Remains committed to maintaining a strong
balance sheet and 25 percent increase of the dividend
Kinder Morgan, Inc. (NYSE: KMI) today announced its preliminary
financial projections for 2020. KMI remains committed to
maintaining a strong balance sheet, investing in attractive
projects, and returning value to its shareholders. Further, as was
demonstrated with the sale of the TransMountain system in 2018 and
the pending sale of Kinder Morgan Canada Limited (TSX: KML) in
2019, KMI continues to consider attractive divestitures when they
strengthen the balance sheet and improve shareholder value.
“With the expected close of Pembina’s acquisition of the Cochin
pipeline and all of KML’s outstanding shares prior to the end of
2019, we expect our year-end 2019 Net Debt-to-Adjusted EBITDA ratio
to improve to 4.4 times, versus our long-term target of
approximately 4.5 times. We expect the ratio to further improve to
4.3 times in 2020. This is a nice improvement from our third
quarter ratio of 4.7 times,” said Steve Kean, KMI chief executive
officer. “In 2020, we expect to generate $5.1 billion of
distributable cash flow (DCF), which is an approximately 3 percent
increase over our current forecast for 2019 DCF. Our growth is a
result of expansion projects coming online, built-in contract and
tariff escalators, lower interest expense and improved realized
prices in our CO2 business; which is partially offset by the
full-year impact of the sale of Cochin and KML, the full-year
impact of the rate settlements in our Natural Gas Pipelines
segment, higher sustaining capital expenditures, and lower
re-contracting rates on certain Natural Gas Pipeline segment assets
as well as on our crude and condensate assets. Our budget guidance
assumes that the proceeds from the Pembina transactions will be
used to pay down debt – creating approximately $1.2 billion of
balance sheet/borrowing flexibility, representing the difference
between the 4.3 times and the 4.5 times target for our Net
Debt-to-Adjusted EBITDA,” continued Kean.
The balance sheet/borrowing flexibility provides KMI with
attractive optionality. KMI can retain that financial flexibility
or use some or all of it to repurchase shares or invest in
attractive projects. The company will continue to make those
choices based on shareholder value. For illustrative purposes only,
using the $1.2 billion for share repurchases or to invest in
projects could increase the company’s DCF/share growth to 5 or 6
percent, respectively, assuming a full-year benefit from the
repurchases or projects.
“We think that building this financial flexibility into our 2020
budget is the right decision for our shareholders,” said Kean.
With these factors in mind, below is a summary of KMI’s
expectations for 2020:
- Generate $2.24 of DCF per share, up 3 percent compared to our
current forecast for 2019, and $7.6 billion of Adjusted
EBITDA.
- Return additional value to shareholders in 2020 through the
previously announced dividend increase. As first stated in KMI’s
second quarter 2017 earnings release, KMI expects to increase the
declared dividend per common share in 2020 to $1.25 per share
(annualized), beginning with $0.3125 per share for the first
quarter 2020 dividend (which will be paid in the second quarter
2020). This will be a 25 percent increase from the 2019 dividend
and a 150 percent increase from the 2017 dividend.
- Invest $2.4 billion in expansion projects and contributions to
joint ventures in 2020. KMI expects to use internally generated
cash flow to fully fund its 2020 dividend payment, as well as
almost all of its 2020 discretionary spending with no need to
access equity markets.
KMI does not provide budgeted net income attributable to common
stockholders and net income, the GAAP financial measures most
directly comparable to the non-GAAP financial measures of DCF and
Net Debt-to-Adjusted EBITDA, respectively, due to the
impracticality of quantifying certain components required by GAAP
such as: ineffectiveness of 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 the average annual prices for West
Texas Intermediate (WTI) crude oil and Henry Hub natural gas of
$55.00 per barrel and $2.50 per MMBtu, respectively. This is
consistent with the forward pricing at the time of the budget
process. The vast majority of cash generated by KMI 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, where KMI hedges the majority of its next 12 months of oil
production to minimize this sensitivity. For 2020, the company
estimates that every $1 per barrel change in the average WTI crude
oil price impacts DCF by approximately $7 million, and each $0.10
per MMBtu change in the price of natural gas impacts DCF by
approximately $1 million.
