Remains on Track to Return Value to
Stockholders in 2018
Kinder Morgan, Inc. (NYSE: KMI) today announced that its board
of directors approved a cash dividend of $0.125 per share for the
third quarter ($0.50 annualized) payable on November 15, 2017, to
common stockholders of record as of the close of business on
October 31, 2017. KMI continues to expect to declare dividends of
$0.50 per share for 2017 before increasing the dividend to $0.80
per share for 2018 ($0.20 per share for Q1 2018). KMI also
continues to expect to use cash in excess of dividend payments to
fully fund growth investments, further strengthening its balance
sheet.
“We remain on track to return increasing value to stockholders
in 2018 through the combination of an attractive and growing
dividend as well as the share repurchase program we announced last
quarter. Our goal of maintaining robust dividend coverage while
delivering a substantial dividend increase to stockholders out of
operating cash flows in excess of growth capital remains clearly in
sight,” said Richard D. Kinder, executive chairman.
“At the same time, we continue the important work of
strengthening our balance sheet, continuing to fund all growth
capital through operating cash flows with no need for external
funding for growth capital,” said Kinder. “We continue to expect to
end 2017 at a 5.2 times Net Debt-to-Adjusted EBITDA ratio, lower
than our budget, and are confident of achieving our longer term
leverage target of approximately 5.0 times. We are extremely
pleased with the company’s financial strength and operational
excellence.”
President and CEO Steve Kean said, “We had a solid third
quarter, especially in the face of multiple named storms, including
a historic rainfall event associated with Hurricane Harvey.
Hundreds of our employees and their families were affected by these
storms, but they and the assets they operate proved resilient and
strong. Our response was robust and impacts on our customers and
operations were minimized. We generated earnings per common share
for the quarter of $0.15 and distributable cash flow (DCF) of $0.47
per common share, resulting in $774 million of excess DCF above our
dividend.”
Kean added, “We continue to drive future growth by completing
significant infrastructure development projects that we track as
part of our project backlog. Our current project backlog is
essentially flat quarter-to-quarter at $12.0 billion, with the
small decrease primarily due to projects going into service.
Excluding the CO2 segment projects, we expect the projects in our
backlog to generate an average capital-to-EBITDA multiple of
approximately 6.8 times.”
KMI reported third quarter net income available to common
stockholders of $334 million, compared to a net loss available to
common stockholders of $227 million for the third quarter of 2016,
and DCF of $1,055 million, down slightly from $1,081 million for
the comparable period in 2016. The decrease in DCF was driven by:
lower contributions from Southern Natural Gas Company (SNG) as a
result of the 50 percent sale of SNG during the third quarter of
2016; reduced revenue due to Hurricane Harvey; a contribution to
KMI’s pension plan; a reduction in contributions from KMI’s
Canadian assets due to the successful second quarter initial public
offering (IPO) of Kinder Morgan Canada Limited (KML); and higher
sustaining capex. These reductions were partially offset by lower
interest expense and higher contributions from Tennessee Gas
Pipeline (TGP). Net income available to common stockholders was
also impacted by a $576 million favorable change in total Certain
Items (as described under “Non-GAAP Financial Measures” below)
compared to the third quarter of 2016. Third quarter 2016 Certain
Items were driven in part by an asset write-down in that
quarter.
For the first nine months of 2017, KMI reported net income
available to common stockholders of $1,072 million, up
substantially compared to $382 million for the first nine months of
2016, and DCF of $3,292 million that was down from $3,364 million
for the comparable period in 2016. The decrease in DCF was driven
by the sale of 50 percent of SNG, the impacts of Harvey, the
contribution to KMI’s pension plan, the KML IPO, and higher
sustaining capex, partially offset by lower interest expense and
lower general and administrative expenses. Net income available to
common stockholders was also impacted by a $764 million decrease in
total Certain Items compared to the first nine months of 2016.
Certain Items in the first nine months of 2016 were driven by an
asset write-down and project write-offs.
2017 Outlook
For 2017, KMI’s budget was set to declare dividends of $0.50 per
common share, achieve DCF of approximately $4.46 billion ($1.99 per
common share) and Adjusted EBITDA of approximately $7.2 billion.
KMI also budgeted to invest $3.2 billion in growth projects during
2017, to be funded with internally generated cash flow without the
need to access equity markets, and to end the year with a Net
Debt-to-Adjusted EBITDA ratio of approximately 5.4 times.
