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Kinder Morgan announces results for 1Q20

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World Pipelines,

Kinder Morgan, Inc.’s (KMI) board of directors has approved a cash dividend of US$0.2625 per share for the first quarter (US$1.05 annualised), payable on 15 May 2020, to common stockholders of record as of the close of business on 4 May 2020. This dividend represents a 5% increase over the fourth quarter 2019.

KMI is reporting first quarter net loss attributable to KMI of US$306 million, compared to net income attributable to KMI of US$556 million in 1Q19; and distributable cash flow (DCF) of US$1261 million, an 8% decrease over 1Q19. The net loss was primarily due to US$950 million of non-cash impairments of assets and goodwill associated with certain oil and gas producing assets in KMI’s CO2 segment driven by the recent sharp decline in crude oil prices.

“The board deliberated thoughtfully with regard to this quarter’s dividend,” said KMI Executive Chairman Richard D. Kinder. “While we have the financial wherewithal to pay our previously planned dividend increase, with significant coverage, in unprecedented times such as these, the wise choice is to preserve flexibility and balance sheet capacity. Consequently, we are not increasing the dividend to the US$1.25 annualised that we projected, under far different circumstances, in July of 2017. Nevertheless, as a sign of our confidence in the strength of our business and the security of our cash flows, we are increasing the dividend to US$1.05 annualised, a 5% increase. In doing so, we believe we have struck the proper balance between maintaining balance sheet strength and returning value to our shareholders. We remain committed to increasing the dividend to US$1.25 annualised. Assuming a return to normal economic activity, we would expect to make that determination when the board meets in January 2021 to determine the dividend for the fourth quarter of 2020.”

“With the collapse of OPEC-plus on 6 March and the widespread shut down of the US economy beginning in mid-March, we immediately re-examined our capital spending, our expenses, and how we operate. Our priorities are the protection of our co-workers and their families and the continued operation of our assets, which are essential to businesses and communities across the country. All of our businesses are running and we have modified our operations to keep our employees safe. We are reducing our expenses and sustaining capital expenditures by over US$100 million combined versus our budget without sacrificing safety. We have also reduced our expansion capital outlook for 2020 by approximately US$700 million, or almost 30%. These actions more than offset the reduction in DCF and are expected to result in an improvement in DCF less expansion capital expenditures of approximately US$200 million compared to budget. In addition, the actions we have taken over the last several years to strengthen our balance sheet, including reducing our debt by almost US$10 billion since the third quarter of 2015, have strengthened us for these challenging times. The services we provide continue to be needed to meet our customers’ energy transportation and storage needs. Our business model, which secures much of our cash flows on a take or pay basis independent of underlying commodity prices, positions us well even in the current environment,” said KMI Chief Executive Officer Steve Kean.

“Sharp declines in both commodity prices and refined product demand in the wake of the COVID-19 pandemic clearly affected our business and will continue to do so in the near term. Largely due to the non-cash impairments noted above, we generated a first quarter earnings per common share loss of US$0.14, compared to earnings of US$0.24 in the first quarter of 2019. At the same time, we saw strong financial contributions from the Natural Gas Pipelines group in the first quarter that were offset by the impact of the sale of the US portion of the Cochin pipeline in the fourth quarter of 2019. Volumes on our gas pipelines were up 8% y/y and strength in transportation volumes has continued into April,” said KMI President Kim Dang.

“Adjusted earnings per share in the 1Q20 were down 5% compared to the 1Q19. At US$0.55 per common share, DCF per share was down US$0.05 from the 1Q19, yet we achieved US$664 million of excess DCF above our declared dividend.

“We made substantial progress on our Permian Highway Pipeline project, with the right-of-way secured and construction activities well underway all along the route. As previously announced, given the slower than anticipated pace of regulatory approvals, we expect the project to be in service early in 2021. We also made good progress on the Elba Liquefaction project, with the fifth of ten liquefaction units placed in service during the quarter, and the sixth on 20 April. The remaining four units are expected to be placed in service during the spring and summer of this year,” concluded Dang.

Overview of business segments

“The Natural Gas Pipelines segment’s financial performance was down slightly for the 1Q20 relative to the 1Q19,” said Dang. “The segment saw higher earnings due to contributions from the Elba Liquefaction and the Gulf Coast Express (GCX) projects, offset by earnings lost from the sale of the US portion of the Cochin pipeline in the 4Q19, as well as reduced contributions from Tennessee Gas Pipeline (TGP) due to historically mild weather in the Northeast and the impact of the FERC 501-G rate settlement. Excluding the impact of the Cochin sale, the segment’s financial performance in the 1Q20 was slightly better than the same period in 2019.”

Natural gas transport volumes were up 8% compared to the 1Q19, with the largest gains on GCX, TGP, Colorado Interstate Gas (CIG), El Paso Natural Gas (EPNG), and the Texas Intrastates. Gains on GCX were due to its being placed in service, TGP benefited from increased LNG deliveries, CIG from DJ growth and higher heating demand, EPNG benefited from natural gas-fired power generation replacing coal, and the Texas Intrastates from the continued growth in the Texas Gulf Coast market. Natural gas gathering volumes were up 2% from the 1Q19 due primarily to higher volumes from our Eagle Ford and Bakken systems, partially offset by decreased volumes on KMI’s KinderHawk system. Excluding the impact of the Cochin sale, NGL transport volumes were down 6% compared to the 1Q19, due to lower volumes on Utopia.

“The severe decline in commodity prices during the first quarter which impacted inventory value on our transmix and crude and condensate assets, as well as lower refined product demand in March, reduced contributions from the Products Pipelines segment. These impacts were partially offset by higher average tariffs on our refined product pipelines as well as higher volumes on our Bakken Crude assets,” Dang said.

Crude and condensate pipeline volumes were up 9% compared to the prior period, in part due to KMCC’s new connection to Permian Basin production via the Gray Oak Pipeline. In spite of the decline in volumes in March mentioned above, total refined product volumes were flat compared to the 1Q19.

“Terminals segment earnings were lower compared to the 1Q19 predominantly driven by the impact of the December 2019 sale of KML. Despite the emergence of COVID-19 related headwinds towards the end of the quarter, our liquids business continued to perform well and benefit from strong utilisation, with the current contango commodity pricing environment driving incremental storage demand across our network of nearly 80 million bbls of storage capacity,” said Dang. “The liquids business currently accounts for approximately 78% of the segment total earnings.”

Excluding the impact of the sale of KML, contributions from the Terminals segment’s bulk business were essentially flat compared to the 1Q19, with gains at the company’s petroleum coke and steel handling operations largely offsetting continued weakness in export coal volumes.

“The CO2 segment was negatively impacted versus the 1Q19 primarily by lower crude and CO2 volumes, as well as lower NGL prices, partially offset by higher realised crude prices. Our weighted average NGL price for the quarter was down US$6.24/bbl, or 24% from the 1Q19. Our realised weighted average crude oil price for the quarter was up 12% at US$54.61/bbl compared to US$48.67/bbl for the 1Q19, largely driven by our Midland/Cushing basis hedges,” said Dang. “First quarter 2020 combined oil production across all of our fields was down 6% compared to the same period in 2019 on a net to KMI basis.”

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