The KMI board of directors will review the 2020 budget for
approval at its January board meeting, and management will discuss
the budget in detail during the company’s annual investor
conference on January 29, 2020 in Houston, Texas. Kinder Morgan
remains committed to transparency and will continue to publish its
budget on the company’s website as presented at the investor
conference. The 2020 budget will be the standard by which KMI
measures its performance next year and will be a factor in
determining employee compensation.
About Kinder Morgan,
Inc.
Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy
infrastructure companies in North America. Our mission is to
provide energy transportation and storage services in a safe,
efficient and environmentally responsible manner for the benefit of
people, communities and businesses. Our vision is delivering energy
to improve lives and create a better world. We own an interest in
or operate approximately 84,300 miles of pipelines and 157
terminals. Our pipelines transport natural gas, refined petroleum
products, crude oil, condensate, CO2 and other products, and our
terminals transload and store liquid commodities including
petroleum products, ethanol and chemicals, and bulk products,
including petroleum coke, metals and ores. For more information,
please visit www.kindermorgan.com.
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; net income before interest expense, income
taxes, depreciation, depletion, amortization, or DD&A,
including amortization of excess cost of equity investments, and
Certain Items (Adjusted EBITDA); and Net Debt are presented
herein.
Our non-GAAP measures described further below should not be
considered alternatives to GAAP net income or other GAAP measures
and have important limitations as analytical tools. Our
computations of these non-GAAP measures 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. 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.
Certain Items, as adjustments used
to calculate our non-GAAP measures, 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, enactment of new tax
legislation and casualty losses).
DCF is calculated by adjusting net
income available to common stockholders for Certain Items, DD&A
and amortization of excess cost of equity investments, income tax
expense, cash taxes, sustaining capital expenditures and other
items. DCF is a significant performance measure useful to
management and external users of our financial statements in
evaluating our performance and in measuring and estimating the
ability of our assets to generate cash earnings after servicing our
debt, 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. DCF should not be used as an alternative to
net cash provided by operating activities computed under GAAP. We
believe the GAAP measure most directly comparable to DCF is net
income available to common stockholders. DCF per common share is
DCF divided by average outstanding common shares, including
restricted stock awards that participate in common dividends.
Adjusted EBITDA is calculated by
adjusting net income before interest expense, income taxes, and
DD&A, including amortization of excess cost of equity
investments (EBITDA), for Certain Items, KMI’s share of
unconsolidated joint venture (JV) DD&A and income tax expense
(net of our partners’ share of consolidating JV DD&A and income
tax expense), and net income attributable to noncontrolling
interests. Based on the expected December 2019 closing of the
KML-Pembina transaction, our 2020 calculations are not adjusted for
KML noncontrolling interests. Adjusted EBITDA is used by management
and external users, in conjunction with our Net Debt (as described
further below), 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.
Net Debt is calculated by
subtracting from debt (i) cash and cash equivalents, (ii) the
preferred interest in the general partner of Kinder Morgan Energy
Partners L.P., (iii) debt fair value adjustments and (iv) the
foreign exchange impact on Euro-denominated bonds for which we have
entered into currency swaps. Based on the expected December 2019
closing of the KML-Pembina transaction, our expected Net Debt as
calculated for the end of 2019 and thereafter is not adjusted for
outstanding KML preferred equity. We believe Net Debt is useful to
investors and other users of our financial information in
evaluating our leverage. We believe the most comparable measure to
Net Debt is debt net of cash and cash equivalents.
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 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 in this news release include,
among others, express or implied statements pertaining to the
Pembina transactions, including the expected timing and benefits
thereof; KMI's expected Adjusted EBITDA, DCF and Net
Debt-to-Adjusted EBITDA ratio for 2019 and for 2020; anticipated
dividends; KMI’s balance sheet/borrowing flexibility and the
potential uses and benefits thereof; and KMI's capital projects,
including expected completion timing and benefits of those
projects. 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 as to
when or if any such forward-looking statements will materialize nor
their ultimate impact on our operations or financial condition.
Important factors that could cause actual results to differ
materially from those expressed in or implied by 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, 2018 (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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191205005089/en/
Media Relations Katherine Hill (713) 369-9176
newsroom@kindermorgan.com
Investor Relations (800) 348-7320 km_ir@kindermorgan.com
www.kindermorgan.com
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