Strong Financial Performance Despite
Non-cash Tax Cuts & Jobs Act Charge
Kinder Morgan, Inc. (NYSE: KMI) today announced that its board
of directors approved a cash dividend of $0.125 per share for the
fourth quarter ($0.50 annualized) payable on February 15, 2018, to
common stockholders of record as of the close of business on
January 31, 2018. KMI continues to expect to increase its 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.
“Kinder Morgan thrived in 2017. We had very good financial
performance despite facing continued strong headwinds (including an
epic rain event), we strengthened the balance sheet beyond our
original projections, and we announced our plan to return value to
shareholders through an increasing dividend and a $2 billion share
repurchase program. Our previously announced 2018 guidance, with
$0.80 dividends to be declared for 2018, and the early start to our
share repurchases, which we began in December 2017, shows our
commitment to that plan. We are highly confident in our ability to
maintain robust dividend coverage while delivering a substantial
dividend increase to stockholders out of operating cash flows in
excess of growth capital. And of course we will continue the
important work of strengthening our balance sheet by funding all
growth capital through operating cash flows with no need for
external funding for growth capital for the third straight year,”
said Richard D. Kinder, Executive Chairman.
President and CEO Steve Kean said, “During 2017 we completed the
Elba Liquefaction Project joint venture and the IPO of our Canadian
pipelines and terminals assets (KML). Those transactions helped us
outperform our original target for strengthening our balance sheet,
leading to a year-end 2017 Net Debt-to-Adjusted EBITDA ratio of 5.1
times versus our plan of 5.4 times. We are committed to achieving
or beating our longer term leverage target of 5.0 times. We also
placed almost $1.8 billion of projects in service throughout the
year and added a substantial additional natural gas project in Gulf
Coast Express. We had good commercial and operating performance,
slightly exceeding our plan for the year. We are pleased with the
strength and resiliency of the company’s business and with our
operational performance.”
“We also had a solid fourth quarter, but because of a non-cash
accounting charge resulting from the reduction in corporate income
tax rates, we are showing a fourth quarter loss of $0.47 in
earnings per common share. While the recently enacted Tax Cuts and
Jobs Act of 2017 will ultimately be moderately positive for KMI,
the reduced corporate income tax rate causes certain deferred-tax
assets to be revalued at 21 percent versus 35 percent. Although
there is no impact to the underlying related deductions, which can
continue to be used to offset future taxable income, KMI will take
an estimated approximately $1.4 billion non-cash accounting charge
for the 4th quarter. This charge is our initial estimate and may be
refined in the future as permitted by recent guidance from the
Securities and Exchange Commission and the Financial Accounting
Standards Board. The positive impacts of the law include the
reduced corporate income tax rate and the fact that several of our
U.S. business units (essentially all but our interstate natural gas
pipelines) will be able to deduct 100 percent of their capital
expenditures through 2022. The net impact results in postponing the
date when KMI becomes a federal cash taxpayer by approximately one
year, to beyond 2024,” continued Kean.
For the quarter, we achieved distributable cash flow (DCF) of
$0.53 per common share, representing 4 percent growth over the
fourth quarter of 2016, resulting in $910 million of excess DCF
above our dividend. The discrepancy between a reported net income
loss and a DCF gain illustrates why we and those who follow our
businesses view the DCF metric as an important measure of our
financial performance.”
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 with last quarter at $11.8 billion, with a small
decrease primarily due to projects going into service, which was
mostly offset by the addition of our Gulf Coast Express joint
venture. Excluding the CO2 segment projects, we expect the projects
in our backlog to generate an average capital-to-EBITDA multiple of
approximately 6.5 times.”
KMI reported a fourth quarter net loss available to common
stockholders of $1,045 million, compared to net income available to
common stockholders of $170 million for the fourth quarter of 2016,
and DCF of $1,190 million, up 4 percent from $1,147 million for the
comparable period in 2016. The increase in DCF was driven by
greater contributions from the Natural Gas, Terminals and Products
Pipelines Business Units, as well as from Kinder Morgan Canada,
partially offset by decreased contributions from CO2. Net income
available to common stockholders was impacted by a $1,276 million
unfavorable change in total Certain Items (as described under
“Non-GAAP Financial Measures” below) compared to the fourth quarter
of 2016. Fourth quarter 2017 Certain Items were driven largely by
the non-cash accounting charge resulting from the 2017 Tax Cuts and
Jobs Act as previously discussed.
