April 21, 2017 [OPIS] - Kinder Morgan Inc. (KMI), the nation's largest gas pipeline company, reported $401 million net income to shareholders in 1stQtr 2017. This is up 45% from $276 million in 1Q16 and more than double the $170 million reported for 4Q16.
This is the best quarterly bottom line for KMI since 2014 and compares impressively with $552 million income for all of 2016.
A first order of business in Kinder Morgan earnings reports is progress on debt reduction, and the numbers for 1stQtr look good. They brought long-term debt down 5%, from $36.1 billion to $34.3 billion. That brought the debt ratio (long-term debt/annualized adjusted EBITDA) down from 4.98x at yearend to 4.71x.
Chairman Richard Kinder commented that the goal is to “stay on track toward our targeted leverage level of around 5.0 times net debt-to-adjusted EBITDA. That leverage level will create options for us to return substantial value to shareholders through some combination of dividend increases, share repurchases, additional attractive growth projects or further debt reduction.”
As for operating results, KMI rang up a 7.2% gain in revenue year-on-year (YOY) from $3,195 million in 1Q16 to $3,424 million in 1Q17. Operating income jumped 20% from $816 to $980 million YOY. Adjusted EBITDA actually dipped 3.3% from $1,883 million to $1,820 million YOY.
The primary metric used by Kinder Morgan for segment operating results is “Segment EBDA,” Earnings before Depreciation and Amortization,” a measure which strips out taxes and noncash items which affect EBITDA. By this measure, total 1Q17 EBDA of $1,910 million beat $1,664 million in 1Q16 by 15%, and $1,472 million in 4Q16 by 30%.
For the year-on-year comparison with 1Q16, segment EBDA was up 6% in natural gas pipelines from $994 million to $1,055 million, CO2 and oil production up 17% from $187 million to $218 million, Terminals up 18% from $260 million to $307 million, and refined product pipelines up 62% from $177 million to $287 million.
Sequential quarter comparisons with 4Q16 are very different. While CO2 and oil production was basically flat, and refined product pipelines off 7%, the standout performers were natural gas pipelines and terminals, both up by 50%. Terminals EBDA jumped from $205 million in 4Q16 to $307 million. Gas pipelines jumped from $706 million to $1,055 million.
Highlights in the dominant gas pipeline segment included a 16% gain in gas deliveries to Mexico, up 391 MMcfd from 1Q16. During the same time frame, deliveries to LNG facilities rose by 548 MMcfd.
In gas pipelines, the primary place that shows weakness is gas gathering on the Texas Intrastate systems. They are down 15% YOY from 3,207 MMcfd to 2,712 MMcfd in 1Q17. But that masks an even greater decline from normal gas gathering volumes running over 3.5 Bcfd across 2015. The problem is centered in the Eagle Ford shale and on the KinderHawk system.
News highlights during the quarter included the entry of EIG Global Energy Partners as a 49% joint venture partner in the $2 billion Elba Island Liquefaction project near Savannah, Ga. EIG paid $385 million in cash to cover its portion of previous capital expenditures.
The major new initiative of the quarter was the Gulf Coast Express (GCE) Pipeline, a giant 42-inch gas throughway with capacity of 1.7 Bcfd running 430 miles from the Waha hub in the Permian Basin to the Agua Dulce hub near Corpus Christi. The open season for expressions of interest in capacity on GCE closes today, April 20. After the open season was in progress, KMI took DCP Midstream aboard as a 50% partner in the GCE.
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