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Kinder Morgan Increases Quarterly Dividend PER SHARE, UP

The following excerpt is from the company's SEC filing.

KMI Remains on Track to Meet its Full-Year Dividend Target of $2.00 Per Share with Substantial Excess Cash Coverage

Kinder Morgan, Inc. (NYSE: KMI) today announced that its board of directors approved an increase in its quarterly cash dividend to

annualized) payable on Nov. 13, 2015, to shareholders of record as of the close of business on Nov. 2, 2015. This represents a 16 percent increase over the third quarter

dividend of

per share (

annualized) and is up from $0.49 per share ($1.96 annualized) for the second quarter of 2015. This is KMI’ s 15th quarterly dividend raise since it went public in February 2011.

"We are pleased with KMI's steady third quarter results that cover our 16 percent dividend increase to $0.51 per share. We remain on track to meet our full-year dividend target of $2.00 per share with substantial excess cash coverage despite continued challenging conditions in the energy sector," said Executive Chairman Richard D. Kinder. "While we are largely insulated from commodity price impacts due to our predominately take-or-pay supported cash flows, we are not totally immune.

"As a company, we remain focused on our goals to continue to return cash to our shareholders in increasing amounts, to maintain our investment grade ratings and leverage targets while funding our business in the most efficient and economical way possible. We believe an appropriate response to the challenging current equity markets is to identify alternative funding sources that help us meet our goals and have a lower expected long-term cost of capital than our common equity. We have identified alternative sources and have selected one of these to pursue, as appropriate, to meet our equity funding requirements for the balance of 2015 and for the first half of 2016. This would eliminate our need to access the common equity markets through mid-next year. Additionally, while we are at the beginning of our budget process for 2016, we currently expect to increase our declared dividend for 2016 by 6 to 10 percent over the 2015

declared dividend of $2.00 per share. We expect this range will provide the flexibility for us to meet our dividend and have excess cash coverage."

President and CEO Steve Kean said, “We produced distributable cash flow before certain items of

per share for the third quarter resulting in flat coverage for the quarter and total excess coverage of $228 million for the first nine months of the year. Our five business segments produced

$1.839

billion in segment earnings before DD&A and certain items, down 1 percent from the third quarter of 2014, primarily driven by a decline in our CO

segment partially offset by increases in our Products Pipelines and Terminals segments.

"Our current project backlog of expansion and joint venture investments is $21.3 billion. Since the

quarter earnings release, we have placed nearly $400 million of completed projects into service, removed approximately $1.0 billion in projects (primarily in the CO

segment as a result of CO

enhanced oil recovery as well as additional source and transportation projects being delayed beyond the time horizon of our five-year backlog due to lower commodity prices) and added approximately $700 million driven by new projects. Projects in the backlog have a high certainty of completion and drive future growth at the company across all of our business segments.”

KMI reported third quarter distributable cash flow before certain items of

$1.129

billion versus

million for the comparable period in 2014. This increase is primarily attributable to the KMI merger transactions completed in November 2014. Distributable cash flow per share before certain items was

compared to

for the third quarter last year. Third quarter net income before certain items was $

348 million

compared to $

537 million

for the same period in 2014. The decrease in net income before certain items was driven by higher DD&A expense and interest expense. Certain items after tax in the third quarter totaled a net

million driven largely by a non-cash pre-tax impairment charge related to the Goldsmith field in our CO

segment compared to a net

million for the same period last year. Net income after certain items was

million compared to

million for the third quarter last year.

For the first nine months of the year, KMI reported distributable cash flow before certain items of

$3.466 billion

$1.340

billion for the comparable period in 2014, due primarily to the KMI merger transactions completed in November 2014. Distributable cash flow per share before certain items for the first nine months of the year was

for the same period last year. Net income before certain items was

$1.158 billion

$1.676 billion

for the first three quarters of 2014. The decrease in net income before certain items was

driven by higher DD&A expense, book taxes and interest expense. Certain items after tax for the first nine months of the year totaled a net

million compared to a net

$201 million

for the same period last year. For the first nine months of the year, net income was

$944 million

$1.877 billion

Overview of Business Segments

Natural Gas Pipelines

business produced third quarter segment earnings before DD&A and certain items of

$975 million

, as compared to

$978 million

for the same period last year. Natural Gas Pipelines is on track to slightly exceed its published annual budget of 1 percent growth.