For the full year, KMI reported net income available to common
stockholders of $27 million, versus $552 million for 2016, and DCF
of $4,482 million ($2.00 per share) that was down slightly from
$4,511 million for the comparable period in 2016. The decrease in
DCF was driven by the sale of 50 percent of Southern Natural Gas
(SNG) in 2016, negative impacts of Hurricane Harvey, a contribution
to KMI’s pension plan, and the KML IPO, partially offset by
increased contributions from the Terminals Business Unit, growth
projects in the Natural Gas Business Unit, lower interest expense,
and lower general and administrative expenses. Excluding the impact
of Hurricane Harvey, the SNG sale and the KML IPO, DCF was up over
1 percent from 2016. Net income available to common stockholders
was also impacted by a $512 million increase in total Certain Items
compared to 2016. Certain Items in 2017 were driven by the
revaluation of certain deferred-tax assets described above,
partially offset by asset impairment charges taken during 2016.
2018 Outlook
For 2018, KMI’s budget is set to declare dividends of $0.80 per
common share, achieve DCF of approximately $4.57 billion ($2.05 per
common share) and Adjusted EBITDA of approximately $7.5 billion.
KMI also budgeted to invest $2.2 billion in growth projects during
2018 (excluding growth capital expected to be funded by KML), 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 5.1 times.
KMI previously announced it will further enhance shareholder
value through a $2 billion share buy-back program. KMI’s Board of
Directors authorized the program to begin in December 2017, and
during that month KMI repurchased approximately 14 million shares
for approximately $250 million. In 2018, KMI plans to further
utilize this program opportunistically.
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 $56.50 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
31,419 barrels per day (Bbl/d) at $59.58/Bbl in 2018; 17,401 Bbl/d
at $54.85/Bbl in 2019; 9,300 Bbl/d at $52.86/Bbl in 2020; and 4,300
Bbl/d at $51.92/Bbl in 2021. For 2018, KMI estimates that every $1
per barrel change in the average West Texas Intermediate crude oil
price from the company’s budget of $56.50 would impact budgeted DCF
by approximately $7 million and each $0.10 per MMBtu change in the
price of natural gas from the company’s budget of $3 per MMBtu
would impact budgeted DCF by approximately $1 million.
Overview of Business
Segments
“The Natural Gas Pipelines segment’s performance for the
fourth quarter of 2017 was 4 percent higher relative to the fourth
quarter of 2016. The segment benefited from increased contributions
from Tennessee Gas Pipeline (TGP), driven by incremental short-term
capacity sales and projects placed in service; from Natural Gas
Pipeline of America (NGPL) due to lower interest expense; from the
Elba Express pipeline resulting from the completion of expansion
projects; from SNG due to completion of an expansion project and
lower interest expense; and from Hiland Midstream due to increased
gathering volumes and the effect of renegotiated contracts. These
benefits were partially offset by lower contributions from certain
midstream gathering and processing assets and from Colorado
Interstate Gas Company (CIG) as a result of a 2016 rate case
settlement,” Kean said.
Natural gas transport volumes were up 8 percent compared to the
fourth quarter of 2016, driven by higher throughput on TGP and Elba
Express due to projects placed in service, on NGPL due to
incremental demand from LNG facilities and to Mexico, and on El
Paso Natural Gas (EPNG) due to additional Permian capacity sales.
The increases were partially offset by lower throughput on Cheyenne
Plains due to mild weather and fuel switching to coal in the
Rockies market. Natural gas gathering volumes were down 2 percent
from the fourth quarter of 2016 due primarily to lower natural gas
volumes on multiple systems gathering from the Eagle Ford Shale and
on the KinderHawk system, partially offset by increases in Hiland
and Altamont volumes due to increased drilling activities in the
basins.
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 approximately 105 billion cubic
feet per day (Bcf/d) by 2027. 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 fourth
quarter of 2016, natural gas deliveries on KMI pipelines to Mexico
were up 6 percent, and deliveries to the Sabine Pass LNG facility
increased by 33 percent. KMI transports roughly 70 percent of all
U.S. natural gas exports destined for Mexico.
“The CO2 segment was impacted by lower commodity
prices, as our realized weighted average oil price for the quarter
was $59.32 per barrel compared to $62.30 per barrel for the fourth
quarter of 2016,” Kean said. “Combined oil production across all of
our fields was up 2 percent compared to 2016 on a net to Kinder
Morgan basis. Fourth quarter 2017 net NGL sales volumes of 10.1
thousand barrels per day (MBbl/d) were down 3 percent from 2016,
due to an operational interruption during the quarter.”