As a result of the successful IPO of its Canadian assets and
impacts from Hurricane Harvey, KMI now expects to end the year
with: a Net Debt-to-Adjusted EBITDA ratio of approximately 5.2
times, as proceeds from the KML IPO were used to pay down debt;
growth capital investment of $3.1 billion; and DCF less than 1
percent below budget. The $3.1 billion in growth capital does not
include KML-related expansion capex as KML is a self-funding entity
and KMI does not anticipate making further contributions. Excluding
the full-year impacts of KMI’s sale of a 30 percent interest in its
Canadian assets in the IPO (approximately $22 million) and
Hurricane Harvey, DCF is forecasted to be on plan. KMI estimates
that Hurricane Harvey will have a 2017 DCF impact of approximately
$20 million, excluding repair costs that are treated as Certain
Items. KMI expects that these repair costs, both those incurred in
the third quarter and those expected to be incurred in the fourth
quarter, will largely be recovered from insurance proceeds. KMI
does not provide budgeted net income attributable to common
stockholders (the GAAP financial measure most directly comparable
to DCF and Adjusted EBITDA) due to the 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, consistent with forward pricing during
the company’s budget process. The vast majority of cash KMI
generates is fee-based and therefore not directly exposed to
commodity prices. The primary area where KMI has commodity price
sensitivity is in its CO2 segment, with the majority of the
segment’s next 12 months of oil and NGL production hedged to
minimize this sensitivity. The segment is currently hedged for
34,200 barrels per day (Bbl/d) at $58.91/Bbl for the remainder of
the year, as well as 23,532 Bbl/d at $59.03/Bbl in 2018; 13,100
Bbl/d at $55.34/Bbl in 2019; 7,300 Bbl/d at $53.08/Bbl in 2020; and
2,400 Bbl/d at $52.45/Bbl in 2021.
Overview of Business
Segments
“The Natural Gas Pipelines segment’s performance for the
third quarter of 2017 relative to the third quarter of 2016 was
impacted by the third quarter 2016 sale of a 50 percent interest in
SNG, Harvey-related and other declines from reduced volumes on many
of our midstream gathering and processing assets, and a negative
impact on our Colorado Interstate Gas Company (CIG) pipeline tariff
rates as a result of a rate case settlement reached during 2016.
The segment again benefited from increased contributions from TGP
driven by incremental short-term capacity sales and projects placed
in service; from the Elba Express pipeline, resulting from the
completion of an expansion project; and from El Paso Natural Gas
(EPNG) due to additional Permian capacity sales and the completion
of an expansion project,” Kean said.
Natural gas transport volumes were up 3 percent compared to the
third quarter of 2016, driven by higher throughput on the Texas
Intrastate Natural Gas Pipelines from incremental transportation
contracts serving Mexico and contracts going into effect after the
third quarter of 2016, as well as higher throughput on EPNG as
noted above, and higher throughput on Elba Express resulting from
the expansion on that system. The increases were partially offset
by lower throughput on TransColorado, due to lower Rockies
production, on Cheyenne Plains due to mild weather and fuel
switching to coal, and on Citrus, also due to mild weather. Natural
gas gathering volumes were down 14 percent from the third quarter
of 2016 due primarily to Hurricane Harvey impacts and to lower
natural gas volumes on multiple systems gathering from the Eagle
Ford Shale and on the KinderHawk system.
Natural gas is critical to the American economy and to meeting
the world’s evolving energy and manufacturing needs. Objective
analysts project U.S. natural gas demand, including net exports of
liquefied natural gas (LNG) and net exports to Mexico, will
increase by more than 30 percent to greater than 100 billion cubic
feet per day (Bcf/d) by 2026. Of the natural gas consumed in the
U.S., about 40 percent moves on KMI pipelines. While a substantial
majority of natural gas is consumed in industrial, commercial and
residential heating uses, KMI expects future natural gas
infrastructure opportunities will also be driven by greater demand
for gas-fired power generation across the country, LNG exports,
exports to Mexico, and continued industrial development,
particularly in the petrochemical industry. Compared to the third
quarter of 2016, natural gas deliveries on KMI pipelines to Mexico
were up 3 percent, and despite some reductions due to Hurricane
Harvey, deliveries to the Sabine Pass LNG facility increased by 37
percent.
“The CO2 segment was impacted by lower commodity
prices, as our realized weighted average oil price for the quarter
was $58.29 per barrel compared to $62.12 per barrel for the third
quarter of 2016,” Kean said. “Combined oil production across all of
our fields was down 1 percent compared to 2016 on a net to Kinder
Morgan basis. Third quarter 2017 net NGL sales volumes of 9.6
thousand barrels per day (MBbl/d) were down 9 percent from 2016,
due to lower hydrocarbon content in the produced gas stream year
over year.”
Combined gross oil production volumes averaged 52.9 MBbl/d for
the third quarter, down 1 percent from 53.7 MBbl/d for the same
period last year. SACROC’s third quarter gross production was 5
percent below third quarter 2016 results but slightly above 2017
budget, and Yates gross production was 4 percent below third
quarter 2016 results and below plan. Both decreases were partially
driven by reallocating capital to higher return projects with
longer lead times. Third quarter gross production from Katz,
Goldsmith and Tall Cotton was 21 percent above the same period in
2016, but below plan. Gross NGL sales volumes were 20 MBbl/d during
the quarter, 8 percent below third quarter 2016.
“The Terminals segment earnings contributions were
essentially flat compared to the third quarter of 2016 despite
several strategic divestitures and operational disruptions
associated with Hurricane Harvey. Excluding these items, the
segment’s earnings would have been higher in the third quarter 2017
by approximately $20 million.
Growth in the liquids business during the quarter versus the
third quarter of 2016 was primarily driven by increased
contributions from our Jones Act tankers and also benefited from
various expansions across our network, including the Kinder Morgan
Export Terminal, a 1.5 million-barrel liquids terminal development
along the Houston Ship Channel,” Kean said. A new-build Jones Act
tanker, the American Liberty, was placed on-hire with a major
refiner in the third quarter. All of KMI’s Jones Act tankers are
contracted with major energy customers under term charter
agreements.
