Kinder Morgan: Set for Long-Term Gains

Kinder Morgan, Inc. (KMI) announced second quarter ended June 30, 2016 total revenue of $3.14 billion, down 9 percent year-over-year from $3.46 billion during the same period last year.

Kinder Morgan declared second quarter of 2016 net income of $375 million or $0.15 per diluted share, up 10 percent year-over-year from $342 million or $0.15 per diluted share in second quarter of 2015.

The North American energy infrastructure development company reported continued year-over-year decline in its top line primarily due to the ongoing weaker global commodity demand and pricing environment, greater preferred stock dividends and greater cash tax payments somewhat offset by higher contributions from product terminal and pipeline segments coupled with smaller interest expenditure.

Expanding impressively

Kinder Morgan has illustrated 19 key years of steady expansion primarily driven by the company’s continued focus on maintaining a solid financial position to uniquely implement high-growth opportunities while delivering sustainable long-term returns.
In addition, the unique combination of EPB, KMR, KMP and KMI during 2014 has strategically achieved enhanced scale, superior business diversification and nil structural subordination.

Kinder Morgan has made a significant total capital investment of approximately $54 billion since its inception in asset development through both acquisitions and investments.
Kinder Morgan: Set for Long-Term Gains
Image by Robzor / Pixabay
Importantly, the company has greatly increased its investments in expansions as against acquisitions while hugely growing its net investments in the development of natural gas pipelines globally.

Going forward, Kinder Morgan is expected to be the market leader for all its key growth market segments with a keen focus on expanding fee-based and stable assets at the core of energy mining in North America. It’s paramount for Kinder Morgan to sustain a solid investment-grade balance sheet through strategic year-over-year reduction in dividends while controlling both core and non-core capital expenditures.

The ongoing focus of Kinder Morgan on targeting robust growth opportunities by sustaining a solid financial position through superior cost control and implementing technological improvements to harness greater production of energy from the existing infrastructure is believed to impressively position the company at the path of sustainable long-term growth while offering attractive shareholder returns over the long run.

Strong end-market growth

Kinder Morgan is expected to have a robust asset footprint across North America, making it the biggest energy infrastructure provider in the continent. The company operates/owns more than 69,000 mile length of core natural gas pipelines across North America and thus, it’s connected to all the key natural gas resource plays in the US including, Haynesville, Bakken, Permian, Utica, Marcellus and Eagle Ford. Kinder Morgan transports approximately 2.1 MMBbl/d of gross petroleum products and supplies nearly 1.2 Bcf/d of CO2 through North America, making it the largest energy transportation company in North America. Also, the company expects 91% of total cash flows to be fee-based in 2016 and 97% to be hedged or fee-based. Kinder Morgan has highly diversified pipeline development operations in North America comprised of natural gas pipelines, products pipelines, CO2, terminals and complete petroleum pipelines across Canada.

The natural gas driven power generation in the US is growing consistently with SNG recording its first-ever five greatest power generation days and notable NGL supply expansion driving superior infrastructure growth. Refined products are witnessing consistent, average volume expansion, being controlled by an inflation driven tariff tuning mechanism. Further, continued decline in oil price is resulting in ongoing reduction in overall US energy production which is expected to further face downward pressure with the key oilsands projects coming online in Canada further growing production in an already overcapacity global energy environment.

Kinder Morgan’s unparalleled asset footprint is only expected to deliver extremely nominal returns amid slowly improving global commodity demand and pricing environment and despite the company’s continued cost-optimization initiatives.


Overall, the investors are advised to “Hold” their position in Kinder Morgan, Inc. considering the company’s significant long-term growth prospects but, currently weaker financial position with significant total debt of $43.65 billion against weaker total cash position of $309 million only, restricting the company to continue with its daily operations profitably. The profit margin of 1.30% is nominal. However, the PEG ratio of 3.89 depicts healthy and industry-leading company growth, driving sustainable long-term shareholder returns.
Published on Aug 29, 2016
By Subhen Mittra

Copyrighted 2020. Content published with author's permission.

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