015 excludes a $195 million income
tax refund received. Includes KMI's share of taxable equity
investees' cash taxes:
4Q 2016 - $(17)
4Q 2015 - $(11)
YTD 2016 - $(76)
YTD 2015 - $(19)
(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):
4Q 2016 - $(24)
4Q 2015 - $(20)
YTD 2016 - $(90)
YTD 2015 - $(70)
(16) Includes restricted stock awards that
participate in common share dividends and dilutive effect of
warrants, as applicable.
(17)
Adjusted EBITDA is net income (loss)
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 book tax allocated to the segments and KMI’s share
of 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
December 31,
Year Ended
December 31,
2016 2015 2016
2015 Net income (loss) $ 215 $ (736 ) $ 721 $ 208 Total
certain items 239 1,227 933 1,441
Net income attributable to noncontrolling
interests before certain items
(5 ) (2 ) (21 ) (18 ) DD&A and amortization of excess
investments (see (11) above) 656 678 2,617 2,683 Book taxes (see
(12) above) 249 263 993 976 Interest, net (see (1) and (3) above)
476 517 2,002 2,082 Adjusted EBITDA $
1,830 $ 1,947 $ 7,245 $ 7,372
Volume Highlights
(historical pro forma for acquired
assets)
Three Months Ended
December 31,
Year Ended
December 31,
2016 2015 2016
2015 Natural Gas Pipelines Transport
Volumes (BBtu/d) (1) (2) 27,897 28,552 28,095 28,196 Sales Volumes
(BBtu/d) (3) 2,288 2,428 2,335 2,419 Gas Gathering Volumes (BBtu/d)
(2) (4) 2,749 3,498 2,970 3,540 Crude/Condensate Gathering Volumes
(MBbl/d) (2) (5) 285 339 308 340 CO2 Southwest Colorado
Production - Gross (Bcf/d) (6) 1.27 1.26 1.20 1.23 Southwest
Colorado Production - Net (Bcf/d) (6) 0.65 0.63 0.61 0.60 Sacroc
Oil Production - Gross (MBbl/d) (7) 28.13 31.75 29.32 33.76 Sacroc
Oil Production - Net (MBbl/d) (8) 23.43 26.45 24.43 28.12 Yates Oil
Production - Gross (MBbl/d) (7) 17.91 19.17 18.37 19.00 Yates Oil
Production - Net (MBbl/d) (8) 7.96 9.25 8.17 8.47 Katz, Goldsmith,
and Tall Cotton Oil Production - Gross (MBbl/d) (7) 7.45 6.03 7.01
5.71 Katz, Goldsmith, and Tall Cotton Oil Production - Net (MBbl/d)
(8) 6.27 5.08 5.90 4.80 NGL Sales Volumes (MBbl/d) (9) 10.46 10.41
10.31 10.35 Realized Weighted Average Oil Price per Bbl (10) $
62.30 $ 72.86 $ 61.52 $ 73.11 Realized Weighted Average NGL Price
per Bbl $ 22.25 $ 16.56 $ 17.91 $ 18.35 Terminals Liquids
Leasable Capacity (MMBbl) 87.8 81.5 87.8 81.5 Liquids Utilization %
94.8 % 93.6 % 94.8 % 93.6 % Bulk Transload Tonnage (MMtons) (11)
15.4 14.3 61.8 63.2 Ethanol (MMBbl) 17.8 15.8 66.7 63.1
Products Pipelines Pacific, Calnev, and CFPL (MMBbl) Gasoline (12)
71.9 71.9 290.3 287.8 Diesel 25.8 27.4 106.6 108.3 Jet Fuel 23.1
22.1 92.9 89.0 Sub-Total Refined
Product Volumes - excl. Plantation 120.8 121.4 489.8 485.1
Plantation (MMBbl) (13) Gasoline 21.5 21.6 84.0 81.1 Diesel 4.4 4.8
18.3 20.8 Jet Fuel 3.1 3.3 12.3 14.1
Sub-Total Refined Product Volumes - Plantation 29.0 29.7 114.6
116.0 Total (MMBbl) Gasoline (12) 93.4 93.5 374.3 368.9 Diesel 30.2
32.2 124.9 129.1 Jet Fuel 26.2 25.4 105.2
103.1 Total Refined Product Volumes 149.8 151.1 604.4 601.1
NGLs (MMBbl) (14) 10.8 9.2 39.7 38.6 Crude and Condensate (MMBbl)
(15) 30.7 28.8 118.3 99.7 Total
Delivery Volumes (MMBbl) 191.3 189.1 762.4 739.4 Ethanol (MMBbl)
(16) 10.3 10.3 41.3 41.4 Trans Mountain (MMBbls - mainline
throughput) 27.1 28.6 115.2 115.4 (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)
December 31, 2016
2015 ASSETS Cash and cash equivalents $ 684 $
229 Other current assets 2,545 2,595 Property, plant and equipment,
net 38,705 40,547 Investments 7,027 6,040 Goodwill 22,152 23,790
Deferred charges and other assets 9,192 10,903
TOTAL ASSETS $ 80,305 $
84,104 LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities Short-term debt $ 2,696 $ 821 Other current
liabilities 3,236 3,244 Long-term debt 36,105 40,632 Preferred
interest in general partner of KMP 100 100 Debt fair value
adjustments 1,149 1,674 Other 2,217 2,230 Total
liabilities 45,503 48,701
Shareholders’ Equity
Other shareholders’ equity 35,092 35,580 Accumulated other
comprehensive loss (661 ) (461 ) Total KMI equity 34,431 35,119
Noncontrolling interests 371 284 Total shareholders’
equity 34,802 35,403
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY $ 80,305 $
84,104 Net Debt (1) $
38,160 $ 41,224
Adjusted EBITDA
Twelve Months Ended
December 31, Reconciliation of Net Income to Adjusted
EBITDA (2) 2016 2015 Net income $ 721 $ 208 Total
certain items 933 1,441
Net income attributable to noncontrolling
interests before certain items
(21 ) (18 ) DD&A and amortization of excess investments 2,617
2,683 Book taxes 993 976 Interest, net 2,002 2,082
Adjusted EBITDA $ 7,245 $
7,372 Net Debt to Adjusted EBITDA
5.3 5.6
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 $(43)
million and less than $1 million as of December 31, 2016 and 2015,
respectively, as we have entered into swaps to convert that debt to
US$. (2)
Adjusted EBITDA is net 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
book 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170118006082/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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