The bulk terminals contribution was down largely due to the
impact of certain non-core asset divestitures and disruptions to
petcoke handling operations servicing Gulf Coast refiners impacted
by Hurricane Harvey, while performance at our coal and steel
handling operations continues to benefit from stabilizing global
market conditions.
“The Products Pipelines segment contributions were up
compared with third quarter 2016 performance due largely to
increased throughput on SFPP and Kinder Morgan Southeast
Terminals,” Kean said.
Total refined products volumes were up 1 percent for the third
quarter versus the same period in 2016. Crude and condensate
pipeline volumes were significantly impacted by Hurricane Harvey,
down 8 percent from the third quarter of 2016.
Kinder Morgan Canada contributions were up in the third
quarter of 2017 compared to the third quarter of 2016 largely due
to currency translation gains on strengthening of the Canadian
dollar. The business also had higher capitalized equity financing
costs (recognized in other income) due to spending on the Trans
Mountain expansion project. These positives were partially offset
by lower Washington state revenues and timing of operating
costs.
Kinder Morgan Canada Limited (KML) includes the Trans Mountain
pipeline, the Canadian portion of the Cochin pipeline, the Puget
Sound and Trans Mountain Jet Fuel pipelines, the Westridge marine
and Vancouver Wharves terminals in British Columbia as well as
various crude oil loading facilities in Edmonton, Alberta. KMI owns
approximately 70 percent of KML and KML’s results are consolidated
in KMI financial statements and reported on a 100 percent basis at
the segment level.
Other News
Natural Gas Pipelines
- On Sept. 18, 2017, the Federal Energy
Regulatory Commission (FERC) authorized the company to install its
10 modular liquefaction trains for the nearly $2 billion Elba
Liquefaction Project at KMI’s existing Southern LNG Company
facility at Elba Island near Savannah, Georgia. The federally
approved liquefaction project is supported by a 20-year contract
with Shell. Initial in-service is expected in mid-2018. Final units
coming on line by mid-2019 will bring total liquefaction capacity
to approximately 2.5 million tonnes per year of LNG,
equivalent to approximately 350 million cubic feet per day of
natural gas. Elba Liquefaction Company, L.L.C. (ELC), a KMI joint
venture with EIG Global Energy Partners as a 49 percent partner,
will own 10 liquefaction units and other ancillary equipment
comprising approximately 70 percent of the project. Certain other
facilities associated with the project are 100 percent owned by
KMI.
- On Aug. 18, 2017, the FERC issued a
favorable environmental assessment for the approximately $240
million SNG Fairburn Expansion Project in Georgia. SNG is a joint
venture equally owned by subsidiaries of KMI and Southern Company.
The project is designed to provide approximately 340,000 dekatherms
per day (Dth/d) of incremental long-term firm natural gas
transportation capacity into the Southeast market beginning in the
fourth quarter of 2018.
- On July 28, 2017, the FERC issued
Kinder Morgan Louisiana Pipeline (KMLP) an environmental assessment
for its proposed project to provide 600,000 Dth/d of capacity to
serve Train 5 at Cheniere’s Sabine Pass LNG Terminal. The
approximately $122 million KMLP project is expected to be placed
into service in the fourth quarter of 2019.
- All critical path permits have been
approved and significant work is underway on TGP’s Broad Run
Expansion Project, which is expected to be placed in service in
June 2018. The project will provide an incremental 200,000 Dth/d of
firm transportation capacity along the same north-south path as the
already in-service Broad Run Flexibility Project. Antero Resources
was awarded a total of 790,000 Dth/d of 15-year firm capacity under
the two projects from a receipt point on TGP’s existing Broad Run
Lateral in West Virginia to delivery points in Mississippi and
Louisiana. Estimated capital expenditures for the combined projects
total approximately $800 million.
- TGP’s approximately $128 million
Susquehanna West Project was placed into commercial service ahead
of schedule on Sept. 1, 2017. The project provides 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.
- Construction is nearly complete on
three TGP projects following required regulatory approvals. The
following projects are expected to be placed into service in the
fourth quarter of 2017:
- The approximately $99 million
Connecticut Expansion Project is fully subscribed and will provide
72,100 Dth/d of capacity for three local distribution company
customers in the Northeast. The project is expected to be placed
into service in November 2017.
- The approximately $109 million Orion
Project will provide 135,000 Dth/d of capacity for three customers
and is ahead of schedule. TGP has reached agreement with the
project customers for early in-service which is anticipated as
early as December 2017.
- The approximately $59 million Triad
Project will provide 180,000 Dth/d of capacity for one customer and
is ahead of schedule. TGP anticipates that the project facilities
will be available for service in November 2017, with commercial
contracts in service on June 1, 2018, as originally planned.
