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Kinder Morgan advancing cautious natural gas growth strategy amid market signals

Highlights

Profit in latest quarter aided by volumes, asset sales

Executives confident in LNG opportunity, despite uncertainty

Houston — Kinder Morgan's profit jump during the final three months of 2019 was bolstered by strong natural gas volumes thanks in part to the commercial startup of a new Permian pipeline, shipments beginning from its liquefaction terminal in Georgia and the sale of non-core US and Canadian assets, the company said Wednesday.

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The financial results were released as the company, which moves more than a third of the gas consumed in the US, stuck to its target to spend less money this year on expansion projects than it did in 2019. It will focus on growth from LNG and deliveries across Texas and into Mexico. It maintained current timelines on several key projects that are already underway.

The play-it-safe approach reflects the current market dynamics across the sector. If weak gas prices dampen sentiment among some producers, that could impact utilization of midstream infrastructure and investment in new opportunities. In the weeks ahead as other operators of pipelines, processing plants and liquefaction facilities release fourth-quarter results, the market will learn how big that impact may be.

"Our strategy is in many ways a conservative one," executive Chairman Richard Kinder said during a conference call with analysts after the earnings release.

He said Kinder Morgan would not be chasing expansion projects or acquisitions that don't meet a strict risk-versus-reward test.

For the October to December quarter, Kinder Morgan reported net income attributable to common stockholders of $610 million, or 27 cents a share, compared with a profit of $483 million, or 21 cents a share, a year earlier. Revenue in the fourth quarter fell 11% to $3.35 billion from $3.78 billion in the year-ago period.

Natural gas transport volumes were up 14% in the latest quarter compared with the fourth quarter of 2018, with the largest gains on El Paso Natural Gas, Tennessee Gas Pipeline and Colorado Interstate Gas, followed by Kinder Morgan Louisiana Pipeline and Texas Intrastates.

Gulf Coast Express, the new Permian pipeline that entered full commercial service in September 2019, also contributed to the volume gain. The company has a second gas pipeline serving the basin under construction, Permian Highway Pipeline, the startup of which it previously delayed to 2021. It continues to talk to potential partners and producers about a third gas project there, Permian Pass, and will move forward "when the market is ready to sign up for it," CEO Steve Kean said during the conference call.

Kinder Morgan's natural gas gathering volumes were up 8% from the fourth quarter of 2018 due primarily to higher volumes on its South Texas, Eagle Ford and Bakken midstream systems, the company said. NGL transport volumes were up 23% compared with the fourth quarter of 2018.

LNG UPDATE

In Georgia, meanwhile, its Elba Liquefaction facility shipped its first export cargo in December, and the terminal – the smallest of the six major US LNG facilities – has been bringing new units online and ramping up production since then. In a statement, Kinder Morgan maintained its previous schedule for completing all 10 trains at the facility during the first half of this year. A second LNG project that Kinder Morgan has proposed, Gulf LNG in Mississippi, has yet to achieve any commercial traction, at least publicly. Overall, executives expressed confidence in LNG fundamentals and how they translate to feedgas volumes on its pipelines and Kinder Morgan's operations at Elba, even with global concerns about oversupply and the possibility some new US liquefaction projects under development may be delayed or shelved.

Kean said Kinder Morgan gets paid whether its customers use their capacity or not. "But, they are using it," he said.

Beyond the leveraging of its existing footprint, Kinder Morgan's latest results were helped by gains on divestitures.

It sold the US portion of the cross-border Cochin condensate pipeline system and 70% of Kinder Morgan Canada to Pembina Pipeline. In Canada, it was able to eliminate the risk of moving forward with the Trans Mountain crude system under its portfolio, amid concerns it would not be able to complete the project due to cost overruns and local hurdles.

During the earnings call, Kean likened the rationale for those moves to Kinder Morgan's decision several years ago to suspend work on development of Northeast Energy Direct, a gas pipeline project in New England that faced significant environmental and community opposition.

"We are happy with all of those decisions," Kean said.