Kinder Morgan (KMI) Q1 2016 Earnings Call Transcript

Kinder Morgan (KMI) Chairmen Richard Kinder said they are cutting their spending significantly and are being more selective about their energy infrastructure investments

“We’ve again reduced our expansion CapEx, Steve will take you through that, for 2016 and we expect that trend to continue in subsequent years through both high-grading our projects and entering into selective joint ventures. We expect to fund the necessary CapEx out of our cash flow and continue to improve our debt to EBITDA ratio, thereby preserving and strengthening our investment grade balance sheet.  With respect to the capital update, we announced today a reduction in our project backlog of $4.1 billion, so from $18.2 billion down to $14.1 billion.”

Kinder Morgan (KMI) CEO Steve Kean elaborated on his recent conversations with the mood of executives at oil drilling companies

“I think that they’re being cautious about their next move. I think they want to see generally they wanted to see some additional recovery and see some stability in that recovery. I also think that as a group they’ve made themselves very, very flexible. I mean they are updating their outlook and updating their decision making. It’s no longer an annual process.  It seems like it’s a biweekly process or something now as they’re looking at things which suggests that when they do decide to turn things back up, they’ll be able to turn it back up relatively quickly. But look, as I said before, people signing up for a long term multi hundred million dollar or a billion dollar infrastructure on the producer side, I don’t think that that’s in the cards in the near term.”

Kinder Morgan (KMI) CEO Steve Kean says drilling in Eagle Ford shale which is located in Texas is down substantially from just a few years ago

“We’re not happy about any negative to plan, but I think when you put this in the context of the dramatic production declines particularly in the Eagle Ford, which is down 28% on oil from its peak and 15% on gas and credit weaknesses, our business is really diversified and insulated from the full brunt of the weakness in the producing sector.”

Almost half of the natural gas consumed in the US moves across Kinder Morgan pipelines

“Natural gas needs for transportation and storage services, we believe, should grow over the medium and long term as power generation exports including L&G and exports to Mexico and pet chem and industrial demand continue to grow. Over the last two years, the gas group has entered into new and pending firm transport capacity commitments totaling 8.2 bcf and I think importantly about 1.8 bcf of that was existing previously unsold capacity. And we currently estimate that we move about 38% of the natural gas consumed in the United States on our pipeline.”

Canadian Oil Sands are a more stable supply source for energy pipelines than shale

“They are taking a very long view, producers are taking a long view and they’re finishing out projects that they’re well into and the oil sands become a very stable source of production. It’s not like the shales where it ramps, you get a high ramp up in the beginning and it falls off rapidly, so there’s an actual projection of an increase in production in Canada. At the same time, the transport options out of Canada are becoming more limited. So our customers still want to do this project and we do too and the returns are good.”