- On Oct. 4, 2017, Kinder Morgan Texas
Pipeline (KMTP), DCP Midstream and an affiliate of Targa Resources
Corp. announced they have signed a letter of intent with respect to
the joint development of the proposed Gulf Coast Express Pipeline
Project (GCX Project), which would provide an outlet for increased
natural gas production from the Permian Basin to growing markets
along the Texas Gulf Coast. The participation of the three parties
involved with the GCX Project is subject to negotiation and
execution of definitive agreements among KMTP, DCP Midstream and
Targa. As part of the definitive agreements, Targa and DCP
Midstream would commit significant volumes to the project,
including certain volumes provided by Pioneer Natural Resources
Company, a joint owner in Targa’s WestTX Permian Basin system. The
capacity of the GCX Project is expected to be approximately 1.92
Bcf/d and would include a lateral into the Midland Basin to serve
gas processing facilities owned by Targa as well as facilities
owned jointly by Targa and Pioneer. The mostly 42-inch pipeline
would traverse approximately 450 miles and be in service in the
second half of 2019, pending final shipper commitments and a final
investment decision by all three entities. Per the terms of the
letter of intent, KMI would build, operate and own a 50 percent
interest in the GCX Project, and DCP Midstream and Targa would each
hold a 25 percent equity interest in the project.
- Natural Gas Pipeline of America LLC
(NGPL) expects the FERC to issue a Certificate of Public
Convenience and Necessity for NGPL’s approximately $212 million
Gulf Coast Southbound Expansion Project by the end of the year. The
project, which is fully subscribed under long-term 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. The project is anticipated to be fully in service by the
fourth quarter of 2018.
- NGPL and Wyoming Interstate Company,
LLC (WIC) each submitted to the FERC an Offer of Settlement in
separate proceedings pursuant to Section 5 of the Natural Gas Act.
The presiding administrative law judge in both proceedings
certificated the settlements as uncontested, and the companies
expect FERC approval by the end of the year. As currently
negotiated, the settlements would not have a material adverse
impact on KMI’s results of operations or cash flows from
operations.
CO2
- The approximately $66 million second
phase of KMI’s Tall Cotton field project is more than 70 percent
complete and is experiencing strong initial production results of
over 900 Bbls/d of oil. Tall Cotton is the industry’s first
greenfield Residual Oil Zone CO2 project, marking the first time
CO2 has been used for enhanced oil recovery in a field without a
main pay zone. Total combined production from the first and second
phases of the project currently exceeds 2,300 Bbls/d of oil.
- KMI continues to find high-return
enhanced oil recovery projects in the current price environment
across its robust portfolio of assets.
Terminals
- Construction continues at the Base Line
Terminal, a 50-50 joint venture crude oil merchant storage terminal
being developed in Edmonton, Alberta, Canada, by KML and Keyera. In
the third quarter, on-site facility mechanical work was materially
completed and significant progress was made on the off-site pipe
rack and bridges required to connect the terminal with KML’s other
Edmonton-area facilities, including its North 40, Edmonton South,
and Edmonton Rail terminals. Commissioning of the 12-tank, 4.8
million barrel new-build facility, which is fully contracted with
long-term, firm take-or-pay agreements with creditworthy customers,
is expected to begin in the first quarter of 2018, with tanks
phased into service throughout that year. KML’s investment in the
joint venture terminal is approximately C$396 million, including
costs associated with the construction of a pipeline segment funded
solely by KML, with total spend to date of C$250 million and
remaining spend in 2017 of C$33 million. The project is forecast to
be on schedule and on budget.
- Work is nearing completion on the Pit
11 expansion project at KMI’s Pasadena terminal. The approximately
$186 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. Due to impacts from Hurricane Harvey, the
company revised its tank commissioning schedule to place the first
four tanks in-service by mid-November 2017, with the balance
expected to follow by the end of the year.
- On July 27, 2017, KMI’s American
Petroleum Tankers (APT) took delivery of the American Liberty
product tanker from Philly Shipyard, Inc. (PSI) and later in the
third quarter placed the vessel on-hire pursuant to a term charter
agreement with a major refiner. APT’s construction program at PSI
is nearing completion with the final tanker scheduled for delivery
in the fourth quarter of 2017, bringing APT’s best-in-class fleet
to 16 vessels. The entire fleet, including each of the
330,000-barrel capacity and LNG conversion-ready new-build tankers,
is fixed under charter with a major energy company.
- On July 21, 2017, KMI closed the sale
of a 40 percent interest in the Deeprock Development (Deeprock)
crude oil terminal in Cushing, Oklahoma to Tallgrass Terminals, LLC
(Tallgrass Terminals), an affiliate of Tallgrass Energy Partners,
LP (Tallgrass), for a purchase price of approximately $57 million.
KMI retains an 11 percent membership interest in the
2.25-million-barrel facility, and Tallgrass Terminals (69 percent)
and Deeprock Energy Resources (20 percent) remain joint venture
partners. Concurrent with the closing, Tallgrass Pony Express
Pipeline, a separate affiliate of Tallgrass, entered into an
amended commercial agreement with Deeprock, extending the term of
its contracted, take-or-pay throughput commitment to the terminal
by five years to October 2024.
Products Pipelines
- KMI is ahead of schedule in building
the approximately $540 million Utopia Pipeline Project. The company
will begin commissioning in November and has revised its expected
in-service date to December 2017. The Utopia Pipeline will have an
initial design capacity of 50,000 Bbls/d, and will move ethane from
Ohio to Windsor, Ontario, Canada. The project is fully supported by
a long-term, fee-based transportation agreement with a
petrochemical customer.
Kinder Morgan Canada
- On Aug. 15, 2017, KML completed its
offering of Series 1 cumulative redeemable minimum rate reset
preferred shares (Series 1 Preferred Shares). KML issued 12 million
Series 1 Preferred Shares for aggregate net proceeds of C$293
million. The transaction was upsized from a base size of eight
million shares as a result of strong investor demand.
