filings.toolsItem 15. Exhibits, Financial Statement Schedules.
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Item 15. Exhibits, Financial Statement Schedules.
| (a) | (1) Financial Statements and (2) Financial Statement Schedules |
| See “Index to Financial Statements” set forth on Page 77. |
| (3) | Exhibits |
| Exhibit Number Description | |||
|---|---|---|---|
| 2.1 | * | Agreement and Plan of Merger, dated as of August 9, 2014, by and among Kinder Morgan Energy Partners, L.P., Kinder Morgan G.P., Inc., Kinder Morgan Management, LLC, Kinder Morgan, Inc. (KMI) and P Merger Sub LLC (schedules omitted pursuant to Item 601(b)(2) of Regulation S-K) (filed as Exhibit 2.1 to KMI’s Current Report on Form 8-K, filed August 12, 2014 (File No. 001-35081)) | |
| 2.2 | * | Agreement and Plan of Merger, dated as of August 9, 2014, by and among Kinder Morgan Management, LLC, KMI, and R Merger Sub LLC (schedules omitted pursuant to Item 601(b)(2) of Regulation S-K) (filed as Exhibit 2.2 to KMI’s Current Report on Form 8-K, filed August 12, 2014 (File No. 001-35081)) | |
| 2.3 | * | Agreement and Plan of Merger, dated as of August 9, 2014, by and among El Paso Pipeline Partners, L.P., El Paso Pipeline GP Company, L.L.C., KMI, and E Merger Sub LLC (schedules omitted pursuant to Item 601(b)(2) of Regulation S-K) (filed as Exhibit 2.3 to KMI’s Current Report on Form 8-K, filed August 12, 2014 (File No. 001-35081)) | |
| 3.1 | * | Amended and Restated Certificate of Incorporation of KMI (filed as Exhibit 3.1 to KMI’s Quarterly Report on Form 10-Q for the three months ended June 30, 2015 (File No. 001-35081)) | |
| 3.2 | * | Amended and Restated Bylaws of KMI as amended by Amendment No. 1 to the Amended and Restated Bylaws (filed as Exhibit 3.1 to KMI’s Current Report on Form 8-K, filed January 26, 2016 (File No. 001-35081)) | |
| Exhibit Number Description | |||
|---|---|---|---|
| 3.3 | * | Certificate of Designations of KMI 9.75% Series A Mandatory Convertible Preferred Stock, par value $0.01 per share (KMI Preferred Stock) (filed as Exhibit 3.1 to KMI’s Current Report on Form 8-K filed October 30, 2015 (File No. 001-35081)) | |
| 4.1 | * | Form of certificate representing Class P common shares of KMI (filed as Exhibit 4.1 to KMI’s Registration Statement on Form S-1 filed on January 18, 2011 (File No. 333-170773)) | |
| 4.2 | * | Shareholders Agreement among KMI and certain holders of common stock (filed as Exhibit 4.2 to KMI’s Quarterly Report on Form 10-Q for the three Months ended March 31, 2011 (File No. 001-35081)) | |
| 4.3 | * | Amendment No. 1 to the Shareholders Agreement among KMI and certain holders of common stock (filed as Exhibit 4.3 to KMI’s Current Report on Form 8-K filed on May 30, 2012 (File No. 001-35081)) | |
| 4.4 | * | Amendment No. 2 to the Shareholders Agreement among KMI and certain holders of common stock (filed as Exhibit 4.1 to KMI’s Current Report on Form 8-K filed on December 3, 2014 (File No. 001-35081)) | |
| 4.5 | * | Warrant Agreement, dated as of May 25, 2012, among KMI, Computershare Trust Company, N.A. and Computershare Inc., as Warrant Agent (filed as Exhibit 4.1 to KMI’s Current Report on Form 8-K filed on May 30, 2012 (File No. 001-35081)) | |
| 4.6 | * | Form of certificate for KMI Preferred Stock (included as Exhibit A to Exhibit 3.1 to KMI’s Current Report on Form 8-K filed October 30, 2015 (File No. 001-35081)) | |
| 4.7 | * | Deposit Agreement, dated as of October 30, 2015, between KMI and Computershare Inc. and Computershare Trust Company, N.A., as joint depositary, on behalf of all holders from time to time of the depositary receipts issued thereunder (filed as Exhibit 4.2 to KMI’s Current Report on Form 8-K filed October 30, 2015 (File No. 001-35081)) | |
| 4.8 | * | Form of Depositary Receipt for depositary shares, each representing 1/20th of a share of KMI Preferred Stock (included as Exhibit A to Exhibit 4.2 to KMI’s Current Report on Form 8-K filed October 30, 2015 (File No. 001-35081)) | |
| 10.1 | * | KMI 2015 Amended and Restated Stock Incentive Plan (filed as Exhibit 4.5 to KMI’s Registration Statement on Form S-8, filed on July 1, 2015, and incorporated herein by reference (File No. 333-205430)) | |
| 10.2 | * | 2015 Form of Employee Restricted Stock Unit Agreement (filed as Exhibit 4.6 to KMI’s Registration Statement on Form S-8, filed on July 1, 2015, and incorporated herein by reference (File No. 333-205430)) | |
| 10.3 | * | 2011 Form of Employee Restricted Stock Agreement (filed as Exhibit 10.2 to KMI’s Quarterly Report on Form 10-Q for the three months ended March 31, 2011 (File No. 001-35081)) | |
| 10.4 | * | Amended and Restated Stock Compensation Plan for Non-Employee Directors (filed as Exhibit 10.5 to KMI’s Quarterly Report on Form 10-Q for the three months ended June 30, 2015 (File No. 001-35081)) | |
| 10.5 | * | 2015 Form of Non-Employee Director Stock Compensation Agreement (filed as Exhibit 10.6 to KMI’s Quarterly Report on Form 10-Q for the three months ended June 30, 2015 (File No. 001-35081)) | |
| 10.6 | * | 2011 Form of Non-Employee Director Stock Compensation Agreement (filed as Exhibit 10.3 to KMI’s Quarterly Report on Form 10-Q for the three months ended March 31, 2011 (File No. 001-35081)) | |
| 10.7 | * | KMI Employees Stock Purchase Plan (filed as Exhibit 10.5 to KMI’s Quarterly Report on Form 10-Q for the three months ended March 31, 2011 (File No. 001-35081)) | |
| 10.8 | * | Amended and Restated Annual Incentive Plan of KMI (filed as Exhibit 10.4 to KMI’s Quarterly Report on Form 10-Q for the three months ended June 30, 2015 (File No. 001-35081)) | |
| 10.9 | * | Form of Senior Indenture between Kinder Morgan Kansas, Inc. and Wachovia Bank, National Association, as Trustee (filed as Exhibit 4.2 to Kinder Morgan Kansas, Inc.’s Registration Statement on Form S-3 filed on February 4, 2003 (File No. 333-102963)) | |
| 10.10 | * | Form of Senior Note of Kinder Morgan Kansas, Inc. (included in the Form of Senior Indenture filed as Exhibit 4.2 to Kinder Morgan Kansas, Inc.’s Registration Statement on Form S-3 filed on February 4, 2003 (File No. 333-102963)) | |
| 10.11 | * | Indenture dated as of December 9, 2005, among Kinder Morgan Finance Company LLC (formerly Kinder Morgan Finance Company, ULC), Kinder Morgan Kansas, Inc. and Wachovia Bank, National Association, as Trustee (filed as Exhibit 4.1 to Kinder Morgan Kansas, Inc.’s Current Report on Form 8-K filed on December 15, 2005 (File No. 1-06446)) | |
| Exhibit Number Description | |||
|---|---|---|---|
| 10.12 | * | Forms of Kinder Morgan Finance Company LLC Notes (included in the Indenture filed as Exhibit 4.1 to Kinder Morgan Kansas, Inc.’s Current Report on Form 8-K filed on December 15, 2005 (File No. 1-06446)) | |
| 10.13 | * | Indenture dated January 2, 2001 between Kinder Morgan Energy Partners, L.P. and First Union National Bank, as trustee, relating to Senior Debt Securities (including form of Senior Debt Securities) (filed as Exhibit 4.11 to Kinder Morgan Energy Partners, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 1-11234)) | |
| 10.14 | * | Certificate of Vice President and Chief Financial Officer of Kinder Morgan Energy Partners, L.P. establishing the terms of the 6.75% Notes due March 15, 2011 and the 7.40% Notes due March 15, 2031 (filed as Exhibit 4.1 to Kinder Morgan Energy Partners, L.P.’s Current Report on Form 8-K filed on March 14, 2001 (File No. 1-11234)) | |
| 10.15 | * | Specimen of 7.40% Notes due March 15, 2031 in book-entry form (filed as Exhibit 4.3 to Kinder Morgan Energy Partners, L.P.’s Current Report on Form 8-K filed on March 14, 2001(File No. 1-11234)) | |
| 10.16 | * | Certificate of Vice President and Chief Financial Officer of Kinder Morgan Energy Partners, L.P. establishing the terms of the 7.125% Notes due March 15, 2012 and the 7.750% Notes due March 15, 2032 (filed as Exhibit 4.1 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (File No. 1-11234)) | |
| 10.17 | * | Specimen of 7.750% Notes due March 15, 2032 in book-entry form (filed as Exhibit 4.3 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (File No. 1-11234)) | |
| 10.18 | * | Indenture dated August 19, 2002 between Kinder Morgan Energy Partners, L.P. and Wachovia Bank, National Association, as Trustee (filed as Exhibit 4.1 to Kinder Morgan Energy Partners, L.P.’s Registration Statement on Form S-4 filed on October 4, 2002 (File No. 333-100346)) | |
| 10.19 | * | First Supplemental Indenture to Indenture dated August 19, 2002, dated August 23, 2002 between Kinder Morgan Energy Partners, L.P. and Wachovia Bank, National Association, as Trustee (filed as Exhibit 4.2 to Kinder Morgan Energy Partners, L.P.’s Registration Statement on Form S-4 filed on October 4, 2002 (File No. 333-100346)) | |
| 10.20 | * | Form of 7.30% Notes due 2033 (contained in the Indenture filed as Exhibit 4.1 to Kinder Morgan Energy Partners, L.P.’s Registration Statement on Form S-4 filed on October 4, 2002 (File No. 333-100346)) | |
| 10.21 | * | Senior Indenture dated January 31, 2003 between Kinder Morgan Energy Partners, L.P. and Wachovia Bank, National Association (filed as Exhibit 4.2 to Kinder Morgan Energy Partners, L.P.’s Registration Statement on Form S-3 filed on February 4, 2003 (File No. 333-102961)) | |
| 10.22 | * | Form of Senior Note of Kinder Morgan Energy Partners, L.P. (included in the Form of Senior Indenture filed as Exhibit 4.2 to Kinder Morgan Energy Partners, L.P.’s Registration Statement on Form S-3 filed on February 4, 2003 (File No. 333-102961)) | |
| 10.23 | * | Certificate of Vice President, Treasurer and Chief Financial Officer and Vice President, General Counsel and Secretary of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P. establishing the terms of the 5.80% Notes due March 15, 2035 (filed as Exhibit 4.1 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 (File No. 1-11234)) | |
| 10.24 | * | Certificate of Vice President and Chief Financial Officer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P. establishing the terms of the 6.00% Senior Notes due 2017 and 6.50% Senior Notes due 2037 (filed as Exhibit 4.28 to Kinder Morgan Energy Partners, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 1-11234)) | |
| 10.25 | * | Certificate of the Vice President and Treasurer and the Vice President and Chief Financial Officer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 6.95% Senior Notes due 2038 (filed as Exhibit 4.2 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (File No. 1-11234)) | |
| 10.26 | * | Certificate of the Vice President and Treasurer and the Vice President and Chief Financial Officer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 5.95% Senior Notes due 2018 (filed as Exhibit 4.28 to Kinder Morgan Energy Partners, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 1-11234)) | |
| Exhibit Number Description | |||
|---|---|---|---|
| 10.27 | * | Certificate of the Vice President and Treasurer and the Vice President and Chief Financial Officer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 9.00% Senior Notes due 2019 (filed as Exhibit 4.29 to Kinder Morgan Energy Partners, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 1-11234)) | |
| 10.28 | * | Certificate of the Vice President and Chief Financial Officer and the Vice President and Treasurer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 5.625% Senior Notes due 2015, and the 6.85% Senior Notes due 2020 (filed as Exhibit 4.2 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (File No. 1-11234)) | |
| 10.29 | * | Certificate of the Vice President and Chief Financial Officer and the Vice President and Treasurer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 5.80% Senior Notes due 2021, and the 6.50% Senior Notes due 2039 (filed as Exhibit 4.2 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 1-11234)) | |
| 10.30 | * | Certificate of the Vice President and Chief Financial Officer and the Vice President and Treasurer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 5.30% Senior Notes due 2020, and the 6.55% Senior Notes due 2040 (filed as Exhibit 4.2 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (File No. 1-11234)) | |
| 10.31 | * | Indenture, dated December 20, 2010, among Kinder Morgan Finance Company LLC, Kinder Morgan Kansas, Inc. and U.S. Bank National Association, as Trustee (filed as Exhibit 4.1 to Kinder Morgan Kansas, Inc.’s Current Report on Form 8-K filed on December 23, 2010 (File No. 1-06446)) | |
| 10.32 | * | Officers’ Certificate establishing the terms of the 6.000% Senior Notes due 2018 of Kinder Morgan Finance Company LLC (with the form of note attached thereto) (filed as Exhibit 4.2 to Kinder Morgan Kansas, Inc.’s Current Report on Form 8-K filed on December 23, 2010 (File No. 1-06446)) | |
| 10.33 | * | Certificate of the Vice President and Chief Financial Officer and the Vice President and Treasurer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 3.500% Senior Notes due 2016, and the 6.375% Senior Notes due 2041 (filed as Exhibit 4.1 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (File No. 1-11234)) | |
| 10.34 | * | Certificate of the Vice President and Chief Financial Officer and the Vice President and Treasurer of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 4.150% Senior Notes due 2022, and the 5.625% Senior Notes due 2041 (filed as Exhibit 4.1 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (File No. 1-11234)) | |
| 10.35 | * | Certificate of the Vice President, Finance and Investor Relations and the Vice President and Secretary of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 3.500% Senior Notes due 2021 and the 5.500% Senior Notes due 2044 (Filed as Exhibit 4.1 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (File No. 1-11234)) | |
| 10.36 | * | Certificate of the Vice President and Treasurer and the Vice President and Secretary of Kinder Morgan Management, LLC and Kinder Morgan G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., establishing the terms of the 4.250% Senior Notes due 2024 and the 5.400% Senior Notes due 2044 (Filed as Exhibit 4.1 to Kinder Morgan Energy Partners, L.P.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (File No. 1-11234)) | |
| 10.37 | * | Certificate of the Vice President and Treasurer and the Vice President and Secretary of KMI establishing the terms of the 2.000% Senior Notes due 2017, the 3.050% Senior Notes due 2019, the 4.300% Senior Notes due 2025, the 5.300% Senior Notes due 2034 and the 5.550% Senior Notes due 2045 (filed as Exhibit 10.53 to KMI’s Annual Report on Form 10-K for the year ended December 31, 2014 (File No. 001-35081)) | |
| 10.38 | * | Certificate of Vice President and Treasurer and Vice President and Secretary of KMI establishing the terms of the 5.050% Senior Notes due 2046 (filed as Exhibit 4.1 to KMI’s Quarterly Report on Form 10-Q for the three months ended March 31, 2015 (File No. 001-35081)) | |
| 10.39 | * | Certificate of Vice President and Treasurer and Vice President and Secretary of KMI establishing the terms of the 1.500% Senior Notes due 2022 and 2.250% Senior Notes due 2027 (filed as Exhibit 4.2 to KMI’s Form 8-A, filed March 16, 2015 and incorporated herein by reference (File No. 001-35081)) | |
| Exhibit Number Description | |||
|---|---|---|---|
| 10.40 | * | Support Agreement, dated as of August 9, 2014, by and among Kinder Morgan Energy Partners, L.P., Kinder Morgan G.P., Inc., Kinder Morgan Management, LLC, El Paso Pipeline Partners, L.P., El Paso Pipeline GP Company, L.L.C., Richard D. Kinder and RDK Investments, Ltd. (filed as Exhibit 10.1 to KMI’s Current Report on Form 8-K filed August 12, 2014 (File No. 001-35081)) | |
| 10.41 | * | Bridge Credit Agreement, dated September 19, 2014 among KMI, as borrower, Barclays Bank PLC, as administrative agent, and the lenders party thereto (filed as Exhibit 10.1 to KMI’s Current Report on Form 8-K filed September 25, 2014 (File No. 001-35081)) | |
| 10.42 | * | Revolving Credit Agreement, dated September 19, 2014 among KMI, as borrower, Barclays Bank PLC, as administrative agent, and the lenders and issuing banks party thereto (filed as Exhibit 10.2 to KMI’s Current Report on Form 8-K filed September 25, 2014(File No. 001-35081)) | |
| 10.43 | Cross Guarantee Agreement, dated as of November 26, 2014 among KMI and certain of its subsidiaries with schedules updated as of December 31, 2015 | ||
| 12.1 | Statement re: computation of ratio of earnings to fixed charges | ||
| 21.1 | Subsidiaries of KMI | ||
| 23.1 | Consent of PricewaterhouseCoopers LLP | ||
| 23.2 | Consent of Netherland, Sewell & Associates, Inc. | ||
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 95.1 | Mine Safety Disclosures | ||
| 99.1 | Netherland, Sewell & Associates, Inc.’s report of estimates of the net reserves and future net revenues, as of December 31, 2015, related to Kinder Morgan CO2 Company, L.P.’s interest in certain oil and gas properties located in the state of Texas | ||
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) our Consolidated Statements of Income for the years ended December 31, 2015, 2014, and 2013; (ii) our Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014, and 2013; (iii) our Consolidated Balance Sheets as of December 31, 2015 and 2014; (iv) our Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013; (v) our Consolidated Statement of Stockholders’ Equity as of and for the years ended December 31, 2015, 2014, and 2013; and (vi) the notes to our Consolidated Financial Statements |
*Asterisk indicates exhibits incorporated by reference as indicated; all other exhibits are filed herewith, except as noted otherwise.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Kinder Morgan, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of Kinder Morgan, Inc. and its subsidiaries (the “Company”) at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing in Item 9A of the Company’s 2015 Annual Report on Form 10-K. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control over Financial Reporting appearing in Item 9A of the Company’s 2015 Annual Report on Form 10- K, management has excluded Hiland Partners, LP from its assessment of internal control over financial reporting as of December 31, 2015 because it was acquired in a purchase business combination by Kinder Morgan, Inc. on February 13, 2015. We have also excluded Hiland Partners, LP from our audit of internal control over financial reporting. Hiland Partners, LP is a wholly-owned subsidiary whose total assets and total revenues represent 4% and 3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2015.
/s/PricewaterhouseCoopers LLP
Houston, Texas
February 16, 2016
| KINDER MORGAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Millions, Except Per Share Amounts) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Revenues | |||||||||||
| Natural gas sales | $ | 2,839 | $ | 4,115 | $ | 3,605 | |||||
| Services | 8,290 | 7,650 | 6,677 | ||||||||
| Product sales and other | 3,274 | 4,461 | 3,788 | ||||||||
| Total Revenues | 14,403 | 16,226 | 14,070 | ||||||||
| Operating Costs, Expenses and Other | |||||||||||
| Costs of sales | 4,115 | 6,278 | 5,253 | ||||||||
| Operations and maintenance | 2,337 | 2,157 | 2,112 | ||||||||
| Depreciation, depletion and amortization | 2,309 | 2,040 | 1,806 | ||||||||
| General and administrative | 690 | 610 | 613 | ||||||||
| Taxes, other than income taxes | 439 | 418 | 395 | ||||||||
| Loss on impairment of goodwill | 1,150 | — | — | ||||||||
| Loss (gain) on impairments and disposals of long-lived assets, net | 919 | 274 | (98 | ) | |||||||
| Other (income) expense, net | (3 | ) | 1 | (1 | ) | ||||||
| Total Operating Costs, Expenses and Other | 11,956 | 11,778 | 10,080 | ||||||||
| Operating Income | 2,447 | 4,448 | 3,990 | ||||||||
| Other Income (Expense) | |||||||||||
| Earnings from equity investments | 414 | 406 | 392 | ||||||||
| Loss on impairments of equity investments | (30 | ) | — | (65 | ) | ||||||
| Amortization of excess cost of equity investments | (51 | ) | (45 | ) | (39 | ) | |||||
| Interest, net | (2,051 | ) | (1,798 | ) | (1,675 | ) | |||||
| Gain on remeasurement of previously held equity investments to fair value (Note 3) | — | — | 558 | ||||||||
| Gain on sale of investments in Express pipeline system (Note 3) | — | — | 224 | ||||||||
| Other, net | 43 | 80 | 53 | ||||||||
| Total Other Expense | (1,675 | ) | (1,357 | ) | (552 | ) | |||||
| Income from Continuing Operations Before Income Taxes | 772 | 3,091 | 3,438 | ||||||||
| Income Tax Expense | (564 | ) | (648 | ) | (742 | ) | |||||
| Income from Continuing Operations | 208 | 2,443 | 2,696 | ||||||||
| Discontinued Operations | |||||||||||
| Loss on sale of the FTC Natural Gas Pipelines disposal group, net of tax | — | — | (4 | ) | |||||||
| Net Income | 208 | 2,443 | 2,692 | ||||||||
| Net Loss (Income) Attributable to Noncontrolling Interests | 45 | (1,417 | ) | (1,499 | ) | ||||||
| Net Income Attributable to Kinder Morgan, Inc. | 253 | 1,026 | 1,193 | ||||||||
| Preferred Stock Dividends | (26 | ) | — | — | |||||||
| Net Income Available to Common Stockholders | $ | 227 | $ | 1,026 | $ | 1,193 | |||||
| KINDER MORGAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (continued) (In Millions, Except Per Share Amounts) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Class P Shares | |||||||||||
| Basic Earnings Per Common Share | $ | 0.10 | $ | 0.89 | $ | 1.15 | |||||
| Basic Weighted Average Common Shares Outstanding | 2,187 | 1,137 | 1,036 | ||||||||
| Diluted Earnings Per Common Share | $ | 0.10 | $ | 0.89 | $ | 1.15 | |||||
| Diluted Weighted Average Common Shares Outstanding | 2,193 | 1,137 | 1,036 | ||||||||
| Dividends Per Common Share Declared for the Period | $ | 1.605 | $ | 1.740 | $ | 1.600 |
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Millions)
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Net income | $ | 208 | $ | 2,443 | $ | 2,692 | |||||
| Other comprehensive income (loss), net of tax | |||||||||||
| Change in fair value of hedge derivatives (net of tax (expense) benefit of $(94), $(163) and $10, respectively) | 164 | 409 | (38 | ) | |||||||
| Reclassification of change in fair value of derivatives to net income (net of tax benefit (expense) of $156, $13 and $(3), respectively) | (272 | ) | (25 | ) | 11 | ||||||
| Foreign currency translation adjustments (net of tax benefit of $123, $48, and $31, respectively) | (214 | ) | (138 | ) | (103 | ) | |||||
| Benefit plan adjustments (net of tax benefit (expense) of $69, $126 and $(91), respectively) | (122 | ) | (226 | ) | 170 | ||||||
| Total other comprehensive (loss) income | (444 | ) | 20 | 40 | |||||||
| Comprehensive (loss) income | (236 | ) | 2,463 | 2,732 | |||||||
| Comprehensive loss (income) attributable to noncontrolling interests | 45 | (1,486 | ) | (1,445 | ) | ||||||
| Comprehensive (loss) income attributable to KMI | $ | (191 | ) | $ | 977 | $ | 1,287 |
The accompanying notes are an integral part of these consolidated financial statements.