“Growth in this segment compared to the third quarter last year was led by contributions from the Hiland acquisition and improved performance on the El Paso Natural Gas pipeline (EPNG) driven by demand from Mexico,” Kean said. “Third quarter growth was partially offset by lower commodity prices affecting certain of our midstream gathering and processing assets. Earnings were also negatively impacted at Kinder Morgan Louisiana Pipeline as a result of a 2014 customer contract buyout, at KinderHawk due to the expiration of a minimum volume contract, and at Cheyenne Plains pipeline primarily as a result of contract expirations.”

Natural gas transport volumes were up

percent compared to the third quarter last year driven by higher volumes on Texas Intrastate pipelines due to higher Eagle Ford Shale production and increased deliveries of gas into Mexico, higher throughput on Tennessee Gas Pipeline (TGP) resulting from new projects going in service, incremental Utica production as well as greater power generation demand, and higher volume on the EPNG pipeline driven by demand from Mexico as well as greater power generation demand. Throughput on our natural gas pipelines for power generation was up 15 percent compared to the third quarter of 2014 and up 18 percent through the first nine months of 2015 versus the same period in 2014.

Natural gas continues to be the fuel of choice for America’s future energy needs, and industry experts are projecting gas demand increases of over 40 percent to nearly 110 billion cubic feet per day (Bcf/d) over the next 10 years.

Over the last year and a half, KMI has entered into new and pending firm transport capacity commitments totaling 9.1 Bcf/d, including 400 million cubic feet per day (MMcf/d) added this quarter. KMI pipelines currently move about one-third of the natural gas consumed in the United States. Future opportunities include the need

for more capacity in the Northeast, greater national demand for gas-fired power generation in general, liquefied natural gas (LNG) exports and exports to Mexico. KMI currently has a backlog of natural gas projects of approximately $9.1 billion.

million, down from

million for the same period in 2014. The CO

business is expected to be below its annual budget of an 8 percent decline from 2014 due to lower commodity prices.

“As expected, lower commodity prices impacted earnings overall, but our SACROC Unit continued to generate strong production,” Kean said. “SACROC gross oil production in the third quarter averaged

thousand barrels per day (MBbl/d), down 2 percent from the third quarter last year, but up 6 percent for the nine months of the year compared to the same period last year and is on track for record annual production. NGL sales volumes of 21.0 MBbl/d at our Snyder Gas Plant were up 3 percent from the third quarter last year. In addition, we continued to offset some of the impact from lower commodity prices by generating cost savings across our CO

business. While net CO

volumes increased versus the third quarter of 2014, they were below plan for the quarter. CO

demand has remained relatively stable, but is not currently growing due to customer capital constraints related to current market conditions.”

Combined gross oil production volumes averaged 57.1 MBbl/d for the third quarter, up slightly from 57.0 MBbl/d in the same period last year. Oil production net to Kinder Morgan was down 2 percent compared to the same period last year. SACROC’s third quarter production was slightly below third quarter 2014 results and plan, and Yates produced solid results but was slightly below both third quarter 2014 results and plan.

quarter Katz and Goldsmith production was above the same period last year, but well below plan. The average West Texas Intermediate (WTI) crude oil price for the third quarter was $46.43 per barrel versus $97.17 for the third quarter of 2014. Kinder Morgan’s 2015 budget assumed an average WTI crude oil price of approximately $70 per barrel. The commodity price impact on the CO

segment in the third quarter was higher than the sensitivities announced at the beginning of the year (every $1 per barrel change in the average WTI crude oil price will impact the CO

segment’s distributable cash flow by approximately $7 million) driven by the lower ratio of NGL prices to crude prices compared to the ratio assumed in our budget.