- KML continues to move forward with its
C$7.4 billion Trans Mountain expansion project (TMEP). TMEP
commenced limited construction at the Westridge Terminal facilities
in September 2017. Clearing on key sections of the pipeline right
of way is planned for the fourth quarter of 2017. As of the end of
the third quarter, KML has spent a cumulative C$779 million on the
project.
- There are two judicial reviews underway
in the British Columbia Supreme Court with respect to the province
of British Columbia’s TMEP environmental certificate (TMEP BCEAO).
Hearings are scheduled in October and November 2017. Separate
judicial reviews pending in the Federal Court of Appeal (FCA)
challenging the process leading to the federal government’s
approval of TMEP were consolidated and heard by the court from Oct.
2 to Oct. 13, 2017. After provincial elections in British Columbia
on May 9, 2017, and a subsequent non-confidence vote on the Liberal
Throne speech, the NDP and Green Party formed a majority
government. The new BC government sought and was granted limited
intervenor status in the Federal Court of Appeal proceedings to
argue against the government’s approval of the project. On Sept.
29, 2017, the BC government filed evidence in support of the TMEP
BCEAO approval in one of the provincial proceedings. Decisions from
the courts are expected in the coming months. KMI is confident that
the National Energy Board, the Federal Government and the BC
Government assessed and weighed the various scientific and
technical evidence through a comprehensive review process, while
taking into consideration varying interests on the Project. The
approvals granted followed many years of engagement and
consultation with communities, Aboriginal groups and
individuals.
- TMEP was approved by Order in Council
on Dec. 1, 2016, with 157 conditions. The Province of BC stated its
approval of the Project on Jan. 11, 2017, with 37 conditions. Trans
Mountain has made about 120 filings with the NEB with respect to
the 157 federal conditions. Trans Mountain has also made filings
with the government of BC with respect to all of the provincial
conditions consistent with our schedule. Trans Mountain is now in
receipt of a number of priority permits from regulatory authorities
in Alberta and British Columbia, including access to British
Columbia northern interior Crown lands. Pending receipt of some
further permits and approvals, clearing and other construction
activities will commence this year in Alberta and the British
Columbia northern interior. This is a positive and welcome
development. Construction preparation activity is off to a slower
start than planned in the project schedule due primarily to the
time required to file for, process and obtain all necessary permits
and regulatory approvals. KML is assessing construction mitigation
plans that maintain the current in-service schedule of December 31,
2019. That planning, with TMEP contractors, will rely upon
continued progress towards schedule-critical regulatory approvals
and will assess the acceleration of construction activities that
are behind schedule. Absent this mitigation, project completion
could be delayed by up to nine months. All project planning and
schedule mitigation efforts include cost management measures and
spend control to maximize project returns, including a reduction in
2017 spend that has already been implemented.
Financing
- In August 2017, KMI issued $1 billion
of senior notes at a fixed rate of 3.15 percent and $250 million of
floating rate notes at a rate equal to three month LIBOR plus a
fixed spread of 1.28 percent due January 2023. KMI used the
proceeds from the issuance of the notes to repay existing
indebtedness and for general corporate purposes.
Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy
infrastructure companies in North America. It owns an interest in
or operates approximately 84,000 miles of pipelines and
155 terminals. KMI’s pipelines transport natural gas, refined
petroleum products, crude oil, condensate, CO2 and other products,
and its terminals transload and store petroleum products, ethanol
and chemicals, and handle such products as steel, coal and
petroleum coke. It is also a leading producer of CO2 that we and
others use for enhanced oil recovery projects primarily in the
Permian basin. For more information please visit
www.kindermorgan.com.
Please join Kinder Morgan, Inc. at 4:30 p.m. Eastern Time on
Wednesday, October 18, 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), net income before interest expense, taxes, DD&A
and Certain Items (Adjusted EBITDA), Adjusted Earnings and Adjusted
Earnings per common share 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 net
income available to common stockholders to DCF 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 (net of consolidating joint
venture partners’ share of DD&A) and book taxes, which are
specifically identified in the footnotes to the accompanying
tables.
Adjusted Earnings is used by
certain external users of our financial statements to assess the
earnings of our business excluding Certain Items as another
reflection of our business’s ability to generate earnings. We
believe the GAAP measure most directly comparable to Adjusted
Earnings is net income available to common stockholders. Adjusted
Earnings per share uses Adjusted Earnings and applies the same
two-class method used in arriving at Adjusted Earnings per common
share.
