Kinder Morgan announces financial projections for 2018

Below is a summary of KMI’s expectations for 2018:

• Generate US$2.05 DCF per share and US$7.5 billion of Adjusted EBITDA, up 3% and 4.5%, 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 US$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 US$0.80 per share in 2018 (US$0.20 per share for Q1 2018), a 60% increase from the expected 2017 dividend. KMI also continues to expect to increase that dividend to US$1.00 per share in 2019 and to US$1.25 per share in 2020, a growth rate of 25% annually.
• Maintain a solid investment grade rating and end 2018 with a Net Debt-to-Adjusted EBITDA ratio of 5.1 times.
• Invest US$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 US$2 billion share buy-back programme that was to begin in 2018. KMI’s Board of Directors has authorised the programme to begin in December 2017. At current share prices, fully exercising the programme would result in the buy-back of approximately 5% 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 programmes, 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, 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$56.50 per barrel and US$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 minimise this sensitivity. For 2018, the company estimates that every US$1/bbl change in the average WTI crude oil price impacts DCF flow by approximately US$9 million and each US$0.10 per MMBtu change in the price of natural gas impacts DCF by approximately US$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.