The Natural Gas Pipelines segment's performance for the fourth quarter of 2017 was 4% higher relative to the fourth quarter of 2016. The segment benefited from increased contributions from Tennessee Gas Pipeline (TGP), driven by incremental short-term capacity sales and projects placed in service; from Natural Gas Pipeline of America (NGPL) due to lower interest expense; from the Elba Express pipeline resulting from the completion of expansion projects; from SNG due to completion of an expansion project and lower interest expense; and from Hiland Midstream due to increased gathering volumes and the effect of renegotiated contracts. These benefits were partially offset by lower contributions from certain midstream gathering and processing assets and from Colorado Interstate Gas Company (CIG) as a result of a 2016 rate case settlement.
The CO2 segment was impacted by lower commodity prices, as its realized weighted average oil price for the quarter was $59.32 per barrel compared to $62.30 per barrel for the fourth quarter of 2016. Combined oil production across all of its fields was up 2% compared to 2016 on a net to Kinder Morgan basis. Fourth quarter 2017 net NGL sales volumes of 10.1 thousand barrels per day (MBbl/d) were down 3% from 2016, due to an operational interruption during the quarter.
The Terminals segment earnings contributions were up 4% compared to the fourth quarter of 2016 despite several divestitures and a negative impact on earnings associated with Hurricane Harvey.
The Products Pipelines segment contributions were up 2% compared with fourth quarter 2016 performance due largely to increased contributions from SFPP, CalNev, and Kinder Morgan Southeast Terminals.
The company reported distributable cash flow (DCF) of $0.53 per common share, which represented 4% growth over the fourth quarter of 2016, resulting in $910 million of excess DCF above the dividend.
The increase in DCF was driven by greater contributions from the Natural Gas, Terminals and Products Pipelines Business Units, as well as from Kinder Morgan Canada, partially offset by decreased contributions from CO2.
The board of directors approved a cash dividend of $0.125 per share for the fourth quarter ($0.50 annualized) payable on February 15, 2018, to common stockholders of record as of the close of business on January 31, 2018. KMI continues to expect to increase its dividend to $0.80 per share for 2018 ($0.20 per share for first quarter 2018).
When the company reported its second quarter results on July 19, the company reported quarterly earnings, but also released some pretty big news about its dividend. The company announced an expected 60% dividend increase for 2018 and projected 25% annual dividend growth from 2018 through 2020 when they reported on that day.
That's why seeing the company reaffirm its dividend growth is a big deal.
The company had a solid fourth quarter, but because of a non-cash accounting charge resulting from the reduction in corporate income tax rates, the company showed a GAAP fourth quarter loss of $0.47 in earnings per common share. While the recently enacted Tax Cuts and Jobs Act of 2017 will ultimately be moderately positive for KMI, the reduced corporate income tax rate causes certain deferred-tax assets to be revalued at 21% versus 35%.
Although there is no impact to the underlying related deductions, which can continue to be used to offset future taxable income, KMI will take an estimated approximately $1.4 billion non-cash accounting charge for the fourth quarter. This charge is its initial estimate and may be refined in the future as permitted by recent guidance from the Securities and Exchange Commission and the Financial Accounting Standards Board. The positive impacts of the law include the reduced corporate income tax rate and the fact that several of our U.S. business units (essentially all but our interstate natural gas pipelines) will be able to deduct 100% of their capital expenditures through 2022. The net impact results in postponing the date when KMI becomes a federal cash taxpayer by approximately one year, to beyond 2024.
Looking ahead to 2018...
KMI's budget is set to declare dividends of $0.80 per common share, achieve DCF of approximately $4.57 billion ($2.05 per common share) and Adjusted EBITDA of approximately $7.5 billion.
KMI also budgeted to invest $2.2 billion in growth projects during 2018 (excluding growth capital expected to be funded by KML), to be funded with internally generated cash flow without the need to access equity markets, and to end the year with a Net Debt-to-Adjusted EBITDA ratio of approximately 5.1 times.
KMI previously announced it will further enhance shareholder value through a $2 billion share buy-back program. KMI's Board of Directors authorized the program to begin in December 2017, and during that month KMI repurchased approximately 14 million shares for approximately $250 million. In 2018, KMI plans to further utilize this program opportunistically.
Kinder Morgan is one of the largest energy infrastructure companies in North America. Co owns an interest in or operate approximately 84,000 miles of pipelines and 155 terminals.
The company's pipelines transport natural gas, gasoline, crude oil, carbon dioxide (CO2) and more. Its terminals store and handle petroleum products, chemicals and other products. Co moves about 40% of natural gas consumed in the U.S.