Kinder Morgan, Inc. announced that its board of directors approved a cash dividend of $0.125 per share for the quarter ($0.50 annualized) payable on August 15, 2017, to common shareholders of record as of the close of business on July 31, 2017. Additionally, as result of substantial balance sheet improvement achieved since the end of 2015, KMI is announcing multiple steps to return significant value to shareholders. First, KMI announced it expects to declare an annual dividend of $0.80 per share for 2018, a 60 percent increase from the expected 2017 dividend. The first 2018 increase is expected to be the Q1 2018 dividend. Additionally, the company plans to increase its dividend to $1.00 per share in 2019 and $1.25 per share in 2020, a growth rate of 25 percent annually. Finally, the board authorized a $2 billion share buyback program, which represents approximately 5 percent of KMI’s current market capitalization. KMI expects to declare dividends of $0.50 per share for 2017 and use cash in excess of dividend payments to fully fund growth investments and further strengthen its balance sheet.

“We are pleased to fulfill our pledge to return value to shareholders through this combination of an attractive and growing dividend as well as a sizable share repurchase program. In essence, we expect to return substantially all of our operating cash flow in excess of growth capital needs to our shareholders through increasing the dividend and repurchasing shares, while maintaining robust coverage of the dividend,” said Richard D. Kinder, executive chairman. “This action comes on the heels of our successful initial public offering of our Canadian business, which in combination with the Elba, Utopia and SNG joint ventures drove much of our over $5.8 billion net debt reduction since the end of the third quarter of 2015.”

“Importantly, these steps to return value to our shareholders will not come at the detriment of our balance sheet. In fact, we expect to continue to fund all growth capital through operating cash flows with no need for external funding for growth capital at KMI,” said Kinder. “As previously announced, we expect to end 2017 at a 5.2 times net debt-to-Adjusted EBITDA ratio, ahead of plan, and remain committed to a leverage target of approximately 5.0 times. We are extremely pleased with the company’s financial strength, and today’s announcement is confirmation of that strength.”

President and CEO Steve Kean said, “We are gratified that our robust cash flow enables us to return value to shareholders through both quarterly dividends and share repurchases, while at the same time continuing to invest in opportunities that will further enhance our ability to do so. The board and management believe that the company’s shares are an attractive investment opportunity and repurchasing stock will be an important part of our capital allocation strategy.”

“Our operational performance was once again resilient, putting us slightly ahead of guidance for the quarter,” continued Kean. “We generated earnings per common share for the quarter of $0.15 and distributable cash flow (DCF) of $0.46 per common share, resulting in $743 million of excess distributable cash flow above our dividend.”

Kean added, “We continue to drive future growth by completing significant infrastructure development projects that we track as part of our project backlog. Our current project backlog is $12.2 billion, up from $11.7 billion at the end of the first quarter. This increase was primarily driven by additions in our Natural Gas and CO₂ segments, partially offset by a decrease in the Terminals segment as a result of two Jones Act tankers being placed in service. Excluding the CO₂ segment projects, we expect the projects in our backlog to generate an average capital-to-EBITDA multiple of approximately 6.9 times.”

KMI reported second quarter net income available to common stockholders of $337 million, compared to $333 million for the second quarter of 2016, and DCF of $1,022 million that was down slightly from $1,050 million for the comparable period in 2016. The decrease in DCF was driven by lower contributions from Southern Natural Gas Company (SNG) as a result of a 50 percent sale of the pipeline during the third quarter of 2016 (which helped improve KMI’s leverage metrics) partially offset by lower interest expense. Net income available to common stockholders was also impacted by a $26 million favorable change in total Certain Items (as described under “Non-GAAP Financial Measures” below) compared to the second quarter of 2016, driven in part by a legal settlement received this quarter.

