During the second quarter, Kinder Morgan Inc. (KMI) continued to rebuild its balance sheet and enhance its credit profile. Increased natural gas throughputs helped. And recently announced joint ventures are expected to bring more improvement during the latter half of the year.

“Driven by the joint ventures with Southern Company on our SNG [Southern Natural Gas (see Daily GPI, July 11)] system and Riverstone on our Utopia pipeline project [see Daily GPI, June 29], we expect to end the year at a leverage ratio of 5.3 times net debt-to-adjusted EBITDA [earnings before interest, taxes, depreciation and amortization], down from our previous guidance of 5.5 times,” said Chairman Rich Kinder.

“We are now closer to reaching our targeted leverage level, which will position us to return substantial value to shareholders through some combination of dividend increases, share repurchases, attractive growth projects or further debt reduction.”

KMI’s 75% quarterly dividend cut late last year drew much attention and was pitched as a means for the company to avoid issuing equity in a soft market (see Daily GPI, Dec. 9, 2015).

KMI reported second quarter net income of $333 million, unchanged from the second quarter of 2015, and distributable cash flow (DCF) of $1.05 billion versus nearly $1.1 billion for the comparable period in 2015. The decrease in DCF was primarily attributable to lower contributions from the CO2 segment, partially offset by increased contributions from the products pipelines and terminals segments as well as lower interest expense. Net income was also affected by a positive $31 million change in total certain items for the quarter from the second quarter of 2015, including a $39 million payment received for early termination of a customer storage contract in the Texas Intrastate Natural Gas Pipeline Group.

“The natural gas pipelines segment’s performance for the second quarter of 2016 compared to the same period during 2015 included increased contribution from Tennessee Gas Pipeline (TGP) driven by expansion projects placed into service during 2015 and improved performance on the Hiland midstream assets,” CEO Steve Kean said. “This growth was offset by declines attributable to lower commodity prices and reduced volumes affecting certain of our midstream gathering and processing assets, the expiration of a minimum volume contract at KinderHawk during 2015 and a customer contract buyout at Kinder Morgan Louisiana pipeline during 2015.”

Natural gas transport volumes were up 3% compared to the second quarter last year, driven by higher throughput on TGP due to projects placed in service, higher throughput on Natural Gas Pipeline Co. of America (NGPL) due to deliveries to the Sabine Pass liquefied natural gas (LNG) terminal and to South Texas to meet demand from Mexico, and higher throughput on El Paso Natural Gas pipeline due to additional deliveries to Mexico and the desert southwest, KMI said.

These increases were partially offset by lower throughput on the Texas Intrastate Natural Gas Pipeline Group due to lower Eagle Ford Shale volumes, and lower throughput on Fayetteville Express Pipeline due to lower production from the Fayetteville Shale. Gas gathered volumes were down 16% from the second quarter last year due primarily to lower natural gas volumes from the Eagle Ford. Power generation throughput on Kinder Morgan pipelines was up 8% for the quarter compared to the second quarter of 2015, which was 16% higher than the second quarter of 2014.

Over the last two and a half years, KMI said it has entered into new and pending firm transport capacity commitments totaling 8.1 Bcf/d (1.8 Bcf/d of which is existing, previously unsold capacity). Of the natural gas consumed in the United States, about 38% moves on KMI pipelines. “KMI expects future natural gas infrastructure opportunities will be driven by greater demand for gas-fired power generation across the country, liquefied natural gas exports, exports to Mexico and continued industrial development, particularly in the petrochemical industry,” the company said.

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