Kinder Morgan Announces 2018 Financial Expectations
05 December 2017 - 9:20AM
Business Wire
Kinder Morgan, Inc. (NYSE: KMI) today announced its preliminary
2018 financial projections. “Through three tough years for the
energy sector, our business has proven robust and resilient,” said
Steve Kean, KMI President and CEO. “For 2018, we expect to generate
$4.57 billion of distributable cash flow (DCF).”
Below is a summary of KMI’s expectations for 2018:
- Generate $2.05 DCF per share and $7.5
billion of Adjusted EBITDA, up 3 percent and 4.5 percent,
respectively, compared to 2017, primarily due to projects placed
into service during 2017 and 2018. Generating that level of DCF,
after covering the planned 2018 dividend and budgeted discretionary
spend (both discussed below) will leave in excess of $500 million
to invest in additional high return projects or to repurchase
shares.
- Enhance shareholder value in 2018
through the previously-announced dividend increase. As first stated
in KMI’s second quarter 2017 earnings release, KMI expects to
increase the dividend per common share to $0.80 per share in 2018
($0.20 per share for Q1 2018), a 60 percent increase from the
expected 2017 dividend. KMI also continues to expect to increase
that dividend to $1.00 per share in 2019 and to $1.25 per share in
2020, a growth rate of 25 percent annually.
- Maintain a solid investment grade
rating and end 2018 with a Net Debt-to-Adjusted EBITDA ratio of 5.1
times.
- Invest $2.2 billion on expansion
projects and other discretionary spending in 2018, excluding growth
capital and discretionary spending by Kinder Morgan Canada Limited,
which is a self-funding entity. While KMI’s announced Gulf Coast
Express project is not yet included in the company’s backlog, the
budget does include an estimate of KMI’s share of 2018 spend on
that project. As in previous years, KMI’s discretionary spending
will be funded with excess, internally generated cash flow, with no
need to access equity markets during 2018.
- Further enhance shareholder value
through the previously-announced $2 billion share buy-back program
that was to begin in 2018. KMI’s Board of Directors has authorized
the program to begin in December 2017. At current share prices,
fully exercising the program would result in the buy-back of
approximately 5 percent of KMI’s outstanding shares. Repurchases
may be made by KMI from time to time in open-market or
privately-negotiated transactions, including the potential use of
10b5-1 programs, as permitted by securities laws and other legal
requirements, and subject to market conditions and other factors.
Under the repurchase program, there is no time limit for share
repurchases, nor is there a minimum number of shares KMI intends to
repurchase. The repurchase program may be suspended or discontinued
at any time without prior notice.
- In order to prudently manage
shareholder capital, the 2018 budget assumes Trans Mountain
Expansion Project (TMEP) spending in the first part of 2018 is a
“primarily permitting” strategy focused on advancing the permitting
process, rather than spending at full construction levels, until
KML has greater clarity on key permits, approvals and judicial
reviews. We previously announced a potential delay to project
completion of nine months (to September 2020) due primarily to the
time required to file for, process and obtain necessary permits and
regulatory approvals. Potential mitigation measures require
obtaining greater clarity early in 2018 with respect to key
permits, approvals and judicial reviews and continued planning with
TMEP contractors to assess options to start or accelerate work in
certain areas.
- Construction delays entail increased
costs due to a variety of factors including extended personnel,
equipment and facilities charges, storage charges for unused
material and equipment, extended debt service, and inflation, among
others. Because those costs are highly uncertain at this stage of
the project and the extent of a delay, if any, is currently
unknown, Trans Mountain is not updating its cost estimate at this
time.
- In order to help achieve the necessary
clarity with respect to permits and approvals, Trans Mountain has
filed motions with the National Energy Board (NEB) to resolve
existing delays and to establish an NEB process that will backstop
provincial and municipal processes in a fair, transparent and
expedited fashion. As stated in a November 14, 2017 motion
presented to the NEB, “it is critical for Trans Mountain to have
certainty that once started, the Project can confidently be
completed on schedule.” If uncertainty around permitting and
judicial processes extends further into 2018, TMEP would expect to
reduce its 2018 budgeted spend and the previously announced
unmitigated delay to a September 2020 in-service date could extend
beyond September 2020. Further, as stated in the November 14
motion, if TMEP continues to be “faced with unreasonable regulatory
risks due to a lack of clear processes to secure necessary permits
. . . it may become untenable for Trans Mountain’s shareholders . .
. to proceed.”
- KMI does not provide budgeted net
income attributable to common stockholders (the GAAP financial
measure most directly comparable to the non-GAAP financial measures
distributable cash flow and Adjusted EBITDA) due to the
impracticality of quantifying certain amounts required by GAAP such
as ineffectiveness on commodity, interest rate and foreign currency
hedges, unrealized gains and losses on derivatives marked to
market, and potential changes in estimates for certain contingent
liabilities.
KMI’s expectations assume average annual prices for West Texas
Intermediate (WTI) crude oil and Henry Hub natural gas of $56.50
per barrel and $3.00 per MMBtu, respectively, consistent with
forward pricing during the 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 2018, the company estimates that every $1 per
barrel change in the average WTI crude oil price impacts DCF flow
by approximately $9 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 2018 budget for
approval at the January board meeting and the budget will be
discussed in detail by management during the company’s annual
analyst meeting to be held on January 24, 2018, in Houston, Texas.
Kinder Morgan remains committed to transparency and will continue
to publish its budget on the company’s website,
www.kindermorgan.com. The 2018 budget will be the standard by which
KMI measures its performance next year and will be a factor in
determining employee compensation.
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 steel, petroleum coke, and other
products. 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.
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, and Adjusted EBITDA are presented
herein.
Certain Items, as 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 (e.g., 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 (e.g., certain legal settlements, hurricane
impacts and casualty losses).
DCF is calculated by adjusting net income available to common
stockholders before Certain Items for DD&A, total book and 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
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. We believe the GAAP measure most directly comparable
to DCF is net income available to common stockholders. DCF per
share is DCF divided by average outstanding shares, including
restricted stock awards that participate in dividends.
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. Adjusted EBITDA
is useful to management and external users to evaluate, in
conjunction with our net debt, certain leverage metrics. We believe
the GAAP measure most directly comparable to Adjusted EBITDA is net
income available to common stockholders.
Our non-GAAP measures should not be considered alternatives to
GAAP net income or other GAAP measures and have important
limitations as analytical tools. Our computations of 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.
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 most recent Annual Report on Form 10-K (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.
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Kinder Morgan, Inc.Media RelationsDave Conover, (713)
369-9407dave_conover@kindermorgan.comorInvestor Relations(713)
369-9490km_ir@kindermorgan.comwww.kindermorgan.com
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