Kinder Morgan, Inc. — FY 2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed February 5, 2021. Kinder Morgan owns or operates approximately 83,000 miles of pipelines and 144 terminals, with four primary segments: Natural Gas Pipelines, Products Pipelines, Terminals and CO2.
Financial performance
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $11.700 billion | $13.209 billion |
| Operating income | $1.560 billion | $4.873 billion |
| Net income attributable to KMI | $119 million | $2.190 billion |
| Basic and diluted EPS | $0.05 | $0.96 |
| Cash from operating activities | $4.550 billion | $4.748 billion |
| Adjusted EBITDA | $6.962 billion | $7.618 billion |
| DCF | $4.597 billion; $2.02/share | $4.993 billion; $2.19/share |
| Declared dividends per share | $1.05 | $1.00 |
Revenue fell 11%. Operating margin was approximately 13.3%, compared with 36.9% in 2019, and net margin was approximately 1.0%, compared with 16.6%; both comparisons reflect large impairment and divestiture effects. Fourth-quarter revenue was $3.115 billion versus $3.352 billion; net income attributable to KMI was $607 million versus $610 million, and EPS was $0.27 in both quarters.
Material changes and segment trends
- Reported net income attributable to KMI declined 95%, principally due to $1.6 billion of non-cash goodwill impairments and $350 million of impairments on CO2 oil and gas properties. Adjusted earnings were $2.011 billion, down from $2.161 billion.
- Adjusted Segment EBDA declined in Natural Gas Pipelines to $4.466 billion from $4.610 billion; Products Pipelines to $1.027 billion from $1.258 billion; Terminals to $990 million from $1.174 billion; and CO2 to $652 million from $707 million.
- COVID-19 reduced energy demand and commodity prices. Products Pipelines volumes and related earnings were affected by lower refined-product demand; CO2 results were affected by lower sales volumes. Terminals liquids utilization nevertheless increased to 95.3% from 93.2%.
- Natural Gas Pipelines benefited from Elba Island LNG units entering service and increased NGPL equity earnings, partially offset by weaker midstream results, customer bankruptcies and lower rates or volumes in certain areas.
- In December 2019, KMI sold KML and the U.S. Cochin Pipeline portion. The 2019 comparison includes a $1.296 billion pre-tax gain on those transactions; KMI sold the Pembina shares received in January 2020 for approximately $907 million, or $764 million after tax, and used proceeds to repay debt.
Cash, debt and liquidity
- Cash and cash equivalents were $1.184 billion at year-end, up from $185 million. Working capital was negative $1.871 billion.
- Principal debt was $33.396 billion, excluding debt fair-value adjustments; balance-sheet debt was $34.689 billion including those adjustments. Net Debt/Adjusted EBITDA was 4.6x.
- KMI had approximately $3.9 billion available under its $4 billion revolving credit facility, with no facility or commercial-paper borrowings outstanding at year-end. Management said cash, operating cash flow and facility capacity were adequate for expected needs through 2021.
- Cash dividends paid were $2.362 billion. Operating cash flow decreased $198 million year over year; cash used for capital expenditures was $1.707 billion. The company issued approximately $2.25 billion of new senior notes and repaid approximately $2.2 billion of maturing senior notes during 2020.
- Credit ratings on senior unsecured debt were BBB (S&P), Baa2 (Moody’s) and BBB (Fitch), each with a stable outlook. Approximately $5.2 billion of debt was exposed to variable interest rates, including swaps.
Outlook, risks and contingencies
- Management expected a 2021 dividend of $1.08 per share, a 3% increase, and approximately $0.8 billion of expansion investments and joint-venture contributions. It also anticipated capacity for up to $450 million of opportunistic share repurchases; these are forward-looking expectations, not commitments.
- Projects placed in service included the Elba LNG expansion units, EPNG South Mainline Phase 2 and the Texas Crossover II expansion. Permian Highway Pipeline entered full commercial service January 1, 2021. Other announced expansions remained subject to construction schedules and, in some cases, regulatory approvals.
- Key risks include continuing pandemic effects, commodity-price and volume exposure, customer financial distress or bankruptcy, high leverage and refinancing costs, regulatory rate challenges, pipeline safety and integrity obligations, cybersecurity, severe weather, environmental liabilities, and climate-related regulation and energy-transition effects. Management cautioned that further deterioration could cause additional impairments.
- Environmental reserves were $250 million at year-end; legal reserves were $273 million. Several matters remain unresolved, including SFPP rate proceedings, Gulf LNG customer disputes, a claim against Hiland seeking damages exceeding $225 million, and Superfund and Louisiana coastal litigation. The filing says certain potential liabilities cannot yet be reasonably estimated; management generally did not expect the disclosed matters to have a material adverse effect.
- Management and the independent auditor concluded that internal control over financial reporting was effective. PwC issued an unqualified opinion on the financial statements and internal controls; its critical audit matters included oil and gas asset and goodwill impairment estimates.
Investor verification priorities
- Review the impairment assumptions and sensitivity of the $1.6 billion goodwill and $350 million producing-asset charges to prices, volumes and discount rates.
- Confirm 2021 dividend and discretionary-capital funding against operating cash flow, debt maturities and leverage targets.
- Track customer credit exposure, the impact of bankruptcies on affected pipelines and joint ventures, and any further deterioration in volumes or contracted rates.
- Monitor SFPP rate cases, Gulf LNG arbitration, the Hiland claim and environmental matters for changes in estimated exposure or reserves.
- Verify project completion, utilization and contracted returns for recent expansions, including Permian Highway, and assess regulatory, construction and demand risks for projects still underway.