For the first six months of 2017, KMI reported net income available to common stockholders of $738 million, up substantially compared to $609 million for the first six months of 2016, and DCF of $2,237 million that was down from $2,283 million for the comparable period in 2016. The decrease in distributable cash flow was driven by the sale of 50 percent of SNG as discussed above, offset by lower interest expense and lower general and administrative expenses. Net income available to common stockholders was also impacted by a $188 million decrease in total Certain Items compared to the first six months of 2016. Certain Items in the first six months of 2016 included a $170 million pre-tax write-off of costs associated with the Northeast Energy Direct and Palmetto Pipeline projects.

2017 Outlook

For 2017, KMI’s budget was to declare dividends of $0.50 per share, achieve DCF of approximately $4.46 billion ($1.99 per share) and Adjusted EBITDA of approximately $7.2 billion. KMI also budgeted to invest $3.2 billion in growth projects during 2017, 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 5.4 times. As a result of the successful IPO of its Canadian assets, KMI now expects to end the year with a net debt-to-Adjusted EBITDA ratio of approximately 5.2 times, growth capital investment of $3.1 billion and DCF less than 1 percent below budget. The $3.1 billion in growth capital does not include KML-related expansion capex as KMI expects KML to be a self-funding entity and does not anticipate making such contributions. Excluding the impact of KMI’s sale of a 30 percent interest in its Canadian assets in the IPO, DCF is forecast to be on plan. KMI does not provide budgeted net income attributable to common stockholders (the GAAP financial measure most directly comparable to distributable cash flow and Adjusted EBITDA) due to the inherent difficulty and impracticality of predicting certain amounts required by GAAP, such as ineffectiveness on commodity, interest rate and foreign currency hedges, unrealized gains and losses on derivatives marked to market, and potential changes in estimates for certain contingent liabilities.

KMI’s expectations assume average annual prices for West Texas Intermediate crude oil of $53 per barrel and Henry Hub natural gas of $3 per MMBtu, consistent with forward pricing during the company’s budget process. The vast majority of cash KMI generates is fee-based and therefore not directly exposed to commodity prices. The primary area where KMI has commodity price sensitivity is in its CO₂ segment, with the majority of the segment’s next 12 months of oil and NGL production hedged to minimize this sensitivity. The segment is currently hedged for 34,920 barrels per day (Bbl/d) at $58.91 per barrel for the remainder of the year, as well as 21,192 Bbl/d at $60.76/Bbl in 2018; 11,600 Bbl/d at $55.93/Bbl in 2019; 6,700 Bbl/d at $53.28/Bbl in 2020; and, 1,800 Bbl/d at $52.72/Bbl in 2021. For its 2017 budget, the company estimates that every $1 per barrel change in the average WTI crude oil price impacts distributable cash flow by approximately $6 million and each $0.10 per MMBtu change in the price of natural gas impacts distributable cash flow by approximately $1 million.

Overview of Business Segments

“The Natural Gas Pipelines segment’s performance for the second quarter of 2017 relative to the second quarter of 2016 was impacted by the third quarter 2016 sale of a 50 percent interest in SNG, declines attributable to reduced volumes affecting most of our midstream gathering and processing assets, and a negative impact on our Colorado Interstate Gas Company pipeline tariff rates as a result of a rate case settlement reached during 2016. The segment again benefited from increased contributions from Tennessee Gas Pipeline driven by incremental short-term capacity sales and projects placed in service; the Elba Express pipeline, resulting from the completion of an expansion project; and improved results from the Texas Intrastate pipelines,” Kean said.

Natural gas transport volumes were up 3 percent compared to the second quarter of 2016, driven by higher throughput on the Texas Intrastate Natural Gas Pipelines from incremental transportation contracts serving Mexico and due to contracts going into effect after the second quarter of 2016, as well as higher throughput on El Paso Natural Gas Pipeline due to weather-driven demand in Arizona, higher throughput on Elba Express resulting from an expansion on that system, and higher throughput on NGPL from deliveries to the Sabine Pass LNG facility. The increases were partially offset by lower throughput on Cheyenne Plains due to mild mid-continent weather and fuel switching back to coal, and on CIG and Wyoming Interstate due to milder weather and lower Rockies production. Natural gas gathered volumes were down 11 percent from the second quarter of 2016 due primarily to lower natural gas volumes on multiple systems gathering from the Eagle Ford Shale and on the KinderHawk system.