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, 2016
(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
September 30,
Nine Months Ended
September 30,
2017 2016 2017
2016 Revenues $ 3,281 $ 3,330
$ 10,073 $ 9,669 Costs, expenses and
other Costs of sales 1,029 971 3,200 2,454 Operations and
maintenance 587 576 1,636 1,744 Depreciation, depletion and
amortization 562 549 1,697 1,652 General and administrative 164 171
498 550 Taxes, other than income taxes 102 106 297 324 Loss on
impairments and divestitures, net 7 76 13 307 Other income, net —
(1 ) — — 2,451 2,448 7,341
7,031 Operating income 830 882 2,732 2,638
Other income (expense) Earnings from equity investments 167
137 477 343 Loss on impairments and divestitures of equity
investments, net — (350 ) — (344 ) Amortization of excess cost of
equity investments (15 ) (15 ) (45 ) (45 ) Interest, net (459 )
(472 ) (1,387 ) (1,384 ) Other, net 24 12 60
42 Income before income taxes 547 194 1,837 1,250
Income tax expense (160 ) (377 ) (622 ) (744 ) Net
income (loss) 387 (183 ) 1,215 506 Net income attributable
to noncontrolling interests (14 ) (5 ) (26 ) (7 ) Net income
(loss) attributable to Kinder Morgan, Inc. 373 (188 ) 1,189 499
Preferred stock dividends (39 ) (39 ) (117 ) (117 )
Net income (loss) available to common stockholders $
334 $ (227 ) $
1,072 $ 382 Class P
Shares Basic and diluted earnings (loss) per common share $
0.15 $ (0.10 ) $ 0.48 $ 0.17 Basic and
diluted weighted average common shares outstanding 2,231
2,230 2,230 2,229
Declared dividend
per common share $ 0.125 $
0.125 $ 0.375 $
0.375 Adjusted earnings per common share
(1) $ 0.15 $ 0.15
$ 0.45 $ 0.48
Segment EBDA
%
change
%
change
Natural Gas Pipelines $ 884 $ 542 63 % $ 2,846 $ 2,503 14 % CO2 197
217 (9 )% 636 608 5 % Terminals 314 294 7 % 925 856 8 % Products
Pipelines 302 292 3 % 913 761 20 % Kinder Morgan Canada 50
48 4 % 136 140 (3 )%
Total Segment EBDA
$ 1,747 $ 1,393 25 %
$ 5,456 $ 4,868 12 %
Note
(1)
Adjusted earnings per common share uses
adjusted earnings and applies the same two-class method used in
arriving at diluted
earnings per common
share. See the following page, Preliminary Earnings Contribution by
Business Segment, for a reconciliation
of net income available
to common stockholders to adjusted earnings.
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,
2017 2016
%
change
2017 2016
%
change
Segment EBDA before certain items (1) Natural Gas Pipelines $ 928 $
959 (3 )% $ 2,852 $ 3,050 (6 )% CO2 217 229 (5 )% 659 681 (3 )%
Terminals 296 293 1 % 897 864 4 % Product Pipelines 302 293 3 % 879
873 1 % Kinder Morgan Canada 50 48 4 % 136 140
(3 )% Subtotal 1,793 1,822 (2 )% 5,423 5,608 (3 )%
DD&A and amortization of excess investments (577 ) (564 )
(1,742 ) (1,697 ) General and administrative and corporate charges
(1) (2) (159 ) (163 ) (482 ) (513 ) Interest, net (1) (463 ) (503 )
(1,408 ) (1,524 ) Subtotal 594 592 1,791 1,874
Book taxes (1) (213 ) (205 ) (646 ) (674 ) Certain
items Acquisition and divestiture related costs — (4 ) (7 ) (12 )
Pension plan net benefit — — — — Fair value amortization 8 53 42
106 Contract and debt early termination (3) (7 ) 14 19 53 Legal and
environmental reserves (4) 11 1 43 (55 ) Change in fair market
value of derivative contracts (5) (32 ) (30 ) (27 ) (23 ) Losses on
impairments and divestitures, net (7 ) (426 ) (13 ) (505 ) Project
write-offs (6) — — — (170 ) Hurricane losses (9 ) — (9 ) — Other
(11 ) (6 ) (2 ) (18 ) Subtotal certain items before tax (47 ) (398
) 46 (624 ) Book tax certain items (7) 53 (172 ) 24
(70 ) Total certain items 6 (570 ) 70 (694 ) Net
income (loss) 387 (183 ) 1,215 506 Net income attributable to
noncontrolling interests (14 ) (5 ) (26 ) (7 ) Preferred stock
dividends (39 ) (39 ) (117 ) (117 )
Net income (loss) available
to common stockholders $ 334 $
(227 ) $ 1,072 $
382 Net income (loss) available to common
stockholders $ 334 $ (227 ) $ 1,072 $ 382 Total certain items (6 )
570 (70 ) 694 Noncontrolling interests certain item (8) — —
1 (9 ) Adjusted earnings 328 343 1,003 1,067 DD&A
and amortization of excess investments (9) 661 653 2,018 1,961
Total book taxes (10) 244 230 730 745 Cash taxes (11) (9 ) (22 )
(54 ) (61 ) Other items (12) (13 ) 11 11 31 Sustaining capital
expenditures (13) (156 ) (134 ) (416 ) (379 )
DCF $
1,055 $ 1,081 $
3,292 $ 3,364 Weighted average
common shares outstanding for dividends (14) 2,241 2,239 2,240
2,237 DCF per common share $ 0.47 $ 0.48 $ 1.47 $ 1.50 Declared
dividend per common share $ 0.125 $ 0.125 $ 0.375 $ 0.375
Adjusted EBITDA (15) $ 1,754 $ 1,768 $ 5,302 $ 5,413
Notes ($
million)
(1) Excludes certain items:3Q 2017 - Natural
Gas Pipelines $(44), CO2 $(20), Terminals $18, general and
administrative and corporate charges $(5), interest expense $4,
book tax $53.3Q 2016 - Natural Gas Pipelines $(417), CO2 $(12),
Terminals $1, Products Pipelines $(1), interest expense $31, book
tax $(172).YTD 2017 - Natural Gas Pipelines $(6), CO2 $(23),
Terminals $28, Products Pipelines $34, general and administrative
and corporate charges $(8), interest expense $21, book tax $24.YTD
2016 - Natural Gas Pipelines $(547), CO2 $(73), Terminals $(8),
Products Pipelines $(112), general and administrative and corporate
charges $(24), interest expense $140, book tax $(70).