Combined gross oil production volumes averaged 54.1 MBbl/d for
the fourth quarter, up 1 percent from 53.5 MBbl/d for the same
period last year. SACROC’s fourth quarter gross production was 1
percent above fourth quarter 2016 results and slightly above 2017
budget, and Yates gross production was 5 percent below fourth
quarter 2016 results and below plan. Fourth quarter gross
production from Katz, Goldsmith and Tall Cotton was 18 percent
above the same period in 2016, but below plan. Gross NGL sales
volumes were 20.5 MBbl/d during the quarter, 4 percent below fourth
quarter 2016. Southwest Colorado and the Cortez Pipeline set annual
records in 2017.
“The Terminals segment earnings contributions were up 4
percent compared to the fourth quarter of 2016 despite several
divestitures and a negative impact on earnings associated with
Hurricane Harvey.
“Growth in the liquids business during the quarter versus the
fourth quarter of 2016 was primarily driven by increased
contributions from our Jones Act tankers, including the fourth
quarter delivery of our final new-build tanker, the American Pride,
as well as various expansions across our network, including the
Kinder Morgan Export Terminal and the Pit 11 project at our
Pasadena Terminal, which combined added 3.5 million barrels of
storage to our best-in-class refined products storage hub along the
Houston Ship Channel,” Kean said.
A 9 percent increase in the bulk business during the quarter
versus the fourth quarter of 2016 was attributable primarily to
increased volumes and earnings from our petroleum coke and steel
handling activities that more than offset the impact of various
non-core asset divestitures.
“The Products Pipelines segment contributions were up 2
percent compared with fourth quarter 2016 performance due largely
to increased contributions from SFPP, CalNev, and Kinder Morgan
Southeast Terminals,” Kean said.
Total refined products volumes were up 4 percent for the fourth
quarter versus the same period in 2016. Crude and condensate
pipeline volumes were up 2 percent from the fourth quarter of
2016.
Kinder Morgan Canada contributions were up 22 percent in
the fourth quarter of 2017 compared to the fourth quarter of 2016.
This was largely due to higher capitalized equity financing costs
associated with spending on the Trans Mountain Expansion Project,
timing of operating costs, and foreign exchange effects driven by a
stronger Canadian dollar in 2017.
Other News
Natural Gas Pipelines
- Substantial progress is being made on
the nearly $2 billion Elba Liquefaction Project as construction is
well underway. The federally approved liquefaction project at the
existing Southern LNG Company facility at Elba Island near
Savannah, Georgia, is supported by a 20-year contract with Shell.
Total liquefaction capacity will be approximately 2.5 million
tonnes per year of LNG, equivalent to approximately 350 million
cubic feet per day of natural gas. Initial in-service is expected
in mid-2018 with final units coming on line by mid-2019. 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. Certain other
facilities associated with the project are 100 percent owned by
KMI. Additional upstream compression facilities are being
constructed by a KMI affiliate at two compressor stations on the
Elba Express pipeline to facilitate transportation of ample feed
gas for liquefaction.
- On Dec. 21, 2017, Kinder Morgan Texas
Pipeline (KMTP), DCP Midstream and an affiliate of Targa Resources
Corp. announced their final investment decision to proceed with the
Gulf Coast Express Pipeline Project (GCX Project) after having
executed definitive joint venture agreements and having secured
sufficient firm transportation agreements with shippers.
Approximately 85 percent of the project capacity is subscribed and
committed under long-term, binding transportation agreements, and
the partners expect that the remaining capacity will be subscribed
by early 2018. The approximately $1.7 billion GCX Project is
designed to transport up to 1.92 billion cubic feet per day (Bcf/d)
of natural gas from the Permian Basin to the Agua Dulce, Texas,
area. The project is expected to be in service in October 2019,
pending the receipt of necessary regulatory approvals. As
previously announced, KMTP will build, operate and own a 50 percent
interest in the GCX Project, and DCP Midstream and Targa will each
hold a 25 percent equity interest in the project. In addition to
their transportation agreements, shipper Apache Corporation has an
option to purchase up to a 15 percent equity stake in the project
from KMI.
- On Nov. 20, 2017 and Dec. 15, 2017, the
FERC issued two Certificates of Public Convenience and Necessity
to:
- Kinder Morgan Louisiana Pipeline (KMLP)
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 commercial service as early as the first quarter of 2019,
earlier than initially planned, and
- TGP for its Lone Star Project. The
approximately $150 million project will provide 300,000 Dth/d of
capacity under a long-term contract to Cheniere’s planned Corpus
Christi Liquefaction Project in South Texas and is anticipated to
be placed into commercial service in January 2019.