| KINDER MORGAN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Millions, Except Share and Per Share Amounts) | |||||||
|---|---|---|---|---|---|---|---|
| December 31, | |||||||
| 2015 | 2014 | ||||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 229 | $ | 315 | |||
| Accounts receivable, net | 1,315 | 1,641 | |||||
| Fair value of derivative contracts | 507 | 535 | |||||
| Inventories | 407 | 459 | |||||
| Deferred income taxes | — | 56 | |||||
| Other current assets | 366 | 746 | |||||
| Total current assets | 2,824 | 3,752 | |||||
| Property, plant and equipment, net | 40,547 | 38,564 | |||||
| Investments | 6,040 | 6,036 | |||||
| Goodwill | 23,790 | 24,654 | |||||
| Other intangibles, net | 3,551 | 2,302 | |||||
| Deferred income taxes | 5,323 | 5,651 | |||||
| Deferred charges and other assets | 2,029 | 2,090 | |||||
| Total Assets | $ | 84,104 | $ | 83,049 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
| Current liabilities | |||||||
| Current portion of debt | $ | 821 | $ | 2,717 | |||
| Accounts payable | 1,324 | 1,588 | |||||
| Accrued interest | 695 | 637 | |||||
| Accrued contingencies | 298 | 383 | |||||
| Other current liabilities | 927 | 1,037 | |||||
| Total current liabilities | 4,065 | 6,362 | |||||
| Long-term liabilities and deferred credits | |||||||
| Long-term debt | |||||||
| Outstanding | 40,632 | 38,212 | |||||
| Preferred interest in general partner of KMP | 100 | 100 | |||||
| Debt fair value adjustments | 1,674 | 1,785 | |||||
| Total long-term debt | 42,406 | 40,097 | |||||
| Other long-term liabilities and deferred credits | 2,230 | 2,164 | |||||
| Total long-term liabilities and deferred credits | 44,636 | 42,261 | |||||
| Total Liabilities | 48,701 | 48,623 | |||||
| Commitments and contingencies (Notes 9, 13 and 17) | |||||||
| Stockholders’ Equity | |||||||
| Class P shares, $0.01 par value, 4,000,000,000 shares authorized, 2,229,223,864 and 2,125,147,116 shares, respectively, issued and outstanding | 22 | 21 | |||||
| Preferred stock, $0.01 par value, 10,000,000 shares authorized, 9.75% Series A Mandatory Convertible, $1,000 per share liquidation preference, 1,600,000 shares issued and outstanding | — | — | |||||
| Additional paid-in capital | 41,661 | 36,178 | |||||
| Retained deficit | (6,103 | ) | (2,106 | ) | |||
| Accumulated other comprehensive loss | (461 | ) | (17 | ) | |||
| Total Kinder Morgan, Inc.’s stockholders’ equity | 35,119 | 34,076 | |||||
| Noncontrolling interests | 284 | 350 | |||||
| Total Stockholders’ Equity | 35,403 | 34,426 | |||||
| Total Liabilities and Stockholders’ Equity | $ | 84,104 | $ | 83,049 |
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Cash Flows From Operating Activities | |||||||||||
| Net income | $ | 208 | $ | 2,443 | $ | 2,692 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
| Depreciation, depletion and amortization | 2,309 | 2,040 | 1,806 | ||||||||
| Deferred income taxes | 692 | 615 | 640 | ||||||||
| Amortization of excess cost of equity investments | 51 | 45 | 39 | ||||||||
| Loss on impairment of goodwill (Note 4) | 1,150 | — | — | ||||||||
| Loss (gain) on impairments and disposals of long-lived assets and equity investments, net | 949 | 274 | (33 | ) | |||||||
| Gain from the remeasurement of net assets to fair value and the sale of discontinued operations (net of cash selling expenses), net of tax (Note 3) | — | — | (556 | ) | |||||||
| Gain from sale of investments in Express pipeline system (Note 3) | — | — | (224 | ) | |||||||
| Earnings from equity investments | (414 | ) | (406 | ) | (392 | ) | |||||
| Distributions of equity investment earnings | 391 | 381 | 398 | ||||||||
| Proceeds from termination of interest rate swap agreements | — | — | 96 | ||||||||
| Pension contributions and noncash pension benefit credits | (85 | ) | (88 | ) | (120 | ) | |||||
| Changes in components of working capital, net of the effects of acquisitions | |||||||||||
| Accounts receivable | 382 | (84 | ) | (131 | ) | ||||||
| Income tax receivable | 195 | (195 | ) | — | |||||||
| Inventories | 34 | (30 | ) | (53 | ) | ||||||
| Other current assets | 113 | (17 | ) | (32 | ) | ||||||
| Accounts payable | (156 | ) | (1 | ) | (36 | ) | |||||
| Accrued interest, net of interest rate swaps | 37 | 61 | 50 | ||||||||
| Accrued contingencies and other current liabilities | (129 | ) | 108 | (100 | ) | ||||||
| Rate reparations, refunds and other litigation reserve adjustments | 18 | (280 | ) | 174 | |||||||
| Other, net | (442 | ) | (399 | ) | (96 | ) | |||||
| Net Cash Provided by Operating Activities | 5,303 | 4,467 | 4,122 | ||||||||
| Cash Flows From Investing Activities | |||||||||||
| Acquisitions of assets and investments, net of cash acquired | (2,079 | ) | (1,388 | ) | (292 | ) | |||||
| Proceeds from sales of assets and investments | — | — | 490 | ||||||||
| Capital expenditures | (3,896 | ) | (3,617 | ) | (3,369 | ) | |||||
| Contributions to investments | (96 | ) | (389 | ) | (217 | ) | |||||
| Distributions from equity investments in excess of cumulative earnings | 228 | 182 | 185 | ||||||||
| Other, net | 137 | 2 | 81 | ||||||||
| Net Cash Used in Investing Activities | (5,706 | ) | (5,210 | ) | (3,122 | ) | |||||
| Cash Flows From Financing Activities | |||||||||||
| Issuances of debt | 14,316 | 24,573 | 13,581 | ||||||||
| Payments of debt | (15,116 | ) | (17,801 | ) | (12,393 | ) | |||||
| Debt issue costs | (24 | ) | (89 | ) | (38 | ) | |||||
| Issuances of common shares (Note 11) | 3,870 | — | — | ||||||||
| Issuance of mandatory convertible preferred stock (Note 11) | 1,541 | — | — | ||||||||
| Cash dividends (Note 11) | (4,224 | ) | (1,760 | ) | (1,622 | ) | |||||
| Repurchases of shares and warrants | (12 | ) | (192 | ) | (637 | ) | |||||
| Cash consideration of Merger Transactions (Note 1) | — | (3,937 | ) | — | |||||||
| Merger Transactions costs | (2 | ) | (74 | ) | — | ||||||
| Contributions from noncontrolling interests | 11 | 1,767 | 1,706 | ||||||||
| Distributions to noncontrolling interests | (34 | ) | (2,013 | ) | (1,692 | ) | |||||
| Other, net | 1 | (3 | ) | — | |||||||
| Net Cash Provided by (Used in) Financing Activities | 327 | 471 | (1,095 | ) | |||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | (10 | ) | (11 | ) | (21 | ) | |||||
| Net decrease in Cash and Cash Equivalents | (86 | ) | (283 | ) | (116 | ) | |||||
| Cash and Cash Equivalents, beginning of period | 315 | 598 | 714 | ||||||||
| Cash and Cash Equivalents, end of period | $ | 229 | $ | 315 | $ | 598 |
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In Millions)
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Noncash Investing and Financing Activities | |||||||||||
| Assets acquired by the assumption or incurrence of liabilities | $ | 1,681 | $ | 106 | $ | 1,510 | |||||
| Net assets contributed to equity investment | 46 | — | — | ||||||||
| Net assets and liabilities or noncontrolling interests acquired by the issuance of shares and warrants (Notes 1 and 3) | — | 16,023 | — | ||||||||
| Assets acquired or liabilities settled by contributions from noncontrolling interests | — | — | 3,733 | ||||||||
| Supplemental Disclosures of Cash Flow Information | |||||||||||
| Cash paid during the period for interest (net of capitalized interest) | 1,985 | 1,718 | 1,652 | ||||||||
| Cash (refund) paid during the period for income taxes, net | (331 | ) | 227 | 67 |
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Millions)
| Common stock | Preferred stock | ||||||||||||||||||||||||||||||||||||
| Issued shares | Par value | Issued shares | Par value | Additional paid-in capital | Retained deficit | Accumulated other comprehensive loss | Stockholders’ equity attributable to KMI | Non-controlling interests | Total | ||||||||||||||||||||||||||||
| Balance at December 31, 2012 | 1,036 | $ | 10 | — | $ | — | $ | 14,917 | $ | (943 | ) | $ | (118 | ) | $ | 13,866 | $ | 10,234 | $ | 24,100 | |||||||||||||||||
| Repurchases of shares and warrants | (5 | ) | (637 | ) | (637 | ) | (637 | ) | |||||||||||||||||||||||||||||
| Warrants exercised | 1 | 1 | 1 | ||||||||||||||||||||||||||||||||||
| EP Trust I Preferred security conversions | 3 | 3 | 3 | ||||||||||||||||||||||||||||||||||
| Restricted shares | 33 | 33 | 33 | ||||||||||||||||||||||||||||||||||
| Impact from equity transactions of KMP, EPB and KMR | 161 | 161 | (254 | ) | (93 | ) | |||||||||||||||||||||||||||||||
| Net income | 1,193 | 1,193 | 1,499 | 2,692 | |||||||||||||||||||||||||||||||||
| Distributions | — | (1,692 | ) | (1,692 | ) | ||||||||||||||||||||||||||||||||
| Contributions | — | 5,439 | 5,439 | ||||||||||||||||||||||||||||||||||
| KMP’s acquisition of Copano noncontrolling interests | — | 17 | 17 | ||||||||||||||||||||||||||||||||||
| Common stock dividends | (1,622 | ) | (1,622 | ) | (1,622 | ) | |||||||||||||||||||||||||||||||
| Other | 1 | 1 | 3 | 4 | |||||||||||||||||||||||||||||||||
| Other comprehensive income | 94 | 94 | (54 | ) | 40 | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2013 | 1,031 | 10 | — | — | 14,479 | (1,372 | ) | (24 | ) | 13,093 | 15,192 | 28,285 | |||||||||||||||||||||||||
| Impact of Merger Transactions | 1,097 | 11 | 21,880 | 21,891 | (15,936 | ) | 5,955 | ||||||||||||||||||||||||||||||
| Merger Transactions costs | (75 | ) | (75 | ) | (75 | ) | |||||||||||||||||||||||||||||||
| Repurchases of shares and warrants | (3 | ) | (192 | ) | (192 | ) | (192 | ) | |||||||||||||||||||||||||||||
| Restricted shares | 52 | 52 | 52 | ||||||||||||||||||||||||||||||||||
| Impact from equity transactions of KMP, EPB and KMR | 36 | 36 | (55 | ) | (19 | ) | |||||||||||||||||||||||||||||||
| Net income | 1,026 | 1,026 | 1,417 | 2,443 | |||||||||||||||||||||||||||||||||
| Distributions | — | (2,013 | ) | (2,013 | ) | ||||||||||||||||||||||||||||||||
| Contributions | — | 1,767 | 1,767 | ||||||||||||||||||||||||||||||||||
| Common stock dividends | (1,760 | ) | (1,760 | ) | (1,760 | ) | |||||||||||||||||||||||||||||||
| Other | (2 | ) | (2 | ) | (4 | ) | (6 | ) | |||||||||||||||||||||||||||||
| Other comprehensive (loss) income | (49 | ) | (49 | ) | 69 | 20 | |||||||||||||||||||||||||||||||
| Impact of Merger Transactions on Accumulated other comprehensive loss | 56 | 56 | (87 | ) | (31 | ) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2014 | 2,125 | 21 | — | — | 36,178 | (2,106 | ) | (17 | ) | 34,076 | 350 | 34,426 | |||||||||||||||||||||||||
| Issuances of common shares | 103 | 1 | 3,869 | 3,870 | 3,870 | ||||||||||||||||||||||||||||||||
| Issuances of preferred shares | 2 | 1,541 | 1,541 | 1,541 | |||||||||||||||||||||||||||||||||
| Repurchases of warrants | (12 | ) | (12 | ) | (12 | ) | |||||||||||||||||||||||||||||||
| EP Trust I Preferred security conversions | 1 | 23 | 23 | 23 | |||||||||||||||||||||||||||||||||
| Warrants exercised | 2 | 2 | 2 | ||||||||||||||||||||||||||||||||||
| Restricted shares | 57 | 57 | 57 | ||||||||||||||||||||||||||||||||||
| Net income | 253 | 253 | (45 | ) | 208 | ||||||||||||||||||||||||||||||||
| Distributions | — | (34 | ) | (34 | ) | ||||||||||||||||||||||||||||||||
| Contributions | — | 11 | 11 | ||||||||||||||||||||||||||||||||||
| Preferred stock dividends | (26 | ) | (26 | ) | (26 | ) | |||||||||||||||||||||||||||||||
| Common stock dividends | (4,224 | ) | (4,224 | ) | (4,224 | ) | |||||||||||||||||||||||||||||||
| Other | 3 | 3 | 2 | 5 | |||||||||||||||||||||||||||||||||
| Other comprehensive loss | (444 | ) | (444 | ) | (444 | ) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2015 | 2,229 | $ | 22 | 2 | $ | — | $ | 41,661 | $ | (6,103 | ) | $ | (461 | ) | $ | 35,119 | $ | 284 | $ | 35,403 |
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- General
We are the largest energy infrastructure company in North America and unless the context requires otherwise, references to “we,” “us,” “our,” “the Company,” or “KMI” are intended to mean Kinder Morgan, Inc. and its consolidated subsidiaries. Our pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2 and other products, and our terminals transload and store petroleum products, ethanol and chemicals, and handle such products as coal, petroleum coke and steel. We are also the leading producer and transporter of CO2, which is utilized for enhanced oil recovery projects in North America.
On November 26, 2014, we completed our acquisition, pursuant to three separate merger agreements, of all of the outstanding common units of Kinder Morgan Energy Partners, L.P. and El Paso Pipeline Partners, L.P. and all of the outstanding shares of Kinder Morgan Management, LLC that we did not already own. The transactions, valued at approximately $77 billion, are referred to collectively as the “Merger Transactions.”
As we controlled each of KMP, KMR and EPB and continued to control each of them after the Merger Transactions, the changes in our ownership interest in each of KMP, KMR and EPB were accounted for as an equity transaction and no gain or loss was recognized in our consolidated statements of income related to the Merger Transactions. After closing the KMR Merger Transaction, KMR was merged with and into KMI. On January 1, 2015, EPB and its subsidiary, EPPOC merged with and into KMP. References to EPB refer to EPB for periods prior to its merger into KMP.
Prior to the Merger Transactions, we owned an approximate 10% limited partner interest (including our interest in KMR) and the 2% general partner interest including incentive distribution rights in KMP, and an approximate 39% limited partner interest and the 2% general partner interest and incentive distribution rights in EPB. Effective with the Merger Transactions, the incentive distribution rights held by the general partner of KMP was eliminated.
The equity interests in KMP, EPB and KMR (which are all consolidated in our financial statements) owned by the public prior to the Merger Transactions are reflected within “Noncontrolling interests” in our accompanying consolidated statements of stockholders’ equity. The earnings recorded by KMP, EPB and KMR that are attributed to their units and shares, respectively, held by the public prior to the Merger Transactions are reported as “Net income attributable to noncontrolling interests” in our accompanying consolidated statements of income.
Our common stock trades on the NYSE under the symbol “KMI.”
- Summary of Significant Accounting Policies
Basis of Presentation
Our reporting currency is U.S. dollars, and all references to dollars are U.S. dollars, except where stated otherwise. Our accompanying consolidated financial statements have been prepared under the rules and regulations of the SEC. These rules and regulations conform to the accounting principles contained in the FASB’s Accounting Standards Codification, the single source of GAAP. Under such rules and regulations, all significant intercompany items have been eliminated in consolidation. Additionally, certain amounts from prior years have been reclassified to conform to the current presentation.
Use of Estimates
Certain amounts included in or affecting our financial statements and related disclosures must be estimated, requiring us to make certain assumptions with respect to values or conditions which cannot be known with certainty at the time our financial statements are prepared. These estimates and assumptions affect the amounts we report for assets and liabilities, our revenues and expenses during the reporting period, and our disclosures, including as it relates to contingent assets and liabilities at the date of our financial statements. We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with experts and other methods we consider reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.
In addition, we believe that certain accounting policies are of more significance in our financial statement preparation process than others, and set out below are the principal accounting policies we apply in the preparation of our consolidated financial statements.
Cash Equivalents and Restricted Deposits
We define cash equivalents as all highly liquid short-term investments with original maturities of three months or less.
Restricted cash of $60 million and $118 million as of December 31, 2015 and 2014, respectively, is included in “Other current assets.”
Accounts Receivable, net
The amounts reported as “Accounts receivable, net” on our accompanying consolidated balance sheets as of December 31, 2015 and 2014 primarily consist of amounts due from customers.
Our policy for determining an appropriate allowance for doubtful accounts varies according to the type of business being conducted and the customers being served. Generally, we make periodic reviews and evaluations of the appropriateness of the allowance for doubtful accounts based on a historical analysis of uncollected amounts, and we record adjustments as necessary for changed circumstances and customer-specific information. When specific receivables are determined to be uncollectible, the reserve and receivable are relieved.
The allowance for doubtful accounts was $91 million and $10 million as of December 31, 2015 and 2014, respectively. The increase was primarily associated with reserves established related to certain coal customers.
Inventories
Our inventories consist of materials and supplies and products such as, NGL, crude oil, condensate, refined petroleum products, transmix and natural gas. We report these assets at the lower of weighted-average cost or market. We report materials and supplies inventories at cost, and periodically review for physical deterioration and obsolescence.
Gas Imbalances
We value gas imbalances due to or due from interconnecting pipelines at market prices. As of December 31, 2015 and 2014, our gas imbalance receivables—including both trade and related party receivables—totaled $21 million and $103 million, respectively, and we included these amounts within “Other current assets” on our accompanying consolidated balance sheets. As of December 31, 2015 and 2014, our gas imbalance payables—consisting of only trade payables—totaled $17 million and $36 million, respectively, and we included these amounts within “Other current liabilities” on our accompanying consolidated balance sheets.
Property, Plant and Equipment, net
Capitalization, Depreciation and Depletion and Disposals
We report property, plant and equipment at its acquisition cost. We expense costs for routine maintenance and repairs in the period incurred.
We generally compute depreciation using either the straight-line method based on estimated economic lives or, for certain depreciable assets, we employ the composite depreciation method, applying a single depreciation rate for a group of assets. Generally, we apply composite depreciation rates to functional groups of property having similar economic characteristics. The rates range from 0.9% to 23.0% excluding certain short-lived assets such as vehicles. For FERC-regulated entities, the FERC-accepted composite depreciation rate is applied to the total cost of the composite group until the net book value equals the salvage value. For other entities, depreciation estimates are based on various factors, including age (in the case of acquired assets), manufacturing specifications, technological advances, contract term for assets on leased or customer property and historical data concerning useful lives of similar assets. Uncertainties that impact these estimates include changes in laws and regulations relating to restoration and abandonment requirements, economic conditions, and supply and demand in the area. When assets are put into service, we make estimates with respect to useful lives (and salvage values where appropriate) that we believe are reasonable. Subsequent events could cause us to change our estimates, thus
impacting the future calculation of depreciation and amortization expense. Historically, adjustments to useful lives have not had a material impact on our aggregate depreciation levels from year to year.
Our oil and gas producing activities are accounted for under the successful efforts method of accounting. Under this method costs that are incurred to acquire leasehold and subsequent development costs are capitalized. Costs that are associated with the drilling of successful exploration wells are capitalized if proved reserves are found. Costs associated with the drilling of exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of certain non-producing leasehold costs are expensed as incurred. The capitalized costs of our producing oil and gas properties are depreciated and depleted by the units-of-production method. Other miscellaneous property, plant and equipment are depreciated over the estimated useful lives of the asset.
We engage in enhanced recovery techniques in which CO2 is injected into certain producing oil reservoirs. In some cases, the cost of the CO2 associated with enhanced recovery is capitalized as part of our development costs when it is injected. The cost of CO2 associated with pressure maintenance operations for reservoir management is expensed when it is injected. When CO2 is recovered in conjunction with oil production, it is extracted and re-injected, and all of the associated costs are expensed as incurred. Proved developed reserves are used in computing units of production rates for drilling and development costs, and total proved reserves are used for depletion of leasehold costs. The units-of-production depreciation rate is determined by field and for our oil and gas producing fields that have no proved reserves, the units-of-production depreciation rate is based on each field’s probable reserves and NYMEX forward curve prices.
A gain on the sale of property, plant and equipment used in our oil and gas producing activities or in our bulk and liquids terminal activities is calculated as the difference between the cost of the asset disposed of, net of depreciation, and the sales proceeds received. A gain on an asset disposal is recognized in income in the period that the sale is closed. A loss on the sale of property, plant and equipment is calculated as the difference between the cost of the asset disposed of, net of depreciation, and the sales proceeds received or the market value if the asset is being held for sale. A loss is recognized when the asset is sold or when the net cost of an asset held for sale is greater than the market value of the asset. For our pipeline system assets under the composite method of depreciation, we generally charge the original cost of property sold or retired to accumulated depreciation and amortization, net of salvage and cost of removal. Gains and losses are booked for operating unit sales and land sales and are recorded to income or expense accounts in accordance with regulatory accounting guidelines. In those instances where we receive recovery in tariff rates related to losses on dispositions of operating units, we record a regulatory asset for the estimated recoverable amount.
Asset Retirement Obligations
We record liabilities for obligations related to the retirement and removal of long-lived assets used in our businesses. We record, as liabilities, the fair value of asset retirement obligations on a discounted basis when they are incurred and can be reasonably estimated, which is typically at the time the assets are installed or acquired. Amounts recorded for the related assets are increased by the amount of these obligations. Over time, the liabilities increase due to the change in their present value, and the initial capitalized costs are depreciated over the useful lives of the related assets. The liabilities are eventually extinguished when the asset is taken out of service.
We have various other obligations throughout our businesses to remove facilities and equipment on rights-of-way and other leased facilities. We currently cannot reasonably estimate the fair value of these obligations because the associated assets have indeterminate lives. These assets include pipelines, certain processing plants and distribution facilities, and certain bulk and liquids terminal facilities. An asset retirement obligation, if any, will be recognized once sufficient information is available to reasonably estimate the fair value of the obligation.
Long-lived Asset Impairments
We evaluate long-lived assets and investments for impairment whenever events or changes in circumstances indicate that our carrying amount of an asset or investment may not be recoverable. We recognize impairment losses when estimated future cash flows expected to result from our use of the asset and its eventual disposition is less than its carrying amount.
Prior to us conducting the goodwill impairment test, to the extent triggering events exist, we complete a review of the carrying value of our long-lived assets, including property, plant and equipment as well as other intangibles, and record, as applicable, the appropriate impairments. Because the impairment test for long-lived assets held in use is based on undiscounted cash flows, there may be instances where an asset or asset group is not considered impaired, even when its fair
value may be less than its carrying value, because the asset or asset group is recoverable based on the cash flows to be generated over the estimated life of the asset or asset group.
We evaluate our oil and gas producing properties for impairment of value on a field-by-field basis or, in certain instances, by logical grouping of assets if there is significant shared infrastructure, using undiscounted future cash flows based on total proved and risk-adjusted probable reserves. For the purpose of impairment testing, adjustments for the inclusion of risk-adjusted probable reserves, as well as forward curve pricing and estimates of future costs, will cause impairment calculation cash flows to differ from the amounts presented in our supplemental information on oil and gas producing activities disclosed in “Supplemental Information on Oil and Gas Producing Activities (Unaudited).”
Oil and gas producing properties deemed to be impaired are written down to their fair value, as determined by discounted future cash flows based on total proved and risk-adjusted probable and possible reserves or, if available, comparable market values. Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment.
Equity Method of Accounting and Excess Investment Cost
We account for investments—which we do not control, but do have the ability to exercise significant influence—by the equity method of accounting. Under this method, our equity investments are carried originally at our acquisition cost, increased by our proportionate share of the investee’s net income and by contributions made, and decreased by our proportionate share of the investee’s net losses and by distributions received.
With regard to our equity investments in unconsolidated affiliates, in almost all cases, either (i) the price we paid to acquire our share of the net assets of such equity investees or (ii) the revaluation of our share of the net assets of any retained noncontrolling equity investment (from the sale of a portion of our ownership interest in a consolidated subsidiary, thereby losing our controlling financial interest in the subsidiary) differed from the underlying carrying value of such net assets. This differential consists of two pieces. First, an amount related to the difference between the investee’s recognized net assets at book value and at current fair values (representing the appreciated value in plant and other net assets), and secondly, to any premium in excess of fair value (referred to as equity method goodwill) we paid to acquire the investment. We include both amounts within “Investments” on our accompanying consolidated balance sheets.
The first differential, representing the excess of the fair market value of our investees’ plant and other net assets over its underlying book value at either the date of acquisition or the date of the loss of control totaled $808 million and $870 million as of December 31, 2015 and 2014, respectively. Generally, this basis difference relates to our share of the underlying depreciable assets, and, as such, we amortize this portion of our investment cost against our share of investee earnings. As of December 31, 2015, this excess investment cost is being amortized over a weighted average life of approximately fifteen years.
The second differential, representing equity method goodwill, totaled $138 million as of both December 31, 2015 and 2014. This differential is not subject to amortization but rather to impairment testing as part of our periodic evaluation of the recoverability of our investment as compared to the fair value of net assets accounted for under the equity method. Our impairment test considers whether the fair value of the equity investment as a whole has declined and whether that decline is other than temporary.
Goodwill
Goodwill is the cost of an acquisition in excess of the fair value of acquired assets and liabilities and is recorded as an asset on our balance sheet. Goodwill is not subject to amortization but must be tested for impairment at least annually. This test requires us to assign goodwill to an appropriate reporting unit and to determine if the implied fair value of the reporting unit’s goodwill is less than its carrying amount.
We evaluate goodwill for impairment on May 31 of each year. For this purpose, we have seven reporting units as follows: (i) Products Pipelines (excluding associated terminals); (ii) Products Pipelines Terminals (evaluated separately from Products Pipelines for goodwill purposes); (iii) Natural Gas Pipelines Regulated; (iv) Natural Gas Pipelines Non-Regulated; (v) CO2; (vi) Terminals; and (vii) Kinder Morgan Canada. We also evaluate goodwill for impairment to the extent events or conditions indicate a risk of possible impairment during the interim periods subsequent to our annual impairment test. Generally, the evaluation of goodwill for impairment involves a two-step test, although under certain circumstance an initial qualitative evaluation may be sufficient to conclude that goodwill is not impaired without conducting the quantitative test.