(2) Includes corporate charges:3Q 2017 - $8YTD 2017 - $18YTD
2016 - $12General and administrative expense is also net of
management fee revenues from an equity investee:3Q 2017 - $(8)3Q
2016 - $(8)YTD 2017 - $(26)YTD 2016 - $(25)
(3)
Comprised of earnings recognized related
to the early termination of customer contracts, including earnings
from the sale of a contract termination
claim related to a customer bankruptcy,
partially offset by an equity investee loss on early termination of
debt.
(4) Legal reserve adjustments related to certain
litigation and environmental matters.
(5) Gains or
losses are reflected in our DCF when realized.
(6)
YTD 2016 includes $106 million of project write-offs associated
with our Northeast Energy Direct Market project and $64 million of
write-offs associated with our Palmetto project.
(7)
3Q and YTD 2017 include a $36 million
federal return-to-provision tax benefit as a result of the
recognition of an enhanced oil recovery credit instead
of deduction. 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.
(8) Represents noncontrolling interest share of
certain items.
(9) Includes KMI's share of certain
equity investees' DD&A, net of the KML noncontrolling
interest's DD&A and consolidating joint venture partners' share
of DD&A:3Q 2017 - $843Q 2016 - $89YTD 2017 - $276YTD 2016 -
$264
(10) Excludes book tax certain items. Also,
includes KMI's share of taxable equity investees' book tax
expense:3Q 2017 - $313Q 2016 - $25YTD 2017 - $84YTD 2016 - $71
(11) Includes KMI's share of taxable equity
investees' cash taxes:3Q 2017 - $(9)3Q 2016 - $(25)YTD 2017 -
$(54)YTD 2016 - $(59)
(12) All periods include
non-cash compensation associated with our restricted stock program.
3Q and YTD 2017 also include a pension contribution and the
noncontrolling interests portion of KML's book tax.
(13) Includes KMI's share of certain equity investees'
sustaining capital expenditures (the same equity investees for
which DD&A is added back):3Q 2017 - $(29)3Q 2016 - $(24)YTD
2017 - $(74)YTD 2016 - $(66)
(14) Includes restricted
stock awards that participate in common share dividends.
(15)
Adjusted EBITDA is net income before
certain items, less net income attributable to noncontrolling
interests before certain items (excluding KML),
plus DD&A (including KMI's share of
certain equity investees' DD&A, net of consolidating joint
venture partners' share of DD&A), book taxes
(including 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
September 30,
Nine Months Ended
September 30,
2017 2016 2017
2016 Net income (loss) $ 387 $ (183 ) $ 1,215 $ 506 Total
certain items (6 ) 570 (70 ) 694 Net income attributable to
noncontrolling interests before certain items (16) (3 ) (5 ) (11 )
(16 ) DD&A and amortization of excess investments, see notes
(9) (17) 669 653 2,030 1,960 Book taxes, see note (10) 244 230 730
745 Interest, net, see note (1) 463 503 1,408
1,524 Adjusted EBITDA $ 1,754 $ 1,768 $ 5,302
$ 5,413
(16) Excludes KML
noncontrolling interest:3Q 2017 - $11YTD 2017 - $14
(17)
Includes the noncontrolling interests portion of KML's DD&A:3Q
2017 - $9YTD 2017 - $12
Volume Highlights
(historical pro forma for acquired and
divested assets)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017 2016 2017
2016 Natural Gas Pipelines Transport Volumes (BBtu/d)
(1) 28,879 28,144 28,796 28,162 Sales Volumes (BBtu/d) (2) 2,181
2,438 2,329 2,350 Gas Gathering Volumes (BBtu/d) (3) 2,523 2,935
2,635 3,044 Crude/Condensate Gathering Volumes (MBbl/d) (4) 271 270
268 300 CO2 Southwest Colorado Production - Gross (Bcf/d)
(5) 1.23 1.20 1.29 1.18 Southwest Colorado Production - Net (Bcf/d)
(5) 0.57 0.62 0.62 0.60 Sacroc Oil Production - Gross (MBbl/d) (6)
27.46 28.92 27.73 29.72 Sacroc Oil Production - Net (MBbl/d) (7)
22.87 24.09 23.09 24.76 Yates Oil Production - Gross (MBbl/d) (6)
17.08 17.85 17.45 18.52 Yates Oil Production - Net (MBbl/d) (7)
7.55 7.94 7.75 8.24 Katz, Goldsmith, and Tall Cotton Oil Production
- Gross (MBbl/d) (6) 8.36 6.89 7.88 6.86 Katz, Goldsmith, and Tall
Cotton Oil Production - Net (MBbl/d) (7) 7.09 5.84 6.67 5.78 NGL
Sales Volumes (MBbl/d) (8) 9.62 10.55 9.88 10.26 Realized Weighted
Average Oil Price per Bbl (9) $ 58.29 $ 62.12 $ 58.08 $ 61.27
Realized Weighted Average NGL Price per Bbl $ 24.79 $ 18.03 $ 23.92
$ 16.42 Terminals Liquids Leasable Capacity (MMBbl) 85.8