- Construction is nearly complete on the
approximately $178 million Southwest Louisiana Supply Project, and
it is expected to be placed into commercial service with initial
deliveries beginning in the first quarter of 2018. The project will
provide 900,000 Dth/d of capacity to the Cameron LNG export
facility in Cameron Parish, Louisiana.
- Three fully-subscribed TGP projects
were made available for service in the fourth quarter of 2017:
- The approximately $104 million
Connecticut Expansion Project provides 72,100 Dth/d of capacity for
three local distribution company customers in the Northeast.
Deliveries under the long-term contracts began in the fourth
quarter of 2017.
- The approximately $104 million Orion
Project provides 135,000 Dth/d of capacity for three customers.
Deliveries under the long-term contracts began in the fourth
quarter of 2017.
- The approximately $57 million Triad
Project provides 180,000 Dth/d of capacity for one customer.
Deliveries under the long-term contract will begin on June 1,
2018.
- On Dec. 21, 2017, Sierrita Gas
Pipeline, LLC filed a Certificate Application with the FERC for its
approximately $56 million Sierrita Gas Pipeline Expansion. This
expansion project will increase the Sierrita pipeline’s capacity by
approximately 323,000 Dth/d to 524,000 Dth/d and consists of a new
15,900 horsepower compressor station in Pima County, Arizona.
Pending regulatory approvals, the project is expected to be placed
into service in the second quarter of 2020. KMI is a 35 percent
owner and the operator of Sierrita Gas Pipeline.
- On Nov. 8, 2017, NGPL received a
Certificate of Public Convenience and Necessity for its
approximately $212 million Gulf Coast Southbound Expansion Project,
and construction is underway following receipt of FERC’s Notice to
Proceed. 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.
- On Nov. 27, 2017, the FERC approved
Wyoming Interstate Company, LLC’s Offer of Settlement in a
proceeding pursuant to Section 5 of the Natural Gas Act, and on
Jan. 5, 2018, the FERC approved NGPL’s Offer of Settlement in a
separate proceeding pursuant to Section 5 of the Natural Gas Act.
These settlements will 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 90 percent
complete and the field is experiencing continued strong production
results of approximately 3,000 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.
- KMI continues to find high-return
enhanced oil recovery projects in the current price environment
across its robust portfolio of assets.
Terminals
- 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, construction of
all major facilities is materially complete, including off-site
pipe rack and bridges required to connect the terminal with the
North 40 Terminal, Edmonton South Terminal, and Edmonton Rail
Terminal. 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 underway,
and the first 4 tanks were placed into service in January 2018 with
the balance to be phased into service throughout the year. KMI and
KML’s investment in the joint venture terminal is approximately
C$398 million, including costs associated with the construction of
a pipeline segment funded solely by KML. The project is forecast to
be on schedule and on budget.
- Construction is complete 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 storage to KMI’s
best-in-class refined products storage hub along the Houston Ship
Channel.
- On Nov. 20, 2017, KMI’s American
Petroleum Tankers (APT) took delivery of its final product tanker,
the American Pride, from Philly Shipyard, Inc. (PSI) and later in
the fourth quarter placed the vessel on-hire pursuant to a term
charter agreement with a major refiner. APT’s construction program
at PSI is complete following the delivery of the final tanker,
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
major energy companies.
Products Pipelines
- Construction is nearing completion on
the $550 million Utopia Pipeline Project, and the pipeline is
expected to be placed in service in January 2018. With an initial
design capacity of 50,000 Bbls/d, the 267-mile Utopia Pipeline
transports 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 Dec. 15, 2017, KML completed its
offering of cumulative redeemable minimum rate reset preferred
shares, Series 3 (the “Series 3 Preferred Shares”) for aggregate
gross proceeds of $250 million. KML issued 10 million Series 3
Preferred Shares with a coupon rate of 5.20 percent, including 2
million Series 3 shares issued due to the full exercise of the
underwriter's option, as a result of strong investor demand. KML
ended the year with no outstanding debt by carefully managing funds
while seeking clarity on the remaining permitting, regulatory and
judicial review processes for TMEP.