Step 1 involves comparing the estimated fair value of each respective reporting unit to its carrying value, including goodwill. If the estimated fair value exceeds the carrying value, the reporting unit’s goodwill is not considered impaired. If the carrying value exceeds the estimated fair value, step 2 must be performed to determine whether goodwill is impaired and, if so, the amount of the impairment. Step 2 involves calculating an implied fair value of goodwill by performing a hypothetical allocation of the estimated fair value of the reporting unit determined in step 1 to the respective tangible and intangible net assets of the reporting unit. The remaining implied goodwill is then compared to the actual carrying amount of the goodwill for the reporting unit. To the extent the carrying amount of goodwill exceeds the implied goodwill, the difference is the amount of the goodwill impairment.
A large portion of our goodwill is non-deductible for tax purposes, and as such, to the extent there are impairments, all or a portion of the impairment may not result in a corresponding tax benefit.
Refer to Note 8 for further information.
Other Intangibles
Excluding goodwill, our other intangible assets include customer contracts, relationships and agreements, lease value, and technology-based assets. As of December 31, 2015 and 2014, these intangible assets totaled $3,551 million and $2,302 million, respectively, and primarily consisted of customer contracts, relationships and agreements associated with our Natural Gas Pipelines and Terminals business segments.
Primarily, these contracts, relationships and agreements relate to the gathering of natural gas, and the handling and storage of petroleum, chemical, and dry-bulk materials, including oil, gasoline and other refined petroleum products, coal, petroleum coke, fertilizer, steel and ores. We determined the values of these intangible assets by first, estimating the revenues derived from a customer contract or relationship (offset by the cost and expenses of supporting assets to fulfill the contract), and second, discounting the revenues at a risk adjusted discount rate.
We amortize the costs of our intangible assets to expense in a systematic and rational manner over their estimated useful lives. The life of each intangible asset is based either on the life of the corresponding customer contract or agreement or, in the case of a customer relationship intangible (the life of which was determined by an analysis of all available data on that business relationship), the length of time used in the discounted cash flow analysis to determine the value of the customer relationship. Among the factors we weigh, depending on the nature of the asset, are the effect of obsolescence, new technology, and competition.
For the years ended December 31, 2015, 2014 and 2013, the amortization expense on our intangibles totaled $221 million, $143 million and $125 million, respectively. Our estimated amortization expense for our intangible assets for each of the next five fiscal years (2016 – 2020) is approximately $221 million, $218 million, $216 million, $214 million, and $211 million , respectively. As of December 31, 2015, the weighted average amortization period for our intangible assets was approximately eighteen years.
Other intangibles are evaluated for recoverability consistent with the discussion above on long-lived asset impairments.
Revenue Recognition
We recognize revenue as services are rendered or goods are delivered and, if applicable, risk of loss has passed. We recognize natural gas, crude and NGL sales revenue when the commodity is sold to a purchaser at a fixed or determinable price, delivery has occurred and risk of loss has transferred, and collectability of the revenue is reasonably assured. Our sales and purchases of natural gas, crude and NGL are primarily accounted for on a gross basis as natural gas sales or product sales, as applicable, and cost of sales, except in circumstances where we soley act as an agent and do not have price and related risk of ownership, in which case we recognize revenue on a net basis.
In addition to storing and transporting a significant portion of the natural gas volumes we purchase and resell, we provide various types of natural gas storage and transportation services for third-party customers. Under these contracts, the natural gas remains the property of these customers at all times. In many cases, generally described as firm service, the customer pays a two-part rate that includes (i) a fixed fee reserving the right to transport or store natural gas in our facilities and (ii) a per-unit rate for volumes actually transported or injected into/withdrawn from storage. The fixed-fee component of the overall rate is recognized as revenue in the period the service is provided. The per-unit charge is recognized as revenue
when the volumes are delivered to the customers’ agreed upon delivery point, or when the volumes are injected into/withdrawn from our storage facilities.
In other cases, generally described as interruptible service, there is no fixed fee associated with the services because the customer accepts the possibility that service may be interrupted at our discretion in order to serve customers who have purchased firm service. In the case of interruptible service, revenue is recognized in the same manner utilized for the per-unit rate for volumes actually transported under firm service agreements.
We provide crude oil and refined petroleum products transportation and storage services to customers. Revenues are recorded when products are delivered and services have been provided, and adjusted according to terms prescribed by the toll settlements with shippers and approved by regulatory authorities.
We recognize bulk terminal transfer service revenues based on volumes loaded and unloaded. We recognize liquids terminal tank rental revenue ratably over the contract period. We recognize liquids terminal throughput revenue based on volumes received and volumes delivered. We recognize transmix processing revenues based on volumes processed or sold, and if applicable, when risk of loss has passed. We recognize energy-related product sales revenues based on delivered quantities of product.
Revenues from the sale of crude oil, NGL, CO2 and natural gas production within the CO2 business segment are recorded using the entitlement method. Under the entitlement method, revenue is recorded when title passes based on our net interest. We record our entitled share of revenues based on entitled volumes and contracted sales prices. Since there is a ready market for oil and gas production, we sell the majority of our products soon after production at various locations, at which time title and risk of loss pass to the buyer.
Environmental Matters
We capitalize or expense, as appropriate, environmental expenditures. We capitalize certain environmental expenditures required in obtaining rights-of-way, regulatory approvals or permitting as part of the construction. We accrue and expense environmental costs that relate to an existing condition caused by past operations, which do not contribute to current or future revenue generation. We generally do not discount environmental liabilities to a net present value, and we record environmental liabilities when environmental assessments and/or remedial efforts are probable and we can reasonably estimate the costs. Generally, our recording of these accruals coincides with our completion of a feasibility study or our commitment to a formal plan of action. We recognize receivables for anticipated associated insurance recoveries when such recoveries are deemed to be probable. We record at fair value, where appropriate, environmental liabilities assumed in a business combination.
We routinely conduct reviews of potential environmental issues and claims that could impact our assets or operations. These reviews assist us in identifying environmental issues and estimating the costs and timing of remediation efforts. We also routinely adjust our environmental liabilities to reflect changes in previous estimates. In making environmental liability estimations, we consider the material effect of environmental compliance, pending legal actions against us, and potential third-party liability claims. Often, as the remediation evaluation and effort progresses, additional information is obtained, requiring revisions to estimated costs. These revisions are reflected in our income in the period in which they are reasonably determinable.
Pensions and Other Postretirement Benefits
We recognize the differences between the fair value of each of our and our consolidated subsidiaries’ pension and other postretirement benefit plans’ assets and the benefit obligations as either assets or liabilities on our consolidated balance sheet. We record deferred plan costs and income—unrecognized losses and gains, unrecognized prior service costs and credits, and any remaining unamortized transition obligations—in “Accumulated other comprehensive loss” or as a regulatory asset or liability for certain of our regulated operations, until they are amortized as a component of benefit expense.
Noncontrolling Interests
Noncontrolling interests represents the interests in our consolidated subsidiaries that are not owned by us. In our accompanying consolidated income statements, the noncontrolling interest in the net income (or loss) of our consolidated subsidiaries is shown as an allocation of our consolidated net income and is presented separately as “Net Income Attributable
to Noncontrolling Interests.” In our accompanying consolidated balance sheets, noncontrolling interests is presented separately as “Noncontrolling interests” within “Stockholders’ Equity.”
Income Taxes
Income tax expense is recorded based on an estimate of the effective tax rate in effect or to be in effect during the relevant periods. Deferred income tax assets and liabilities are recognized for temporary differences between the basis of assets and liabilities for financial reporting and tax purposes. Changes in tax legislation are included in the relevant computations in the period in which such changes are effective. Deferred tax assets are reduced by a valuation allowance for the amount of any tax benefit we do not expect to be realized.
In determining the deferred income tax asset and liability balances attributable to our investments, we apply an accounting policy that looks through our investments. The application of this policy resulted in no deferred income taxes being provided on the difference between the book and tax basis on the non-tax-deductible goodwill portion of our investments.
Foreign Currency Transactions and Translation
Foreign currency transaction gains or losses result from a change in exchange rates between (i) the functional currency, for example the Canadian dollar for a Canadian subsidiary and (ii) the currency in which a foreign currency transaction is denominated, for example the U.S. dollar for a Canadian subsidiary. In our accompanying consolidated statements of income, gains and losses from our foreign currency transactions are included within “Other Income (Expense)—Other, net.”
Foreign currency translation is the process of expressing, in U.S. dollars, amounts recorded in a local functional currency other than U.S. dollars, for example the Canadian dollar for a Canadian subsidiary. We translate the assets and liabilities of each of our consolidated foreign subsidiaries that have a local functional currency to U.S. dollars at year-end exchange rates. Income and expense items are translated at weighted-average rates of exchange prevailing during the year and stockholders’ equity accounts are translated by using historical exchange rates. The cumulative translation adjustments balance is reported as a component of “Accumulated other comprehensive loss.”
Comprehensive Income
For each of the years ended December 31, 2015, 2014 and 2013, the difference between our net income and our comprehensive income resulted from (i) unrealized gains or losses on derivative contracts accounted for as cash flow hedges; (ii) foreign currency translation adjustments; and (iii) unrealized gains or losses related to changes in pension and other postretirement benefit plan liabilities. For more information on our risk management activities, see Note 14.
Risk Management Activities
We utilize energy commodity derivative contracts for the purpose of mitigating our risk resulting from fluctuations in the market price of commodities including natural gas, NGL and crude oil. In addition, we enter into interest rate swap agreements for the purpose of hedging the interest rate risk associated with our debt obligations. We also enter into cross-currency swap agreements to manage our foreign currency risk. We measure our derivative contracts at fair value and we report them on our balance sheet as either an asset or liability. For certain physical forward commodity derivatives contracts, we apply the normal purchase/normal sale exception, whereby the revenues and expenses associated with such transactions are recognized during the period when the commodities are physically delivered or received.
For qualifying accounting hedges, we formally document the relationship between the hedging instrument and the hedged item, the risk management objectives and the methods used for assessing and testing effectiveness, and how any ineffectiveness will be measured and recorded. If we designate a derivative contract as a cash flow accounting hedge, the effective portion of the change in fair value of the derivative is deferred in accumulated other comprehensive income/(loss) and reclassified into earnings in the period in which the hedged item affects earnings. Any ineffective portion of the derivative’s change in fair value or amount excluded from the assessment of hedge effectiveness is recognized currently in earnings. If we designate a derivative contract as a fair value accounting hedge, the effective portion of the change in fair value of the derivative is recorded as an adjustment to the item being hedged. Any ineffective portion of the derivative’s change in fair value is recognized currently in earnings.
For derivative instruments that are not designated as accounting hedges, or for which we have not elected the normal purchase/normal sales exception, changes in fair value are recognized currently in earnings.
Regulatory Assets and Liabilities
Regulatory assets and liabilities represent probable future revenues or expenses associated with certain charges and credits that will be recovered from or refunded to customers through the ratemaking process. We included the amounts of our regulatory assets and liabilities within “Other current assets,” “Deferred charges and other assets,” “Other current liabilities” and “Other long-term liabilities and deferred credits,” respectively, in our accompanying consolidated balance sheets. As of December 31, 2015, the recovery period for these regulatory assets was approximately one year to forty-one years.
The following table summarizes our regulatory asset and liability balances as of December 31, 2015 and 2014 (in millions):
| December 31, | |||||||
| 2015 | 2014 | ||||||
| Current regulatory assets | $ | 55 | $ | 81 | |||
| Non-current regulatory assets | 378 | 406 | |||||
| Total regulatory assets | $ | 433 | $ | 487 | |||
| Current regulatory liabilities | $ | 161 | $ | 189 | |||
| Non-current regulatory liabilities | 166 | 290 | |||||
| Total regulatory liabilities | $ | 327 | $ | 479 |
Transfer of Net Assets Between Entities Under Common Control
We account for the transfer of net assets between entities under common control by carrying forward the net assets recognized in the balance sheets of each combining entity to the balance sheet of the combined entity, and no other assets or liabilities are recognized as a result of the combination. Transfers of net assets between entities under common control do not affect the historical income statement or balance sheet of the combined entity.
Earnings per Share
We calculate earnings per share using the two-class method. Earnings were allocated to Class P shares of common stock and participating securities based on the amount of dividends paid in the current period plus an allocation of the undistributed earnings or excess distributions over earnings to the extent that each security participates in earnings or excess distributions over earnings. Our unvested restricted stock awards, which may be stock or stock units issued to management employees and include dividend equivalent payments, do not participate in excess distributions over earnings.
The following tables set forth the allocation of net income available to shareholders of Class P shares and participating securities and the reconciliation of Basic Weighted Average Common Shares Outstanding to Diluted Weighted Average Common Shares Outstanding (in millions):
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Class P | $ | 214 | $ | 1,015 | $ | 1,187 | |||||
| Participating securities: | |||||||||||
| Restricted stock awards(a) | 13 | 11 | 6 | ||||||||
| Net Income Available to Common Stockholders | $ | 227 | $ | 1,026 | $ | 1,193 |
| Year Ended December 31, | ||||||||
| 2015 | 2014 | 2013 | ||||||
| Basic Weighted Average Common Shares Outstanding | 2,187 | 1,137 | 1,036 | |||||
| Effect of dilutive securities: | ||||||||
| Warrants(b) | 6 | — | — | |||||
| Diluted Weighted Average Common Shares Outstanding | 2,193 | 1,137 | 1,036 |
| (a) | As of December 31, 2015, there were approximately 8 million such restricted stock awards. |
| (b) | Each warrant entitles the holder to purchase one share of our common stock for an exercise price of $40 per share, payable in cash or by cashless exercise, at any time until May 25, 2017. |
The following potential common stock equivalents are antidilutive and, accordingly, are excluded from the determination of diluted earnings per share (in millions on a weighted average basis):
| Year Ended December 31, | ||||||||
| 2015 | 2014 | 2013 | ||||||
| Unvested restricted stock awards | 7 | 7 | 4 | |||||
| Warrants to purchase our Class P shares | 291 | 312 | 401 | |||||
| Convertible trust preferred securities | 8 | 10 | 10 | |||||
| Mandatory convertible preferred stock | 10 | n/a | n/a |
n/a - not applicable
- Acquisitions and Divestitures
Business Combinations
During 2015, 2014 and 2013, we completed the following significant acquisitions accounted for in accordance with the “Business Combinations” Topic of the Codification.
After measuring all of the identifiable tangible and intangible assets acquired and liabilities assumed at fair value on the acquisition date, goodwill is an intangible asset representing the future economic benefits expected to be derived from an acquisition that are not assigned to other identifiable, separately recognizable assets. We believe the primary items that generated our goodwill are both the value of the synergies created between the acquired assets and our pre-existing assets, and our expected ability to grow the business we acquired by leveraging our pre-existing business experience. Additionally, we adjust goodwill as a result of applying the look-through method of recording deferred taxes on the outside book tax basis differences in our investments without regard to non-tax deductible goodwill.
The following table discloses our assignment of the purchase price for each of our significant acquisitions (in millions):
| Assignment of Purchase Price | |||||||||||||||||||||||||||||||||||||
| Ref. | Date | Acquisition | Purchase price | Current assets | Property plant & equipment | Deferred charges & other | Goodwill | Long-term debt | Other liabilities | Non-controlling interest | Previously held equity interest | ||||||||||||||||||||||||||
| (1) | 2/15 | Vopak Terminal Assets | $ | 158 | $ | 2 | $ | 155 | $ | — | $ | 7 | $ | — | $ | (6 | ) | $ | — | $ | — | ||||||||||||||||
| (2) | 2/15 | Hiland | 1,709 | 79 | 1,497 | 1,498 | 310 | (1,411 | ) | (264 | ) | — | — | ||||||||||||||||||||||||
| (3) | 11/14 | Pennsylvania and Florida Jones Act Tankers | 270 | — | 270 | 8 | 25 | — | (33 | ) | — | — | |||||||||||||||||||||||||
| (4) | 1/14 | American Petroleum Tankers and State Class Tankers | 961 | 6 | 951 | 6 | 64 | — | (66 | ) | — | — | |||||||||||||||||||||||||
| (5) | 6/13 | Goldsmith-Landreth Field Unit | 280 | — | 298 | — | — | — | (18 | ) | — | — | |||||||||||||||||||||||||
| (6) | 5/13 | Copano | 3,733 | 218 | 2,788 | 1,973 | 963 | (1,252 | ) | (236 | ) | (17 | ) | (704 | ) |
(1) Vopak Terminal Assets
On February 27, 2015, we acquired three U.S. terminals and one undeveloped site from Royal Vopak (Vopak) for approximately $158 million in cash. The acquisition included (i) a 36-acre, 1,069,500-barrel storage facility at Galena Park, Texas that handles base oils, biodiesel and crude oil and is immediately adjacent to our Galena Park terminal facility; (ii) two terminals in North Carolina: one in North Wilmington that handles chemicals and black oil and the other in South Wilmington that is not currently operating; and (iii) an undeveloped waterfront access site in Perth Amboy, New Jersey. We include the acquired assets as part of the Terminals business segment.
(2) Hiland
On February 13, 2015, we acquired Hiland, a privately held Delaware limited partnership for aggregate consideration of approximately $3,120 million, including assumed debt. Approximately $368 million of the debt assumed was immediately paid down after closing. Hiland’s assets consist primarily of crude oil gathering and transportation pipelines and gas gathering and processing systems, primarily handling production from the Bakken Formation in North Dakota and Montana. The acquired gathering and processing assets are included in our Natural Gas Pipelines business segment while the acquired crude oil transport pipeline (Double H pipeline) is included in our Products Pipelines business segment. Deferred charges and other relates to customer contracts and relationships with a weighted average amortization period of 16.8 years.
(3) Pennsylvania and Florida Jones Act Tankers
On November 5, 2014, we acquired two Jones Act tankers from Crowley Maritime Corporation (Crowley) for approximately $270 million. The MT Pennsylvania and the MT Florida engage in the marine transportation of crude oil, condensate and refined products in the U.S. domestic trade, commonly referred to as the Jones Act trade, and are currently operating pursuant to multi-year charters with a major integrated oil company. The vessels each have approximately 330 MBbl of cargo capacity and are included in the Terminals business segment. The acquired vessels will continue to be operated by Crowley.
(4) American Petroleum Tankers and State Class Tankers
Effective January 17, 2014, we acquired APT and State Class Tankers (SCT) for aggregate consideration of $961 million in cash (the APT acquisition). APT is engaged in Jones Act trade and its primary assets consist of a fleet of five medium range Jones Act qualified product tankers, each with 330 MBbl of cargo capacity, and each operating pursuant to long-term time charters with high quality counterparties, including major integrated oil companies, major refiners and the U.S. Military Sealift Command. As of the closing date, the vessels’ time charters had an average remaining term of approximately four years, with renewal options to extend the terms by an average of two years. APT’s vessels are operated by Crowley.
SCT commissioned the construction of four medium range Jones Act qualified product tankers, by General Dynamics’ NASSCO shipyard, each with 330 MBbl of cargo capacity and delivery dates in 2015 and 2016. The time charters for each vessel upon completion has an initial term of five years, with renewal options to extend the term by up to three years. The APT
acquisition complements and extends our existing crude oil and refined products transportation and storage business. We include the acquired assets as part of the Terminals business segment.
(5) Goldsmith Landreth Field Unit
On June 1, 2013, we acquired certain oil and gas properties, rights, and related assets in the Permian Basin of West Texas from Legado Resources LLC for an aggregate consideration of $298 million consisting of $280 million in cash and assumed liabilities of $18 million (including $12 million of long-term asset retirement obligations). The acquisition of the Goldsmith Landreth San Andres oil field unit includes more than 6,000 acres located in Ector County, Texas. The acquired oil field is in the early stages of CO2 flood development and includes a residual oil zone along with a classic San Andres waterflood. As part of the transaction, we obtained a long-term supply contract for up to 150 MMcf/d of CO2. The acquisition complemented our existing oil and gas producing assets in the Permian Basin, and we included the acquired assets as part of the CO2 business segment.
(6) Copano
Effective May 1, 2013, we acquired all of Copano’s outstanding units for a total purchase price of approximately $5.2 billion (including assumed debt and all other assumed liabilities). The transaction was a 100% unit for unit transaction with an exchange ratio of 0.4563 of KMP’s common units for each Copano common unit. Due to the fact that our acquisition included the remaining 50% interest in Eagle Ford that we did not already own, we remeasured the carrying value ($146 million) of our existing 50% equity investment in Eagle Ford to its fair value ($704 million) as of the May 1, 2013 acquisition date. As a result of this remeasurement, we recognized a $558 million non-cash gain and we reported this gain within “Gain on remeasurement of previously held equity investments to fair value” in our accompanying consolidated statement of income for the year ended December 31, 2013.
Pro Forma Information
Pro forma information regarding consolidated income statement information that assumes all of the business acquisitions we have made since January 1, 2014, including the ones listed above, had occurred as of January 1, 2014, is not materially different from the information presented in our accompanying Consolidated Statements of Income.
Asset Purchase
On July 15, 2015, we purchased from Shell US Gas & Power LLC (Shell) its 49% interest in a joint venture, ELC, that was in the pre-construction stage of development for liquefaction facilities at Elba Island, Georgia. The transaction was treated as an asset purchase for the net cash consideration of $185 million. The purchase gives us full ownership and control of ELC. Therefore, we prospectively changed our method of accounting for ELC from the equity method to full consolidation. Shell remains subscribed to 100% of the liquefaction capacity.
Investment Acquisition
On December 10, 2015, we and Brookfield Infrastructure Partners L.P. (Brookfield) acquired from Myria Holdings, Inc. the 53% equity interest in NGPL Holdings LLC not previously owned by us and Brookfield, increasing our ownership to 50% with Brookfield owning the remaining 50%. We paid $136 million for our additional 30% interest in NGPL Holdings LLC. See Note 7 for additional information regarding our equity interests in Kinder Morgan NGPL Holdings LLC.
Investment Divestiture
Effective March 14, 2013, we sold both our one-third ownership interest in the Express pipeline system and our subordinated debenture investment in Express to Spectra Energy Corp. With respect to this sale, during the year ended December 31, 2013, we reported within our accompanying consolidated statement of cash flows $402 million as “Proceeds from sales of assets and investments” and within the accompanying consolidated statement of income a combined $224 million pre-tax gain as “Gain on sale of investments in Express pipeline system” and $84 million of expense within “Income Tax Expense.”
Subsequent Event of Terminal Acquisition From and Joint Venture With BP
On February 1, 2016, we completed the acquisition of 15 products terminals and associated infrastructure from BP for $350 million. In conjunction with this transaction, we and BP formed a joint venture, with an equity ownership interest of 75%
and 25%, respectively. We contributed 14 of the acquired terminals to the joint venture, which we will operate, and the remaining terminal is solely owned by us. Of the acquired assets, 10 terminals are included in our Terminals business segment and 5 terminals are included in our Products Pipelines business segment.
- Impairments and Disposals
We recognized the following non-cash pre-tax impairment charges and losses (gains) on disposals of assets (in millions):
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Natural Gas Pipelines | |||||||||||
| Impairment of goodwill | $ | 1,150 | $ | — | $ | — | |||||
| Impairments of long-lived assets(a) | 79 | — | — | ||||||||
| Losses (gains) on disposals of long-lived assets | 43 | 5 | (28 | ) | |||||||
| Impairment of equity investments(b) | 26 | — | 65 | ||||||||
| CO2 | |||||||||||
| Impairments of long-lived assets(c) | 606 | 243 | — | ||||||||
| Impairment at equity investee(d) | 26 | — | — | ||||||||
| Terminals | |||||||||||
| Impairments of long-lived assets(e) | 188 | — | — | ||||||||
| Losses (gains) on disposals of long-lived assets | 3 | 29 | (73 | ) | |||||||
| Impairment of equity investments(e) | 4 | — | — | ||||||||
| Other (gains) losses on disposals of long-lived assets | — | (3 | ) | 3 | |||||||
| Total losses (gains) on impairments and disposals | $ | 2,125 | $ | 274 | $ | (33 | ) |
(a) Represents $47 million and $32 million of project write-offs in our non-regulated midstream and regulated natural gas pipelines assets, respectively.
(b) 2015 amount is primarily related to an investment in a gathering and processing asset in Oklahoma and the 2013 amount is related to an investment in our regulated natural gas pipelines.
(c) 2015 amount includes (i) $399 million related to oil and gas properties and (ii) $207 million related to the certain CO2 source and transportation project write-offs. 2014 amount is primarily related to oil and gas properties.
(d) 2015 amount is a loss on impairment recorded by an investee and included in “Earnings from equity investments” in our accompanying consolidated statement of income.
(e) 2015 amount is primarily related to certain terminals with significant coal operations, including a $175 million impairment ($84 million net after-tax impact to common stockholders) of a terminal facility reflecting the impact of an agreement to adjust certain payment terms under a contract with a coal customer in February 2016.
Impairment of Goodwill
Due to recent events and conditions, interim goodwill impairment testing was performed during December 2015, which resulted in a partial impairment of goodwill in our Natural Gas Pipelines Non-Regulated reporting unit of approximately $1,150 million. See Note 8 for further information.
Impairments of Long-lived Assets
During 2015, the sustained deterioration in the long-term outlook for commodity prices was a triggering event requiring us to perform impairment testing of our assets that are sensitive to such commodity prices. The impairment testing of our long-lived assets was based upon a two-step process as prescribed in the accounting standards.
