High-grading project backlog
Kinder Morgan (KMI) is taking several steps to enhance its credit profile. In July 2016, KMI announced an agreement with Southern Company (SO) to sell a 50% equity interest in its SNG (Southern Natural Gas) pipeline system for $1.5 billion plus Southern Company’s share of the SNG system’s debt.
In June 2016, the company announced the sale of 50% equity interest in its Utopia Pipeline project to Riverstone Investment Group for an upfront cash payment. Additionally, Riverstone agreed to fund its share of the future capital expenditure necessary to complete the project. The estimated project cost is ~$500 million.
KMI’s growth capital forecast for 2016 is ~$2.8 billion, a reduction of $500 million from its budget of ~$3.3 billion. “We continue to expect our 2016 distributable cash flow in excess of our dividends will exceed our 2016 growth capital expenditures, eliminating our need to access the capital markets to fund growth projects in 2016,” said Richard D. Kinder, KMI’s executive chairman. The above graph shows KMI’s distributable cash flow, capital expenditure, and per unit distribution over the last five quarters.
KMI’s distributable cash flow
KMI’s distributable cash flow fell to $1.05 billion in 2Q16 from $1.1 billion in 2Q15. The decrease in distributable cash flow for the quarter was partially attributable to lower contributions from KMI’s CO2 (carbon dioxide) segment due to lower commodity prices.
For 2016, KMI’s budgeted distributable cash flow was ~$4.7 billion, and the company now expects it to be about 4% below budget. This guidance does not take the SNG transaction into account.
Kinder Morgan announced a cash dividend of $0.125 per share for 2Q16, unchanged from the previous quarter. KMI also announced expectations to declare dividends of $0.50 per share for 2016. It intends to “use cash in excess of dividend payments to fund growth investments and strengthen its balance sheet.”