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What to Expect from Kinder Morgan in 2015

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Kinder Morgan expects higher energy prices in 2015

Kinder Morgan (KMI) expects higher oil and gas prices in 2015. The company anticipates West Texas Intermediate (or WTI) crude oil price to average approximately $70 per barrel and a Henry Hub natural gas price of $3.80 per MMBtu in 2015. In comparison, the WTI price averaged ~$92 per barrel in 2014, while natural gas prices averaged ~4.26 per MMBtu.

Lower energy price disincentivizes higher energy production, which reduces midstream companies’ revenues and profitability. But Kinder Morgan’s average 2015 crude oil and natural gas price estimates are 27% and 47% higher than the current level, respectively.

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Huge project backlog

For 2015, Kinder Morgan (KMI) has put in place a strong project pipeline that can increase capex (capital expenditures) by 21% to ~$4.4 billion. Other midstream companies such as Enterprise Products Partners (EPD) decreased 2015 projected capex by 2%, excluding acquisition capital. Spectra Energy (SE) plans to increase capex by 17% in 2015.

KMI makes up 4.4% of the Energy Select Sector SPDR ETF (XLE) and 4.1% of the iShares U.S. Energy ETF (IYE). You can read about Kinder Morgan’s projects in greater detail in Market Realist’s Will capital projects lift Kinder Morgan in the medium term?

Commodity price sensitivity

Approximately 85% of Kinder Morgan’s 2015 expected EBDA (earnings before depreciation and amortization) is not sensitive to commodity prices. It hedges the majority of its next 12 months of oil production. KMI’s CO2 segment, however, is partially exposed to energy price volatility.

For 2015, Kinder Morgan’s distributable cash flow (or DCF) will change by approximately $10 million for every $1 per barrel change in average WTI crude oil price. Similarly, for each $0.10 per MMBtu change in the average price of natural gas, distributable cash flow will be impacted by approximately $3 million.

Higher dividend in 1Q15

On April 15, Kinder Morgan increased its quarterly dividend to $0.48 per share. Assuming distribution remains the same, this amounts to $1.92 annualized and a yield of 4.3% at the current share price. The 1Q15 dividend represents a 14% increase over the 1Q14 dividend. This is also 6.7% higher than the 4Q14 dividend.

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