Kinder Morgan, Inc. (KMI) announced its preliminary 2017 financial projections on 5 December. “The fundamentals of our business remain strong. We expect to generate US$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 US$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 maximise 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 maximise shareholder value will be to use a significant portion of that excess cash to increase its dividend. KMI expects to declare dividends of US$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 recognise 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 US$1.99 per share of distributable cash flow and US$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 1 September 2016, sale of a 50% interest in SNG, the year over year decline in realised 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 US$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, unrealised 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 US$53/bbl and US$3 per million Btu, 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 minimise this sensitivity. For 2017, the company estimates that every US$1/bbl change in the average WTI crude oil price impacts distributable cash flow by approximately US$6 million and each US$0.10 per million Btu change in the price of natural gas impacts distributable cash flow by approximately US$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 25 January 2017, in Houston, Texas.
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