Natural gas continues to be the fuel of choice for America and the world’s evolving energy needs, and industry experts are projecting U.S. natural gas demand, including net exports of liquefied natural gas (LNG) and net exports to Mexico, to increase by approximately 32 percent to almost 105 billion cubic feet per day (Bcf/d) over the next 10 years. Of the natural gas consumed in the U.S., about 40 percent moves on KMI pipelines. While the majority of natural gas is consumed in industrial, commercial and residential heating uses, KMI expects future natural gas infrastructure opportunities will be driven by greater demand for gas-fired power generation across the country, LNG exports, exports to Mexico, and continued industrial development, particularly in the petrochemical industry. In fact, compared to the second quarter of 2016, natural gas deliveries on KMI pipelines to Mexico were up 8 percent, increasing by approximately 213,000 dekatherms per day (Dth/d), and deliveries to LNG facilities increased by approximately 335,000 Dth/d.

“The CO₂ segment was impacted by slightly lower commodity prices, as our realized weighted average oil price for the quarter was $57.80 per barrel compared to $62.17 per barrel for the second quarter of 2016,” Kean said. “Combined oil production across all of our fields was down 4 percent compared to 2016 on a net to Kinder Morgan basis, partially driven by reallocating capital to higher return projects with longer lead times. Second quarter 2017 net NGL sales volumes of 9.9 thousand barrels per day (MBbl/d) were down 4 percent from 2016. Net CO₂ volumes increased 8 percent versus the second quarter of 2016 driven by strong demand from third parties, working interest partners and our own operations.” McElmo Dome and the Cortez Pipeline each achieved record volumes in April.

Combined gross oil production volumes averaged 52.8 MBbl/d for the second quarter, down 4 percent from 55.3 MBbl/d for the same period last year. SACROC’s second quarter gross production was 8 percent below second quarter 2016 results but slightly above 2017 budget, and Yates gross production was 7 percent below second quarter 2016 results but 4 percent below plan. Both decreases were partially driven by reallocating capital to higher return projects with longer lead times. Second quarter gross production from Katz, Goldsmith and Tall Cotton was 17 percent above the same period in 2016, but below plan. Gross NGL sales volumes were 20.4 MBbl/d during the quarter, 6 percent below second quarter 2016.

“The Terminals segment earnings contributions, which were up 1 percent compared to the second quarter of 2016, were led by a strong performance at our liquids operations that account for close to 80 percent of the segment’s business. Growth in the liquids business during the quarter versus the second quarter of 2016 was driven by increased contributions from our Jones Act tankers and various expansions across our network, including the recently commissioned Kinder Morgan Export Terminal, a 1.5 million-barrel liquids terminal development along the Houston Ship Channel,” Kean said. Two new-build Jones Act tankers, the American Freedom and the Palmetto State, were placed on-hire in the second quarter with major refiners, following final outfitting and voyages to the U.S. Gulf Coast. All of the new-build tankers are contracted with major energy customers under term charter agreements.

The bulk terminals contribution was down slightly despite strong performance at our petcoke handling operations, while performance at our coal and steel handling operations continues to benefit from stabilizing global market conditions.

“The Products Pipelines segment contributions were slightly lower compared with second quarter 2016 performance as higher volumes were offset by higher expenses,” Kean said.

Total refined products volumes were up 2 percent for the second quarter versus the same period in 2016. NGL volumes were up 14 percent from the same period last year due to greater volumes on Cochin and Cypress pipelines. Crude and condensate pipeline volumes were up 8 percent from the second quarter of 2016, with strong performance by Kinder Morgan Crude and Condensate Pipeline.

Kinder Morgan Canada contributions were down 7 percent in the second quarter of 2017 compared to the second quarter of 2016 largely due to operating expense timing changes and a 21 percent decrease in volumes to Washington state, caused by a shift in deliveries from Washington to British Columbia destinations.