$263 million

$247 million

for the same period in 2014. The Terminals business is expected to be below its published annual budget of 20 percent growth.

“Approximately 21 percent of the growth in the third quarter 2015 was organic versus the same period in 2014, with the remainder coming from acquisitions,” Kean said. “The increase in third quarter earnings was led by strong performance at our liquids terminals, driven by various expansions across our network including adding incremental storage capacity at our Edmonton South terminal, as well as contributions from new operations at our Geismar Methanol terminal, Deer Park Rail terminal and the Edmonton Rail Terminal, a 50-50 joint venture with Imperial Oil Ltd. The Jones Act tanker and Vopak terminals acquisitions also contributed significantly to growth in this segment. Earnings were impacted by a softening of the domestic steel market and continued weakness in global coal markets which has led to a decline in coal export volumes of 50 percent in the third quarter of 2015 versus the same period last year. However, the coal volume impact on earnings was partially offset by long-term minimum tonnage commitments with customers. Weakness in our coal business was also impacted by the bankruptcy of one of our customers, Alpha Natural Resources. Overall, our liquids throughput increased 26 percent and our bulk volume declined 17 percent this quarter compared to the third quarter of 2014.”

For the third quarter, Terminals and Products Pipelines combined handled

million barrels of ethanol, down from

million barrels for the same period last year. The decline reflects the company’s previously announced sale of certain smaller terminal facilities to Watco Companies in exchange for an incremental equity interest in Watco as well as the opportunistic conversion of storage from ethanol to gasoline service in certain markets. KMI currently handles approximately one-third of the ethanol used in the United States.

$287 million

$222 million

for the comparable period in 2014. For the year, Products Pipelines expects to be slightly below its published annual budget of 29 percent growth.

“Growth in this segment compared to the third quarter of 2014 was driven by higher volumes on the Kinder Morgan Crude and Condensate Pipeline (KMCC), the startup of the first and second phases of the petroleum condensate processing facility along the Houston Ship Channel, contributions from the Double H Pipeline, which was part of our Hiland acquisition,

improved performance on our SFPP system driven by greater refined products throughput and contributions from the Cochin reversal project,” Kean said.

Total refined products volumes were up

percent for the third quarter versus the same period in 2014. Segment diesel and jet fuel volumes were up

percent compared to the third quarter of 2014, respectively. NGL volumes increased

percent from the same period last year due to completion of the reversal project on Cochin. Crude and condensate volumes were more than three times higher than the third quarter last year primarily due to the continued ramp up of volumes on KMCC and placing the Double H Pipeline in service.

Kinder Morgan Canada

million versus the

million it reported for the same period in 2014. Demand for capacity remains high on the Trans Mountain pipeline system, with third quarter mainline throughput into Washington state more than 30 percent higher than the same period last year. The earnings decline was primarily due to an unfavorable foreign exchange rate, as the Canadian dollar declined in value relative to the U.S. dollar by approximately 17 percent since the third quarter of 2014. Kinder Morgan Canada expects to come in below its published annual budget of 1 percent growth due to expected continued weakness in the Canadian dollar.

Other News

Today, the Texas Intrastate Natural Gas Pipeline Group executed a contract with the Comisión Federal de Electricidad (CFE), the state-owned electric utility of Mexico, to provide up to 527,000 dekatherms per day (Dth/d) of firm transportation service to CFE in support of its growing demand for U.S. natural gas supply. The company expects to invest approximately $76 million to enhance the capabilities of the Texas intrastate system, in large part to increase capacity to make deliveries in the Nueces County area of South Texas. Service under the contract will begin on June 1, 2016, with volumes increasing once system enhancements are completed in the third quarter of 2016.

TGP plans a full certificate filing in the fourth quarter of 2015 for its proposed Northeast Energy Direct Project (NED). The KMI board of directors approved the market path portion of NED last quarter, subject to receipt of applicable regulatory approvals, including state public utility commission approvals for our LDC customers. Currently, the market path portion of the project has commitments of over 550,000 Dth/d. The market...


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