Step one was performed on each of our oil and gas producing properties and involved a determination as to whether the property’s net book value is expected to be recovered from the estimated undiscounted future cash flows for each respective property. To compute estimated future cash flows, we used our independent reserve engineers’ estimates of proved reserves, along with our internally developed estimates of probable reserves to develop a long-range plan. Proved reserves are those reserves that our independent reserve engineers have determined are “reasonably certain” to be produced as defined by SEC
guidance. Reasonable certainty implies a high degree of confidence, of at least a 90% probability that quantities will equal or exceed the estimate of proved reserves. Probable reserves are those quantities that we have identified in our long range plan that are in excess of our independent reserve engineers’ estimates of proved reserves and meet the SEC definition of probable reserves. Probable reserves are defined as reserves that are as “likely as not” to be recoverable with a probability of at least 50% or greater. These estimates of proved and probable reserves are based upon historical performance along with adjustments for expected oil and gas field development. In calculating future cash flows, management utilized estimates of commodity prices based on forward curves. We also included the impact of our existing oil and gas sales contracts to determine the applicable net crude oil and natural gas pricing for each property. Operating expenses were determined based on estimated future fixed and variable field production requirements, and capital expenditures were based on currently authorized projects or economically viable future projects that have been identified for each of our properties. Risk factors were applied to each property’s probable reserves based on its operational history or the success of similar properties. Based on the results of the step one test, we determined that certain properties’ estimated undiscounted future cash flows were less than their respective carrying values.
For those properties that failed the impairment test’s first step, we then made a fair market value assessment using a discounted cash flow analysis as well as an estimate of fair value based upon recent sales prices of comparable properties. Our cash flow analysis was discounted utilizing an estimated weighted average cost of capital of 12%, representing our estimate of the risk-adjusted discount rate that would be used by market participants. We consider the inputs for our impairment calculations to be Level 3 inputs in the fair value hierarchy. Based on these results, we recognized $399 million of impairments on those properties where the carrying value exceeded its estimated fair market value in the period that such a determination was made.
In addition, during 2015 we recorded a $207 million impairment in our CO2 business segment for certain source and transportation assets. Since we expect CO2 demand to remain flat for the foreseeable future under the current commodity price environment, we deferred certain source and transportation growth projects beyond our five-year capital expenditures backlog. The extended deferral period necessitated a review of the recoverability of the net book values of these growth projects, resulting in a full impairment of $207 million.
During the year ended December 31, 2015, similar impairment analyses were performed in our other segments resulting in impairments of long-lived assets of $79 million and $188 million, respectively, in our Natural Gas Pipelines and Terminals business segments. These impairments resulted from certain capital projects that were canceled or postponed as well as in our Terminals segment for which certain facilities were impaired as a result of management’s re-evaluation of the estimated future cash flows expected to be generated at our coal handling assets.
In the current commodity price environment and to the extent conditions further deteriorate, we may identify additional triggering events that may require future evaluations of the recoverability of the carrying value of our long-lived assets, investments and goodwill. Because certain of our oil and gas producing properties have been written down to fair value, any deterioration in fair value that exceeds the rate of depletion of the related asset would result in further impairments. Depending on the nature of the asset, these evaluations require the use of significant judgments including but not limited to judgments related to customer credit worthiness, future cash flow estimates, future volume expectations, current and future commodity prices, management’s decisions to dispose of certain assets and estimates of the fair values of our reporting units, as well as general economic conditions and the related demand for products handled or transported by our assets. Such non-cash impairments could have a significant effect on our results of operations, which would be recognized in the period in which the carrying value is determined to not be recoverable.
- Income Taxes
The components of “Income from Continuing Operations Before Income Taxes” are as follows (in millions):
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| U.S. | $ | 611 | $ | 2,941 | $ | 3,107 | |||||
| Foreign | 161 | 150 | 331 | ||||||||
| Total Income from Continuing Operations Before Income Taxes | $ | 772 | $ | 3,091 | $ | 3,438 |
Components of the income tax provision applicable to continuing operations for federal, foreign and state taxes are as follows (in millions):
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Current tax expense (benefit) | |||||||||||
| Federal | $ | (125 | ) | $ | (16 | ) | $ | 57 | |||
| State | (7 | ) | 36 | 36 | |||||||
| Foreign | 4 | 13 | 9 | ||||||||
| Total | (128 | ) | 33 | 102 | |||||||
| Deferred tax expense (benefit) | |||||||||||
| Federal | 653 | 572 | 612 | ||||||||
| State | (4 | ) | 14 | — | |||||||
| Foreign | 43 | 29 | 28 | ||||||||
| Total | 692 | 615 | 640 | ||||||||
| Total tax provision | $ | 564 | $ | 648 | $ | 742 |
The difference between the statutory federal income tax rate and our effective income tax rate is summarized as follows (in millions, except percentages):
| Year Ended December 31, | ||||||||||||||||||||
| 2015 | 2014 | 2013 | ||||||||||||||||||
| Federal income tax | $ | 271 | 35.0 | % | $ | 1,082 | 35.0 | % | $ | 1,203 | 35.0 | % | ||||||||
| Increase (decrease) as a result of: | ||||||||||||||||||||
| State deferred tax rate change | (24 | ) | (3.1 | )% | — | — | % | (21 | ) | (0.6 | )% | |||||||||
| Taxes on foreign earnings | 26 | 3.5 | % | 40 | 1.3 | % | 112 | 3.3 | % | |||||||||||
| Net effects of consolidating KMP and EPB and other noncontrolling interests | 15 | 2.0 | % | (433 | ) | (14.0 | )% | (488 | ) | (14.2 | )% | |||||||||
| State income tax, net of federal benefit | 12 | 1.5 | % | 37 | 1.2 | % | 45 | 1.3 | % | |||||||||||
| Dividend received deduction | (51 | ) | (6.6 | )% | (50 | ) | (1.6 | )% | (54 | ) | (1.6 | )% | ||||||||
| Adjustments to uncertain tax positions | (14 | ) | (1.9 | )% | (5 | ) | (0.2 | )% | (87 | ) | (2.5 | )% | ||||||||
| Valuation allowance on investment in NGPL | — | — | % | 61 | 2.0 | % | — | — | % | |||||||||||
| Disposition of certain international holdings | — | — | % | (112 | ) | (3.6 | )% | — | — | % | ||||||||||
| Nondeductible goodwill impairment | 323 | 41.7 | % | — | — | % | — | — | % | |||||||||||
| Other | 6 | 0.8 | % | 28 | 0.9 | % | 32 | 0.9 | % | |||||||||||
| Total | $ | 564 | 72.9 | % | $ | 648 | 21.0 | % | $ | 742 | 21.6 | % |
Deferred tax assets and liabilities result from the following (in millions):
| December 31, | |||||||
| 2015 | 2014 | ||||||
| Deferred tax assets | |||||||
| Employee benefits | $ | 394 | $ | 329 | |||
| Accrued expenses | 129 | 123 | |||||
| Net operating loss, capital loss, tax credit carryforwards | 1,344 | 778 | |||||
| Derivative instruments and interest rate and currency swaps | 45 | 43 | |||||
| Debt fair value adjustment | 110 | 102 | |||||
| Investments | 3,607 | 4,858 | |||||
| Other | 3 | 31 | |||||
| Valuation allowances | (152 | ) | (154 | ) | |||
| Total deferred tax assets | 5,480 | 6,110 | |||||
| Deferred tax liabilities | |||||||
| Property, plant and equipment | 143 | 373 | |||||
| Other | 14 | 30 | |||||
| Total deferred tax liabilities | 157 | 403 | |||||
| Net deferred tax assets | $ | 5,323 | $ | 5,707 | |||
| Current deferred tax asset | $ | — | $ | 56 | |||
| Non-current deferred tax assets | 5,323 | 5,651 | |||||
| Net deferred tax assets | $ | 5,323 | $ | 5,707 |
On November 20, 2015, the FASB issued Accounting Standards Update (ASU) 2015-17, “Balance Sheet Classification of Deferred Taxes,” as part of the FASB’s simplification initiative to reduce complexity in accounting standards. The new guidance requires that all deferred tax assets and liabilities for each jurisdiction, along with any valuation allowance, be classified as noncurrent on the balance sheet. The new guidance is effective for public businesses in fiscal years beginning after December 15, 2016. However, as early adoption is permitted as of the beginning of an interim or annual reporting period in which the ASU 2015-17 was issued, we decided to apply the new standard for the December 31, 2015 period. As the guidance allows for prospective application of the new standard, prior period financial statements have not been retrospectively adjusted.
Deferred Tax Assets and Valuation Allowances: The step-up in tax basis from the Merger Transactions in November 2014 resulted in a deferred tax asset related to our investments (primarily in KMP) of $3.6 billion and $4.9 billion at December 31, 2015 and 2014, respectively. As book earnings from our investment in KMP are projected to exceed taxable income (primarily as a result of the partnership’s tax depreciation in excess of book depreciation), the deferred tax asset related to our investment in KMP is expected to be fully realized.
We recorded a full valuation allowance of $61 million against the deferred tax asset at December 31, 2014 related to our investment in NGPL as we concluded it was no longer realizable.
We have deferred tax assets of $1,005 million related to net operating loss carryovers, $339 million related to alternative minimum and foreign tax credits, and $91 million of valuation allowances related to deferred tax assets at December 31, 2015. As of December 31, 2014, we had deferred tax assets of $466 million related to net operating loss carryovers, $312 million related to alternative minimum and foreign tax credits, and valuation allowances related to deferred tax assets of $93 million. We expect to generate taxable income beginning in 2019 and utilize all federal net operating loss carryforwards and alternative minimum tax carryforwards by the end of 2023.
Expiration Periods for Deferred Tax Assets: As of December 31, 2015, we have U.S. federal net operating loss carryforwards of $2.4 billion, which will expire from 2018 - 2035; state losses of $3.1 billion which will expire from 2015 - 2035; and foreign losses of $154 million, of which approximately $115 million carries over indefinitely and $39 million expires from 2028 - 2035. We also have $312 million of federal alternative minimum tax credits which do not expire; and approximately $26 million of foreign tax credits, the majority of which will expire from 2016 - 2025. Use of our U.S. federal carryforwards is subject to the limitations provided under Sections 382 and 383 of the Internal Revenue Code as well as the separate return limitation rules of Internal Revenue Service regulations.
Unrecognized Tax Benefits: We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based not only on the technical merits of the tax position based on tax law, but also the past administrative practices and precedents of the taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
A reconciliation of our gross unrecognized tax benefit excluding interest and penalties is as follows (in millions):
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Balance at beginning of period | $ | 189 | $ | 209 | $ | 269 | |||||
| Uncertain tax positions of EP | — | — | 4 | ||||||||
| Subtotal | 189 | 209 | 273 | ||||||||
| Additions based on current year tax positions | 4 | 12 | 11 | ||||||||
| Additions based on prior year tax positions | — | — | 26 | ||||||||
| Reductions based on prior year tax positions | (6 | ) | (3 | ) | — | ||||||
| Reductions based on settlements with taxing authority | (25 | ) | (24 | ) | (86 | ) | |||||
| Reductions due to lapse in statute of limitations | (14 | ) | (5 | ) | (15 | ) | |||||
| Balance at end of period | $ | 148 | $ | 189 | $ | 209 |
We recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2015, 2014, and 2013, we had $24 million, $28 million and $29 million, respectively, of accrued interest and $2 million, $2 million and $2 million, respectively, in accrued penalties. All of the $148 million of unrecognized tax benefits, if recognized, would affect our effective tax rate in future periods. In addition, we believe it is reasonably possible that our liability for unrecognized tax benefits will decrease by approximately $5 million during the next year to approximately $143 million.
We are subject to taxation, and have tax years open to examination for the periods 2011-2014 in the U.S., 2002-2014 in various states and 2007-2014 in various foreign jurisdictions.
- Property, Plant and Equipment, net
Classes and Depreciation
As of December 31, 2015 and 2014, our property, plant and equipment, net consisted of the following (in millions):
| December 31, | |||||||
| 2015 | 2014 | ||||||
| Pipelines (Natural gas, liquids, crude oil and CO2) | $ | 19,855 | $ | 18,119 | |||
| Equipment (Natural gas, liquids, crude oil, CO2, and terminals) | 22,979 | 21,233 | |||||
| Other(a) | 4,719 | 4,484 | |||||
| Accumulated depreciation, depletion and amortization | (10,851 | ) | (8,369 | ) | |||
| 36,702 | 35,467 | ||||||
| Land and land rights-of-way | 1,450 | 1,324 | |||||
| Construction work in process | 2,395 | 1,773 | |||||
| Property, plant and equipment, net | $ | 40,547 | $ | 38,564 |
(a) Includes buildings, computer and communication equipment, vessels, linefill and other.
As of December 31, 2015 and 2014, property, plant and equipment included $16,089 million and $15,026 million, respectively, of assets which were regulated by either the FERC or the NEB. Depreciation, depletion, and amortization expense charged against property, plant and equipment was $2,059 million, $1,862 million, and $1,663 million for the years ended December 31, 2015, 2014, and 2013, respectively.
Asset Retirement Obligations
As of December 31, 2015 and 2014, we recognized asset retirement obligations in the aggregate amount of $215 million and $192 million, respectively, of which $9 million and $7 million, respectively, were classified as current. The majority of our asset retirement obligations are associated with our CO2 business segment, where we are required to plug and abandon oil and gas wells that have been removed from service and to remove the surface wellhead equipment and compressors.
- Investments
Our investments primarily consist of equity investments where we hold significant influence over investee actions and for which we apply the equity method of accounting. As of December 31, 2015 and 2014, our investments consisted of the following (in millions):
| December 31, | |||||||
| 2015 | 2014 | ||||||
| Citrus Corporation | $ | 1,719 | $ | 1,805 | |||
| Ruby Pipeline Holding Company, L.L.C. | 1,093 | 1,123 | |||||
| MEP | 713 | 748 | |||||
| Gulf LNG Holdings Group, LLC | 516 | 547 | |||||
| EagleHawk | 348 | 337 | |||||
| Plantation Pipe Line Company | 327 | 303 | |||||
| Watco Companies, LLC | 201 | 103 | |||||
| Red Cedar Gathering Company | 185 | 184 | |||||
| Double Eagle Pipeline LLC | 158 | 150 | |||||
| Kinder Morgan NGPL Holdings LLC | 153 | — | |||||
| Parkway Pipeline LLC | 131 | 144 | |||||
| FEP | 116 | 130 | |||||
| Fort Union Gas Gathering L.L.C. | 50 | 70 | |||||
| Sierrita Gas Pipeline LLC | 60 | 63 | |||||
| Cortez Pipeline Company | — | 17 | |||||
| All others | 262 | 304 | |||||
| Total equity investments | 6,032 | 6,028 | |||||
| Bond investments | 8 | 8 | |||||
| Total investments | $ | 6,040 | $ | 6,036 |
As shown in the table above, our significant equity investments, as of December 31, 2015 consisted of the following:
| • | Citrus Corporation—We own a 50% interest in Citrus Corporation, the sole owner of Florida Gas Transmission Company, L.L.C. (Florida Gas). Florida Gas transports natural gas to cogeneration facilities, electric utilities, independent power producers, municipal generators, and local distribution companies through a 5,300-mile natural gas pipeline. Energy Transfer Partners L.P. operates and owns the remaining 50% interest; |
| • | Ruby Pipeline Holding Company, L.L.C.—We operate and own a 50% interest in Ruby Pipeline Holding Company, L.L.C., the sole owner of Ruby Pipeline natural gas transmission system. The remaining 50% interest is owned by a subsidiary of Veresen Inc. as convertible preferred interests; |
| • | MEP—We operate and own a 50% interest in MEP, the sole owner of the Midcontinent Express natural gas pipeline system. The remaining 50% ownership interest is owned by subsidiaries of Energy Transfer Partners L.P.; |
| • | Gulf LNG Holdings Group, LLC—We operate and own a 50% interest in Gulf LNG Holdings Group, LLC, the owner of a LNG receiving, storage and regasification terminal near Pascagoula, Mississippi, as well as pipeline facilities to deliver vaporized natural gas into third party pipelines for delivery into various markets around the country. The remaining 50% ownership interests are wholly and partially owned by subsidiaries of GE Financial Services and The Blackstone Group L.P.; |
| • | BHP Billiton Petroleum (Eagle Ford) LLC, f/k/a EagleHawk and referred to in this report as EagleHawk—We own a 25% interest in EagleHawk, the sole owner of natural gas and condensate gathering systems serving the producers of the Eagle Ford shale formation. A subsidiary of BHP Billiton Petroleum operates EagleHawk and owns the remaining 75% ownership interest; |
| • | Plantation—We operate and own a 51.17% interest in Plantation, the sole owner of the Plantation refined petroleum products pipeline system. A subsidiary of Exxon Mobil Corporation owns the remaining interest. Each investor has an equal number of directors on Plantation’s board of directors, and board approval is required for certain corporate actions that are considered substantive participating rights; therefore, we do not control Plantation, and account for the investment under the equity method; |
| • | Watco Companies, LLC—We hold a preferred equity investment in Watco Companies, LLC, the largest privately held short line railroad company in the U.S. We own 100,000 Class A and 50,000 Class B preferred shares and pursuant to the terms of the investment, receive priority, cumulative cash and stock distributions from the preferred shares at a rate of 3.25% and 3.00% per quarter, respectively, and participate partially in additional profit distributions at a rate equal to 0.5%. The Class A preferred shares have no conversion features and neither class holds any voting powers, but do provide us certain approval rights, including the right to appoint one of the members to Watco’s board of managers. In addition to the senior interests, we also hold approximately 26,000 common equity units, which represents a 7.2% ownership that is accounted for under the equity method of accounting; |
| • | Red Cedar Gathering Company—We own a 49% interest in Red Cedar Gathering Company, the sole owner of the Red Cedar natural gas gathering, compression and treating system. The Southern Ute Indian Tribe owns the remaining 51% interest; |
| • | Double Eagle Pipeline LLC - We own a 50% equity interest in Double Eagle Pipeline LLC. The remaining 50% interest is owned by Magellan Midstream Partners; |
| • | Kinder Morgan NGPL Holdings LLC— We operate and own a 50% interest in NGPL Holdings LLC, the indirect owner of NGPL and certain affiliates, collectively referred to in this report as NGPL, a major interstate natural gas pipeline and storage system. Effective December 10, 2015 we and Brookfield acquired from Myria Holdings, Inc. the 53% equity interest in NGPL Holdings LLC not previously owned by us and Brookfield, increasing our ownership to 50% with Brookfield owning the remaining 50%. We paid $136 million for our additional 30% interest in NGPL Holdings LLC and during December 2015 we made an additional contribution of $17 million. |
| • | Parkway Pipeline LLC —We operate and own a 50% interest in Parkway Pipeline LLC, the sole owner of the Parkway Pipeline refined petroleum products pipeline system. Valero Energy Corp. owns the remaining 50% interest; |
| • | FEP —We own a 50% interest in FEP, the sole owner of the Fayetteville Express natural gas pipeline system. Energy Transfer Partners, L.P. owns the remaining 50% interest and serves as operator of FEP; |
| • | Fort Union Gas Gathering LLC—We own a 37.04% equity interest in the Fort Union Gas Gathering LLC. Crestone Powder River LLC, a subsidiary of ONEOK Partners L.P., owns 37.04%; Powder River Midstream, LLC owns 11.11%; and Western Gas Wyoming, LLC owns the remaining 14.81%. Western Gas Resources, Inc. serves as operator of Fort Union Gas Gathering LLC; |
| • | Sierrita Gas Pipeline LLC — We operate and own a 35% equity interest in the Sierrita Gas Pipeline LLC. MGI Enterprises U.S. LLC, a subsidiary of PEMEX, owns 35%; and MIT Pipeline Investment Americas, Inc., a subsidiary of Mitsui & Co., Ltd, owns 30%; and |
| • | Cortez Pipeline Company—We operate and own a 50% interest in the Cortez Pipeline Company, the sole owner of the Cortez carbon dioxide pipeline system. A subsidiary of Exxon Mobil Corporation owns a 37% interest and Cortez Vickers Pipeline Company owns the remaining 13% interest. |
Our earnings (losses) from equity investments were as follows (in millions):
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Citrus Corporation | $ | 96 | $ | 97 | $ | 84 | |||||
| FEP | 55 | 55 | 55 | ||||||||
| Gulf LNG Holdings Group, LLC | 49 | 48 | 47 | ||||||||
| MEP | 45 | 45 | 40 | ||||||||
| Red Cedar Gathering Company | 26 | 33 | 31 | ||||||||
| EagleHawk | 24 | (7 | ) | 9 | |||||||
| Plantation Pipe Line Company | 29 | 29 | 35 | ||||||||
| Ruby Pipeline Holding Company, L.L.C. | 18 | 15 | (6 | ) | |||||||
| Watco Companies, LLC | 16 | 13 | 13 | ||||||||
| Sierrita Gas Pipeline LLC | 9 | 3 | — | ||||||||
| Parkway Pipeline LLC | 5 | 8 | 1 | ||||||||
| Double Eagle Pipeline LLC(a) | 3 | (1 | ) | 1 | |||||||
| Cortez Pipeline Company(b) | (3 | ) | 25 | 24 | |||||||
| Fort Union Gas Gathering L.L.C.(a)(c) | (4 | ) | 16 | 11 | |||||||
| NGPL Holdco LLC(d) | — | — | (66 | ) | |||||||
| All others | 16 | 27 | 48 | ||||||||
| Total | $ | 384 | $ | 406 | $ | 327 | |||||
| Amortization of excess costs | $ | (51 | ) | $ | (45 | ) | $ | (39 | ) |
| (a) | 2013 amounts are for the period from May 1, 2013 through December 31, 2013. |
| (b) | 2015 amount includes $26 million representing our share of a non-cash impairment charge (pre-tax) recorded by Cortez Pipeline Company. |
| (c) | 2015 amount includes a non-cash impairment charge of $20 million (pre-tax) related to our investment. |
| (d) | 2013 amount includes non-cash impairment charges of $65 million (pre-tax) related to our investment. |
Summarized combined financial information for our significant equity investments (listed or described above) is reported below (in millions; amounts represent 100% of investee financial information):
| Year Ended December 31, | ||||||||||||
| Income Statement | 2015 | 2014 | 2013 | |||||||||
| Revenues | $ | 3,857 | $ | 3,829 | $ | 3,615 | ||||||
| Costs and expenses | 3,408 | 3,063 | 2,803 | |||||||||
| Net income (loss) | $ | 449 | $ | 766 | $ | 812 |
| December 31, | ||||||||
| Balance Sheet | 2015 | 2014 | ||||||
| Current assets | $ | 811 | $ | 943 | ||||
| Non-current assets | 19,745 | 20,630 | ||||||
| Current liabilities | 1,009 | 1,643 | ||||||
| Non-current liabilities | 11,227 | 10,841 | ||||||
| Partners’/owners’ equity | 8,320 | 9,089 |
- Goodwill
Changes in the amounts of our goodwill for each of the years ended December 31, 2015 and 2014 are summarized by reporting unit as follows (in millions):
| Natural Gas Pipelines Regulated | Natural Gas Pipelines Non-Regulated | CO2 | Products Pipelines | Products Pipelines Terminals | Terminals | Kinder Morgan Canada | Total | ||||||||||||||||||||||||
| Historical Goodwill | $ | 17,527 | $ | 5,637 | $ | 1,528 | $ | 1,908 | $ | 221 | $ | 1,486 | $ | 610 | $ | 28,917 | |||||||||||||||
| Accumulated impairment losses | (1,643 | ) | (447 | ) | — | (1,197 | ) | (70 | ) | (679 | ) | (377 | ) | (4,413 | ) | ||||||||||||||||
| December 31, 2013 | 15,884 | 5,190 | 1,528 | 711 | 151 | 807 | 233 | 24,504 | |||||||||||||||||||||||
| Acquisitions(a) | — | 82 | — | — | — | 89 | — | 171 | |||||||||||||||||||||||
| Currency translation | — | — | — | — | — | — | (19 | ) | (19 | ) | |||||||||||||||||||||
| Divestiture | — | — | — | — | — | (2 | ) | — | (2 | ) | |||||||||||||||||||||
| December 31, 2014 | 15,884 | 5,272 | 1,528 | 711 | 151 | 894 | 214 | 24,654 | |||||||||||||||||||||||
| Acquisitions(b) | — | 93 | — | 217 | — | 11 | — | 321 | |||||||||||||||||||||||
| Currency translation | — | — | — | — | — | — | (35 | ) | (35 | ) | |||||||||||||||||||||
| Impairment | — | (1,150 | ) | — | — | — | — | — | (1,150 | ) | |||||||||||||||||||||
| December 31, 2015 | $ | 15,884 | $ | 4,215 | $ | 1,528 | $ | 928 | $ | 151 | $ | 905 | $ | 179 | $ | 23,790 |
| (a) | 2014 includes $82 million related to the May 2013 Copano acquisition in Natural Gas Pipelines Non-Regulated and $89 million related to Terminals’ acquisitions of APT tankers in January 2014 and Crowley tankers in November 2014, as discussed in Note 3. |
| (b) | 2015 includes $93 million and $217 million, respectively, related to the February 2015 acquisition of Hiland by Natural Gas Pipelines Non-Regulated and Products Pipelines, and $7 million related to the February 2015 acquisition of Vopak terminal assets by Terminals, all of which are discussed in Note 3. |
Refer to Note 2 “Summary of Significant Accounting Policies—Goodwill” for a description of our accounting for goodwill and Note 4 for further discussion regarding impairments.
