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Kinder Morgan on track to cut debt, inches closer to restoring dividend

Kinder MorganInc. is on track to lower a key debt metric through asset sales andjoint ventures, bringing the company closer to being able to increase thedividend it slashed last year or buy back shares to boost value.

The Houston-headquartered pipeline and terminal owner, whichbills itself as the largest infrastructure company in North America, isexpected to have 5.3x debt-to-EBITDA by the end of 2016, chairman andco-founder Richard Kinder said on a July 20 conference call to second-quarter 2016earnings. The indicator of the company's ability to generate excess cash toreward shareholders was originally projected to be 5.5x debt-to-EBITDA by yearend.

"We are also reducing our future need for expansionCapEx, and all of this is getting us measurably closer to being able to returnsignificant additional cash to our shareholders through either increasing thedividend or buying back shares," Kinder said. "I can assure you wewill continue on this flight path as we work to maintain and strengthen ourbalance sheet while at the same time preparing to deliver increased value toour shareholders."

The company has set a target of 5.0x debt-to-EBITDA as astarting point for increasing its dividend, which it more than 75% to 50 centsannually in December 2015 after credit rating agencies raised concern about itsdebt level. Kinder Morgan also embarked on a program of asset sales and jointventures to reduce its borrowing needs.

At the end of the quarter the key ratio stood at about 5.6xdebt-to-EBITDA, CFO Kimberly Dang said on the call. The company recentlyannounced the $1.47 billion saleof a 50% stake in the SouthernNatural Gas Co. LLC pipeline network to and the proposed Northeast EnergyDirect pipeline project in April because of low projected returns. Dang did notcommit to a timeline for a dividend hike or share buyback.

"Our debt-to-EBITDA target is still around 5.0x andonce we reach that level we will decide how to return value to shareholders,"Dang said. "We are not committing to a specific method at this time."

Kinder Morgan's biggest project is the estimated $5.4billion Trans Mountain pipeline expansion in Canada, which received from Canada's NationalEnergy Board in May. The plan to almost triple the capacity of the conduitstill needs to pass additional Canadian government scrutiny before a finaldetermination is made December.

CEO Steve Kean described the process as a "two stepsforward and one step back development." Support among shippers to boostthe capacity of the network to 890,000 barrels per day from 300,000 bbl/dremains for the pipeline that connects the oil sands region in Alberta with aport near Vancouver, British Columbia. In addition to meeting federalgovernment requirements, the provincial government has set five conditions forthe Trans Mountain project to proceed.

Kean said the company is making "progress in gettingmatters worked out with B.C., but we're not there yet." Despite slumpingoil prices Canadian producers are still anxious to have an outlet for theirproduct other than the U.S.

"What we consistently hear from producers and customersin Canada is that they are counting on this project to get built," Keansaid. "Production continues to grow and takeaway capacity projectscontinue to be in high demand. Oil prices have hurt Alberta for sure, but fromthe perspective of our expansion, the supply and demand for takeaway capacityare good."

Kean said the company is working with contractors to fix theprice of the project in a process that will continue through the summer. Thecompany expects to provide shippers with a final cost estimate for the TransMountain expansion in late 2016 or early 2017, he said.