Other News

Natural Gas Pipelines

• Construction of the nearly $2 billion Elba Liquefaction Project continues at KMI’s existing Southern LNG Company facility at Elba Island near Savannah, Georgia. The federally approved liquefaction project is supported by a 20-year contract with Shell. Initial in-service is expected in mid-2018. Final units coming on line by mid-2019 will bring total liquefaction capacity to approximately 2.5 million tonnes per year of LNG, equivalent to approximately 350 million cubic feet per day of natural gas. Elba Liquefaction Company, L.L.C. (ELC) will own 10 liquefaction units and other ancillary equipment comprising approximately 70 percent of the project. EIG Global Energy Partners is a 49 percent joint venture participant in ELC. The remaining portion of the project will be owned by KMI.

• On June 16, 2017, the Federal Energy Regulatory Commission (FERC) issued a notice of schedule for environmental review for the proposed $240 million SNG Fairburn Expansion Project in Georgia, stating FERC staff’s plan to issue the environmental assessment for the project on August 18, 2017. SNG is equally owned by subsidiaries of KMI and Southern Company. The project is designed to provide approximately 340,000 Dth/d of incremental long-term firm natural gas transportation capacity into the Southeast market beginning in the fourth quarter of 2018.

• On June 8, 2017, the FERC issued Kinder Morgan Louisiana Pipeline (KMLP) a notice of intent to issue an environmental assessment for its proposed project to provide 600,000 Dth/d of capacity to serve Train 5 at Cheniere’s Sabine Pass LNG Terminal. An environmental assessment for the $122 million KMLP project is expected to be issued later this summer.

• On May 26, 2017, the FERC issued Tennessee Gas Pipeline (TGP) an environmental assessment for its proposed $150 million Lone Star Project to provide 300,000 Dth/d of capacity under long-term contract for Cheniere’s planned Corpus Christi Liquefaction Project in South Texas. TGP would construct two new compressor stations with 31,400 total horsepower. A January 2019 in-service date is anticipated.

• Following significant progress on permitting, work on TGP’s FERC-approved Broad Run Expansion Project is proceeding and the project is expected to be placed in service in June 2018. The project will provide an incremental 200,000 Dth/d of firm transportation capacity along the same north-south path as the already in-service Broad Run Flexibility Project. Antero Resources was awarded a total of 790,000 Dth/d of 15-year firm capacity under the two projects from a receipt point on TGP’s existing Broad Run Lateral in West Virginia to delivery points in Mississippi and Louisiana. Estimated capital expenditures for the combined projects total approximately $800 million.

• The non-binding open season for KMI’s Gulf Coast Express Pipeline Project closed on April 20, 2017, with bids exceeding the capacity offered. KMI and DCP Midstream continue to work with prospective shippers to obtain firm commitments. The proposed pipeline would transport over 1.8 Bcf/d of natural gas from the Waha area to Agua Dulce, Texas, providing an outlet for increased natural gas production from the Permian Basin to growing markets along the Texas Gulf Coast. The mostly 42-inch pipeline would traverse approximately 430 miles and be in service in the second half of 2019, pending final shipper commitments.

• NGPL and WIC have reached agreements in principle with both the FERC trial staff and the intervenors in separate proceedings pursuant to Section 5 of the Natural Gas Act. These agreements are subject to completion of definitive documents and additional regulatory approvals which are expected later this year. As currently negotiated, the settlements would not have a material adverse impact on KMI’s results of operations or cash flows from operations.

CO₂

• The approximately $66 million second phase of KMI’s Tall Cotton field project is more than 40 percent complete and is experiencing strong initial production results of over 500 barrels of oil per day. Tall Cotton is the industry’s first greenfield Residual Oil Zone CO₂ project, marking the first time CO₂ has been used for enhanced oil recovery in a field without a main pay zone. Total combined production from the first and second phases of the project currently exceeds 2,000 barrels of oil per day.