We determined the fair value of each reporting unit as of May 31, 2015, based primarily on a market approach utilizing a median dividend/distribution yield of comparable companies. The value of each reporting unit was determined on a stand-alone basis from the perspective of a market participant and represented the price estimated to be received in a sale of the reporting unit in an orderly transaction between market participants at the measurement date. The results of our annual test during the second quarter indicated fair value in excess of carrying value for each of our reporting units. We noted no significant events or conditions during the third quarter of 2015 that would have affected the conclusions from our annual assessment in the prior quarter.
During the month of December 2015, consistent with decreases in certain market indices which track the market sectors in which we operate, the Company’s market capitalization decreased by approximately 36% after experiencing declines earlier in the quarter. During the fourth quarter 2015, many energy companies also indicated their dividends/distributions may be impacted by the ongoing effect of commodity prices on market conditions in the energy sector. As discussed above, our step 1 test performed as of May 31, 2015, used market valuations primarily based on dividend/distribution yields. This indicated that our prior step 1 valuations required re-evaluation. Based on these indicators and related factors, we conducted an interim test of the recoverability of goodwill as of December 31, 2015.
Our step 1 test as of December 31, 2015, utilized both a market approach and income approach to estimate the fair values of our reporting units. The market approach was based on enterprise value (EV) to estimated EBITDA multiples. We believe these multiples appropriately reflect fair value for purposes of our step 1 goodwill impairment test because EV/EBITDA is not dependent on dividend/distribution policy, capital structure or tax profile. For our Natural Gas Pipelines Regulated and Non-Regulated and our CO2 reporting units, we also conducted a discounted cash flow analysis (income approach) to evaluate the fair value of these reporting units to provide additional indication of fair value based on the present value of cash flows these reporting units are expected to generate in the future. We weighted the market and income approaches for these reporting units to arrive at an estimated fair value of these respective reporting units giving more weighting on the income approach and less
on the market approach as we believed the values indicated using the income approach are more representative of the value that could be received from a market participant. With the exception of our Natural Gas Pipelines Non-Regulated reporting unit, each of our reporting units indicated a fair value in excess of their respective carrying values. The amount of excess fair value over the carrying value ranged from approximately 3% for our Natural Gas Pipelines Regulated reporting unit to 104% for our Products Pipelines Terminals. If the fair value of the Natural Gas Pipelines Regulated reporting unit decreased by approximately 3%, it could indicate a possible failure of the step 1 test. The primary assumptions in our step 1 market approach test include the following:
| • | We selected a peer group of midstream companies with large market capitalizations with comparable operations, economic characteristics, and assets which generally include significant holdings of interstate transmission pipelines, midstream gathering and processing systems, and/or terminal operations. We use this peer group for all of our reporting units with the exception of our CO2 reporting unit. We estimated the median enterprise value to EBITDA multiple to be approximately 12.7x, without consideration of any control premium. |
| • | For our CO2 reporting unit, we utilized a group of large independent oil and gas exploration and production companies which generally have operations similar to ours and include assets in the Permian basin where we operate and may have enhanced oil recovery operations similar to ours. We estimated the median enterprise value to EBITDA multiple for this peer group to be approximately 7.9x, without consideration of any control premium. |
| • | In calculating the market multiples, we used estimates of enterprise value as of December 31, 2015, and consensus estimates of the 2015 EBITDA for each company in the peer group obtained from a third party provider of financial data. Estimates of enterprise value were calculated based on market capitalization plus net debt utilizing the most recent data available as of December 31, 2015. EV/EBITDA multiples are sensitive to changes in the components that comprise the ratio, including EBITDA, market capitalizations, and debt of the peer group companies. |
| • | We assessed the reasonableness of the control premium implied by the above market valuations as the market multiples include equity values on a non-controlling basis. As such, we considered the implied control premium as part of our reconciliation of our total reporting unit estimated fair value to our market capitalization which indicated an implied control premium of 34%, which we considered to be reasonable. |
For our CO2 reporting unit, the above market approach indicated a fair value of approximately 7.9x EBITDA. Management concluded because of current commodity price conditions, the fair value based on the market approach should be given partial weighting with a discounted cash flow analysis. The discounted cash flow analysis indicated a fair value of approximately 4.1x EBITDA. Based on a weighting of the market and income approaches, we determined a fair value of the CO2 reporting unit of approximately 5.1x EBITDA. If the fair value of the CO2 reporting unit decreased by approximately 12%, this could indicate a possible impairment of goodwill requiring a step 2 analysis.
Applying the market approach to our Natural Gas Pipeline Non-Regulated reporting unit indicated an 18% deficit of fair value as compared to carrying value. We also applied an income approach to this reporting unit, which indicated a deficit of fair value of approximately 4% as compared to the carrying value. The results of our step 1 test of our Natural Gas Pipelines Non-Regulated reporting unit indicated that our carrying value exceeded the fair value thereby requiring us to perform a step 2 evaluation. The primary assumptions in our step 1 income approach for this reporting unit include the following:
| • | Based on the weighted-average cost of capital of the peer group, we determined the appropriate rate at which to discount the cash flows is 8%. Each 100 basis points change in the discount rate changes the estimated fair value by approximately 5%. |
| • | We used a five-year forward commodity price curve which assumed $38 crude and $2.50 natural gas in 2016 gradually increasing over the following five years to $65 and $3.50, respectively, and then remaining flat. Management developed this price curve based on the year-end NYMEX price curve and a third party median consensus five year forward price curve. |
| • | We estimated cash flows based on 6 years of projections and applied exit multiples, ranging from 10x to 15x based on management’s expectations of those that would be applied by a market participant and market transactions for comparable assets, to year 6 cash flows. These cash flows have various assumptions on volumes and prices based on management’s expectations for each underlying component asset within the reporting unit. |
| • | We estimated ethane fractionation spreads based on the relationship between ethane and natural gas prices. Our estimates assumed $(0.01) for 2016-2017, increasing to $0.15 in 2018 through 2021 based on a trailing five-year average spreads as management expects demand to increase commensurate with expected petrochemical capacity and export facilities coming online around that time. |
| • | Consistent with how we evaluate potential acquisitions and we believe a market participant would do, we assumed a certain amount of capital expenditure, including for projects that are already in progress, and consistent with historical levels as adjusted for commodity prices assumptions and customer activity. We assumed an approximate 12% return on this invested capital beginning in the years the assets are expected to be placed in service. |
After considering the market and income approaches, we determined the $19.0 billion carrying value of this reporting unit exceeded the estimated fair value of $17.2 billion, and therefore conducted a step 2 analysis. The fair value was estimated based on a weighting of the market and income approaches for this reporting unit. This implies an EBITDA valuation of approximately 14.0x. Management believes this is a reasonable estimate of fair value based on comparable sales transactions and the fact that it implies a reasonable control premium at the reporting unit level.
Below is a hypothetical allocation of the fair value to the assets and liabilities of this reporting unit, including goodwill. The amount of implied goodwill is then compared to the carrying value of goodwill to determine the amount of impairment (in millions).
| Allocation of Fair Value: | ||||
| Working capital, net | $ | 232 | ||
| Property, plant and equipment | 9,627 | |||
| Other intangible assets | 3,121 | |||
| Other liabilities, net | (7 | ) | ||
| Goodwill | 4,215 | |||
| Estimated Reporting Unit Fair Value | $ | 17,188 | ||
| Prior carrying amount of goodwill | $ | 5,365 | ||
| Goodwill impairment | $ | 1,150 |
The key assumptions used in determining the fair value of the assets and liabilities of the reporting unit are as follows:
| • | Working capital and other liabilities were assumed to have fair values that approximate carrying value as these generally relate to monetary assets and liabilities that settle in the short-term, derivative positions that are recorded at fair value, and inventory which has been subjected to lower of cost or market adjustments in a declining commodity price environment. |
| • | With respect to property, plant and equipment, and other intangibles, the company based its determination of fair values on previously completed fair value studies conducted for these assets as updated for developments subsequent to the date of the initial studies. |
| • | The fair value allocation assumed the reporting unit would be sold in a taxable transaction. |
The result of our step 2 analysis was a partial impairment of goodwill in our Natural Gas Pipelines Non-Regulated reporting unit of approximately $1,150 million. The above fair value estimates are based on Level 3 Inputs of the fair value hierarchy.
The sustained decrease and the long-term outlook in commodity prices have adversely impacted our customers and their future capital and operating plans. A continued or prolonged period of lower commodity prices could result in further deterioration of market multiples, comparable sales transactions prices, weighted average costs of capital, and our cash flow estimates. A significant change to any one or combination of these factors would result in a change to the reporting unit fair values discussed above which could lead to further impairment charges. This would negatively impact our estimates of the fair values of our reporting units and could cause impairments of long-lived assets, equity method investments, and/or goodwill. Such non-cash impairments from one or both, or any, of these reportable units could have a significant effect on our results of operations, which would be recognized in the period in which the carrying value exceeds fair value.
- Debt
We classify our debt based on the contractual maturity dates of the underlying debt instruments. We defer costs associated with debt issuance over the applicable term. These costs are then amortized as interest expense in our accompanying consolidated statements of income. In 2015, we adopted Accounting Standards Updates (ASU) 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” and ASU 2015-15, “Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update).” These ASUs are designed to simplify presentation of debt issuance costs. The standards require that debt issuance costs related to a recognized debt liability, except for line-of-credit debt issuance costs, be presented in the balance sheet as an
offset to the carrying amount of that debt liability, consistent with debt discounts. The application of this new accounting guidance resulted in the reclassification of $149 million of debt issuance costs from “Deferred charges and other assets” to “Debt fair value adjustments” in our accompanying consolidated balance sheet as of December 31, 2014.
The following table provides detail on the principal amount of our outstanding debt balances. The table amounts exclude all debt fair value adjustments, including debt discounts and premiums (in millions):
| December 31, | |||||||
| 2015 | 2014 | ||||||
| KMI | |||||||
| Senior notes 1.50% through 8.25%, due 2015 through 2098(a)(b)(c) | $ | 13,346 | $ | 11,438 | |||
| Credit facility due November 26, 2019(d)(e) | — | 850 | |||||
| Commercial paper borrowings(d)(e) | — | 386 | |||||
| KMP | |||||||
| Senior notes, 2.65% through 9.00%, due 2015 through 2044(b)(f) | 19,985 | 20,660 | |||||
| TGP senior notes, 7.00% through 8.375%, due 2016 through 2037(b)(h) | 1,790 | 1,790 | |||||
| EPNG senior notes, 5.95% through 8.625%, due 2017 through 2032(b) | 1,115 | 1,115 | |||||
| Copano senior notes, 7.125%, due April 1, 2021(b) | 332 | 332 | |||||
| CIG senior notes, 5.95% through 6.85%, due 2015 through 2037(b) | 100 | 475 | |||||
| SNG notes, 4.40% through 8.00%, due 2017 through 2032(b)(g) | 1,211 | 1,211 | |||||
| Other Subsidiary Borrowings (as obligor) | |||||||
| Kinder Morgan Finance Company, LLC, senior notes, 5.70% through 6.40%, due 2016 through 2036(b)(h) | 1,636 | 1,636 | |||||
| Hiland Partners Holdings LLC, senior notes, 5.50% and 7.25%, due 2020 and 2022(b)(i) | 974 | — | |||||
| EPC Building, LLC, promissory note, 3.967%, due 2015 through 2035 | 443 | 453 | |||||
| Preferred securities, 4.75%, due March 31, 2028(j) | 221 | 280 | |||||
| KMGP, $1,000 Liquidation Value Series A Fixed-to-Floating Rate Term Cumulative Preferred Stock(k) | 100 | 100 | |||||
| Other miscellaneous debt(l) | 300 | 303 | |||||
| Total debt – KMI and Subsidiaries | 41,553 | 41,029 | |||||
| Less: Current portion of debt(m) | 821 | 2,717 | |||||
| Total long-term debt – KMI and Subsidiaries(n) | $ | 40,732 | $ | 38,312 |
| (a) | December 31, 2015 amount includes senior notes that are denominated in Euros and have been converted and are reported at the December 31, 2015 exchange rate of 1.0862 U.S. dollars per Euro. From the issuance date of these senior notes in March 2015 through December 31, 2015, our debt increased by less than $1 million as a result of the change in the exchange rate of U.S dollars per Euro. We entered into cross-currency swap agreements associated with these senior notes (see Note 14 “Risk Management—Foreign Currency Risk Management”). |
| (b) | Notes provide for the redemption at any time at a price equal to 100% of the principal amount of the notes plus accrued interest to the redemption date plus a make whole premium and are subject to a number of restrictions and covenants. The most restrictive of these include limitations on the incurrence of liens and limitations on sale-leaseback transactions. |
| (c) | Includes $6.0 billion of senior notes issued on November 26, 2014 as a result of the Merger Transactions (see “—Long-term Debt Issuances and Repayments” below). |
| (d) | As of December 31, 2014, the weighted average interest rate on our credit facility borrowings, including commercial paper borrowings, was 1.54%. |
| (e) | On November 26, 2014, we entered into a $4 billion replacement credit facility and a commercial paper program of up to $4 billion of unsecured notes (see “—Credit Facilities and Restrictive Covenants” below). |
| (f) | On January 1, 2015, EPB and EPPOC merged with and into KMP. On that date, KMP succeeded EPPOC as the issuer of approximately $2.9 billion of EPPOC’s senior notes, which were guaranteed by EPB, and EPB and EPPOC ceased to be obligors for those senior notes. |
| (g) | Southern Natural Issuing Corporation is a wholly owned finance subsidiary of SNG and is the co-issuer of certain of SNG’s outstanding debt securities. |
| (h) | In January and February 2016, we refinanced $850 million of maturing Kinder Morgan Finance Company LLC senior notes and $150 million of maturing TGP senior notes using proceeds from a new three-year term loan facility (see “— Subsequent Event—Debt Issuances and Repayments” below). |
| (i) | Represents the remaining principal amount outstanding of senior notes assumed in the Hiland acquisition. |
| (j) | Capital Trust I (Trust I), is a 100%-owned business trust that as of December 31, 2015, had 4.4 million of 4.75% trust convertible preferred securities outstanding (referred to as the Trust I Preferred Securities). Trust I exists for the sole purpose of issuing preferred securities and investing the proceeds in 4.75% convertible subordinated debentures, which are due 2028. Trust I’s sole source of income is interest earned on these debentures. This interest income is used to pay distributions on the preferred securities. We provide a full and unconditional guarantee of the Trust I Preferred Securities. There are no significant restrictions from these securities on our ability to obtain funds from our subsidiaries by distribution, dividend or loan. The Trust I Preferred Securities are non-voting (except in limited circumstances), pay quarterly distributions at an annual rate of 4.75%, carry a liquidation value of $50 per security plus accrued and unpaid distributions and are convertible at any time prior to the close of business on March 31, 2028, at the option of the holder, into the following mixed consideration: (i) 0.7197 of a share of our Class P common stock; (ii) $25.18 in cash without interest; and (iii) 1.100 warrants to purchase a share of our Class P common stock. We have the right to redeem these Trust I Preferred Securities at any time. Because of the substantive conversion rights of the securities into the mixed consideration, we bifurcated the fair value of the Trust I |
Preferred Securities into debt and equity components and as of December 31, 2015, the outstanding balance of $221 million (of which $111 million is classified as current) was bifurcated between debt ($197 million) and equity ($24 million). During the years ended December 31, 2015 and 2014, 1,176,015 and 3,923 Trust I Preferred Securities had been converted into (i) 846,369 and 2,820 shares of our Class P common stock; (ii) approximately $30 million and $99,000 in cash; and (iii) 1,293,615 and 4,315 in warrants, respectively.
| (k) | As of December 31, 2015 and 2014, KMGP had outstanding 100,000 shares of its $1,000 Liquidation Value Series A Fixed-to-Floating Rate Term Cumulative Preferred Stock due 2057. Since August 18, 2012, dividends on the preferred stock accumulate at a floating rate of the 3-month LIBOR plus 3.8975% and are payable quarterly in arrears, when and if declared by KMGP’s board of directors, on February 18, May 18, August 18 and November 18 of each year, beginning November 18, 2012. The preferred stock has approval rights over a commencement of or filing of voluntary bankruptcy by KMP or its SFPP or Calnev subsidiaries. |
| (l) | In conjunction with the construction of the Totem Gas Storage facility (Totem) and the High Plains pipeline (High Plains), CIG’s joint venture partner in WYCO funded 50% of the construction costs. Upon project completion, the advances were converted into a financing obligation to WYCO. As of December 31, 2015, the principal amounts of the Totem and High Plains financing obligations were $72 million and $96 million, respectively, which will be paid in monthly installments through 2039 based on the initial lease term. The interest rate on these obligations is 15.5%, payable on a monthly basis. |
| (m) | Amounts include outstanding credit facility and commercial paper borrowings and other debt maturing within 12 months. See “—Maturities of Debt” below. |
| (n) | Excludes our “Debt fair value adjustments” which, as of December 31, 2015 and December 31, 2014, increased our combined debt balances by $1,674 million and $1,785 million, respectively. In addition to all unamortized debt discount/premium amounts, debt issuance costs (resulting from the implementation of ASU No. 2015-03 and 2015-15) and purchase accounting on our debt balances, our debt fair value adjustments also include amounts associated with the offsetting entry for hedged debt and any unamortized portion of proceeds received from the early termination of interest rate swap agreements. For further information about our debt fair value adjustments, see Note 15 “Fair Value—Debt Fair Value Adjustments.” |
We and substantially all of our domestic subsidiaries are a party to a cross guarantee agreement whereby each party to the agreement unconditionally guarantees, jointly and severally, the payment of specified indebtedness of each other party to the agreement. Also, see Note 19.
Credit Facilities and Restrictive Covenants
On September 19, 2014, we entered into a new five-year $4.0 billion revolving credit agreement with a syndicate of lenders, which can be increased to $5.0 billion if certain conditions are met (see “—Subsequent Event—Credit Facility Capacity” following). The new revolving credit agreement was effective upon the closing of the Merger Transactions on November 26, 2014 and replaced the prior KMI credit agreement, the KMP credit agreement and the EPB credit agreement. On November 26, 2014, we entered into a $4.0 billion commercial paper program through the private placement of short-term notes. The notes mature up to 270 days from the date of issue and are not redeemable or subject to voluntary prepayment by us prior to maturity. The notes are sold at par value less a discount representing an interest factor or if interest bearing, at par. Borrowings under our revolving credit facility can be used for working capital and other general corporate purposes and as a backup to our commercial paper program. Borrowings under our commercial paper program reduce the borrowings allowed under our credit facility.
Our credit facility borrowings bear interest at either (i) LIBOR plus an applicable margin ranging from 1.125% to 2.000% per annum based on our credit ratings or (ii) the greatest of (1) the Federal Funds Rate plus 0.5%; (2) the Prime Rate; and (3) LIBOR Rate for a one month eurodollar loan, plus 1%, plus, in each case, an applicable margin ranging from 0.125% to 1.00% per annum based on our credit rating. As of December 31, 2015, we were in compliance with all required financial covenants.
Our credit facility included the following restrictive covenants as of December 31, 2015:
| • | total debt divided by earnings before interest, income taxes, depreciation and amortization may not exceed: |
| • | 6.50: 1.00, for the period ended on or prior to December 31, 2017; or |
| • | 6.25: 1.00, for the period ended after December 31, 2017 and on or prior to December 31, 2018; or |
| • | 6.00: 1.00, for the period ended after December 31, 2018; |
| • | certain limitations on indebtedness, including payments and amendments; |
| • | certain limitations on entering into mergers, consolidations, sales of assets and investments; |
| • | limitations on granting liens; and |
| • | prohibitions on making any dividend to shareholders if an event of default exists or would exist upon making such dividend. |
As of December 31, 2015, we had no borrowings outstanding under our five-year $4.0 billion revolving credit facility, no borrowings outstanding under our $4.0 billion commercial paper program and $115 million in letters of credit. Our availability under this facility as of December 31, 2015 was $3,885 million.
On February 13, 2015, in connection with the Hiland acquisition, we entered into and made borrowings of $1,641 million under a new six-month bridge credit facility with UBS AG, Stamford Branch. Interest under this bridge credit facility was charged at the same rate as our $4.0 billion revolving credit facility. Prior to March 31, 2015, we repaid outstanding borrowings and the facility was terminated on April 6, 2015.
Subsequent Event—Credit Facility Capacity
On January 26, 2016, in accordance with the terms of our revolving credit agreement, we increased the capacity of our revolving credit agreement from $4.0 billion to $5.0 billion. The terms of the revolving credit agreement remain the same.
Hiland Debt Acquired
As of the February 13, 2015 Hiland acquisition date, we assumed (i) $975 million in principal amount of senior notes (which were valued at $1,043 million as of the acquisition date) and (ii) $368 million of other borrowings that were immediately repaid after closing, primarily consisting of borrowings outstanding under a revolving credit facility. The senior notes are subject to our cross guarantee agreement discussed in Note 19.
Long-term Debt Issuances and Repayments
Apart from the assumption of the Hiland debt discussed above, following are significant long-term debt issuances and repayments made during 2015 and 2014:
| 2015 | 2014 | |||
| Issuances | $800 million 5.05% notes due 2046 | $650 million senior term loan facility due 2017 | ||
| $815 million 1.50% notes due 2022(a) | $500 million 2.00% notes due 2017(b) | |||
| $543 million 2.25% notes due 2027(a) | $1,500 million 3.05% notes due 2019(b) | |||
| $1,500 million 4.30% notes due 2025(b) | ||||
| $750 million 5.30% notes due 2034(b) | ||||
| $1,750 million 5.55% notes due 2045(b) | ||||
| $750 million 3.50% notes due 2021 | ||||
| $750 million 5.50% notes due 2044 | ||||
| $650 million 4.25% notes due 2024 | ||||
| $550 million 5.40% notes due 2044 | ||||
| $600 million 4.30% notes due 2024 | ||||
| Repayments | $300 million 5.625% notes due 2015 | $500 million 5.125% notes due 2014 | ||
| $250 million 5.15% notes due 2015 | $1,528 million senior term loan facility due 2015 | |||
| $340 million 6.80% notes due 2015 | $650 million senior term loan facility due 2017(b) | |||
| $375 million 4.10% notes due 2015 | $207 million 6.875% notes due 2014 |
(a) Senior notes are denominated in Euros and are presented above in U.S. dollars at the exchange rate on the issuance date of 1.0860 U.S. dollars per Euro. We entered into cross-currency swap agreements associated with these senior notes (see Note 14—“Risk Management—Foreign Currency Risk Management”).
(b) Debt issued or repaid associated with the Merger Transactions.
Subsequent Event—Debt Issuances and Repayments
In January 2016, we entered into a $1.0 billion three-year unsecured term loan facility due in 2019 at a variable interest rate which is determined in the same manner as interest on our revolving credit facility borrowings. In January 2016, we repaid $850 million of maturing 5.70% senior notes and in February 2016 we repaid $250 million of maturing 8.00% senior notes primarily using proceeds from the three-year term loan. Since we refinanced a portion of the maturing debt with proceeds from long-term debt, we classified $1 billion of the maturing debt within “Long-term debt” on our consolidated balance sheet at December 31, 2015.
Maturities of Debt
The scheduled maturities of the outstanding debt balances, excluding debt fair value adjustments as of December 31, 2015, are summarized as follows (in millions):
| Year | Total | |||
| 2016(a) | $ | 821 | ||
| 2017 | 3,060 | |||
| 2018 | 2,329 | |||
| 2019(a) | 3,819 | |||
| 2020 | 2,953 | |||
| Thereafter | 28,571 | |||
| Total | $ | 41,553 |
| (a) | 2016 amount primarily includes $667 million of current maturities on senior notes and $111 million associated with our Trust I Preferred Securities that are classified as current obligations because these securities have rights to convert into consideration consistent with the EP merger, and excludes $1,000 million of current maturities on long-term debt that were refinanced with proceeds from the issuance of a January 2016 three-year term loan which is reflected in 2019. |
Debt Fair Value Adjustments
The carrying value adjustment to debt securities whose fair value is being hedged is included within “Debt fair value adjustments” on our accompanying consolidated balance sheets. “Debt fair value adjustments” also include unamortized debt discount/premiums, purchase accounting debt fair value adjustments, unamortized portion of proceeds received from the early termination of interest rate swap agreements, and debt issuance costs. As of December 31, 2015, the weighted-average amortization period of the unamortized premium from the termination of the interest rate swaps was approximately 16 years. The following table summarizes the “Debt fair value adjustments” included on our accompanying consolidated balance sheets (in millions):
| December 31, | ||||||||
| Debt Fair Value Adjustments | 2015 | 2014 | ||||||
| Purchase accounting debt fair value adjustments | $ | 1,135 | $ | 1,221 | ||||
| Carrying value adjustment to hedged debt | 380 | 347 | ||||||
| Unamortized portion of proceeds received from the early termination of interest rate swap agreements | 397 | 454 | ||||||
| Unamortized debt discount/premiums | (86 | ) | (88 | ) | ||||
| Unamortized debt issuance costs | (152 | ) | (149 | ) | ||||
| Total debt fair value adjustments | $ | 1,674 | $ | 1,785 |
Interest Rates, Interest Rate Swaps and Contingent Debt
The weighted average interest rate on all of our borrowings was 4.92% during 2015 and 5.02% during 2014. Information on our interest rate swaps is contained in Note 14. For information about our contingent debt agreements, see Note 13 “Commitments and Contingent Liabilities—Contingent Debt”).
