Kinder Morgan, Inc. — 2019 Form 10-K
Business context and reporting period. This is the audited annual report for the fiscal year ended December 31, 2019, not a standalone quarterly filing; it also provides unaudited fourth-quarter data. Kinder Morgan operates approximately 83,000 miles of pipelines and 147 terminals across North America, through Natural Gas Pipelines, Products Pipelines, Terminals and CO2 businesses. Its strategy emphasizes fee-based infrastructure, disciplined investment and cash generation.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Revenue | $13.209 billion | $14.144 billion | Down 6.6%; commodity sales fell while service revenue increased. |
| Operating income | $4.873 billion | $3.794 billion | Up 28.4%; includes substantial divestiture gains and impairment effects. |
| Net income | $2.239 billion | $1.919 billion | Up 16.7%. |
| Net income available to common stockholders | $2.190 billion | $1.481 billion | 2018 included $128 million in preferred dividends. |
| Basic EPS | $0.96 | $0.66 | Up from prior year. |
| Operating / net margin | 36.9% / 17.0% | 26.8% / 13.6% | Calculated from reported GAAP results; operating margin benefited from unusual items. |
| Cash provided by operating activities | $4.748 billion | $5.043 billion | Down $295 million, mainly due to sale-related tax payments and comparison with prior-year tax refunds. |
| Adjusted EBITDA | $7.618 billion | $7.568 billion | Up 0.7%; non-GAAP. |
| Distributable cash flow (DCF) | $4.993 billion; $2.19/share | $4.730 billion; $2.12/share | Up 5.6%; non-GAAP. |
| Debt, excluding fair-value adjustments | $33.360 billion | $36.593 billion | Reduced through asset-sale proceeds and debt repayments. |
| Cash and revolving-credit availability | $185 million cash; about $3.9 billion available | $3.280 billion cash | Cash declined substantially after debt repayment and distributions. |
Current liabilities exceeded current assets by $1.862 billion at year-end. Net Debt-to-Adjusted EBITDA was 4.3 times. About $8.9 billion of debt was exposed to variable rates, including debt swapped from fixed rates.
Fourth-quarter snapshot
Fourth-quarter 2019 revenue was $3.352 billion, operating income $1.931 billion, net income $627 million and EPS $0.27. In fourth-quarter 2018, the corresponding figures were $3.781 billion, $1.058 billion, $502 million and $0.21. The 2019 operating-income comparison reflects significant divestiture and impairment items.
Material changes and unusual items
- In December 2019, Kinder Morgan sold the U.S. portion of the Cochin Pipeline and its 70% interest in Kinder Morgan Canada (KML) to Pembina. The transactions generated a reported pre-tax net gain of $1.296 billion. Cash proceeds for the U.S. Cochin portion were $1.553 billion; the company’s KML consideration was Pembina shares valued at $925 million at year-end. Those shares were sold in January 2020 for approximately $907 million before tax, with after-tax proceeds of about $764 million intended for debt reduction.
- 2019 operating results included approximately $1.014 billion of impairment losses, including a $650 million impairment of the Ruby Pipeline investment and impairments of certain Oklahoma and North Texas gathering and processing assets. The Ruby impairment reflected competing gas supplies and upcoming contract expirations; other impairments reflected reduced drilling activity.
- Adjusted Segment EBDA rose to $7.749 billion from $7.672 billion. Natural Gas Pipelines improved to $4.610 billion from $4.205 billion, while CO2 declined to $707 million from $907 million, primarily due to lower oil and NGL prices and production volumes. These are non-GAAP measures.
- The Gulf Coast Express pipeline entered full commercial operation in September 2019. Elba Island LNG facilities and three liquefaction units were in service by January 2020; six additional units were expected by mid-2020.
Outlook, risks and contingencies
- 2020 outlook: management expected DCF of approximately $5.1 billion ($2.24 per share), Adjusted EBITDA of $7.6 billion, $2.4 billion of expansion investment and joint-venture contributions, and year-end net leverage of 4.3 times. It planned to declare dividends of $1.25 per share, 25% above 2019’s $1.00. Management said internally generated cash would primarily fund discretionary investment, with no expected need to issue equity for 2020 projects. These are forward-looking, non-GAAP targets where applicable, not guarantees.
- The budget assumed average WTI oil of $55/barrel and Henry Hub gas of $2.50/MMBtu. Management estimated each $1/barrel WTI change would affect DCF by about $5 million, each $0.10/MMBtu gas-price change by about $1 million, and each 1% change in the NGL-to-WTI price ratio by about $2 million. Most revenue is fee-based; CO2 is the principal direct commodity exposure, with much of the next 12 months’ production hedged.
- Key risks include leverage and refinancing needs, interest-rate exposure, customer financial distress, commodity prices and producer activity, pipeline safety incidents, construction delays and permitting, regulatory rate challenges, cybersecurity, environmental obligations, and climate-related regulation and physical risks.
- Environmental reserves were $259 million, at the low end of an estimated range of $259 million to $428 million. Legal reserves totaled $203 million. Management said outcomes of environmental and legal matters were not expected to have a material adverse effect, but some exposures remain difficult to estimate.
- Ongoing SFPP rate disputes involve shipper claims seeking approximately $50 million in annual rate reductions and $400 million in refunds; the company expects any amounts ultimately required to be substantially below the claims and is defending the cases. A separate Hiland dispute includes a claim for damages exceeding $225 million, which the company contests.
- Debt maturities include $2.477 billion classified as current at year-end 2019. The company reported compliance with credit-facility covenants and about $3.9 billion of revolver availability. Its auditors issued an unqualified opinion; goodwill impairment assessment was identified as a critical audit matter. Internal control over financial reporting was assessed as effective.
Important facts for investors to verify
- How much of 2019’s GAAP earnings and operating-margin increase reflects recurring operations versus the KML/Cochin gain, impairments and other special items; compare GAAP results with the company’s non-GAAP reconciliations.
- Whether 2020 DCF, EBITDA, leverage and dividend targets were achieved, and how actual capital spending and project timing compared with the outlook.
- Debt repayment from divestiture proceeds, subsequent debt balances and maturities, variable-rate exposure, and the sustainability of leverage and dividend coverage.
- Progress and financial implications of Ruby, SFPP and other rate proceedings, environmental remediation, and the Hiland and Gulf LNG disputes.
- Whether the 2019 deterioration in CO2 segment results and impairments in selected midstream assets persist, and how contract renewals, volumes and commodity prices affect cash generation.