Kinder Morgan Defends Pipeline Contracts With Oil Patch in Pain

(Bloomberg) -- Kinder Morgan Inc. said the bulk of its customers remain in good financial health as an historic collapse in crude prices has investors worried that pipeline contracts could be in jeopardy.

The Houston-based pipeline giant said roughly three-quarters of its customers have investment-grade debt or substantial credit support. Kinder Morgan estimates that just 13% of its customers are oil and gas producers with junk or unrated debt.

Executives, speaking on the company’s earnings call on Wednesday, pointed to their success navigating a similar environment in 2016, while acknowledging that the current rout is far worse. Founder and Chairman Rich Kinder said he thinks the economy could normalize in the fourth quarter. Still, executives on his team said multiple times that there is no precedent for what the oil and gas industry is seeing today.

As flights are grounded around the world, Kinder Morgan sees an 18% drop in volumes on its refined products pipelines and terminals for the next nine months. Its CO2 unit, which injects carbon dioxide into the ground in order to recover oil, will also take a hit.

“I’m glad we hedged crude,” Chief Executive Officer Steve Kean said on the call.

Earlier, Kinder Morgan said it was hiking its dividend by 5% to an annualized rate of $1.05 a share, lower than a previous plan to up payouts to $1.25. The increase stands in stark contrast to a long list of pipeline operators who have slashed distributions that have long been considered sacrosanct for the sector.

The company is also slashing its growth capital budget for the year by about $700 million, a nearly 30% reduction, while cutting spending to maintain its existing projects by more than $100 million.

Kinder Morgan touted its natural gas business, which could benefit as production shifts from oil fields like the Permian Basin to basins targeting gas. Executives even said they’re getting increased interest in their Haynesville projects in Louisiana.

©2020 Bloomberg L.P.

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