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Kinder Morgan LNG project delay weighs on earnings; Permian pipes pushed back

Kinder Morgan Inc. CEO Steven Kean said a delay in the start of its Elba Island LNG project was "a drag" on the company's third-quarter performance and contributed to a cut in the company's 2019 earnings forecast.

Hold-ups in the start of the liquefaction plant and other factors like lower commodity prices will dent adjusted EBITDA by about 3% for the year from a budgeted $7.8 billion, the Houston-based midstream giant said. Kean sought to reassure investors on Kinder Morgan's third-quarter conference call that the delays are behind it and production at Elba Island will increase as new units are added in the coming months. The first of 10 units at the facility went into service in September.

"We were delayed here, obviously, and that has been a drag on our financial performance," Kean said on the Oct. 16 call. "The remaining nine units are on the island, and we are expected to place three more in service this year ... with the remaining six coming online next year in the first half of the year."

Project delays also spilled into the company's natural gas transporting business. While Kinder Morgan's Gulf Coast Express pipeline went into service "a few days early" in September, Kean said permitting delays on the company's 2 Bcf/d Permian Highway have pushed the proposed in-service date of that conduit to early 2021 from late 2020. A third gas pipeline from the prolific Permian basin in West Texas is likely to be pushed back as competing projects are completed.

"We have about 85% of the [Permian Highway] right-of-way acquired and currently expect that we're going to timely acquire the easements we need," Kean said. "We've also made good progress on the permitting front. However, we are still obtaining some of the regulatory authorizations that we need, and that has progressed a little more slowly than what we put in our plan, what our project plan contemplated. That means in order to do efficient construction, we will kick off the construction a little bit later. And that means that instead of a fourth quarter 2020 in service, we currently anticipate early 2021."

The company does not anticipate further delays in the permitting process, Kean said. Kinder Morgan's proposed 2 Bcf/d Permian Pass pipeline will probably be delayed beyond 2022. Kean described the line as a "work in progress" and said it has not been added to the company's backlog of projects.

"Since we reported on this on the second-quarter call, the commercial activity has slowed, but it continues," Kean said. "It slowed as a result of some producer retrenchment in their Permian activities. We believe the pipeline is needed, but it may not be needed quite as soon as we were expecting three months ago. With a total of three new 2 Bcf/d projects coming online over the 2019 to 2021 period — both of ours as well as the third-party pipeline the Permian Pass pipeline may not be needed in 2022."

The sale of Kinder Morgan's publicly traded Canadian company, Kinder Morgan Canada Ltd., to Pembina Pipeline Corp. is progressing, and the company continues to anticipate that it will close by late 2019 or early 2020. Dax Sanders, the executive responsible for the Canadian business, said shareholders will vote on the proposal at a meeting Dec. 10 and some approvals by Canadian regulators remain outstanding. Kinder Morgan holds the majority of Kinder Morgan Canada shares.

Separately on Oct. 16, Kinder Morgan reported third-quarter adjusted EBITDA of $1.83 billion, a decrease from $1.86 billion in the year-ago period. The S&P Global Market Intelligence consensus adjusted EBITDA estimate was $1.86 billion.