- On Dec. 4, 2017, KML announced that
TMEP had made incremental progress during 2017 on permitting,
regulatory condition satisfaction and land access. However the
scope and pace of the permits and approvals received to date does
not allow for significant additional construction to begin at this
time. KML also stated that it must have a clear line of sight on
the timely conclusion of the permitting and approvals processes
before it will commit to full construction spending. Consistent
with its primarily permitting strategy and to mitigate risk, KML
set its 2018 budget assuming TMEP spend in the first part of 2018
will be focused primarily on advancing the permitting process,
rather than spending at full construction levels, until KML has
greater clarity on key permits, approvals and judicial reviews. KML
previously announced a potential unmitigated 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. KML indicated that the September 2020
in-service date could extend beyond September 2020, depending on
progress on regulatory, permit and legal approvals, and now
projects an unmitigated delay to a December 2020 in-service date.
Trans Mountain continues to proceed in water work at Westridge
Terminal. As of the end of the fourth quarter 2017, a cumulative
C$930 million has been spent on the project.
- On Nov. 14, 2017, KML filed motions
with the National Energy Board (NEB) to resolve delays as they
relate to the City of Burnaby, and to establish a fair, transparent
and expedited backstop process for resolving any similar delays in
other provincial and municipal permitting processes. On Dec. 7,
2017, the NEB granted KML’s motion in respect to the City of
Burnaby and indicated that Trans Mountain is not required to comply
with two sections of the city’s bylaws, thereby allowing Trans
Mountain to start work at its pipeline terminals subject to other
permits or authorizations that may be required. The NEB indicated
that it would release its reasons for decision at a later date. The
NEB has not yet issued a decision on establishing an expedited NEB
process that will backstop provincial and municipal processes.
- TMEP was approved by Order in Council
on Dec. 1, 2016, with 157 conditions. The Province of British
Columbia (BC) stated its approval of the Project on Jan. 11, 2017,
with 37 conditions. Trans Mountain has made filings with the NEB
and BC Environment with respect to all of the federal and
provincial conditions required prior to general construction. The
BC Environmental Assessment Office (EAO) has now released all
condition filings required prior to general construction. The NEB
has released sufficient approvals for proceeding with Westridge
Terminal and Temporary Infrastructure work phase. 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. KML continues to
make progress on approvals from the NEB, government of BC and
government of Alberta. However, as of the end of 2017, even with
this progress, TMEP has yet to obtain numerous provincial and
municipal permits and federal condition approvals necessary for
construction.
- Hearings were held in October and
November 2017 related to two judicial reviews underway in the
British Columbia Supreme Court with respect to the environmental
certificate granted to TMEP by the province of British Columbia.
Separate judicial reviews pending in the Federal Court of Appeal
challenging the process leading to the federal government’s
approval of TMEP were heard by the court from Oct. 2 to Oct. 13,
2017. Decisions from the courts are expected in the coming months.
KMI is confident that the NEB, the Federal Government, and the BC
Government properly 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.
Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy
infrastructure companies in North America. It owns an interest in
or operates approximately 85,000 miles of pipelines and
152 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, January 17, 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), 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 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 (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 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 by 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. 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 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 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 Earnings is net income
available to common stockholders before Certain Items. 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
Year Ended
December 31,
December 31,
2017 2016
2017 2016 Revenues
$ 3,632 $ 3,389 $ 13,705 $ 13,058
Costs, expenses and other Costs of sales 1,207 1,024 4,345
3,429 Operations and maintenance 774 579 2,472 2,372 Depreciation,
