Kinder Morgan Ditches Two Key Pipeline Projects, Cuts Growth Backlog $4 Billion

Researched by Industrial Info Resources (Sugar Land, Texas)--Energy pipeline transportation and storage company Kinder Morgan Incorporated (NYSE:KMI) (Houston, Texas) has slashed its growth capital backlog by more than $4 billion as a result of the removal of two large pipeline projects, company executives said Wednesday.

"We reduced our growth capital backlog from $18.2 billion at the end of the fourth quarter 2015 to $14.1 billion at the end of the first quarter 2016," said Chief Executive Officer Steve Kean. "The reduction in our backlog was driven primarily by the removal of the Northeast Energy Direct [NED] Market [natural gas] project due to insufficient contractual commitments from customers in the New England market, and the removal of the Palmetto Pipeline project following unfavorable action by the Georgia legislature regarding eminent domain authority and permitting for petroleum pipelines."

"We gave it our all on NED...in the end the customer commitments just weren't there," Kean said during the company's first-quarter 2016 earnings conference call. "This project is not economically viable so we are moving it to the back burner." The project would have run through parts of New York, Pennsylvania, Massachusetts, New Hampshire and Connecticut.

The proposed $1 billion, 360-mile Palmetto refined products pipeline from Baton Rouge, Louisiana to Jacksonville, Florida, ran into problems in Georgia, where Kean said the state legislature prevented Kinder Morgan from getting needed imminent domain and permitting for the project.

The company has cut its growth capital forecast for 2016 to $2.9 billion, down $1.3 billion from its December 2015 guidance.

On the other hand, Kinder Morgan is pressing forward with the $5.5 billion Trans Mountain crude oil pipeline expansion project in Canada, where it is undergoing reviews by the provincial and federal governments. It would expand the existing Trans Mountain pipeline system between Edmonton, Alberta and Burnaby, British Columbia. Kean said he expects the project to reach completion by the end of 2019.

Kinder Morgan reported a net income of $314 million for the just-ended first quarter, compared with $419 million in first-quarter 2015. Project write-off costs amounted to $170 million.

For all of 2016, Kinder Morgan expects to see an additional 3% drop in earnings before interest, taxes, depreciation and amortization (ebitda), largely as a result of falling volumes from the Eagle Ford shale and less business from coal producer customers such as Peabody Energy who are seeking bankruptcy protection. For more information, see April 14, 2016, article - Peabody Energy Bankruptcy Filing a Sign of the Times for Coal Industry, and October 23, 2015, article -- Kinder Morgan Can't Hide from Pricing Pains in Third-Quarter 2015, Pegs Full-Year Capex at $3.5 Billion.

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