HOUSTON--(BUSINESS WIRE)--Kinder Morgan, Inc. (NYSE: KMI) today announced its preliminary financial projections for 2021. KMI remains committed to maintaining a strong balance sheet, returning value to its shareholders through dividend increases and/or share repurchases, and investing in projects with attractive returns.
“With 2020 coming to a close, we can look back on the year with pride at how our company weathered the economic downturn and energy demand reduction associated with the pandemic. We took decisive action, reducing our 2020 expenses and sustaining capital expenditures by nearly $190 million combined versus our original budget without sacrificing safety and compliance. In addition, we reduced our discretionary capital outlook for 2020 by approximately $680 million, or almost 30%,” said Steve Kean, KMI’s chief executive officer. “We expect these actions to result in an improvement to distributable cash flow (DCF) less discretionary capital expenditures of approximately $160 million compared to our original budget. We expect to end the year with a 2020 Net Debt-to-Adjusted EBITDA ratio of approximately 4.6 times. This is consistent with our long-term target of approximately 4.5 times,” continued Kean.
“In 2021, we expect to generate $2.1 billion in net income attributable to KMI, $2.0 billion more than our 2020 forecast, due primarily to asset and goodwill impairments taken during 2020. We also expect to generate $4.4 billion in DCF during 2021, approximately 3% below our current forecast for 2020 DCF. DCF will be negatively impacted by lower re-contracting rates on certain Natural Gas Pipeline segment assets (mainly Ruby and FEP pipelines, as we have noted for the last couple of years), lower crude volumes and realized prices in the CO2 segment, lower capitalized overhead as a result of lower discretionary capital expenditures, and higher sustaining capital expenditures partially offset by projects placed in service and increased refined product volumes. DCF less discretionary capital expenditures and dividends is expected to be $1.2 billion, an improvement of more than $700 million compared to our 2020 forecast. Our budget guidance includes savings from a corporate-wide organizational efficiency and effectiveness project that resulted in approximately $100 million in annual costs savings to KMI and an expected 2021 DCF benefit of $72 million, taking into account partial year savings in 2020, allocations to capital, and other items. We will go into greater detail on that process when we present our budget on January 27,” continued Kean.
“Pursuant to a recent board of directors meeting, we are also able to announce our 2021 dividend policy and expectation about the fourth quarter 2020 dividend. We expect the board to declare a fourth quarter 2020 dividend of $0.2625 per share or $1.05 annualized, consistent with previous quarters in 2020. Based on our budgeted DCF per share generation detailed below, the board expects the 2021 dividend to be $1.08 per share (annualized), a 3% increase from the 2020 dividend. With budgeted excess coverage of that dividend, we expect also to be able to engage in share repurchases on an opportunistic basis,” concluded Kean.
Below is a summary of KMI’s expectations for 2021:
- Generate $0.92 of net income attributable to KMI per share, up $0.90 compared to our current 2020 forecast.
- Generate $1.95 of DCF per share, down 3% compared to our current forecast for 2020, and $6.8 billion of Adjusted EBITDA.
- Generate DCF in excess of discretionary capital expenditures and dividends of $1.2 billion. A portion of that excess coverage would be available for debt reduction and a portion for opportunistic share repurchases.
- Return value to shareholders in 2021 through a $1.08 per share dividend (annualized) and opportunistic share repurchases of up to $450 million. Share repurchases at that level would result in a Net Debt-to-Adjusted EBITDA ratio of approximately 4.6 times, consistent with our long-term target of approximately 4.5 times.
- Invest $0.8 billion in expansion projects and contributions to joint ventures in 2021.
Please see “Non-GAAP Financial Measures” below for definitions of DCF, Adjusted EBITDA and Net Debt, and the accompanying tables for reconciliations of 2021 budgeted net income attributable to KMI to budgeted DCF and budgeted Adjusted EBITDA.
KMI’s expectations assume the average annual prices for West Texas Intermediate (WTI) crude oil and Henry Hub natural gas of $43 per barrel and $3.00 per million British thermal units (MMBtu), respectively. This is consistent with the forward pricing at the time of the budget process. The vast majority of cash generated by KMI is fee-based and therefore 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 minimize this sensitivity. For 2021, the company estimates that every $1 per barrel change in the average WTI crude oil price impacts DCF by approximately $4 million, and each $0.10 per MMBtu change in the price of natural gas impacts DCF by approximately $1 million.
The KMI board of directors will review the 2021 budget for approval at its January board meeting, and management will discuss the budget in detail during the company’s annual investor conference on January 27, 2021 in Houston, Texas. Kinder Morgan remains committed to transparency and will continue to publish its budget on the company’s website as presented at the investor conference. The 2021 budget will be the standard by which KMI measures its performance next year and will be a factor in determining employee compensation.