84.7 85.8 84.7 Liquids Utilization % 93.9 % 96.1 % 93.9 % 96.1 %
Bulk Transload Tonnage (MMtons) (10) 15.5 15.0 44.4 41.1 Ethanol
(MMBbl) 17.8 17.3 51.3 48.9 Products Pipelines Pacific,
Calnev, and CFPL (MMBbl) Gasoline (11) 77.7 76.3 221.9 218.4 Diesel
28.4 28.2 80.6 80.8 Jet Fuel 24.7 24.7 72.3
69.8 Sub-Total Refined Product Volumes - excl. Plantation
130.8 129.2 374.8 369.0 Plantation (MMBbl) (12) Gasoline 20.9 21.1
62.4 62.5 Diesel 5.0 4.7 14.2 13.9 Jet Fuel 2.8 3.2
8.9 9.2 Sub-Total Refined Product Volumes -
Plantation 28.7 29.0 85.5 85.6 Total (MMBbl) Gasoline (11) 98.6
97.4 284.3 280.9 Diesel 33.4 32.9 94.8 94.7 Jet Fuel 27.5
27.9 81.2 79.0 Total Refined Product Volumes
159.5 158.2 460.3 454.6 NGLs (MMBbl) (13) 10.0 9.9 30.5 28.9 Crude
and Condensate (MMBbl) (14) 26.6 28.8 88.1
87.6 Total Delivery Volumes (MMBbl) 196.1 196.9 578.9 571.1
Ethanol (MMBbl) (15) 11.1 10.9 31.7 31.7 Trans Mountain
(MMBbls - mainline throughput) 29.3 30.7 84.4 88.1
Notes
(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) Includes Texas Intrastates and KMNTP. (3)
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.
(4) Includes Hiland Midstream, EagleHawk, and Camino Real.
Joint Venture throughput reported at KMI share. (5) Includes
McElmo Dome and Doe Canyon sales volumes. (6) Represents
100% production from the field. (7) Represents KMI's net
share of the production from the field. (8) Net to KMI.
(9) Includes all KMI crude oil properties. (10)
Includes KMI's share of Joint Venture tonnage. (11) Gasoline
volumes include ethanol pipeline volumes. (12) Plantation
reported at KMI share. (13) Includes Cochin and Cypress (KMI
share). (14) Includes KMCC, Double Eagle (KMI share), and
Double H. (15) 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, 2017 2016 ASSETS
Cash and cash equivalents $ 539 $ 684 Other current assets 2,074
2,545 Property, plant and equipment, net 39,867 38,705 Investments
7,484 7,027 Goodwill 22,164 22,152 Deferred charges and other
assets 8,223 9,192
TOTAL ASSETS $
80,351 $ 80,305
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities Short-term debt $ 3,156 $ 2,696 Other current
liabilities 3,018 3,228 Long-term debt 33,969 36,105 Preferred
interest in general partner of KMP 100 100 Debt fair value
adjustments 1,047 1,149 Other 2,537 2,225 Total
liabilities 43,827 45,503
Shareholders’
Equity Other shareholders' equity 35,694 35,092 Accumulated
other comprehensive loss (469 ) (661 ) Total KMI equity 35,225
34,431 Noncontrolling interests 1,299 371 Total
shareholders' equity 36,524 34,802
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY $ 80,351
$ 80,305 Net Debt (1)
$ 36,467 $ 38,160 Net Debt including
50% of KML preferred shares (2) 36,585 38,160
Adjusted EBITDA
Twelve Months Ended
September 30, December 31, Reconciliation of Net
Income to Adjusted EBITDA (3) 2017 2016 Net
income $ 1,429 $ 721 Total certain items 170 933 Net income
attributable to noncontrolling interests before certain items (16 )
(21 ) DD&A and amortization of excess investments(4) 2,685
2,617 Book taxes 979 993 Interest, net 1,885 1,999
Adjusted EBITDA $ 7,132 $
7,242 Net Debt including 50% of KML
preferred shares to Adjusted EBITDA 5.1 5.3
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 $119
million and $(43) million as of September
30, 2017 and December 31, 2016, respectively, as we
have entered into swaps to convert that
debt to U.S.$.
(2)
September 30, 2017 amount includes $118
million representing 50% of KML preferred shares
which is included in noncontrolling
interests.
(3)
Adjusted EBITDA is net income before
certain items, less net income attributable to
noncontrolling interests before certain
items (excluding KML), plus DD&A (including KMI's
share of certain equity investees'
DD&A, net of the consolidating joint venture partners'
share of DD&A), book taxes (including
KMI’s share of equity investees’ book tax), and interest
expense (before certain items), with any
difference due to rounding.
(4)
Includes the noncontrolling interests
portion of KML's DD&A of $12 million for the twelve
months ended September 30, 2017.
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Kinder Morgan, Inc.Dave Conover, 713-369-9407Media
Relationsdave_conover@kindermorgan.comorInvestor
Relations713-369-9490km_ir@kindermorgan.comwww.kindermorgan.com
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