Kinder Morgan Inc. (KMI) plans to invest $2.4 billion in expansion projects and joint ventures in 2020, but the company also has growing dividend payments in its sights as it looks to build “financial flexibility” into its budget for the new year.
Announcing its 2020 financial expectations Thursday, management for the Houston-based midstreamer also laid out plans to raise distributable cash flow (DCF) to $2.24/share, up 3% year/year, and increase its dividend to an annualized $1.25/share. That would mark a 25% increase versus KMI’s 2019 dividend and a 150% increase compared to 2017.
“Our growth is a result of expansion projects coming online, built-in contract and tariff escalators, lower interest expense and improved realized prices” in the company’s carbon dioxide (CO2) business, CEO Steve Kean said. This was “partially offset by the full-year impact of the sale of Cochin” and Kinder Morgan Canada Ltd., “the full-year impact of the rate settlements in our natural gas pipelines segment, higher sustaining capital expenditures and lower re-contracting rates on certain natural gas pipeline segment assets as well as on our crude and condensate assets.”
KMI’s 2020 budget assumes average annual prices of $55/bbl West Texas Intermediate (WTI) and $2.50/MMBtu Henry Hub, based on forward pricing during the budgeting process. Management said the company generates most of its cash from fees and is not directly exposed to commodity prices.
For its carbon dioxide (CO2) business, where KMI experiences commodity price sensitivity, management said it “hedges the majority of its next 12 months of oil production to minimize this sensitivity. For 2020, the company estimates that every $1/bbl change in the average WTI crude oil price impacts DCF by approximately $7 million, and each 10 cent/MMBtu change in the price of natural gas impacts DCF by approximately $1 million.”
In the process of divesting the Canadian segment of its business, KMI expects to close on the sale of the Cochin Pipeline and all outstanding shares of KML to Calgary-based Pembina Pipeline Corp. by the end of 2019.
KMI’s departure from Canada began with a mid-2018 sale of Trans Mountain Pipeline to the Canadian government for C$4.5 billion ($3.4 billion) after environmental, indigenous and political opponents stalled its expansion project.
KMI’s 2020 budget guidance assumes the proceeds from Pembina will go to pay down debt, creating about $1.2 billion of “balance sheet/borrowing flexibility,” according to Kean.
This gives the midstreamer “attractive optionality” going into 2020. The company can “retain that financial flexibility or use some or all of it to repurchase shares or invest in attractive projects. The company will continue to make those choices based on shareholder value,” management said.
KMI’s board plans to review the 2020 budget during a meeting in January, and management plans to discuss the budget at the company’s upcoming annual investor conference, scheduled for Jan. 29 in Houston.