About Kinder Morgan, Inc.
Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy infrastructure companies in North America. Access to reliable, affordable energy is a critical component for improving lives around the world. We are committed to providing energy transportation and storage services in a safe, efficient, and environmentally responsible manner for the benefit of people, communities and businesses we serve. We own an interest in or operate approximately 83,000 miles of pipelines and 147 terminals. Our pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2 and other products, and our terminals store and handle various commodities including gasoline, diesel fuel chemicals, ethanol, metals and petroleum coke. For more information, please visit www.kindermorgan.com.
Important Information Relating to Forward-Looking Statements
This news release includes forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934. Generally the words “expects,” “believes,” anticipates,” “plans,” “will,” “shall,” “estimates,” and similar expressions identify forward-looking statements, which are generally not historical in nature. Forward-looking statements in this news release include, among others, express or implied statements pertaining to: the long-term demand for KMI’s assets and services; the future impact on our business of the global economic consequences of the COVID-19 pandemic, KMI’s expected net income, DCF and Adjusted EBITDA; expected Net Debt-to-Adjusted EBITDA ratios; and anticipated dividends. Forward-looking statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management, based on information currently available to them. Although KMI believes that these forward-looking statements are based on reasonable assumptions, it can give no assurance as to when or if any such forward-looking statements will materialize nor their ultimate impact on our operations or financial condition. Important factors that could cause actual results to differ materially from those expressed in or implied by these forward-looking statements include the risks and uncertainties described in KMI’s reports filed with the Securities and Exchange Commission (SEC), including its Annual Report on Form 10-K for the year-ended December 31, 2019 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (under the headings “Risk Factors” and “Information Regarding Forward-Looking Statements” and elsewhere) and its subsequent reports, which are available through the SEC’s EDGAR system at www.sec.gov and on our website at ir.kindermorgan.com. Forward-looking statements speak only as of the date they were made, and except to the extent required by law, KMI undertakes no obligation to update any forward-looking statement because of new information, future events or other factors. Because of these risks and uncertainties, readers should not place undue reliance on these forward-looking statements.
Non-GAAP Financial Measures
The non-generally accepted accounting principles (non-GAAP) financial measures of distributable cash flow (DCF), both in the aggregate and per share; Adjusted EBITDA; and Net Debt are presented herein.
Our non-GAAP measures described further below should not be considered alternatives to GAAP net income or other GAAP measures and have important limitations as analytical tools. Our computations of these non-GAAP measures may differ from similarly titled measures used by others. You should not consider these non-GAAP measures in isolation or as substitutes for an analysis of our results as reported under GAAP. Management compensates for the limitations of these non-GAAP measures by reviewing our comparable GAAP measures, understanding the differences between the measures and taking this information into account in its analysis and its decision-making processes.
Due to the impracticality of predicting certain amounts required by GAAP such as unrealized gains and losses on derivatives marked to market and potential changes in estimates for certain contingent liabilities, KMI is not providing 2020 budgeted net income attributable to KMI, the GAAP financial measure most directly comparable to the non-GAAP financial measures of DCF and Adjusted EBITDA or budgeted metrics derived therefrom.
Certain Items, as adjustments used to calculate our non-GAAP measures, are items that are required by GAAP to be reflected in net income, but typically either (1) do not have a cash impact (for example, asset impairments), or (2) by their nature are separately identifiable from our normal business operations and in our view are likely to occur only sporadically (for example certain legal settlements, enactment of new tax legislation and casualty losses). We also include adjustments related to joint ventures (see “Amounts from Joint Ventures” below).
DCF is calculated by adjusting net income attributable to KMI for Certain Items, depreciation, depletion and amortization (DD&A), amortization of excess cost of equity investments, income tax expense, cash taxes, sustaining capital expenditures and other items. We also include amounts from joint ventures for income taxes, DD&A and sustaining capital expenditures (see “Amounts from Joint Ventures” below). DCF is a significant performance measure useful to management and external users of our financial statements in evaluating our performance and in measuring and estimating the ability of our assets to generate cash earnings after servicing our debt, paying cash taxes and expending sustaining capital, that could be used for discretionary purposes such as common stock dividends, stock repurchases, retirement of debt, or expansion capital expenditures. DCF should not be used as an alternative to net cash provided by operating activities computed under GAAP. We believe the GAAP measure most directly comparable to DCF is net income attributable to KMI. DCF per common share is DCF divided by average outstanding common shares, including restricted stock awards that participate in common share dividends.
