KMI | 2Q15 10-Q Review (Hiland, G&P, S&T, Coal)

Kinder Morgan, Inc. (KMI) published its 2Q15 10-Q on 7/24.  We didn't find anything earth-shattering in the filing, and a boring 10-Q is a good 10-Q...  That said, there were some interesting segment / asset-level data points that deserve mention.

 

Detail on Shell Acquisition......“On July 15, 2015, we purchased from Shell US Gas & Power LLC (Shell) for $200 million its 49% interest in a joint venture, ELC, that was formed to develop liquefaction facilities at Elba Island, Georgia. The purchase gives us full ownership and control of ELC. Shell continues to subscribe to 100% of the liquefaction capacity.” 

 

Hiland EBDA Contribution Disclosed......KMI disclosed that the Hiland G&P assets contributed $36MM of EBDA to Natural Gas Pipelines and the Hiland Double-H crude pipeline contributed $12MM of EBDA to Products Pipelines in 2Q.  Assuming $20MM of annual G&A, that puts the acquisition multiple at 18x current EBITDA.

 

G&P Weakness Hits Natural Gas Pipelines......Natural Gas Pipelines EBDA was down YoY on an organic basis (ex. Hiland), with the commodity-sensitive G&P assets weighing on the segment:

 

KMI | 2Q15 10-Q Review (Hiland, G&P, S&T, Coal) - kmi natgas

 

CO2 S&T EBDA Down 32% YoY......In our view, the market under-appreciates KMI's oil price exposure in its CO2 S&T business.  In 2Q15, S&T EBDA was down 32% to an implied $79MM (~$320MM annualized):

 

KMI | 2Q15 10-Q Review (Hiland, G&P, S&T, Coal) - kmi S T

 

Weak Bulk Terminals Volumes Bodes Poorly for Future EBDA......Bulk transload volumes were down 22% YoY, while Gulf Bulk EBDA was actually up $6MM (+32%) due to "increased shortfall revenue from take-or-pay coal contracts.”  MVCs for KMI's major coal export customers, BTU and ACI, likely expire around 2020 - 2021 (see KMI's 2012 10-K), though with those coal companies' unsecured bonds currently trading ~10 - 30 cents on the dollar, those contracts could be at risk of default / renegotiation.  See this presentation for more on KMI's coal exposure

 

Commodity Hedges......KMI's commodity derivatives disclosure is poor, though it looks as though the significant QoQ change was a ~30MMbbls increase in NGL fixed price swaps.  KMI also added some natural gas basis swaps.  As of 6/30/15, KMI's commodity derivatives were marked on the balance sheet at $317MM, net.

 

KMI | 2Q15 10-Q Review (Hiland, G&P, S&T, Coal) - KMI hedge

 

YTD Equity Issuance......"During the six months ended June 30, 2015, we issued and sold 62,079,878 shares of our Class P common stock pursuant to the equity distribution agreement, and issued an additional 968,900 shares after June 30, 2015 to settle sales made on or before June 30, 2015, resulting in net proceeds of $2,599 million."

 

2015 CapEx Guidance Revised Slightly Lower......"Sustaining" CapEx: $603MM, down from $614MM prior; "discretionary" CapEx: $4,098MM, down from $4,179MM prior.

 

Link to 7/16 Note: KMI 2Q15 Recap & Valuation Update

Link to Updated Valuation Sheet: KMI Valuation Tear Sheet (Excel)  

 

Kevin Kaiser

Managing Director


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