- Share-based Compensation and Employee Benefits
Share-based Compensation
Class P Shares
Kinder Morgan, Inc. Amended and Restated Stock Compensation Plan for Non-Employee Directors
We have a Kinder Morgan, Inc. Amended and Restated Stock Compensation Plan for Non-Employee Directors, in which our eligible non-employee directors participate. The plan recognizes that the compensation paid to each eligible non-employee
director is fixed by our board, generally annually, and that the compensation is payable in cash. Pursuant to the plan, in lieu of receiving some or all of the cash compensation, each eligible non-employee director may elect to receive shares of Class P common stock. Each election will be generally at or around the first board meeting in January of each calendar year and will be effective for the entire calendar year. An eligible director may make a new election each calendar year. The total number of shares of Class P common stock authorized under the plan is 250,000. During 2015, 2014 and 2013, we made restricted Class P common stock grants to our non-employee directors of 9,580, 6,210 and 5,710, respectively. These grants were valued at time of issuance at $401,000, $220,000 and $210,000, respectively. All of the restricted stock awards made to non-employee directors vest during a six-month period.
Kinder Morgan, Inc. 2015 Amended and Restated Stock Incentive Plan
The Kinder Morgan, Inc. 2015 Amended and Restated Stock Incentive Plan is an equity awards plan available to eligible employees. The following table sets forth a summary of activity and related balances of our restricted stock awards excluding that issued to non-employee directors (in millions, except share amounts):
| Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | ||||||||||||||||||
| Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | |||||||||||||||
| Outstanding at beginning of period | 7,373,294 | $ | 277 | 6,382,885 | $ | 239 | 2,154,022 | $ | 69 | |||||||||||
| Granted | 1,488,467 | 57 | 1,694,668 | 61 | 4,563,495 | 181 | ||||||||||||||
| Vested | (817,797 | ) | (29 | ) | (460,032 | ) | (14 | ) | (83,444 | ) | (3 | ) | ||||||||
| Forfeited | (398,859 | ) | (15 | ) | (244,227 | ) | (9 | ) | (251,188 | ) | (8 | ) | ||||||||
| Outstanding at end of period | 7,645,105 | $ | 290 | 7,373,294 | $ | 277 | 6,382,885 | $ | 239 | |||||||||||
| Intrinsic value of restricted stock awards vested during the period | $ | 31 | $ | 17 | $ | 3 |
Restricted stock awards made to employees have vesting periods ranging from 1 year with variable vesting dates to 10 years. Following is a summary of the future vesting of our outstanding restricted stock awards:
| Year | Vesting of Restricted Shares | ||
| 2016 | 1,096,290 | ||
| 2017 | 1,563,549 | ||
| 2018 | 2,443,888 | ||
| 2019 | 1,688,831 | ||
| 2020 | 585,574 | ||
| Thereafter | 266,973 | ||
| Total Outstanding | 7,645,105 |
The related expense less estimated forfeitures is generally recognized ratably over the vesting period of the restricted stock awards. Upon vesting, the grants will be paid in our Class P common shares.
During 2015, 2014 and 2013, we recorded $67 million, $57 million and $35 million, respectively, in expense related to restricted stock awards. At December 31, 2015 and 2014, unrecognized restricted stock awards compensation expense, less estimated forfeitures, was approximately $154 million and $170 million, respectively.
Pension and Other Postretirement Benefit Plans
Savings Plan
We maintain a defined contribution plan covering eligible U.S. employees. We contribute 5% of eligible compensation for most of the plan participants. Certain plan participants’ contributions and Company contributions are based on collective bargaining agreements. The total expense for our savings plan was approximately $46 million, $42 million, and $40 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Pension Plans
Our pension plan is a defined benefit plan that covers substantially all of our U.S. employees and provides benefits under a cash balance formula. A participant in the cash balance plan accrues benefits through contribution credits based on a combination of age and years of service times eligible compensation. Interest is also credited to the participant’s plan account. A participant becomes fully vested in the plan after three years, and may take a lump sum distribution upon termination of employment or retirement. Certain collectively bargained and grandfathered employees continue to accrue benefits through career pay or final pay formulas.
Other Postretirement Benefit Plans
We and certain of our U.S. subsidiaries provide other postretirement benefits (OPEB), including medical benefits for closed groups of retired employees and certain grandfathered employees and their dependents, and limited postretirement life insurance benefits for retired employees. Medical benefits for these closed groups of retirees may be subject to deductibles, co-payment provisions, dollar caps and other limitations on the amount of employer costs, and we reserve the right to change these benefits. Effective January 1, 2014, the plan was amended to provide a fixed subsidy to post-age 65 Medicare eligible participants to purchase coverage through a retiree Medicare exchange.
Additionally, our subsidiary SFPP has incurred certain liabilities for postretirement benefits to certain current and former employees, their covered dependents, and their beneficiaries. However, the net periodic benefit costs, contributions and liability amounts associated with the SFPP postretirement benefit plan are not material to our consolidated income statements or balance sheets.
Benefit Obligation, Plan Assets and Funded Status. The following table provides information about our pension and OPEB plans as of and for each of the years ended December 31, 2015 and 2014 (in millions):
| Pension Benefits | OPEB | ||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||
| Change in benefit obligation: | |||||||||||||||
| Benefit obligation at beginning of period | $ | 2,804 | $ | 2,563 | $ | 624 | $ | 631 | |||||||
| Service cost | 33 | 21 | — | — | |||||||||||
| Interest cost | 99 | 112 | 21 | 25 | |||||||||||
| Actuarial (gain) loss | (109 | ) | 294 | (101 | ) | 15 | |||||||||
| Benefits paid | (173 | ) | (186 | ) | (39 | ) | (52 | ) | |||||||
| Participant contributions | — | — | 2 | 3 | |||||||||||
| Medicare Part D subsidy receipts | — | — | 2 | 2 | |||||||||||
| Benefit obligation at end of period | 2,654 | 2,804 | 509 | 624 |
| Change in plan assets: | |||||||||||||||
| Fair value of plan assets at beginning of period | 2,377 | 2,333 | 389 | 380 | |||||||||||
| Actual (loss) return on plan assets | (204 | ) | 180 | (45 | ) | 32 | |||||||||
| Employer contributions | 50 | 50 | 16 | 25 | |||||||||||
| Participant contributions | — | — | 2 | 3 | |||||||||||
| Medicare Part D subsidy receipts | — | — | 2 | 1 | |||||||||||
| Benefits paid | (173 | ) | (186 | ) | (39 | ) | (52 | ) | |||||||
| Fair value of plan assets at end of period | 2,050 | 2,377 | 325 | 389 | |||||||||||
| Funded status - net liability at December 31, | $ | (604 | ) | $ | (427 | ) | $ | (184 | ) | $ | (235 | ) |
Components of Funded Status. The following table details the amounts recognized in our balance sheet at December 31, 2015 and 2014 related to our pension and OPEB plans (in millions):
| Pension Benefits | OPEB | ||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||
| Non-current benefit asset | $ | — | $ | — | $ | 139 | $ | 173 | |||||||
| Current benefit liability | — | — | (16 | ) | (22 | ) | |||||||||
| Non-current benefit liability | (604 | ) | (427 | ) | (307 | ) | (386 | ) | |||||||
| Funded status - net liability at December 31, | $ | (604 | ) | $ | (427 | ) | $ | (184 | ) | $ | (235 | ) |
Components of Accumulated Other Comprehensive (Loss) Income. The following table details the amounts of pre-tax accumulated other comprehensive (loss) income at December 31, 2015 and 2014 related to our pension and OPEB plans which are included on our accompanying consolidated balance sheets, including the portion attributable to our noncontrolling interests, (in millions):
| Pension Benefits | OPEB | ||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||
| Unrecognized net actuarial (loss) gain | $ | (558 | ) | $ | (296 | ) | $ | 23 | $ | (27 | ) | ||||
| Unrecognized prior service (cost) credit | (4 | ) | (4 | ) | 19 | 20 | |||||||||
| Accumulated other comprehensive (loss) income | $ | (562 | ) | $ | (300 | ) | $ | 42 | $ | (7 | ) |
We anticipate that approximately $28 million of pre-tax accumulated other comprehensive loss will be recognized as part of our net periodic benefit cost in 2016, including approximately $29 million of unrecognized net actuarial loss and approximately $1 million of unrecognized prior service credit.
Our accumulated benefit obligation for our pension plans was $2,615 million and $2,719 million at December 31, 2015 and 2014, respectively.
Our accumulated postretirement benefit obligation for our OPEB plans, whose accumulated postretirement benefit obligations exceeded the fair value of plan assets, was $444 million and $553 million at December 31, 2015 and 2014, respectively. The fair value of these plans’ assets was approximately $121 million and $145 million at December 31, 2015 and 2014, respectively.
Plan Assets. The investment policies and strategies for the assets of each of the pension and OPEB plans are established by the Fiduciary Committee (the “Committee”), which is responsible for investment decisions and management oversight of each plan. The stated philosophy of the Committee is to manage these assets in a manner consistent with the purpose for which the plans were established and the time frame over which the plans’ obligations need to be met. The objectives of the investment management program are to (1) meet or exceed plan actuarial earnings assumptions over the long term and (2) provide a reasonable return on assets within established risk tolerance guidelines and to maintain the liquidity needs of the plans with the goal of paying benefit and expense obligations when due. In seeking to meet these objectives, the Committee recognizes that prudent investing requires taking reasonable risks in order to raise the likelihood of achieving the targeted investment returns. In order to reduce portfolio risk and volatility, the Committee has adopted a strategy of using multiple asset classes.
As of December 31, 2015, the allowable range for asset allocations in effect for the pension plan were 34% to 59% equity, 37% to 57% fixed income, 0% to 5% cash, 0% to 2% alternative investments and 0% to 10% company securities (KMI Class P common stock). As of December 31, 2015, the allowable range for asset allocations in effect for the retiree medical and retiree life insurance plans were 15% to 56% equity, 15% to 47% fixed income, 0% to 19% cash and 13% to 38% master limited partnerships.
In 2015, we adopted ASU No. 2015-07, “Fair Value Measurement (Topic 820) — Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” This ASU removes the requirement to include investments in the fair value hierarchy for which the fair value is measured at Net Asset Value (NAV) using the practical expedient under Topic 820. Below are the details of our pension and OPEB plan assets by class and a description of the valuation methodologies used for assets measured at fair value.
| • | Level 1 assets’ fair values are based on quoted market prices for the instruments in actively traded markets. Included in this level are cash, common and preferred stock, exchange traded mutual funds and limited partnerships. These investments are valued at the closing price reported on the active market on which the individual securities are traded. |
| • | Level 2 assets’ fair values are primarily based on pricing data representative of quoted prices for similar assets in active markets (or identical assets in less active markets). Included in this level are money market funds and fixed income securities. Money market funds are valued at amortized cost, which approximates fair value. The fixed income securities’ fair values are primarily based on an evaluated price which is based on a compilation of primarily observable market information or a broker quote in a non-active market. |
| • | Level 3 assets’ fair values are calculated using valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable, or are similar to Level 2 assets. Included in this level are insurance contracts and interest rate swaps. Insurance contracts are valued at contract value, which approximates fair value. |
| • | Plan assets with fair values that are based on the net asset value per share, or its equivalent (NAV), as reported by the issuers are determined based on the fair value of the underlying securities as of the valuation date and include common/collective trust funds, equity trusts, mutual funds, limited partnerships, private equity and fixed income trusts. These amounts are not categorized within the fair value hierarchy described above, but are separately identified in the following tables. |
Listed below are the fair values of our pension and OPEB plans’ assets that are recorded at fair value by class and categorized by fair value measurement used at December 31, 2015 and 2014 (in millions):
| Pension Assets | |||||||||||||||||||||||||||||||
| 2015 | 2014 | ||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
| Measured within fair value hierarchy | |||||||||||||||||||||||||||||||
| Cash and money market funds | $ | 15 | $ | 110 | $ | — | $ | 125 | $ | 5 | $ | 91 | $ | — | $ | 96 | |||||||||||||||
| Insurance contracts | — | — | 15 | 15 | — | — | 15 | 15 | |||||||||||||||||||||||
| Mutual funds(a) | 70 | — | — | 70 | 71 | — | — | 71 | |||||||||||||||||||||||
| Common and preferred stocks(b) | 271 | — | — | 271 | 459 | — | — | 459 | |||||||||||||||||||||||
| Corporate bonds | — | 244 | — | 244 | — | 247 | — | 247 | |||||||||||||||||||||||
| U.S. government securities | — | 171 | — | 171 | — | 190 | — | 190 | |||||||||||||||||||||||
| Asset backed securities | — | 34 | — | 34 | — | 28 | — | 28 | |||||||||||||||||||||||
| Other | — | — | (14 | ) | (14 | ) | — | — | (15 | ) | (15 | ) | |||||||||||||||||||
| Subtotal | $ | 356 | $ | 559 | $ | 1 | 916 | $ | 535 | $ | 556 | $ | — | 1,091 | |||||||||||||||||
| Measured at NAV(c) | |||||||||||||||||||||||||||||||
| Common/collective trusts(d) | 775 | 863 | |||||||||||||||||||||||||||||
| Equity trusts | 187 | 199 | |||||||||||||||||||||||||||||
| Mutual funds(e) | 160 | 198 | |||||||||||||||||||||||||||||
| Limited partnerships(f) | 1 | 13 | |||||||||||||||||||||||||||||
| Private equity(g) | 11 | 13 | |||||||||||||||||||||||||||||
| Subtotal | 1,134 | 1,286 | |||||||||||||||||||||||||||||
| Total plan assets fair value | $ | 2,050 | $ | 2,377 |
| (a) | For 2015 and 2014, this category includes mutual funds which are invested in equity. |
| (b) | Plan assets include $91 million and $252 million of KMI Class P common stock for 2015 and 2014, respectively. |
| (c) | Plan assets for which fair value was measured using NAV as a practical expedient. |
| (d) | Common/collective trust funds were invested in approximately 45% fixed income and 55% equity in 2015 and 47% fixed income and 53% equity in 2014. |
| (e) | Mutual funds were invested in fixed income for 2015 and 2014. |
| (f) | Limited partnerships were invested in real estate partnerships for 2015 and 2014. |
| (g) | Private equity was invested in limited partnerships that primarily invest in venture and buyout funds for 2015 and 2014. |
| OPEB Assets | |||||||||||||||||||||||||||||||
| 2015 | 2014 | ||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
| Measured within fair value hierarchy | |||||||||||||||||||||||||||||||
| Cash and money market funds | $ | — | $ | 16 | $ | — | $ | 16 | $ | (3 | ) | $ | 26 | $ | — | $ | 23 | ||||||||||||||
| Domestic equity securities | 8 | — | — | 8 | 14 | — | — | 14 | |||||||||||||||||||||||
| Limited partnerships | 51 | — | — | 51 | 87 | — | — | 87 | |||||||||||||||||||||||
| Insurance contracts | — | — | 49 | 49 | — | — | 51 | 51 | |||||||||||||||||||||||
| Mutual funds | 1 | — | — | 1 | 1 | — | — | 1 | |||||||||||||||||||||||
| Subtotal | $ | 60 | $ | 16 | $ | 49 | 125 | $ | 99 | $ | 26 | $ | 51 | 176 | |||||||||||||||||
| Measured at NAV(a) | |||||||||||||||||||||||||||||||
| Common/collective trusts(b) | 71 | 71 | |||||||||||||||||||||||||||||
| Fixed income trusts | 58 | 63 | |||||||||||||||||||||||||||||
| Limited partnerships(c) | 71 | 79 | |||||||||||||||||||||||||||||
| Subtotal | 200 | 213 | |||||||||||||||||||||||||||||
| Total plan assets fair value | $ | 325 | $ | 389 |
| (a) | Plan assets for which fair value was measured using NAV as a practical expedient. |
| (b) | For 2015 and 2014, this category includes common/collective trust funds which are invested in approximately 67% equity and 33% fixed income securities, respectively. |
| (c) | For 2015 and 2014, limited partnerships were invested in global equity securities. |
The following tables present the changes in our pension and OPEB plans’ assets included in Level 3 for the years ended December 31, 2015 and 2014 (in millions):
| Pension Assets | |||||||||||||||||||
| Balance at Beginning of Period | Transfers In (Out) | Realized and Unrealized Gains (Losses), net | Purchases (Sales), net | Balance at End of Period | |||||||||||||||
| 2015 | |||||||||||||||||||
| Insurance contracts | $ | 15 | $ | — | $ | — | $ | — | $ | 15 | |||||||||
| Other | (15 | ) | — | (2 | ) | 3 | (14 | ) | |||||||||||
| Total | $ | — | $ | — | $ | (2 | ) | $ | 3 | $ | 1 | ||||||||
| 2014 | |||||||||||||||||||
| Insurance contracts | $ | 15 | $ | — | $ | — | $ | — | $ | 15 | |||||||||
| Other | 11 | — | (18 | ) | (8 | ) | (15 | ) | |||||||||||
| Total | $ | 26 | $ | — | $ | (18 | ) | $ | (8 | ) | $ | — |
| OPEB Assets | |||||||||||||||||||
| Balance at Beginning of Period | Transfers In (Out) | Realized and Unrealized Gains (Losses), net | Purchases (Sales), net | Balance at End of Period | |||||||||||||||
| 2015 | |||||||||||||||||||
| Insurance contracts | $ | 51 | $ | — | $ | (1 | ) | $ | (1 | ) | $ | 49 | |||||||
| 2014 | |||||||||||||||||||
| Insurance contracts | $ | 50 | $ | — | $ | (4 | ) | $ | 5 | $ | 51 |
Changes in the underlying value of Level 3 assets due to the effect of changes of fair value were immaterial for the years ended December 31, 2015 and 2014.
Expected Payment of Future Benefits and Employer Contributions. As of December 31, 2015, we expect to make the following benefit payments under our plans (in millions):
| Fiscal year | Pension Benefits | OPEB(a) | ||||||
| 2016 | $ | 230 | $ | 39 | ||||
| 2017 | 197 | 39 | ||||||
| 2018 | 196 | 39 | ||||||
| 2019 | 198 | 39 | ||||||
| 2020 | 197 | 38 | ||||||
| 2021-2025 | 962 | 182 |
| (a) | Includes a reduction of approximately $3 million in each of the years 2016 - 2020 and approximately $18 million in aggregate for 2021 - 2025 for an expected subsidy related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. |
We do not have any statutory funding requirements in 2016 for our pension plan; however, we may decide to make a contribution in 2016 depending on the market performance of our pension plan assets and other factors. In 2016, we expect to contribute approximately $14 million, net of anticipated subsidies, to our OPEB plan.
Actuarial Assumptions and Sensitivity Analysis. Benefit obligations and net benefit cost are based on actuarial estimates and assumptions. The following table details the weighted-average actuarial assumptions used in determining our benefit obligation and net benefit costs of our pension and OPEB plans for 2015, 2014 and 2013:
| Pension Benefits | OPEB | |||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||
| Assumptions related to benefit obligations: | ||||||||||||||||||
| Discount rate | 4.05 | % | 3.66 | % | 4.45 | % | 3.91 | % | 3.56 | % | 4.34 | % | ||||||
| Rate of compensation increase | 3.50 | % | 4.50 | % | 3.50 | % | n/a | n/a | n/a | |||||||||
| Assumptions related to benefit costs: | ||||||||||||||||||
| Discount rate(a) | 3.66 | % | 4.45 | % | 3.40 | % | 3.56 | % | 4.34 | % | 3.62 | % | ||||||
| Expected return on plan assets(b) | 7.50 | % | 7.50 | % | 8.00 | % | 7.08 | % | 7.43 | % | 7.35 | % | ||||||
| Rate of compensation increase | 4.50 | % | 3.50 | % | 3.00 | % | n/a | n/a | n/a |
| (a) | The discount rate related to other postretirement benefit cost was 3.34% for the period from January 1, 2013 to July 31, 2013 (the period prior to an OPEB plan amendment that resulted in a remeasurement) and 4.00% for the period from August 1, 2013 to December 31, 2013. |
| (b) | The expected return on plan assets listed in the table above is a pre-tax rate of return based on our targeted portfolio of investments. For the OPEB assets subject to unrelated business income taxes (UBIT), we utilize an after-tax expected return on plan assets to determine our benefit costs, which is based on a UBIT rate of 21% for both 2015 and 2014 and 24% for 2013. |
For 2015, we selected our discount rates by matching the timing and amount of our expected future benefit payments for our pension and other postretirement benefit obligations to the average yields of various high-quality bonds with corresponding maturities. Effective January 1, 2016, we changed our estimate of the service and interest cost components of net periodic benefit cost (credit) for our pension and other postretirement benefit plans. The new estimate utilizes a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their underlying projected cash flows. The new estimate provides a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates. The change does not affect the measurement of our pension and postretirement benefit obligations and it is accounted for as a change in accounting estimate, which is applied prospectively. The change in the service and interest costs going forward will not be significant. The expected long-term rates of return on plan assets were determined by combining a review of the historical returns realized within the portfolio, the investment strategy included in the plans’ investment policy, and capital market projections for the asset classes in which the portfolio is invested and the target weightings of each asset class.
Actuarial estimates for our OPEB plans assumed a weighted-average annual rate of increase in the per capita cost of covered health care benefits of 9.89%, gradually decreasing to 4.54% by the year 2038. Assumed health care cost trends have a significant effect on the amounts reported for OPEB plans. A one-percentage point change in assumed health care cost trends would have the following effects as of December 31, 2015 and 2014 (in millions):
| 2015 | 2014 | |||||||
| One-percentage point increase: | ||||||||
| Aggregate of service cost and interest cost | $ | 2 | $ | 2 | ||||
| Accumulated postretirement benefit obligation | 31 | 47 | ||||||
| One-percentage point decrease: | ||||||||
| Aggregate of service cost and interest cost | $ | (1 | ) | $ | (2 | ) | ||
| Accumulated postretirement benefit obligation | (27 | ) | (40 | ) |
Components of Net Benefit Cost and Other Amounts Recognized in Other Comprehensive Income. For each of the years ended December 31, the components of net benefit cost and other amounts recognized in pre-tax other comprehensive income related to our pension and OPEB plans are as follows (in millions):
| Pension Benefits | OPEB | |||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||
| Components of net benefit cost: | ||||||||||||||||||||||||
| Service cost | $ | 33 | $ | 21 | $ | 25 | $ | — | $ | — | $ | — | ||||||||||||
| Interest cost | 99 | 112 | 92 | 21 | 25 | 23 | ||||||||||||||||||
| Expected return on assets | (172 | ) | (171 | ) | (175 | ) | (23 | ) | (24 | ) | (22 | ) | ||||||||||||
| Amortization of prior service credit | — | — | — | (3 | ) | (2 | ) | (1 | ) | |||||||||||||||
| Amortization of net actuarial loss (gain) | 5 | — | — | 1 | (1 | ) | 3 | |||||||||||||||||
| Curtailment and settlement gain | — | — | (3 | ) | — | — | — | |||||||||||||||||
| Net benefit (credit) cost | (35 | ) | (38 | ) | (61 | ) | (4 | ) | (2 | ) | 3 | |||||||||||||
| Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss: | ||||||||||||||||||||||||
| Net loss (gain) arising during period | 267 | 285 | (211 | ) | (49 | ) | 10 | (50 | ) | |||||||||||||||
| Prior service cost (credit) arising during period | — | — | 25 | — | — | (18 | ) | |||||||||||||||||
| Amortization or settlement recognition of net actuarial (loss) gain | (5 | ) | — | 3 | (1 | ) | — | (3 | ) | |||||||||||||||
| Amortization of prior service credit | — | — | — | 1 | 1 | 1 | ||||||||||||||||||
| Total recognized in total other comprehensive (income) loss | 262 | 285 | (183 | ) | (49 | ) | 11 | (70 | ) | |||||||||||||||
| Total recognized in net benefit cost (credit) and other comprehensive (income) loss | $ | 227 | $ | 247 | $ | (244 | ) | $ | (53 | ) | $ | 9 | $ | (67 | ) |
Other Plans
Plans Associated with Foreign Operations
Two of our subsidiaries, Kinder Morgan Canada Inc. and Trans Mountain Pipeline Inc. (as general partner of Trans Mountain Pipeline L.P.) are sponsors of pension plans for eligible Trans Mountain pipeline system employees. The plans include registered defined benefit pension plans, supplemental unfunded arrangements (which provide pension benefits in excess of statutory limits) and defined contributory plans. These subsidiaries also provide postretirement benefits other than pensions for retired employees. Our combined net periodic benefit costs for these Trans Mountain pension and other postretirement benefit plans for the years ended December 31, 2015, 2014 and 2013 was $12 million, $10 million and $11 million, respectively, recognized ratably over each year. As of December 31, 2015, we estimate the overall net periodic pension and other postretirement benefit costs for these plans for the year 2016 will be approximately $10 million, although this estimate could change if there is a significant event, such as a plan amendment or a plan curtailment, which would require a remeasurement of liabilities. Furthermore, we expect to contribute approximately $10 million to these benefit plans in 2016.
