Why Did Kinder Morgan Lower Its 2016 EBITDA and Capex Guidance?



Kinder Morgan’s 2016 EBITDA and DCF guidance

Kinder Morgan (KMI) announced a reduction in 2016 EBITDA (earnings before interest, tax, depreciation, and amortization) and DCF (distributable cash flow) guidance by 3% and 4%, respectively. This was mainly driven by lower Eagle Ford production and bankruptcies of KMI’s coal customers, including Arch Coal, Alpha Natural Resources, and Peabody Energy.

The decline in Eagle Ford production affects KMI’s Natural Gas Pipeline and Product Pipeline segments. For details about Peabody Energy bankruptcy, read Why Peabody Energy Filed for Chapter 11 Bankruptcy Protection.

KMI has returned 27.4% since the beginning of 2016. At the same time, the Alerian MLP ETF (AMLP), which is comprised of 24 midstream MLPs, has returned 0.3%.

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Kinder Morgan’s project backlog

Kinder Morgan continued to lower its project backlog in 1Q16, given the current commodity price environment. The new project backlog is $14.1 billion compared to $18.2 billion at the end of the fourth quarter of 2015. The maximum reduction in project backlog comes from the removal of the NED (northeast direct) and Palmetto Pipeline projects.

NED was removed due to lower customer commitment on the project in the New England market. The Palmetto Pipeline project was called off “following the unfavorable action by the Georgia legislature regarding eminent-domain authority and permitting restrictions for petroleum pipelines.”

Kinder Morgan’s 2016 capex

Kinder Morgan also lowered its 2016 capex (capital expenditures) to $2.9 billion compared to $3.3 billion announced during its 4Q15 earnings release. We’ll have to wait and see whether KMI’s peers, including Williams Companies (WMB), Energy Transfer Partners (ETP), and EnLink Midstream Partners (ENLK), lower capex in their 1Q16 releases.

According to Richard Kinder, KMI’s executive chairman, “We expect that trend to continue in subsequent years through both high-grading our projects and entering into selective joint ventures. We expect to fund the necessary CapEx out of our cash flow and continue to improve our debt to EBITDA ratio, thereby preserving and strengthening our investment grade balance sheet.”

KMI forms 0.17% of the iShares Russell 1000 ETF (IWB).


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