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Kinder Morgan declares 4Q16 dividend and provides an annual round-up

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World Pipelines,

The board of directors of Kinder Morgan, Inc. (KMI) has approved a cash dividend of US$0.125 per share (or US$0.50 annualised) for the quarter payable on 15 February, to common shareholders of record as of the close of business on 1 February. KMI declared dividends of US$0.50 per share for 2016 and used cash in excess of dividend payments to fully fund growth investments and strengthen its balance sheet.

Richard D. Kinder, Executive Chairman of KMI, said: “We are pleased to have reached significant milestones on two of our largest growth projects. We received approval from the Canadian federal government and the province of British Columbia to proceed with our Trans Mountain expansion project.

“For the year, we substantially reduced our debt, further positioning KMI for long term value creation. We finished ahead of our plan for 2016 year end leverage, and we are pleased with the progress toward reaching our targeted leverage level of around 5 times net debt to adjusted EBITDA.

“This will position us to return substantial value to shareholders through some combination of dividend increases, share repurchases, additional attractive growth projects or further debt reduction. We are also seeing green shoots in our sector, based on the expected balancing of global crude oil supply and demand combined with expectations for a more positive federal legislative and regulatory environment. Overall, we are very confident about Kinder Morgan’s future,” Kinder added.

KMI reported 4Q16 net income of US$170 million available to common stockholders, compared to a net loss available to common stockholders of US$721 million for 4Q15. Distributable cash flow was US$1 147 million versus US$1 233 million for the comparable period in 2015.

Net income available to common stockholders was also impacted by a US$988 million favourable change in total certain items compared to 4Q15. Although the majority of Ruby pipeline’s capacity is contracted until 2021, 4Q16 saw a US$250 million write down of the company’s equity investment in the pipeline, driven by a delay in expected west coast natural gas demand growth to beyond 2021.

For the full year, KMI reported net income of US$552 million, compared to US$227 million in 2015. Annual distributable cash flow for 2016 was US$4 511 million versus $4 699 million in 2015.

Kinder Morgan Canada

On 29 November, the government of Canada granted approval for the Trans Mountain expansion project, subject to 157 conditions. This is a landmark decision affirming both the strength of the project and the rigor of the review process it has undergone.

The subsequent Federal Government Order in Council was received on 1 December and on 11 January of this year, the project achieved another critical milestone as the Province of British Columbia (BC) announced that the project received its environmental certificate from the Environmental Assessment Office, subject to 37 conditions. The project also meets BC’s requirements to consider support for heavy oil pipelines, such that the project meets BC’s five conditions.

The Trans Mountain expansion is an opportunity for Canada to access world markets for its resources by building on an existing pipeline system. Trans Mountain will continue to obtain all necessary permits and is planning on commencing construction in September 2017. Other next steps will include a final cost estimate review with shippers committed to the project and a final investment decision by KMI’s board of directors.

Aboriginal support for the project is strong and growing, with 51 Aboriginal communities now in support. The Mutual Benefit Agreements (MBAs) that have been signed will see Trans Mountain share over US$400 million with those communities.

Pipeline overview

According to Kean, the natural gas pipelines segment’s performance for 4Q16 was impacted by the sale of a 50% stake in the Southern Natural Gas pipeline (SNG), along with declines attributable to reduced volumes affecting certain KMI midstream gathering and processing assets. The segment benefitted from increased contribution from Tennessee gas pipeline (TGP), which was driven by expansion projects being placed into service.

Natural gas transport volumes were down by 2% in 4Q16, compared to 4Q15. This was partially driven by: lower throughput on the Ruby pipeline as a result of increased Canadian imports to the Pacific Northwest; lower throughput on the Texas Intrastate Natural Gas Pipelines due to lower Eagle Ford Shale volumes; and lower throughput on Wyoming Interstate Company and TransColorado pipelines due to lower Rockies production.

The abovementioned declines were partially offset by higher throughput on TGP and Natural Gas Pipeline Company of America (NGPL) due to deliveries to the Sabine Pass LNG facility and South Texas in order to meet continuing demand from Mexico.

Natural gas continues to be the fuel of choice for America’s evolving energy needs. Industry experts are projecting US natural gas demand (including net exports of LNG and exports to Mexico) to increase by approximately 35%, to almost 107 billion ft3/d, over the next 10 years.

Of the natural gas consumed in the US, approximately 40% moves via KMI pipelines. KMI expects future natural gas infrastructure opportunities will be driven by this greater demand across the US, along with LNG exports, exports to Mexico and continued industrial development, particularly in the petrochemical industry. In fact, natural gas deliveries on KMI pipelines to Mexico and LNG facilities were up 17% to 407 000 dekatherms per day and approximately 458 000 dekatherms per day, respectively, compared to 4Q15.

On 1 November 2016, NGPL placed its approximately US$69 million Chicago market expansion project in service on time and below budget. This project increased NGPL’s capacity by 238 000 dekatherms per day and is supported by long term contracts with four customers for transportation from the Rockies Express pipeline interconnection in Moultrie County (Illinois) to markets in Chicago and surrounding areas.

KMI and Southern Company continue to assess mutual natural gas infrastructure growth opportunities under a previously announced joint venture transaction that closed in September 2016. Under the transaction, Southern Company acquired a 50% equity interest in SNG’s pipeline system, while KMI is the operator of the SNG pipeline system.

The FERC’s review and approval progress occurred for several projects during the quarter. On 13 December, Kinder Morgan Louisiana pipeline (KMLP) filed a FERC certificate application for the US$151 million Sabine Pass expansion project, which would provide 600 000 dekatherms per day of capacity under a 20 year contract.

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