Kinder Morgan Canada Limited (KML) has reported third quarter income from continuing operations of $16.6 million, a decrease of $5.6 million from the third quarter of 2018. DCF from continuing operations was $47.8 million, an increase of 23 percent compared to the comparable prior year period.
Income from continuing operations and DCF from continuing operations were both adversely impacted by $7 million of lower interest income relative to the prior period, due to interest received in 2018 on the cash proceeds from the Trans Mountain sale as well as higher general and administration expenses, partially offset by an increase of earnings from continuing operations in the Pipelines and Terminals segments of $6.5 million, an increase of 12 percent versus the same period in 2018. In addition, the increase in DCF from continuing operations for the third quarter of 2019 included a net $9.7 million of cash tax refunds as compared to $0.1 million of cash taxes paid in the same period in 2018.
For the nine months of 2019, KML generated net income of $59.5 million, Adjusted EBITDA of $155.2 million, and DCF of $98.5 million.
“I congratulate every KML employee for their focus and dedication to business as we move toward closing the sale of KML to Pembina,” said KML Board Chairman and CEO Steve Kean. “The KML Pipelines and Terminals segments’ performance for the quarter was strong.”
“We continue to work with Pembina toward the closing of the transaction, which as previously disclosed we expect to occur late in the fourth quarter of 2019 or in the first quarter of 2020,” noted Dax Sanders, KML Chief Financial Officer. “We have received early termination from the U.S. Federal Trade Commission pursuant to the Hart-Scott-Rodino Act and the parties are proactively engaged with the Canadian Competition Bureau. The KML shareholder meeting to approve the transaction is scheduled for December 10, 2019.”
Pending sale to Pembina
On August 21, 2019, KML announced that Pembina agreed to acquire all of its outstanding common equity, including the approximate 70 per cent majority voting and economic interest held by Kinder Morgan, Inc. (KMI). On closing, KML’s shareholders will receive 0.3068 of a Pembina common share for each restricted voting share and each special voting share (and associated Class B limited partnership unit) outstanding. In addition, Pembina has agreed to purchase the U.S. portion of the Cochin Pipeline from KMI.
Overview of business segments
“Earnings contributions from the Terminals segment were up 8 per cent compared to the third quarter of 2018 driven primarily by storage capacity additions at our new Base Line Terminal joint venture” noted John Schlosser, KML President. “Volume at our Edmonton-area terminals was down 6.1 million barrels, or 24 percent, year-over-year, as mandated production curtailments continue to compress pricing differentials and pressure crude-by-rail economics. The take-or-pay nature of our contracts largely insulates segment earnings from short-term volume fluctuations.
“Contributions from our Vancouver Wharves facility were flat compared to the third quarter of 2018,” continued Schlosser. “Construction activities continued on the distillate storage expansion project at the Wharves facility, with tank foundation work commencing in the quarter. During this approximately $50 million capital project, we will construct two new distillate tanks with combined storage capacity of 200,000 barrels and enhance railcar-unloading capabilities. The project is supported by a 20-year initial term, take-or-pay contract with an affiliate of a large, international integrated energy company, and we expect to place it in service late in the first quarter of 2021.”
Pipeline segment earnings were up $3.2 million, or 36 percent, compared to the third quarter of 2018, primarily due to increased volumes and higher rates on Cochin.
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