Kinder Morgan Surges After Cutting Spending Plan for 2016

Updated on
  • Shares rise 20%, most since start of trading in February 2011
  • Company cut 2016 spending to $3.3 billion from $4.2 billion

Kinder Morgan Inc., the largest pipeline company in the U.S., surged the most on record after cutting its investment plan to weather the collapse of oil prices.

Kinder on Wednesday reduced its 2016 capital budget to $3.3 billion, backtracking on a plan to raise it 20 percent this year to $4.2 billion. The higher spending had been met with skepticism when announced along with a dividend cut last month, according to Bloomberg Intelligence analyst Michael Kay. Shares jumped 16 percent to $13.94 at 1:41 p.m. in New York after gaining 22 percent, the most since the start of trading in February 2011.

"The lower capex spending is something that was welcomed," Kay said in an interview in New York. The prior plan announced last month "caught the market off-guard, and there might be some relief that they will spend less."

The Houston-based company also said its backlog of pending projects -- a key gauge of future cash flows -- shrank by $3.1 billion from $21 billion in the previous quarter. Additional reductions may be on the way as the year progresses.

"The market is rewarding our company’s strong performance in the face of a challenging market, as well as the decisions management and the Kinder Morgan board of directors have made to eliminate our need to access the capital markets and enhance our credit profile," Richard Wheatley, the company’s director of corporate communications, said by e-mail.

Quarterly Loss

Kinder posted a fourth-quarter net loss of $611 million, or 29 cents a share, compared with profit of $126 million, or 8 cents, a year earlier. The per-share result fell short of the 18-cent average profit estimate of 15 analysts in a Bloomberg survey.

With a debt load of about $40 billion that exceeds the economic output of nations such as Iceland, investor flight has erased more than half Kinder’s market value in three months. The entire pipeline sector has been punished because crude’s plunge to a 12-year low is prompting explorers to cancel drilling projects, reducing new pipe demand that Kinder and other operators rely on for revenue growth.

Selman Akyol, an equity analyst at Stifel Nicolaus & Co., wrote in a research note that while the company’s efforts to adjust its budget for today’s environment are favorable, high debt ratios and macroeconomic headwinds are still seen as hurdles for Kinder.

"We believe equity investors looking for growth and income will be disappointed, as Kinder Morgan will not be in a position to increase the dividend until major growth projects are funded and on line, in the 2018-and-beyond time frame," Morningstar Investment Service equity analyst Stephen Simko said in a Jan. 20 note to clients.