Multiemployer Plans
As a result of acquiring several terminal operations, primarily the acquisition of Kinder Morgan Bulk Terminals, Inc. effective July 1, 1998, we participate in several multi-employer pension plans for the benefit of employees who are union members. We do not administer these plans and contribute to them in accordance with the provisions of negotiated labor contracts. Other benefits include a self-insured health and welfare insurance plan and an employee health plan where employees may contribute for their dependents’ health care costs. Amounts charged to expense for these plans were approximately $10 million, $13 million and $11 million for the years ended December 31, 2015, 2014 and 2013, respectively. We consider the overall multi-employer pension plan liability exposure to be minimal in relation to the value of its total consolidated assets and net income.
- Stockholders’ Equity
Common Equity
As of December 31, 2015, our common equity consisted of our Class P common stock.
During the years 2013 through 2015, as authorized by our board of directors under various repurchase programs, we repurchased shares and warrants. As of December 31, 2015, we had $90 million of availability to repurchase warrants. During the years ended December 31, 2015, 2014 and 2013, we paid a total of $12 million, $98 million and $465 million, respectively, for the repurchase of warrants. During the years ended December 31, 2014 and 2013, we repurchased $94 million and $172 million respectively, of our Class P shares.
On December 19, 2014, we entered into an equity distribution agreement authorizing us to issue and sell through or to the managers party thereto, as sales agents and/or principals, shares of our Class P common stock having an aggregate offering of up to $5.0 billion from time to time during the term of this agreement. During the year ended December 31, 2015, we issued and sold 102,614,508 shares of our Class P common stock pursuant to the equity distribution agreement resulting in net proceeds of $3.9 billion.
Common Dividends
Holders of our common stock participate in any dividend declared by our board of directors, subject to the rights of the holders of any outstanding preferred stock. The following table provides information about our per share dividends:
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Per common share cash dividend declared for the period | $ | 1.605 | $ | 1.740 | $ | 1.600 | |||||
| Per common share cash dividend paid in the period | 1.93 | 1.70 | 1.56 |
On January 20, 2016, our board of directors declared a cash dividend of $0.125 per common share for the quarterly period ended December 31, 2015, which is payable on February 16, 2016 to shareholders of record as of February 1, 2016.
Warrants
Each of our warrants entitles the holder to purchase one share of our common stock for an exercise price of $40 per share, payable in cash or by cashless exercise, at any time until May 25, 2017. The table below sets forth the changes in our outstanding warrants:
| Warrants | ||||||||
| 2015 | 2014 | 2013 | ||||||
| Beginning balance | 298,135,976 | 347,933,107 | 439,809,442 | |||||
| Warrants issued in acquisition of EP(a) | — | — | 81 | |||||
| Warrants issued with conversions of EP Trust I Preferred securities(b) | 1,293,615 | 4,315 | 118,377 | |||||
| Warrants exercised | (71,268 | ) | (18,040 | ) | (21,208 | ) | ||
| Warrants repurchased and canceled | (6,094,526 | ) | (49,783,406 | ) | (91,973,585 | ) | ||
| Ending balance | 293,263,797 | 298,135,976 | 347,933,107 |
| (a) | 2013 amount represents warrants issued upon the settlement of an EP dissenter. The settlement of the dissenter’s 128 EP shares was determined based on the same conversion of EP shares into cash, KMI Class P shares and KMI warrants that was received by other EP shareholders at the time of the acquisition. |
| (b) | See Note 9. |
Mandatory Convertible Preferred Stock
On October 30, 2015, we completed an offering of 32,000,000 depositary shares, each of which represents a 1/20th interest in a share of our 1,600,000 shares of 9.75% Series A mandatory convertible preferred stock, with a liquidating preference of $1,000 per share (equal to a $50 liquidation preference per depositary share). Net proceeds, after underwriting discount and
expenses, from the depositary share offering were approximately $1,541 million. The proceeds from the offering were used to repay borrowings under our revolving credit facility and commercial paper debt and for general corporate purposes.
Unless converted earlier at the option of the holders, on or around October 26, 2018, each share of convertible preferred stock will automatically convert into between 30.8800 and 36.2840 shares of our common stock (and, correspondingly, each depositary share will convert into between 1.5440 and 1.8142 shares of our common stock), subject to customary anti-dilution adjustments. The conversion range depends on the volume-weighted average price of our common stock over a 20 trading day averaging period immediately prior to that date (Applicable Market Value). If the Applicable Market Value for our common stock is greater than $32.38 or less than $27.56, the conversion rate per preferred stock will be 30.8800 or 36.2840, respectively. If the Applicable Market Value is between $32.38 and $27.56, the conversion rate per preferred stock will be between 30.8800 and 36.2840.
Preferred Dividends
Dividends on our mandatory convertible preferred stock are payable on a cumulative basis when, as and if declared by our board of directors (or an authorized committee thereof) at an annual rate of 9.75% of the liquidation preference of $1,000 per share on January 26, April 26, July 26 and October 26 of each year, commencing on January 26, 2016 to, and including, October 26, 2018. We may pay dividends in cash or, subject to certain limitations, in shares of common stock or any combination of cash and shares of common stock. The terms of the mandatory convertible preferred stock provide that, unless full cumulative dividends have been paid or set aside for payment on all outstanding mandatory convertible preferred stock for all prior dividend periods, no dividends may be declared or paid on common stock.
On November 17, 2015, our board of directors declared a cash dividend of $23.291667 per share of our mandatory convertible preferred stock (equivalent of $1.164583 per depository share) for the period from and including October 30, 2015 through and including January 25, 2016, which was paid on January 26, 2016 to mandatory convertible preferred shareholders of record as of January 11, 2016.
Noncontrolling Interests
Contributions
Prior to the completion of the Merger Transactions on November 26, 2014, contributions from our noncontrolling interests consisted primarily of equity issuances to the public of common units or shares by KMP, EPB and KMR. Each of these subsidiaries had an equity distribution agreement in place which allowed the subsidiary to sell its equity interests from time to time through a designated sales agent. The equity distribution agreement provided the subsidiary with the right, but not the obligation to offer and sell its equity units or shares, at prices to be determined by market conditions. For the periods ended November 26, 2014 and December 31, 2013, KMP, EPB and KMR made equity issuances of 30 million and 63 million units or shares, respectively, resulting in net proceeds of $1,695 million and $1,580 million, respectively. These equity issuances during the periods ended November 26, 2014 and December 31, 2013 had the associated effects of increasing our (i) noncontrolling interests by $1,640 million and $5,059 million, respectively; (ii) accumulated deferred income taxes by $19 million and $93 million, respectively; and (iii) additional paid-in capital by $36 million and $161 million, respectively.
Distributions
The following table provides information about distributions from our noncontrolling interests (in millions except per unit and i-unit distribution amounts):
| Year Ended December 31, | |||||||
| 2014 | 2013 | ||||||
| KMP(a) | |||||||
| Per unit cash distribution declared for the period | $ | 4.17 | $ | 5.33 | |||
| Per unit cash distribution paid in the period | $ | 5.53 | $ | 5.26 | |||
| Cash distributions paid in the period to the public | $ | 1,654 | $ | 1,372 | |||
| EPB(a) | |||||||
| Per unit cash distribution declared for the period | $ | 1.95 | $ | 2.55 | |||
| Per unit cash distribution paid in the period | $ | 2.60 | $ | 2.51 | |||
| Cash distributions paid in the period to the public | $ | 347 | $ | 318 | |||
| KMR(a)(b) | |||||||
| Share distributions paid in the period to the public | 7,794,183 | 6,588,477 |
| (a) | As a result of the Merger Transactions, no distribution was declared starting with the fourth quarter of 2014. |
| (b) | KMR’s distributions were paid in the form of additional shares or fractions thereof calculated by dividing the KMP cash distribution per common unit by the average of the market closing prices of a KMR share determined for a ten-trading day period ending on the trading day immediately prior to the ex-dividend date for the shares. Represents share distributions made in the period to noncontrolling interests and excludes 1,127,712 and 976,723 of shares distributed in 2014 and 2013, respectively, on KMR shares we directly and indirectly owned. |
- Related Party Transactions
Affiliate Balances
The following tables summarize our affiliate balance sheet balances and income statement activity (in millions):
| December 31, | |||||||
| 2015 | 2014 | ||||||
| Balance sheet location | |||||||
| Accounts receivable, net | $ | 25 | $ | 31 | |||
| Other current assets | 36 | 3 | |||||
| Deferred charges and other assets | — | 46 | |||||
| $ | 61 | $ | 80 | ||||
| Current portion of debt(a) | $ | 6 | $ | 6 | |||
| Accounts payable | 22 | 22 | |||||
| Other current liabilities | 10 | — | |||||
| Long-term debt(a) | 167 | 172 | |||||
| $ | 205 | $ | 200 |
| (a) | Includes financing obligations payable to WYCO (See Note 9). |
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Income statement location | |||||||||||
| Services | $ | 72 | $ | 29 | $ | 31 | |||||
| Product sales and other | 71 | 86 | 36 | ||||||||
| $ | 143 | $ | 115 | $ | 67 | ||||||
| Cost of sales | $ | 60 | $ | 74 | $ | 17 | |||||
| General and administrative | 55 | 57 | 57 |
Notes Receivable
Plantation
We and ExxonMobil Corporation have a term loan agreement covering a note receivable due from Plantation. We own a 51.17% equity interest in Plantation and our proportionate share of the outstanding principal amount of the note receivable was $35 million and $47 million as of December 31, 2015 and 2014, respectively. The note bears interest at the rate of 4.25% per annum and provides for semiannual payments of principal and interest on December 31 and June 30 each year, with a final principal payment for our remaining portion of the note due on July 20, 2016. We included $35 million and $1 million of the note receivable balance within “Other current assets” on our accompanying balance sheets as of December 31, 2015 and 2014, respectively, and we included $46 million as of December 31, 2014 within “Deferred charges and other assets.”
Subsequent Event
MEP Loan Agreement
On February 3, 2016 we renewed our loan agreement for an additional one-year term with MEP, our 50%-owned equity investee. The loan agreement allows us, at our sole option, to make loans from time to time to MEP to fund its working capital needs and for other LLC purposes. Each individual loan must be in an amount not less than $2 million, and the aggregate loan balance outstanding must not exceed $40 million. Borrowings under the loan agreement bear interest at a rate of one month LIBOR plus 1.50%, and all borrowings can be prepaid before maturity without penalty or premium. As of both December 31, 2015 and 2014 there was no amount outstanding pursuant to this loan agreement.
- Commitments and Contingent Liabilities
Leases and Rights-of-Way Obligations
The table below depicts future gross minimum rental commitments under our operating leases and rights-of-way obligations as of December 31, 2015 (in millions):
| Year | Commitment | |||
| 2016 | $ | 103 | ||
| 2017 | 90 | |||
| 2018 | 83 | |||
| 2019 | 78 | |||
| 2020 | 69 | |||
| Thereafter | 406 | |||
| Total minimum payments | $ | 829 |
The remaining terms on our operating leases, including probable elections to exercise renewal options, range from one to forty years. Total lease and rental expenses were $143 million, $114 million and $126 million for the years ended December 31, 2015, 2014 and 2013, respectively. The amount of capital leases included within “Property, plant and equipment, net” in our accompanying consolidated balance sheets as of December 31, 2015 and 2014 is not material to our consolidated balance sheets.
Contingent Debt
Our contingent debt disclosures pertain to certain types of guarantees or indemnifications we have made and cover certain types of guarantees included within debt agreements, even if the likelihood of requiring our performance under such guarantee is remote.
As of December 31, 2015 and 2014, our contingent debt obligations, as well as our obligations with respect to related letters of credit, totaled $1,202 million and $1,069 million, respectively. Both December 31, 2015 and 2014 amounts are primarily represented by our proportional share of the debt obligations of two equity investees. Under such guarantees we are severally liable for our percentage ownership share of these equity investees’ debt issued in the event of their non-performance. Also included in our contingent debt obligations is a guarantee of the debt obligations of our 50%-owned investee, Cortez Pipeline Company (we are severally liable for its percentage ownership share (50%) of the Cortez Pipeline Company debt and 100% of the debt issued by one of its subsidiaries in the event of their non-performance) which has a $200 million credit facility and $120 million private placement note to fund an expansion project.
Guarantees and Indemnifications
We are involved in joint ventures and other ownership arrangements that sometimes require financial and performance guarantees. In a financial guarantee, we are obligated to make payments if the guaranteed party fails to make payments under, or violates the terms of, the financial arrangement. In a performance guarantee, we provide assurance that the guaranteed party will execute on the terms of the contract. If they do not, we are required to perform on their behalf. We also periodically provide indemnification arrangements related to assets or businesses we have sold. These arrangements include, but are not limited to, indemnifications for income taxes, the resolution of existing disputes and environmental matters.
While many of these agreements may specify a maximum potential exposure, or a specified duration to the indemnification obligation, there are also circumstances where the amount and duration are unlimited. Currently, we are not subject to any material requirements to perform under quantifiable arrangements, and we expect future requirements to perform under quantifiable arrangements will be immaterial. We are unable to estimate a maximum exposure for our guarantee and indemnification agreements that do not provide for limits on the amount of future payments due to the uncertainty of these exposures.
See Note 17 “Litigation, Environmental and Other Contingencies” for a description of matters that we have identified as contingencies requiring accrual of liabilities and/or disclosure, including any such matters arising under guarantee or indemnification agreements.
Commitment for Jones Act Trade Fleet Expansion
In August 2015, we entered into a definitive agreement with Philly Tankers LLC totaling $568 million for the construction of four new Tier II, LNG-conversion-ready tankers each with a capacity of 337 MBbl. The tankers are expected to be delivered between November 2016 and November 2017 and would increase our Jones Act tanker fleet to 16 ships by late 2017. Our obligation for payments due under the terms of this agreement total $170 million in 2016 and $384 million in 2017.
- Risk Management
Certain of our business activities expose us to risks associated with unfavorable changes in the market price of natural gas, NGL and crude oil. We also have exposure to interest rate and foreign currency risk as a result of the issuance of our debt obligations. Pursuant to our management’s approved risk management policy, we use derivative contracts to hedge or reduce our exposure to certain of these risks. In addition, we have power forward and swap contracts related to legacy operations of acquired businesses for which we entered into positions that offset the price risks associated with these contracts.
As of December 31, 2014, we discontinued hedge accounting on certain of our crude derivative contracts as we did not expect them to continue to be highly effective, for accounting purposes, in offsetting the variability in cash flows. This was caused primarily by volatility in basis differentials. As the forecasted transactions are still probable, accumulated gains and losses remain in other comprehensive income until earnings are impacted by the forecasted transactions. Changes in the derivative contracts’ fair value subsequent to the discontinuance of hedge accounting are reported in earnings. As of December 31, 2015, all of these hedging relationships had been re-designated as the effectiveness improved to required levels.
Energy Commodity Price Risk Management
As of December 31, 2015, we had the following outstanding commodity forward contracts to hedge our forecasted energy commodity purchases and sales:
| Net open position long/(short) | |||
| Derivatives designated as hedging contracts | |||
| Crude oil fixed price | (21.7 | ) | MMBbl |
| Crude oil basis | (6.4 | ) | MMBbl |
| Natural gas fixed price | (37.6 | ) | Bcf |
| Natural gas basis | (30.1 | ) | Bcf |
| Derivatives not designated as hedging contracts | |||
| Crude oil fixed price | (0.6 | ) | MMBbl |
| Crude oil basis | (1.3 | ) | MMBbl |
| Natural gas fixed price | (14.3 | ) | Bcf |
| Natural gas basis | (8.6 | ) | Bcf |
| NGL and other fixed price | (1.9 | ) | MMBbl |
As of December 31, 2015, the maximum length of time over which we have hedged, for accounting purposes, our exposure to the variability in future cash flows associated with energy commodity price risk is through December 2019.
Interest Rate Risk Management
As of December 31, 2015, we had a combined notional principal amount of $11,000 million of fixed-to-variable interest rate swap agreements, of which $9,700 million were designated as fair value hedges. As of December 31, 2014, we had a combined notional principal amount of $9,200 million of fixed-to-variable interest rate swap agreements, all of which were designated as fair value hedges. All of our swap agreements effectively convert the interest expense associated with certain series of senior notes from fixed rates to variable rates based on an interest rate of LIBOR plus a spread and have termination dates that correspond to the maturity dates of the related series of senior notes. As of December 31, 2015, the maximum length of time over which we have hedged a portion of our exposure to the variability in the value of this debt due to interest rate risk is through March 15, 2035.
In December 2015, we entered into nine separate fixed-to-variable interest rate swap agreements having a combined notional principal amount of $1,300 million. These agreements effectively convert a portion of the interest expense associated with our 4.15% senior notes due February 2, 2024, 3.50% senior notes due September 1, 2023 and 4.30% senior notes due May 1, 2024, from a fixed rate to a variable rate based on an interest rate of LIBOR plus a spread.
Foreign Currency Risk Management
In connection with the issuance of our Euro denominated senior notes in March 2015 (see Note 9), we entered into $1,358 million cross-currency swap agreements to manage the related foreign currency risk by effectively converting all of the fixed-rate Euro denominated debt, including annual interest payments and the payment of principal at maturity, to U.S. dollar denominated debt at fixed rates equivalent to approximately 3.79% and 4.67% for the 7-year and 12-year senior notes, respectively. These cross-currency swaps are accounted for as cash flow hedges. The terms of the cross-currency swap agreements correspond to the related hedged senior notes, and such agreements have the same maturities as the hedged senior notes.
Fair Value of Derivative Contracts
The following table summarizes the fair values of our derivative contracts included on our accompanying consolidated balance sheets (in millions):
| Fair Value of Derivative Contracts | |||||||||||||||||
| Asset derivatives | Liability derivatives | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||||||
| Location | Fair value | Fair value | |||||||||||||||
| Derivatives designated as hedging contracts | |||||||||||||||||
| Natural gas and crude derivative contracts | Fair value of derivative contracts/(Other current liabilities) | $ | 359 | $ | 309 | $ | (13 | ) | $ | (34 | ) | ||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | 244 | 6 | — | — | |||||||||||||
| Subtotal | 603 | 315 | (13 | ) | (34 | ) | |||||||||||
| Interest rate swap agreements | Fair value of derivative contracts/(Other current liabilities) | 111 | 143 | — | — | ||||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | 273 | 260 | (9 | ) | (53 | ) | |||||||||||
| Subtotal | 384 | 403 | (9 | ) | (53 | ) | |||||||||||
| Cross-currency swap agreements | Fair value of derivative contracts/(Other current liabilities) | — | — | (6 | ) | — | |||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | — | — | (46 | ) | — | ||||||||||||
| Subtotal | — | — | (52 | ) | — | ||||||||||||
| Total | 987 | 718 | (74 | ) | (87 | ) | |||||||||||
| Derivatives not designated as hedging contracts | |||||||||||||||||
| Natural gas, crude, NGL and other derivative contracts | Fair value of derivative contracts/(Other current liabilities) | 35 | 73 | (1 | ) | (2 | ) | ||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | — | 196 | — | — | |||||||||||||
| Subtotal | 35 | 269 | (1 | ) | (2 | ) | |||||||||||
| Interest rate swap agreements | Fair value of derivative contracts/(Other current liabilities) | 1 | — | (11 | ) | — | |||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | — | — | (5 | ) | — | ||||||||||||
| Subtotal | 1 | — | (16 | ) | — | ||||||||||||
| Power derivative contracts | Fair value of derivative contracts/(Other current liabilities) | 1 | 10 | (17 | ) | (57 | ) | ||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | — | — | — | (16 | ) | ||||||||||||
| Subtotal | 1 | 10 | (17 | ) | (73 | ) | |||||||||||
| Total | 37 | 279 | (34 | ) | (75 | ) | |||||||||||
| Total derivatives | $ | 1,024 | $ | 997 | $ | (108 | ) | $ | (162 | ) |
Effect of Derivative Contracts on the Income Statement
The following tables summarize the impact of our derivative contracts on our accompanying consolidated statements of income (in millions):
| Derivatives in fair value hedging relationships | Location | Gain/(loss) recognized in income on derivatives and related hedged item | ||||||||||||
| Year Ended December 31, | ||||||||||||||
| 2015 | 2014 | 2013 | ||||||||||||
| Interest rate swap agreements | Interest, net | $ | 25 | $ | 207 | $ | (425 | ) | ||||||
| Hedged fixed rate debt | Interest, net | $ | (33 | ) | $ | (204 | ) | $ | 425 |
| Derivatives in cash flow hedging relationships | Gain/(loss) recognized in OCI on derivative (effective portion)(a) | Location | Gain/(loss) reclassified from Accumulated OCI into income (effective portion)(b) | Location | Gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing) | |||||||||||||||||||||||||||||||||||
| Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||||||||||||||||||
| December 31, | December 31, | December 31, | ||||||||||||||||||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
| Energy commodity derivative contracts | $ | 201 | $ | 424 | $ | (45 | ) | Revenues—Natural gas sales | $ | 54 | $ | (1 | ) | $ | — | Revenues—Natural gas sales | $ | — | $ | — | $ | — | ||||||||||||||||||
| Revenues—Product sales and other | 236 | 26 | (13 | ) | Revenues—Product sales and other | 2 | 11 | 3 | ||||||||||||||||||||||||||||||||
| Costs of sales | (15 | ) | 4 | — | Costs of sales | — | — | — | ||||||||||||||||||||||||||||||||
| Interest rate swap agreements(c) | (4 | ) | (15 | ) | 7 | Interest, net | (3 | ) | (4 | ) | 2 | Interest, net | — | — | — | |||||||||||||||||||||||||
| Cross-currency swap | (33 | ) | — | — | Other, net | — | — | — | Other, net | — | — | — | ||||||||||||||||||||||||||||
| Total | $ | 164 | $ | 409 | $ | (38 | ) | Total | $ | 272 | $ | 25 | $ | (11 | ) | Total | $ | 2 | $ | 11 | $ | 3 |
| (a) | We expect to reclassify an approximate $181 million gain associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balances as of December 31, 2015 into earnings during the next twelve months (when the associated forecasted sales and purchases are also expected to occur), however, actual amounts reclassified into earnings could vary materially as a result of changes in market prices. |
| (b) | Amounts reclassified were the result of the hedged forecasted transactions actually affecting earnings (i.e., when the forecasted sales and purchases actually occurred). |
| (c) | Amounts represent our share of an equity investee’s accumulated other comprehensive income/(loss). |
| Derivatives not designated as accounting hedges | Location | Gain/(loss) recognized in income on derivatives | ||||||||||||
| Year Ended December 31, | ||||||||||||||
| 2015 | 2014 | 2013 | ||||||||||||
| Energy commodity derivative contracts | Revenues—Natural gas sales | $ | 17 | $ | (7 | ) | $ | — | ||||||
| Revenues—Product sales and other | 176 | 20 | (10 | ) | ||||||||||
| Costs of sales | (2 | ) | — | 2 | ||||||||||
| Other expense (income) | — | (2 | ) | (2 | ) | |||||||||
| Interest rate swap agreements | Interest, net | (15 | ) | — | — | |||||||||
| Total(a) | $ | 176 | $ | 11 | $ | (10 | ) |
(a) For the year ended December 31, 2015, includes approximate gain of $31 million associated with natural gas, crude and NGL derivative contract settlements.
Credit Risks
In conjunction with certain derivative contracts, we are required to provide collateral to our counterparties, which may include posting letters of credit or placing cash in margin accounts. As of December 31, 2015 and 2014, we had $2 million and $20 million, respectively, of outstanding letters of credit supporting our commodity price risk management program. As of December 31, 2015 and December 31, 2014, we had no cash margin and $47 million posted by us with our counterparties as collateral and $37 million and $13 million, respectively, held by us as collateral from our counterparties.
We also have agreements with certain counterparties to our derivative contracts that contain provisions requiring the posting of additional collateral upon a decrease in our credit rating. As of December 31, 2015, based on our current mark to market positions and posted collateral, we estimate that if our credit rating was downgraded one or two notches, we would be required to post $1 million and $4 million, respectively, of additional collateral.
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Loss
Cumulative revenues, expenses, gains and losses that under GAAP are included within our comprehensive income but excluded from our earnings are reported as “Accumulated other comprehensive loss” within “Stockholders’ Equity” in our consolidated balance sheets. Changes in the components of our “Accumulated other comprehensive loss” not including non-controlling interests are summarized as follows (in millions):
| Net unrealized gains/(losses) on cash flow hedge derivatives | Foreign currency translation adjustments | Pension and other postretirement liability adjustments | Total Accumulated other comprehensive loss | ||||||||||||
| Balance as of December 31, 2012 | $ | 7 | $ | 51 | $ | (176 | ) | $ | (118 | ) | |||||
| Other comprehensive income before reclassifications | (14 | ) | (49 | ) | 151 | 88 | |||||||||
| Amounts reclassified from accumulated other comprehensive loss | 4 | — | 2 | 6 | |||||||||||
| Net current-period other comprehensive income | (10 | ) | (49 | ) | 153 | 94 | |||||||||
| Balance as of December 31, 2013 | (3 | ) | 2 | (23 | ) | (24 | ) | ||||||||
| Other comprehensive loss before reclassifications | 254 | (68 | ) | (212 | ) | (26 | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive loss | (22 | ) | — | (1 | ) | (23 | ) | ||||||||
| Impact of Merger Transactions (See Note 1) | 98 | (42 | ) | — | 56 | ||||||||||
| Net current-period other comprehensive income | 330 | (110 | ) | (213 | ) | 7 | |||||||||
| Balance as of December 31, 2014 | 327 | (108 | ) | (236 | ) | (17 | ) | ||||||||
| Other comprehensive loss before reclassifications | 164 | (214 | ) | (122 | ) | (172 | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive loss | (272 | ) | — | — | (272 | ) | |||||||||
| Net current-period other comprehensive loss | (108 | ) | (214 | ) | (122 | ) | (444 | ) | |||||||
| Balance as of December 31, 2015 | $ | 219 | $ | (322 | ) | $ | (358 | ) | $ | (461 | ) |
- Fair Value
The fair values of our financial instruments are separated into three broad levels (Levels 1, 2 and 3) based on our assessment of the availability of observable market data and the significance of non-observable data used to determine fair value. Each fair value measurement must be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety.