depletion and amortization 564 557 2,261 2,209 General and
administrative 175 119 673 669 Taxes, other than income taxes 101
97 398 421 Loss on impairments and divestitures, net — 80 13 387
Other income, net (1 ) (1 ) (1 ) (1 )
2,820 2,455 10,161
9,486 Operating income 812 934 3,544 3,572
Other income (expense) Earnings from equity investments 101 154 578
497 Loss on impairments and divestitures of equity investments, net
(150 ) (266 ) (150 ) (610 ) Amortization of excess cost of equity
investments (16 ) (14 ) (61 ) (59 ) Interest, net (445 ) (422 )
(1,832 ) (1,806 ) Other, net 22 2
82 44 Income before income taxes
324 388 2,161 1,638 Income tax expense (1,316 )
(173 ) (1,938 ) (917 ) Net (loss)
income (992 ) 215 223 721 Net income attributable to
noncontrolling interests (14 ) (6 ) (40 )
(13 ) Net (loss) income attributable to Kinder
Morgan, Inc. (1,006 ) 209 183 708 Preferred stock dividends
(39 ) (39 ) (156 ) (156 )
Net
(loss) income available to common stockholders $
(1,045 ) $ 170 $
27 $ 552 Class P
Shares Basic and diluted (loss) earnings per common share $
(0.47 ) $ 0.08 $ 0.01 $ 0.25 Basic and
diluted weighted average common shares outstanding 2,229
2,230 2,230 2,230
Declared dividend per common share $
0.125 $ 0.125 $
0.500 $ 0.500 Adjusted
earnings per common share (1) $ 0.21
$ 0.18 $ 0.66 $
0.66 Segment EBDA
%change
%change
Natural Gas Pipelines $ 641 $ 708 (9 )% $ 3,487 $ 3,211 9 % CO2 211
219 (4 )% 847 827 2 % Terminals 299 222 35 % 1,224 1,078 14 %
Products Pipelines 318 306 4 % 1,231 1,067 15 % Kinder Morgan
Canada 50 41 22 % 186
181 3 %
Total Segment EBDA $
1,519 $ 1,496 2 %
$
6,975 $ 6,364 10 %
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 Year Ended
December 31, December 31, 2017
2016
%change
2017 2016
%change
Segment EBDA before certain items (1) Natural Gas Pipelines $ 1,027
$ 986 4 % $ 3,879 $ 4,036 (4 )% CO2 228 238 (4 )% 887 919 (3 )%
Terminals 317 305 4 % 1,214 1,169 4 % Product Pipelines 314 307 2 %
1,193 1,180 1 % Kinder Morgan Canada 50 41
22 % 186 181 3 % Subtotal 1,936
1,877 3 % 7,359 7,485 (2 )% DD&A and amortization of
excess investments (580 ) (571 ) (2,322 ) (2,268 ) General and
administrative and corporate charges (1) (2) (163 ) (152 ) (645 )
(665 ) Interest, net (1) (463 ) (475 ) (1,871
) (1,999 ) Subtotal 730 679
2,521 2,553 Book taxes (1)
(207 ) (225 ) (853 ) (899 ) Certain
items Acquisition and divestiture related costs (1 ) (1 ) (8 ) (13
) Fair value amortization 11 37 53 143 Contract and debt early
termination (3) — — 19 53 Legal and environmental reserves (4) (6 )
71 37 16 Change in fair market value of derivative contracts (5)
(13 ) (52 ) (40 ) (75 ) Losses on impairments and divestitures, net
(157 ) (343 ) (170 ) (848 ) Project write-offs (6) — (1 ) — (171 )
Hurricane damage (18 ) — (27 ) — Other (3 ) (2 )
(5 ) (20 ) Subtotal certain items before tax (187 )
(291 ) (141 ) (915 ) Book tax certain items (7) 53 52 77 (18 )
Impact of 2017 Tax Cuts and Jobs Act (1,381 ) —
(1,381 ) — Total certain items
(1,515 ) (239 ) (1,445 ) (933 ) Net (loss)
income (992 ) 215 223 721 Net income attributable to noncontrolling
interests (14 ) (6 ) (40 ) (13 ) Preferred stock dividends
(39 ) (39 ) (156 ) (156 )
Net (loss) income
available to common stockholders $ (1,045
) $ 170 $ 27
$ 552 Net (loss) income available to
common stockholders $ (1,045 ) $ 170 $ 27 $ 552 Total certain items
1,515 239 1,445 933 Noncontrolling interests certain item (8)
(1 ) 1 — (8 ) Adjusted
earnings 469 410 1,472 1,477 DD&A and amortization of excess
investments (9) 666 656 2,684 2,617 Total book taxes (10) 232 248
957 993 Cash taxes (11) (18 ) (18 ) (72 ) (79 ) Other items (12) 13
12 29 43 Sustaining capital expenditures (13) (172 )
(161 ) (588 ) (540 )
DCF $ 1,190
$ 1,147 $ 4,482
$ 4,511 Weighted average common shares
outstanding for dividends (14) 2,239 2,239 2,240 2,238 DCF per
common share $ 0.53 $ 0.51 $ 2.00 $ 2.02 Declared dividend per
common share $ 0.125 $ 0.125 $ 0.500 $ 0.500 Adjusted EBITDA
(15) $ 1,896 $ 1,829 $ 7,198 $ 7,242
Notes ($
million)
(1) Excludes certain items: 4Q 2017 - Natural Gas Pipelines
$(386), CO2 $(17), Terminals $(18), Products Pipelines $4, general
and administrative and corporate charges $(7), interest expense
$18, book tax $(1,109). 4Q 2016 - Natural Gas Pipelines $(278), CO2
$(19), Terminals $(83), Products Pipelines $(1), general and
administrative and corporate charges $37, interest expense $53,
book tax $52. YTD 2017 - Natural Gas Pipelines $(392), CO2 $(40),
Terminals $10, Products Pipelines $38, general and administrative
and corporate charges $(15), interest expense $39, book tax
$(1,085). YTD 2016 - Natural Gas Pipelines $(825), CO2 $(92),
Terminals $(91), Products Pipelines $(113), general and
administrative and corporate charges $13, interest expense $193,
book tax $(18).