Adjusted EBITDA is calculated by adjusting net income attributable to KMI before interest expense, income taxes, DD&A, and amortization of excess cost of equity investments (EBITDA) for Certain Items. We also include amounts from joint ventures for income taxes and DD&A (see “Amounts from Joint Ventures” below). Adjusted EBITDA is used by management and external users, in conjunction with our Net Debt (as described further below), to evaluate certain leverage metrics. Therefore, we believe Adjusted EBITDA is useful to investors. We believe the GAAP measure most directly comparable to Adjusted EBITDA is net income attributable to KMI.
Net Debt is calculated by subtracting from debt (i) cash and cash equivalents, (ii) the preferred interest in the general partner of Kinder Morgan Energy Partners L.P. (which was redeemed in January 2020), (iii) debt fair value adjustments and (iv) the foreign exchange impact on Euro-denominated bonds for which we have entered into currency swaps. Net Debt is a non-GAAP financial measure that management believes is useful to investors and other users of our financial information in evaluating our leverage. We believe the most comparable measure to Net Debt is debt net of cash and cash equivalents.
Amounts from Joint Ventures - Certain Items, DCF and Adjusted EBITDA reflect amounts from unconsolidated joint ventures (JVs) and consolidated JVs utilizing the same recognition and measurement methods used to record “Earnings from equity investments” and “Noncontrolling interests,” respectively. The calculations of DCF and Adjusted EBITDA related to our unconsolidated and consolidated JVs include the same items (DD&A and income tax expense, and for DCF only, also cash taxes and sustaining capital expenditures) with respect to the JVs as those included in the calculations of DCF and Adjusted EBITDA for our wholly-owned consolidated subsidiaries. Although these amounts related to our unconsolidated JVs are included in the calculations of DCF and Adjusted EBITDA, such inclusion should not be understood to imply that we have control over the operations and resulting revenues, expenses or cash flows of such unconsolidated JVs.
Our guidance for 2021 includes a forecast of net income attributable to KMI, which we previously have not provided due to the impracticability of predicting certain components of net income required by GAAP. As a result of changes to GAAP rules and guidance and our 2019 sale of Kinder Morgan Canada Limited, the impact of components related to commodity and interest rate hedge ineffectiveness and foreign currency fluctuations will be inconsequential. In addition, based on our current circumstances, we do not expect that changes in unrealized gains and losses on derivatives marked to market and potential changes in estimates for certain contingent liabilities will materially impact our ability to forecast net income for 2021. If the circumstances relating to these items or other GAAP requirements change and we determine that the difficulty of predicting components required by GAAP makes it impracticable for us to forecast net income attributable to KMI, we will cease to provide a forecast of net income attributable to KMI and will disclose the factors affecting our ability to do so.
Table 1 |
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|
|
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Kinder Morgan, Inc. and Subsidiaries |
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Preliminary Reconciliation of Budgeted Net Income Attributable to Kinder Morgan, Inc. to Budgeted DCF |
|||||
(in billions) |
|||||
|
2021B |
||||
Net income attributable to Kinder Morgan, Inc. (GAAP) |
$ |
2.1 |
|||
Total Certain Items (1) |
|
- |
|||
DD&A and amortization of excess cost of equity investments for DCF (2) |
|
2.5 |
|||
Income tax expense for DCF (2)(3) |
|
0.7 |
|||
Cash taxes (4) |
|
(0.1) |
|||
Sustaining capital expenditures (4) |
|
(0.8) |
|||
Other items (1) |
|
- |
|||
DCF |
$ |
4.4 |
|||
Table 2 |
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Kinder Morgan, Inc. and Subsidiaries |
|||||
Preliminary Reconciliation of Budgeted Net Income Attributable to Kinder Morgan, Inc. to Budgeted Adjusted EBITDA |
|||||
(in billions) |
|||||
|
|
2021B |
|||
Net income attributable to Kinder Morgan, Inc. (GAAP) |
$ |
2.1 |
|||
Total Certain Items (1) |
|
- |
|||
DD&A and amortization of excess cost of equity investments |
|
2.2 |
|||
Income tax expense (3) |
|
0.6 |
|||
JV DD&A and income tax expense (5) |
|
0.4 |
|||
Interest, net (3) |
|
|
1.5 |
||
Adjusted EBITDA |
|
$ |
6.8 |
||
Notes: |
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(1) |
Aggregate adjustments for Total Certain Items and Other items (such as non-cash pension expense and non-cash compensation associated with our restricted stock program) are currently estimated to be less than $100 million. |
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(2) |
Includes DD&A or income tax expense, as applicable, from unconsolidated JVs, reduced by consolidated JV partners' DD&A. |
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(3) |
Amounts are adjusted for Certain Items. |
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(4) |
Includes cash taxes or sustaining capital expenditures, as applicable, from unconsolidated JVs, reduced by consolidated JV partners' sustaining capital expenditures. |
||||
(5) |
Represents unconsolidated JV DD&A and income tax expense, reduced by consolidated JV partners' DD&A. |
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