Kinder Morgan, Inc. today announced its preliminary financial projections for 2021. KMI remains committed to maintaining a strong balance sheet, returning value to its shareholders through dividend increases and/or share repurchases, and investing in projects with attractive returns.

“With 2020 coming to a close, we can look back on the year with pride at how our company weathered the economic downturn and energy demand reduction associated with the pandemic. We took decisive action, reducing our 2020 expenses and sustaining capital expenditures by nearly $190 million combined versus our original budget without sacrificing safety and compliance. In addition, we reduced our discretionary capital outlook for 2020 by approximately $680 million, or almost 30%,” said Steve Kean, KMI’s chief executive officer. “We expect these actions to result in an improvement to distributable cash flow (DCF) less discretionary capital expenditures of approximately $160 million compared to our original budget. We expect to end the year with a 2020 Net Debt-to-Adjusted EBITDA ratio of approximately 4.6 times. This is consistent with our long-term target of approximately 4.5 times,” continued Kean.

“In 2021, we expect to generate $2.1 billion in net income attributable to KMI, $2.0 billion more than our 2020 forecast, due primarily to asset and goodwill impairments taken during 2020. We also expect to generate $4.4 billion in DCF during 2021, approximately 3% below our current forecast for 2020 DCF. DCF will be negatively impacted by lower re-contracting rates on certain Natural Gas Pipeline segment assets (mainly Ruby and FEP pipelines, as we have noted for the last couple of years), lower crude volumes and realized prices in the CO2 segment, lower capitalized overhead as a result of lower discretionary capital expenditures, and higher sustaining capital expenditures partially offset by projects placed in service and increased refined product volumes. DCF less discretionary capital expenditures and dividends is expected to be $1.2 billion, an improvement of more than $700 million compared to our 2020 forecast. Our budget guidance includes savings from a corporate-wide organizational efficiency and effectiveness project that resulted in approximately $100 million in annual costs savings to KMI and an expected 2021 DCF benefit of $72 million, taking into account partial year savings in 2020, allocations to capital, and other items. We will go into greater detail on that process when we present our budget on January 27,” continued Kean.

“Pursuant to a recent board of directors meeting, we are also able to announce our 2021 dividend policy and expectation about the fourth quarter 2020 dividend. We expect the board to declare a fourth quarter 2020 dividend of $0.2625 per share or $1.05 annualized, consistent with previous quarters in 2020. Based on our budgeted DCF per share generation detailed below, the board expects the 2021 dividend to be $1.08 per share (annualized), a 3% increase from the 2020 dividend. With budgeted excess coverage of that dividend, we expect also to be able to engage in share repurchases on an opportunistic basis,” concluded Kean.

Below is a summary of KMI’s expectations for 2021:
Please see “Non-GAAP Financial Measures” below for definitions of DCF, Adjusted EBITDA and Net Debt, and the accompanying tables for reconciliations of 2021 budgeted net income attributable to KMI to budgeted DCF and budgeted Adjusted EBITDA.

  • Generate $0.92 of net income attributable to KMI per share, up $0.90 compared to our current 2020 forecast.
  • Generate $1.95 of DCF per share, down 3% compared to our current forecast for 2020, and $6.8 billion of Adjusted EBITDA.
  • Generate DCF in excess of discretionary capital expenditures and dividends of $1.2 billion. A portion of that excess coverage would be available for debt reduction and a portion for opportunistic share repurchases.
  • Return value to shareholders in 2021 through a $1.08 per share dividend (annualized) and opportunistic share repurchases of up to $450 million. Share repurchases at that level would result in a Net Debt-to-Adjusted EBITDA ratio of approximately 4.6 times, consistent with our long-term target of approximately 4.5 times.
  • Invest $0.8 billion in expansion projects and contributions to joint ventures in 2021.

KMI’s expectations assume the average annual prices for West Texas Intermediate (WTI) crude oil and Henry Hub natural gas of $43 per barrel and $3.00 per million British thermal units (MMBtu), respectively. This is consistent with the forward pricing at the time of the budget process. The vast majority of cash generated by KMI is fee-based and therefore not directly exposed to commodity prices. The primary area where KMI has commodity price sensitivity is in its CO2 segment, where KMI hedges the majority of its next 12 months of oil production to minimize this sensitivity. For 2021, the company estimates that every $1 per barrel change in the average WTI crude oil price impacts DCF by approximately $4 million, and each $0.10 per MMBtu change in the price of natural gas impacts DCF by approximately $1 million.

The KMI board of directors will review the 2021 budget for approval at its January board meeting, and management will discuss the budget in detail during the company’s annual investor conference on January 27, 2021 in Houston, Texas. Kinder Morgan remains committed to transparency and will continue to publish its budget on the company’s website as presented at the investor conference. The 2021 budget will be the standard by which KMI measures its performance next year and will be a factor in determining employee compensation.