• KMI is developing additional CO₂ source capacity in the Cow Canyon and Doe Canyon areas of southwestern Colorado in response to the increasing demand for CO₂ from customers in the Permian Basin region of West Texas. In the second quarter of 2017, the company drilled one well and expects to drill additional wells this year to support the growing demand for CO₂.

• KMI continues to find high-return enhanced oil recovery projects in the current price environment across its robust portfolio of assets.

Terminals

• Construction continues at KML’s and Keyera’s Base Line Terminal, a 50-50 joint venture crude oil merchant storage terminal being developed in Edmonton, Alberta, Canada. Major project milestones reached in the second quarter include the completion of a significant pipeline bridge crossing over a major road and the successful hydro testing of the first four tanks scheduled to be placed in service on-time in January 2018. Commissioning of the 12-tank, 4.8 million barrel new-build facility, which is fully contracted with long-term, firm take-or-pay agreements with creditworthy customers, is expected to begin in the first quarter of 2018 with tanks phased into service throughout that year. KML’s investment in the joint venture terminal is approximately CAD$366 million. The project is forecast to be on schedule and on budget.

• Tank installation is nearing completion on the Pit 11 expansion project at KMI’s Pasadena terminal. The approximately $186 million project, back-stopped by long-term commitments from existing customers, adds 2.0 million barrels of refined products storage to KMI’s best-in-class liquids storage hub along the Houston Ship Channel. The first four tanks remain on schedule for a September 2017 in service with the balance expected to follow in the fourth quarter of 2017 and early 2018.

• In June 2017, KMI’s American Petroleum Tankers took delivery of its fifth and final ECO class product tanker, the Palmetto State, from General Dynamics’ NASSCO shipyard, and following a transit to the U.S. Gulf Coast, placed the vessel on-hire pursuant to a five-year term charter agreement with a major refiner. The construction program at Philly Shipyard, Inc. is nearing completion with their final two tankers scheduled for delivery from PSI in the third and fourth quarters of 2017, which will bring APT’s best-in-class fleet to 16 vessels. Each of the 330,000-barrel capacity and LNG conversion-ready new-build tankers is fixed under charter with a major energy company.

Products Pipelines

• Construction continues on the company’s approximately $540 million Utopia Pipeline Project, and pipeline construction is approximately one-third complete with an anticipated in-service date of January 2018. The Utopia Pipeline will have an initial design capacity of 50,000 barrels per day, and will move ethane from Ohio to Windsor, Ontario, Canada. The project is fully supported by a long-term, fee-based transportation agreement with a petrochemical customer.

Kinder Morgan Canada

• On May 30, 2017, KMI announced the completion of the IPO of Kinder Morgan Canada Limited. The IPO constituted a sale of a portion of KMI’s interest in the Canadian business of KMI, which includes the Trans Mountain Pipeline system (including related terminals assets), the Puget Sound and Jet Fuel Pipeline systems, the Canadian portion of the Cochin Pipeline system, the Vancouver Wharves Terminal and the North 40 Terminal; as well as three jointly controlled investments: the Edmonton Rail Terminal, the Alberta Crude Terminal and the Base Line Terminal. As a result of the IPO, KMI received $1.25 billion in net proceeds that it used to pay down debt. KMI also announced a final investment decision for the Trans Mountain Expansion Project, which was conditional on the successful completion of the IPO for KML.

• On June 16, 2017, KML entered into definitive agreements establishing a $4.0 billion revolving construction credit facility for the purposes of funding the development, construction and completion of the Trans Mountain expansion project, a $1.0 billion revolving contingent credit facility for the purposes of funding, if necessary, additional Trans Mountain expansion project costs (and, subject to the need to fund such additional costs, meeting NEB-mandated liquidity requirements) and a $500 million revolving working capital facility, which is available for general corporate purposes, including working capital. KML is able to draw on the construction facility to fully fund capex for the balance of the year. Construction on the Trans Mountain Expansion Project, a C$7.4 billion project, is expected to begin in September 2017 with completion expected in December 2019.