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Kinder Morgan’s 2015 cash flow

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World Pipelines,

Kinder Morgan, Inc. (KMI) has announced that its board of directors approved a quarterly cash dividend of US$0.125 (US$0.50 annualised) payable on 15 February 2016, to shareholders of record as of the close of business on 1 February 2016.

This is down from US$0.51 per share (US$2.04 annualised) for the third quarter of 2015. Consistent with KMI's 2016 guidance provided on 8 December 2015, KMI expects to declare dividends of US$0.50 per share for 2016 and use cash in excess of dividend payments to fully fund growth investments.

KMI comments

“We are pleased with KMI's business performance for the year especially in light of a tremendously challenging commodity environment, and we are glad to have generated the greatest amount of annual distributable cash flow in the company's history along with a 7% increase in our DCF per share year-over-year,” said Richard D. Kinder, Executive Chairman. “However, we were disappointed by KMI's stock performance, which declined 65% during 2015.

“The decision to reduce our dividend was very difficult and was a direct result of the rapid and significant disconnect between the performance of our business and the performance of our stock. We believe this bold move is in the best interest of the company and our shareholders. We expect the reduced dividend has completely eliminated our need to access the capital markets to fund growth projects in 2016. This insulates us from challenging capital markets and significantly enhances our credit profile. Moreover, by reducing the dividend and high-grading our backlog, we do not expect to need to access the capital markets to fund our growth projects for the foreseeable future beyond 2016.

“Additionally, as our future cash flow exceeds our investment needs, we are in an improved position to return value to shareholders. While the markets appear to have begun 2016 on the same sour note on which they left 2015, we are confident that we are one of the best positioned companies to withstand these headwinds.”

President and CEO Steve Kean said:

“While our 2015 distributable cash flow was below budget, it was up from 2014, and we are pleased with our results especially in light of multiple factors, which moved against us during the year, including the oil and NGL markets, coal exports and steel production. Once again, Kinder Morgan demonstrated that our large diversified portfolio of fee-based assets can produce stable results even in extremely tumultuous market conditions. KMI produced distributable cash flow before certain items of US$0.55 per common share for the fourth quarter, resulting in excess cash coverage above our dividend of US$953 million for the quarter and total coverage of US$1.181 billion for the year. For the fourth quarter, our five business segments produced US$1.984 billion in segment earnings before DD&A and certain items, up 1% from the fourth quarter of 2014, primarily driven by increases in our products pipelines and natural gas pipelines segments partially offset by declines in our CO2 and Terminals segments.

“As a result of the current challenging capital markets, we are focused on high-grading our backlog to allocate capital to the highest return opportunities, including efforts to reduce spend, improve returns and selectively joint venture projects where appropriate. We have reduced our expected 2016 spend by approximately uS$900 million, reduced our backlog by US$3.1 billion from the third quarter of 2015 and expect further reductions in the coming months as we continue to high-grade our capital investments.

“In light of the continued weak commodity price environment, we continue to closely monitor our counterparty exposure. However, we are a diverse company with operations across a broad set of industries and we have a large customer base with only a few customers that account for more than 1% of our annual revenues. Additionally, the great majority of our largest customers remain solidly investment grade.”

Reported cash flow

KMI reported fourth quarter distributable cash flow before certain items available to common shareholders of US$1.233 billion vs US$1.278 billion for the comparable period in 2014. This decrease for the quarter is primarily attributable to a decline in our CO2 segment and higher interest expense, partially offset by increases in our natural gas pipelines and products pipelines segments.

Distributable cash flow per common share before certain items was US$0.55 for the fourth quarter compared to US$0.60 for the fourth quarter last year. Fourth quarter net income before certain items was US$491 million compared to US$664 million for the same period in 2014. The decrease in net income before certain items was driven by higher book taxes, DD&A expense and interest expense.

Certain items after tax in the fourth quarter totalled a net loss of US$1.100 billion driven largely by an estimated non-cash pre-tax goodwill impairment charge of US$1.150 billion triggered by a decline in market values of KMI and comparable midstream companies resulting in a fair value of our natural gas pipelines non-regulated midstream assets below the book value. The certain items loss also included a non-cash pre-tax impairment charge related to the indefinite delay of certain of our CO2 segment's source and transportation projects due to lower projected demand for CO2, partially offset by a customer contract buyout payment to terminate a long-term natural gas transport contract. The 2015 fourth quarter certain items loss compares to a net loss of US$98 million for the same period of 2014. For the quarter, the net loss after certain items was US$609 million compared to net income of US$566 million for the fourth quarter of 2014.

For the full year, KMI reported distributable cash flow before certain items available to common shareholders of US$4.699 billion vs US$2.618 billion for 2014, an increase of 79%, due primarily to the KMI merger transactions completed in November 2014.

2015 distributable cash flow per common share before certain items was US$2.14 compared to US$2.00 for the previous year, an increase of 7%. Net income before certain items for 2015 was US$1.649 billion compared to US$2.340 billion for 2014. The decrease in net income before certain items was driven by higher DD&A expense, book taxes and interest expense. Certain items after tax for the year totalled a net loss of US$1.314 billion compared to a net gain of US$103 million for 2014. The year-over-year decline in certain items after tax was driven by non-cash pre-tax goodwill and asset impairment charges taken during 2015. For the full year, net income after certain items was US$335 million compared to US$2.443 billion for 2014.

Edited from source by Stephanie Roker

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