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Kinder Morgan Announces 2017 Financial Expectations
Monday, December 5, 2016 4:05 pm EST
Public Company Information:
HOUSTON--(BUSINESS WIRE)--Kinder Morgan, Inc. (NYSE: KMI) today announced its preliminary 2017 financial projections. “The fundamentals of our business remain strong. We expect to generate $4.46 billion of distributable cash flow for 2017 which continues to provide us great strength and flexibility. We are also confident in our outlook for growth, largely supported by our $13 billion backlog of energy infrastructure expansion opportunities that have a high probability of completion over the next few years,” said Steve Kean, president and CEO. Below is a summary of KMI’s expectations for 2017:
- Continue to maximize shareholder value, which includes maintaining a solid investment grade rating and continuing to pursue attractive return projects and acquisitions. As its backlog of projects continues to be placed in service, the company expects to generate cash flow in excess of its investment needs. KMI currently believes the best way to maximize shareholder value will be to use a significant portion of that excess cash to increase its dividend. KMI expects to declare dividends of $0.50 per share in 2017. KMI also expects to provide guidance on a revised dividend policy in the latter part of 2017, with a view toward delivering additional value to its shareholders in 2018.
- End 2017 with debt-to-Adjusted EBITDA ratio of 5.4 times, with expected improvement based on additional proceeds generated by joint ventures. The company is committed to the continued strengthening of its investment grade balance sheet and is pursuing select joint ventures to accelerate that process. KMI’s 2017 budget assumes a joint venture partner on the company’s TransMountain expansion project and contributions from that partner to fund its share of expansion capital, but does not include any potential proceeds in excess of the partner’s share of expansion capital to recognize the value created in developing the project to this stage. KMI expects to receive such proceeds, but did not attempt to quantify them for budget purposes.
- Generate $1.99 per share of distributable cash flow and $7.2 billion of Adjusted EBITDA, essentially flat to 2016 with contributions from expansion projects coming into service largely offsetting the full year effect of the Sept. 1, 2016, sale of a 50 percent interest in SNG, the year over year decline in realized oil prices in its CO2 segment, lower contributions from certain gathering and processing assets, and the impact from a rate case on CIG settled during 2016.
- Invest $3.2 billion on expansion projects in 2017 and fund with excess, internally generated cash flow, with no need to access equity markets during 2017.
- 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 inherent difficulty and 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 $53 per barrel and $3 per MMBtu, respectively, and which were 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 2017, the company estimates that every $1 per barrel change in the average WTI crude oil price impacts distributable cash flow by approximately $6 million and each $0.10 per MMBtu change in the price of natural gas impacts distributable cash flow by approximately $1 million.
The KMI board of directors will review the 2017 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 Jan. 25, 2017, 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 2017 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 the largest energy infrastructure company in America. It owns an interest in or operates approximately 84,000 miles of pipelines and approximately 180 terminals. KMI’s pipelines transport natural gas, gasoline, crude oil, CO2 and other products, and its terminals store petroleum products and chemicals, and handle bulk materials like coal and petroleum coke. For more information please visit www.kindermorgan.com.
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 net income before interest expense, taxes, depreciation, depletion, amortization and amortization of cost of equity investments and certain items (Adjusted EBITDA) are presented herein.
Certain items are items that are required by GAAP to be reflected in net income, but typically either (1) do not have a cash impact (for example, asset impairments), or (2) by their nature are separately identifiable from our normal business operations and in our view are likely to occur only sporadically (for example certain legal settlements, hurricane impacts and casualty losses).
DCF is a significant performance measure used by us and by external users of our financial statements to evaluate our performance and to measure and estimate the ability of our assets to generate cash earnings after servicing our debt and preferred stock dividends, paying cash taxes and expending sustaining capital, that could be used for discretionary purposes such as common stock dividends, stock repurchases, retirement of debt, or expansion capital expenditures. Management uses this measure and believes it provides users of our financial statements a useful measure reflective of our business’s ability to generate cash earnings to supplement the comparable GAAP measure. We believe the GAAP measure most directly comparable to DCF is net income available to common stockholders. DCF per share is DCF divided by average outstanding shares, including restricted stock awards that participate in dividends.
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 available to common stockholders. 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.
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 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 Kinder Morgan 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 Kinder Morgan’s reports filed with the Securities and Exchange Commission (SEC), including its Annual Report on Form 10-K for the year-ended December 31, 2015 (under the headings “Risk Factors” and “Information Regarding Forward-Looking Statements” and elsewhere) and its subsequent reports, which are available through the SEC’s EDGAR system at www.sec.gov and on our website at ir.kindermorgan.com. Forward-looking statements speak only as of the date they were made, and except to the extent required by law, Kinder Morgan 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.