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Kinder Morgan forecasts cash flow growth in 2018 to fuel new projects, buyback

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Kinder Morgan forecasts cash flow growth in 2018 to fuel new projects, buyback

Kinder Morgan Inc. expects its distributable cash flow and adjusted EBITDA to grow in 2018 as new projects continue to come online, leaving it with a projected $500 million to invest in additional, high-return projects and repurchase shares during the year.

The Houston-based pipeline company expects an increase in distributable cash flow, a key measure of a midstream operator's ability to sustain dividend payments, of 3% to $2.05 per share. Adjusted EBITDA is forecast to rise 4.5%, to $7.5 billion, the company said in a Dec. 4 filing.

Kinder Morgan also foresees a dividend payout of 80 cents per share in 2018, up 60% from its expected total 2017 dividend. Its forecast calls for dividends to reach $1 per share in 2019 and $1.25 per share in 2020. The company expects its debt and adjusted EBITDA forecasts will allow it to maintain its investment-grade credit rating.

Spending is budgeted at $2.2 billion in 2018, including Kinder Morgan's portion of the Gulf Coast Express pipeline, which the company has not yet included in its backlog of projects. Spending at Kinder Morgan Canada Ltd., which was spun off in an IPO in May, is not part of the spending estimate. While the Canadian unit is still majority owned by Kinder Morgan Inc., it is a self-funding entity.

"As in previous years, KMI's discretionary spending will be funded with excess, internally generated cash flow, with no need to access equity markets during 2018," the company said in the filing. A share buyback program that was recently approved by the board will continue in 2018. "At current share prices, fully exercising the program would result in the buy-back of approximately 5% of KMI's outstanding shares," the statement said.

Kinder Morgan Canada's C$7.4 billion expansion of its Trans Mountain oil pipeline network will be bogged down with permitting issues in the first part of 2018, the company said. While the company obtained permission from Canada's federal government in late 2016 to boost the capacity of the system to 890,000 barrels per day from 300,000 bbl/d, construction work that was expected to start in September has been stymied by legal challenges and permitting delays from lower levels of government.

"We previously announced a potential delay to project completion of nine months [to September 2020] due primarily to the time required to file for, process and obtain necessary permits and regulatory approvals," the filing said. "Potential mitigation measures require obtaining greater clarity early in 2018 with respect to key permits, approvals and judicial reviews and continued planning with [Trans Mountain expansion project] contractors to assess options to start or accelerate work in certain areas."

Kinder Morgan Canada, which operates terminals and NGL transportation facilities in addition to Trans Mountain, is expected to generate C$474 million in adjusted EBITDA and C$349 million in distributable cash flow. The Canadian company warned in a separate statement that those amounts could vary depending on the timing and amount of expenditures on the Trans Mountain project.

Kinder Morgan Canada anticipates expenditures on expansion projects of C$1.9 billion in 2018, with C$1.8 billion going to Trans Mountain and the balance at its Base Line Terminal near Edmonton, Alberta.