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Kinder Morgan to spend $3.1B on new projects in 2019

Kinder Morgan Inc. has no plans to diverge from its commitment to boost growth spending and dividends without tapping equity or debt markets in 2019, according to company executives.

The Houston-headquartered pipeline giant has earmarked $3.1 billion in spending on new projects this year and expects $5 billion in distributable cash flow, a key measure of profitability for midstream companies. Kinder Morgan experienced a record increase in natural gas supply and demand on its pipelines, and 2019 is "projected to be another solid year of growth in U.S. natural gas," CEO Steven Kean said on a Jan. 16 conference call. The company anticipates raising its dividend in 2020, up from a projected $1 per share in 2019, he said.

Kinder Morgan, which operates one of the biggest natural gas-handling networks in the U.S., has benefited from national demand for the fuel that grew by 9 Bcf/d, or 11%, to 90 Bcf/d in 2018, company President Kimberly Dang said on the call to discuss fourth-quarter 2018 earnings. Shipments on the company's gas lines rose by about 15%, Dang said. Increased use of the fuel for power generation, LNG exports and shipments to Mexico helped lift usage.

Dang noted that deliveries to U.S. LNG facilities in the fourth quarter were approximately 1 Bcf/d, up about 400 MMcf/d from the year-earlier quarter. The company's own Elba Island liquefaction facility remains on track to be completed by the end of the first quarter. The project "has continued to be a little late, but fortunately we do not expect the delay to have a material impact on our work" because of the way the project's construction and commercial contracts are structured, she said.

SNL Image

Kinder Morgan Inc. plans to continue to expand its pipeline network with internally generated funds.
Source: AP image

PG&E challenges

The possible bankruptcy of PG&E Corp. could create challenges for Ruby Pipeline LLC, a conduit that connects gas wells in the Rocky Mountain region with a hub at Malin, Oregon. Kinder Morgan owns 50% of the line with Calgary, Alberta-based Pembina Pipeline Corp. A bankruptcy by PG&E could affect supply and transportation contracts for the California utility owner's gas distribution and electric generation businesses, Kean said. Ruby, which has had its credit ratings placed on watch for a possible downgrade in the wake of PG&E's problems, is an independent entity from both of its owners.

PG&E's contracts with the pipeline "represent about about $93 million a year of demand revenue, so it is a material matter to our interest in Ruby," Kean said. He stressed that "it is Ruby specifically and exclusively that would be impacted by the potential of PG&E's bankruptcy" and because delivery of fuels is core to the utility owner's businesses and the contracts are currently being used, the pipeline has been told to expect usage to continue.

"There's always some uncertainty in a bankruptcy proceeding but I think there's some cause for optimism," Kean said. "There are reliability benefits to be considered and ... it's our understanding at least, that in PG&E's prior bankruptcy proceeding they did not reject firm transport contracts."

Separately on Jan. 16, Kinder Morgan reported fourth-quarter 2018 adjusted EBITDA of $1.96 billion, up from the $1.9 billion the company reported during the same period a year earlier. The S&P Global Market Intelligence consensus estimate of adjusted EBITDA was $1.93 billion. The company's distributable cash flow during the fourth quarter was $1.27 billion, which beat the $1.19 billion posted in the prior-year quarter.

Kinder Morgan anticipates adjusted EBITDA of approximately $7.8 billion in 2019. It ended 2018 with a net debt-to-EBITDA ratio of approximately 4.5x, beating a goal to reduce the ratio to 5.1x, Kean said.