(2) Includes corporate charges: 4Q 2017 - $4
4Q 2016 - $5 YTD 2017 - $22 YTD 2016 - $17 General and
administrative expense is also net of management fee revenues from
an equity investee: 4Q 2017 - $(9) 4Q 2016 - $(9) YTD 2017 - $(35)
YTD 2016 - $(34)
(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 $65 million of
write-offs associated with our Palmetto project.
(7) YTD
2017 includes a $36 million federal return-to-provision tax benefit
as a result of the recognition of an enhanced oil recovery credit
instead of deduction. YTD 2016 includes 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
noncontrolling interests' portion of KML DD&A and consolidating
joint venture partners' share of DD&A: 4Q 2017 - $86 4Q 2016 -
$85 YTD 2017 - $362 YTD 2016 - $349
(10) Excludes book tax
certain items. Also, includes KMI's share of taxable equity
investees' book taxes, net of the noncontrolling interests' portion
of KML book taxes: 4Q 2017 - $25 4Q 2016 - $23 YTD 2017 - $104 YTD
2016 - $94
(11) Includes KMI's share of taxable equity
investees' cash taxes: 4Q 2017 - $(15) 4Q 2016 - $(17) YTD 2017 -
$(69) YTD 2016 - $(76)
(12) All periods include non-cash
compensation associated with our restricted stock program. 2017
also includes a pension contribution.
(13) Includes KMI's
share of certain equity investees' sustaining capital expenditures
(the same equity investees for which DD&A is added back): 4Q
2017 - $(33) 4Q 2016 - $(24) YTD 2017 - $(107) YTD 2016 - $(90)
(14) Includes restricted stock awards that participate in
common share dividends.
(15) Net (loss) income is reconciled
to Adjusted EBITDA as follows, with any difference due to rounding:
Three Months Ended Year
Ended December 31, December 31, 2017
2016 2017 2016 Net (loss) income
$ (992 ) $ 215 $ 223 $ 721 Total certain items 1,515 239 1,445 933
Net income attributable to noncontrolling interests before certain
items (16) (1 ) (5 ) (12 ) (21 ) DD&A and amortization of
excess investments (9) (17) 674 657 2,704 2,617 Book taxes (10)
(17) 237 248 967 993 Interest, net (1) 463 475 1,871
1,999 Adjusted EBITDA $ 1,896 $ 1,829 $
7,198 $ 7,242
(16) Excludes KML
noncontrolling interests: 4Q 2017 - $13 YTD 2017 - $27
(17)
Includes the noncontrolling interests' portion of KML: 4Q 2017 -
DD&A $8; Book taxes $5 YTD 2017 - DD&A $20; Book taxes $10
Volume Highlights (historical pro forma for
acquired and divested assets) Three Months
Ended Year Ended December 31, December
31, 2017 2016
2017 2016
Natural Gas Pipelines Transport Volumes (BBtu/d) (1) 30,033 27,897
29,108 28,095 Sales Volumes (BBtu/d) (2) 2,375 2,288 2,341 2,335
Gas Gathering Volumes (BBtu/d) (3) 2,704 2,749 2,653 2,970
Crude/Condensate Gathering Volumes (MBbl/d) (4) 286 265 273 292
CO2 Southwest Colorado Production - Gross (Bcf/d) (5) 1.28
1.27 1.29 1.20 Southwest Colorado Production - Net (Bcf/d) (5) 0.59
0.65 0.61 0.61 Sacroc Oil Production - Gross (MBbl/d) (6) 28.35
28.13 27.88 29.32 Sacroc Oil Production - Net (MBbl/d) (7) 23.61
23.43 23.22 24.43 Yates Oil Production - Gross (MBbl/d) (6) 17.00
17.91 17.34 18.37 Yates Oil Production - Net (MBbl/d) (7) 7.44 7.96
7.67 8.17 Katz, Goldsmith, and Tall Cotton Oil Production - Gross
(MBbl/d) (6) 8.76 7.45 8.10 7.01 Katz, Goldsmith, and Tall Cotton
Oil Production - Net (MBbl/d) (7) 7.43 6.27 6.86 5.90 NGL Sales
Volumes (MBbl/d) (8) 10.12 10.46 9.94 10.31 Realized Weighted
Average Oil Price per Bbl (9) $ 59.32 $ 62.30 $ 58.40 $ 61.52
Realized Weighted Average NGL Price per Bbl $ 28.81 $ 22.25 $ 25.15
$ 17.91 Terminals Liquids Leasable Capacity (MMBbl) 87.9
84.7 87.9 84.7 Liquids Utilization % 93.6 % 94.7 % 93.6 % 94.7 %
Bulk Transload Tonnage (MMtons) (10) 15.0 13.7 59.5 54.8 Ethanol
(MMBbl) 16.8 17.8 68.1 66.7 Products Pipelines Pacific,
Calnev, and CFPL (MBbl/d) Gasoline (11) 807 781 811 795 Diesel 308
280 298 292 Jet Fuel 263 251 264
255 Sub-Total Refined Product Volumes - excl.
Plantation 1,378 1,312 1,374 1,342 Plantation (MBbl/d) (12)
Gasoline 221 234 227 230 Diesel 56 48 53 50 Jet Fuel 33
34 33 34 Sub-Total
Refined Product Volumes - Plantation 310 315 312 313 Total (MBbl/d)
Gasoline (11) 1,028 1,015 1,038 1,025 Diesel 364 328 351 342 Jet
Fuel 296 284 297
288 Total Refined Product Volumes 1,689 1,627 1,686 1,655
NGLs (MBbl/d) (13) 113 117 112 109 Crude and Condensate (MBbl/d)
(14) 339 333 327
324 Total Delivery Volumes (MBbl/d) 2,141 2,078 2,125 2,088
Ethanol (MBbl/d) (15) 119 113 117 115 Trans Mountain
(MMBbl/d - mainline throughput) 303 295 308 316
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) December
31, 2017 2016 ASSETS Cash and cash
equivalents $ 264 $ 684 Other current assets 2,451 2,545 Property,
plant and equipment, net 40,155 38,705 Investments 7,298 7,027
Goodwill 22,162 22,152 Deferred charges and other assets 6,725
9,192
TOTAL ASSETS $ 79,055
$ 80,305 LIABILITIES AND
SHAREHOLDERS’ EQUITY Liabilities Short-term debt
$ 2,828 $ 2,696 Other current liabilities 3,353 3,228 Long-term
debt 33,988 36,105 Preferred interest in general partner of KMP 100
100 Debt fair value adjustments 927 1,149 Other 2,735 2,225
Total liabilities 43,931 45,503
Shareholders’ Equity KMI equity 33,636 34,431 Noncontrolling
interests 1,488 371 Total shareholders' equity 35,124
34,802
TOTAL LIABILITIES AND SHAREHOLDERS’
EQUITY $ 79,055 $ 80,305
Net Debt (1) $ 36,409 $
38,160 Net Debt including 50% of KML preferred shares
(2) 36,624 38,160 Adjusted EBITDA
Twelve Months Ended December 31, Reconciliation of
Net Income to Adjusted EBITDA 2017 2016 Net
income $ 223 $ 721 Total certain items 1,445 933 Net income
attributable to noncontrolling interests before certain items (3)
(12 ) (21 ) DD&A and amortization of excess investments (4)
2,704 2,617 Income tax expense before certain items (5) 967 993
Interest, net before certain items 1,871 1,999
Adjusted EBITDA $ 7,198 $
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 $143 million and
$(43) million as of December 31, 2017 and 2016, respectively, as we
have entered into swaps to convert that debt to U.S.$. (2) December
31, 2017 amount includes $215 million representing 50% of KML
preferred shares which is included in noncontrolling interests. (3)
2017 excludes KML noncontrolling interests of $27 million. (4) 2017
and 2016 include KMI's share of certain equity investees' DD&A
of $382 million and $349 million, respectively. (5) 2017 and 2016
include KMI's share of taxable equity investees' book taxes of $114
million and $94 million, respectively.
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Kinder Morgan, Inc.Dave Conover, 713-369-9407Media
Relationsdave_conover@kindermorgan.comorInvestor
Relations800-348-7320km_ir@kindermorgan.comwww.kindermorgan.com
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