The three broad levels of inputs defined by the fair value hierarchy are as follows:
| • | Level 1 Inputs—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date; |
| • | Level 2 Inputs—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and |
| • | Level 3 Inputs—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data). |
Fair Value of Derivative Contracts
The following two tables summarize the fair value measurements of our (i) energy commodity derivative contracts; (ii) interest rate swap agreements; and (iii) cross-currency swap agreements, based on the three levels established by the Codification (in millions). The tables also identify the impact of derivative contracts which we have elected to present on our accompanying consolidated balance sheets on a gross basis that are eligible for netting under master netting agreements.
| Balance sheet asset fair value measurements by level | |||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Gross amount | Contracts available for netting | Cash collateral held(b) | Net amount | |||||||||||||||||||||
| As of December 31, 2015 | |||||||||||||||||||||||||||
| Energy commodity derivative contracts(a) | $ | 48 | $ | 589 | $ | 2 | $ | 639 | $ | (12 | ) | $ | (37 | ) | $ | 590 | |||||||||||
| Interest rate swap agreements | $ | — | $ | 385 | $ | — | $ | 385 | $ | (8 | ) | $ | — | $ | 377 | ||||||||||||
| Cross-currency swap agreements | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
| As of December 31, 2014 | |||||||||||||||||||||||||||
| Energy commodity derivative contracts(a) | $ | 49 | $ | 533 | $ | 12 | $ | 594 | $ | (46 | ) | $ | (13 | ) | $ | 535 | |||||||||||
| Interest rate swap agreements | $ | — | $ | 403 | $ | — | $ | 403 | $ | (44 | ) | $ | — | $ | 359 |
| Balance sheet liability fair value measurements by level | |||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Gross amount | Contracts available for netting | Collateral posted(c) | Net amount | |||||||||||||||||||||
| As of December 31, 2015 | |||||||||||||||||||||||||||
| Energy commodity derivative contracts(a) | $ | (4 | ) | $ | (10 | ) | $ | (17 | ) | $ | (31 | ) | $ | 12 | $ | — | $ | (19 | ) | ||||||||
| Interest rate swap agreements | $ | — | $ | (25 | ) | $ | — | $ | (25 | ) | $ | 8 | $ | — | $ | (17 | ) | ||||||||||
| Cross-currency swap agreements | $ | — | $ | (52 | ) | $ | — | $ | (52 | ) | $ | — | $ | — | $ | (52 | ) | ||||||||||
| As of December 31, 2014 | |||||||||||||||||||||||||||
| Energy commodity derivative contracts(a) | $ | (25 | ) | $ | (11 | ) | $ | (73 | ) | $ | (109 | ) | $ | 46 | $ | 47 | $ | (16 | ) | ||||||||
| Interest rate swap agreements | $ | — | $ | (53 | ) | $ | — | $ | (53 | ) | $ | 44 | $ | — | $ | (9 | ) |
| (a) | Level 1 consists primarily of NYMEX natural gas futures. Level 2 consists primarily of OTC WTI swaps and options. Level 3 consists primarily of power derivative contracts. |
| (b) | Cash margin deposits held by us associated with our energy commodity contract positions and OTC swap agreements and reported within “Other current liabilities” on our accompanying consolidated balance sheets. |
| (c) | Cash margin deposits posted by us associated with our energy commodity contract positions and OTC swap agreements and reported within “Other current assets” on our accompanying consolidated balance sheets. |
The table below provides a summary of changes in the fair value of our Level 3 energy commodity derivative contracts (in millions):
| Significant unobservable inputs (Level 3) | |||||||
|---|---|---|---|---|---|---|---|
| Year Ended December 31, | |||||||
| 2015 | 2014 | ||||||
| Derivatives-net asset (liability) | |||||||
| Beginning of period | $ | (61 | ) | $ | (110 | ) | |
| Transfers out(a) | — | (88 | ) | ||||
| Total gains or (losses) | |||||||
| Included in earnings | (13 | ) | 22 | ||||
| Included in other comprehensive loss | — | 78 | |||||
| Settlements | 59 | 37 | |||||
| End of period | $ | (15 | ) | $ | (61 | ) | |
| The amount of total gains or (losses) for the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets held at the reporting date | $ | — | $ | 1 |
(a) On December 31, 2014, we transferred WTI options from Level 3 to Level 2 due to increased observability of significant inputs in their valuations.
As of December 31, 2015, our Level 3 derivative assets and liabilities consisted primarily of power derivative contracts, where a significant portion of fair value is calculated from underlying market data that is not readily observable. The derived values use industry standard methodologies that may consider the historical relationships among various commodities, modeled market prices, time value, volatility factors and other relevant economic measures. The use of these inputs results in management’s best estimate of fair value.
Fair Value of Financial Instruments
The estimated fair value of our outstanding debt balances is disclosed below (in millions):
| December 31, 2015 | December 31, 2014 | ||||||||||||||
| Carrying value | Estimated fair value | Carrying value | Estimated fair value | ||||||||||||
| Total debt | $ | 43,227 | $ | 37,481 | $ | 42,814 | $ | 43,761 |
We used Level 2 input values to measure the estimated fair value of our outstanding debt balance as of both December 31, 2015 and 2014.
- Reportable Segments
We divide our operations into the following reportable business segments. These segments and their principal sources of revenues are as follows:
| • | Natural Gas Pipelines—the ownership and operation of (i) major interstate and intrastate natural gas pipeline and storage systems; (ii) natural gas and crude oil gathering systems and natural gas processing and treating facilities; (iii) NGL fractionation facilities and transportation systems; and (iv) LNG facilities; |
| • | CO2—(i) the production, transportation and marketing of CO2 to oil fields that use CO2 as a flooding medium for recovering crude oil from mature oil fields to increase production; (ii) ownership interests in and/or operation of oil fields and gas processing plants in West Texas; and (iii) the ownership and operation of a crude oil pipeline system in West Texas; |
| • | Terminals—(i) the ownership and/or operation of liquids and bulk terminal facilities located throughout the U.S. and portions of Canada that transload and store refined petroleum products, crude oil, condensate, and bulk products, including coal, petroleum coke, cement, alumina, salt and other bulk chemicals and (ii) the ownership and operation of our Jones Act tankers; |
| • | Products Pipelines—the ownership and operation of refined petroleum products and crude oil and condensate pipelines that deliver refined petroleum products (gasoline, diesel fuel and jet fuel), NGL, crude oil, condensate and bio-fuels to various markets, plus the ownership and/or operation of associated product terminals and petroleum pipeline transmix facilities; |
| • | Kinder Morgan Canada—the ownership and operation of the Trans Mountain pipeline system that transports crude oil and refined petroleum products from Edmonton, Alberta, Canada to marketing terminals and refineries in British Columbia, Canada and the state of Washington, plus the Jet Fuel aviation turbine fuel pipeline that serves the Vancouver (Canada) International Airport; and |
| • | Other—primarily other miscellaneous assets and liabilities including (i) our corporate headquarters in Houston, Texas; (ii) several physical natural gas contracts with power plants associated with legacy trading activities; and (iii) other miscellaneous assets and liabilities. |
We evaluate performance principally based on each segment’s EBDA (including amortization of excess cost of equity investments), which excludes general and administrative expenses, third-party debt costs and interest expense, unallocable interest income, and unallocable income tax expense. Our reportable segments are strategic business units that offer different products and services, and they are structured based on how our chief operating decision makers organize their operations for optimal performance and resource allocation. Each segment is managed separately because each segment involves different products and marketing strategies.
We consider each period’s earnings before all non-cash DD&A expenses to be an important measure of business segment performance for our reporting segments. We account for intersegment sales at market prices, while we account for asset transfers at either market value or, in some instances, book value.
During 2015, 2014 and 2013, we did not have revenues from any single external customer that exceeded 10% of our consolidated revenues.
Financial information by segment follows (in millions):
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Revenues | |||||||||||
| Natural Gas Pipelines | |||||||||||
| Revenues from external customers | $ | 8,704 | $ | 10,153 | $ | 8,613 | |||||
| Intersegment revenues | 21 | 15 | 4 | ||||||||
| CO2 | 1,699 | 1,960 | 1,857 | ||||||||
| Terminals | |||||||||||
| Revenues from external customers | 1,878 | 1,717 | 1,408 | ||||||||
| Intersegment revenues | 1 | 1 | 2 | ||||||||
| Products Pipelines | |||||||||||
| Revenues from external customers | 1,828 | 2,068 | 1,853 | ||||||||
| Intersegment revenues | 3 | — | — | ||||||||
| Kinder Morgan Canada | 260 | 291 | 302 | ||||||||
| Other | (3 | ) | 1 | 1 | |||||||
| Total segment revenues | 14,391 | 16,206 | 14,040 | ||||||||
| Other revenues(a) | 37 | 36 | 36 | ||||||||
| Less: Total intersegment revenues | (25 | ) | (16 | ) | (6 | ) | |||||
| Total consolidated revenues | $ | 14,403 | $ | 16,226 | $ | 14,070 |
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Operating expenses(b) | |||||||||||
| Natural Gas Pipelines | $ | 4,738 | $ | 6,241 | $ | 5,235 | |||||
| CO2 | 432 | 494 | 439 | ||||||||
| Terminals | 836 | 746 | 657 | ||||||||
| Products Pipelines | 772 | 1,258 | 1,295 | ||||||||
| Kinder Morgan Canada | 87 | 106 | 110 | ||||||||
| Other | 51 | 24 | 30 | ||||||||
| Total segment operating expenses | 6,916 | 8,869 | 7,766 | ||||||||
| Less: Total intersegment operating expenses | (25 | ) | (16 | ) | (6 | ) | |||||
| Total consolidated operating expenses | $ | 6,891 | $ | 8,853 | $ | 7,760 |
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Other expense (income)(c) | |||||||||||
| Natural Gas Pipelines | $ | 1,269 | $ | 5 | $ | (24 | ) | ||||
| CO2 | 606 | 243 | — | ||||||||
| Terminals | 190 | 29 | (74 | ) | |||||||
| Products Pipelines | 2 | (3 | ) | 6 | |||||||
| Kinder Morgan Canada | (1 | ) | — | — | |||||||
| Other | — | 1 | (7 | ) | |||||||
| Total consolidated other expense (income) | $ | 2,066 | $ | 275 | $ | (99 | ) |
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| DD&A | |||||||||||
| Natural Gas Pipelines | $ | 1,046 | $ | 897 | $ | 797 | |||||
| CO2 | 556 | 570 | 533 | ||||||||
| Terminals | 433 | 337 | 247 | ||||||||
| Products Pipelines | 206 | 166 | 155 | ||||||||
| Kinder Morgan Canada | 46 | 51 | 54 | ||||||||
| Other | 22 | 19 | 20 | ||||||||
| Total consolidated DD&A | $ | 2,309 | $ | 2,040 | $ | 1,806 |
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Earnings from equity investments and amortization of excess cost of equity investments, including loss on impairments | |||||||||||
| Natural Gas Pipelines | $ | 285 | $ | 279 | $ | 200 | |||||
| CO2 | (5 | ) | 26 | 22 | |||||||
| Terminals | 17 | 18 | 22 | ||||||||
| Products Pipelines | 36 | 37 | 40 | ||||||||
| Kinder Morgan Canada | — | — | 4 | ||||||||
| Other | — | 1 | — | ||||||||
| Total consolidated equity earnings | $ | 333 | $ | 361 | $ | 288 |
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Interest income | |||||||||||
| Natural Gas Pipelines | $ | — | $ | 1 | $ | — | |||||
| Products Pipelines | 2 | 2 | 2 | ||||||||
| Kinder Morgan Canada | — | — | 3 | ||||||||
| Other | 2 | 6 | 8 | ||||||||
| Total segment interest income | 4 | 9 | 13 | ||||||||
| Unallocated interest income | — | — | 2 | ||||||||
| Total consolidated interest income | $ | 4 | $ | 9 | $ | 15 |
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Other, net-income (expense) | |||||||||||
| Natural Gas Pipelines | $ | 24 | $ | 24 | $ | 578 | |||||
| CO2 | — | — | — | ||||||||
| Terminals | 8 | 12 | 1 | ||||||||
| Products Pipelines | 4 | (1 | ) | 1 | |||||||
| Kinder Morgan Canada | 8 | 15 | 246 | ||||||||
| Other | (1 | ) | 30 | 9 | |||||||
| Total consolidated other, net-income (expense) | $ | 43 | $ | 80 | $ | 835 |
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Income tax benefit (expense) | |||||||||||
| Natural Gas Pipelines | $ | (4 | ) | $ | (6 | ) | $ | (9 | ) | ||
| CO2 | (1 | ) | (8 | ) | (7 | ) | |||||
| Terminals | (29 | ) | (29 | ) | (14 | ) | |||||
| Products Pipelines | (8 | ) | (2 | ) | 2 | ||||||
| Kinder Morgan Canada | (19 | ) | (18 | ) | (21 | ) | |||||
| Total segment income tax expense | (61 | ) | (63 | ) | (49 | ) | |||||
| Unallocated income tax expense | (503 | ) | (585 | ) | (693 | ) | |||||
| Total consolidated income tax expense | $ | (564 | ) | $ | (648 | ) | $ | (742 | ) |
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Segment EBDA(d) | |||||||||||
| Natural Gas Pipelines | $ | 3,063 | $ | 4,259 | $ | 4,207 | |||||
| CO2 | 657 | 1,240 | 1,435 | ||||||||
| Terminals | 849 | 944 | 836 | ||||||||
| Products Pipelines | 1,100 | 856 | 602 | ||||||||
| Kinder Morgan Canada | 163 | 182 | 424 | ||||||||
| Other | (53 | ) | 13 | (5 | ) | ||||||
| Total segment EBDA | 5,779 | 7,494 | 7,499 | ||||||||
| Total segment DD&A | (2,309 | ) | (2,040 | ) | (1,806 | ) | |||||
| Total segment amortization of excess cost of equity investments | (51 | ) | (45 | ) | (39 | ) | |||||
| Other revenues | 37 | 36 | 36 | ||||||||
| General and administrative expenses | (690 | ) | (610 | ) | (613 | ) | |||||
| Interest expense, net of unallocable interest income(e) | (2,055 | ) | (1,807 | ) | (1,688 | ) | |||||
| Unallocable income tax expense | (503 | ) | (585 | ) | (693 | ) | |||||
| Loss from discontinued operations, net of tax | — | — | (4 | ) | |||||||
| Total consolidated net income | $ | 208 | $ | 2,443 | $ | 2,692 |
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Capital expenditures | |||||||||||
| Natural Gas Pipelines | $ | 1,642 | $ | 935 | $ | 1,085 | |||||
| CO2 | 725 | 792 | 667 | ||||||||
| Terminals | 847 | 1,049 | 1,108 | ||||||||
| Products Pipelines | 524 | 680 | 416 | ||||||||
| Kinder Morgan Canada | 142 | 156 | 77 | ||||||||
| Other | 16 | 5 | 16 | ||||||||
| Total consolidated capital expenditures | $ | 3,896 | $ | 3,617 | $ | 3,369 |
| 2015 | 2014 | ||||||||
| Investments at December 31 | |||||||||
| Natural Gas Pipelines | $ | 5,080 | $ | 5,174 | |||||
| CO2 | — | 17 | |||||||
| Terminals | 306 | 219 | |||||||
| Products Pipelines | 641 | 624 | |||||||
| Kinder Morgan Canada | 10 | 1 | |||||||
| Other | 3 | 1 | |||||||
| Total consolidated investments | $ | 6,040 | $ | 6,036 |
| 2015 | 2014 | ||||||||
| Assets at December 31 | |||||||||
| Natural Gas Pipelines | $ | 53,704 | $ | 52,532 | |||||
| CO2 | 4,706 | 5,227 | |||||||
| Terminals | 9,083 | 8,850 | |||||||
| Products Pipelines | 8,464 | 7,179 | |||||||
| Kinder Morgan Canada | 1,434 | 1,593 | |||||||
| Other | 418 | 455 | |||||||
| Total segment assets | 77,809 | 75,836 | |||||||
| Corporate assets(f) | 6,276 | 7,157 | |||||||
| Assets held for sale | 19 | 56 | |||||||
| Total consolidated assets | $ | 84,104 | $ | 83,049 |
| (a) | Includes a management fee for services we perform for NGPL. |
| (b) | Includes natural gas purchases and other costs of sales, operations and maintenance expenses, and taxes, other than income taxes. |
| (c) | Includes loss on impairment of goodwill, loss (gain) on impairments and disposals of long-lived assets, net and other expense (income), net. |
| (d) | Includes revenues, earnings from equity investments, allocable interest income, and other, net, less operating expenses, allocable income taxes, and other expense (income), net, loss on impairment of goodwill, and losses (gain) on impairments and disposals of long-lived assets, net and equity investments. |
| (e) | Includes (i) interest expense and (ii) miscellaneous other income and expenses not allocated to business segments. |
| (f) | Includes cash and cash equivalents, margin and restricted deposits, unallocable interest receivable, prepaid assets and deferred charges, risk management assets related to debt fair value adjustments and miscellaneous corporate assets (such as information technology and telecommunications equipment) not allocated to individual segments. |
We do not attribute interest and debt expense to any of our reportable business segments.
Following is geographic information regarding the revenues and long-lived assets of our business segments (in millions):
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Revenues from external customers | |||||||||||
| U.S. | $ | 13,797 | $ | 15,605 | $ | 13,656 | |||||
| Canada | 479 | 437 | 398 | ||||||||
| Mexico | 127 | 184 | 16 | ||||||||
| Total consolidated revenues from external customers | $ | 14,403 | $ | 16,226 | $ | 14,070 |
| December 31, | |||||||||
| 2015 | 2014 | ||||||||
| Long-term assets, excluding goodwill and other intangibles | |||||||||
| U.S. | $ | 51,679 | $ | 49,992 | |||||
| Canada | 2,193 | 2,268 | |||||||
| Mexico | 67 | 81 | |||||||
| Total consolidated long-lived assets | $ | 53,939 | $ | 52,341 |
- Litigation, Environmental and Other Contingencies
We and our subsidiaries are parties to various legal, regulatory and other matters arising from the day-to-day operations of our businesses or certain predecessor operations that may result in claims against the Company. Although no assurance can be given, we believe, based on our experiences to date and taking into account established reserves and insurance, that the ultimate resolution of such items will not have a material adverse impact on our business, financial position, results of operations or dividends to our shareholders. We believe we have meritorious defenses to the matters to which we are a party and intend to vigorously defend the Company. When we determine a loss is probable of occurring and is reasonably estimable, we accrue an undiscounted liability for such contingencies based on our best estimate using information available at that time. If the estimated loss is a range of potential outcomes and there is no better estimate within the range, we accrue the amount at the low end of the range. We disclose contingencies where an adverse outcome may be material, or in the judgment of management, we conclude the matter should otherwise be disclosed.
Federal Energy Regulatory Commission Proceedings
SFPP
The tariffs and rates charged by SFPP are subject to a number of ongoing proceedings at the FERC, including the complaints and protests of various shippers the most recent of which was filed in late 2015 with the FERC (docketed at OR16-6) challenging SFPP’s filed East Line rates. In general, these complaints and protests allege the rates and tariffs charged by SFPP are not just and reasonable under the Interstate Commerce Act (ICA). In some of these proceedings shippers have challenged the overall rate being charged by SFPP, and in others the shippers have challenged SFPP’s index-based rate increases. If the shippers are successful in proving these claims or other of their claims, they are entitled to seek reparations (which may reach back up to two years prior to the filing of their complaints) or refunds of any excess rates paid, and SFPP may be required to reduce its rates going forward. These proceedings tend to be protracted, with decisions of the FERC often appealed to the federal courts. The issues involved in these proceedings include, among others, whether indexed rate increases are justified, and the appropriate level of return and income tax allowance SFPP may include in its rates. With respect to the various SFPP related complaints and protest proceedings at the FERC, we estimate that the shippers are seeking approximately $40 million in annual rate reductions and approximately $160 million in refunds. Management believes SFPP has meritorious arguments supporting SFPP’s rates and intends to vigorously defend SFPP against these complaints and protests. However, to the extent the shippers are successful in one or more of the complaints or protest proceedings, SFPP estimates that applying the principles of several recent FERC decisions in SFPP cases, as applicable, to pending cases would result in rate reductions and refunds substantially lower than those sought by the shippers.
EPNG
The tariffs and rates charged by EPNG are subject to two ongoing FERC proceedings (the “2008 rate case” and the “2010 rate case”). With respect to the 2008 rate case, the FERC issued its decision (Opinion 517-A) in July 2015. FERC generally upheld its prior determinations, ordered refunds to be paid within 60 days, and stated that it will apply its findings in Opinion 517-A to the same issues in the 2010 rate case. EPNG has sought federal appellate review of Opinion 517-A. With respect to the 2010 rate case, the FERC issued its decision (Opinion 528) on October 17, 2013. EPNG sought rehearing on certain issues in Opinion 528. As required by Opinion 528, EPNG filed revised pro forma recalculated rates consistent with the terms of Opinion 528. The FERC also required an Administrative Law Judge (ALJ) to conduct an additional hearing concerning one of the issues in Opinion 528. On September 17, 2014, the ALJ issued an initial decision finding certain shippers qualify for lower rates under a prior settlement. EPNG has sought FERC review of the ALJ decision. EPNG believes it has an appropriate reserve, which is classified as a current liability, related to the findings in Opinions 517-A and 528 for both rate cases.
Other Commercial Matters
Union Pacific Railroad Company Easements & Related Litigation
SFPP and Union Pacific Railroad Company (UPRR) are engaged in a proceeding to determine the extent, if any, to which the rent payable by SFPP for the use of pipeline easements on rights-of-way held by UPRR should be adjusted pursuant to existing contractual arrangements for the ten-year period beginning January 1, 2004 (Union Pacific Railroad Company v. Santa Fe Pacific Pipelines, Inc., SFPP, L.P., Kinder Morgan Operating L.P. “D”, Kinder Morgan G.P., Inc., et al., Superior Court of the State of California for the County of Los Angeles, filed July 28, 2004). In September 2011, the trial judge determined that the annual rent payable as of January 1, 2004 was $14 million, subject to annual consumer price index increases. SFPP appealed the judgment.
By notice dated October 25, 2013, UPRR demanded the payment of $22.3 million in rent for the first year of the next ten-year period beginning January 1, 2014, which SFPP rejected.
On November 5, 2014, the Court of Appeals issued an opinion which reversed the judgment, including the award of prejudgment interest, and remanded the matter to the trial court for a determination of UPRR’s property interest in its right-of-way, including whether UPRR has sufficient interest to grant SFPP’s easements. UPRR filed a petition for review to the California Supreme Court which was denied. The trial court has not set a date for the retrial.
After the above-referenced decision by the California Court of Appeals which held that UPRR does not own the subsurface rights to grant certain easements and may not be able to collect rent from those easements, a purported class action lawsuit was filed in 2015 in the U.S. District Court for the Southern District of California by private landowners in California who claim to be the lawful owners of subsurface real property allegedly used or occupied by UPRR or SFPP. Substantially similar follow-on lawsuits were filed and are pending in federal courts by landowners in Nevada, Arizona and New Mexico. These suits, which are brought purportedly as class actions on behalf of all landowners who own land in fee adjacent to and underlying the railroad easement under which the SFPP pipeline is located in those respective states, assert claims against UPRR, SFPP, KMGP, and Kinder Morgan Operating L.P. “D” for declaratory judgment, trespass, ejectment, quiet title, unjust enrichment, accounting, and alleged unlawful business acts and practices arising from defendants’ alleged improper use or occupation of subsurface real property. SFPP views these cases as primarily a dispute between UPRR and the plaintiffs. UPRR purported to grant SFPP a network of subsurface pipeline easements along UPRR’s railroad right-of-way. SFPP relied on the validity of those easements and paid rent to UPRR for the value of those easements. We believe we have recorded a right-of-way liability sufficient to cover our potential liability, if any, for back rent.
SFPP and UPRR have engaged in multiple disputes over the circumstances under which SFPP must pay for relocations of its pipeline within the UPRR right-of-way and the safety standards that govern relocations. In 2006, following a bench trial regarding the circumstances under which SFPP must pay for relocations, the judge determined that SFPP must pay for any relocations resulting from any legitimate business purpose of the UPRR. The decision was affirmed on appeal. In addition, UPRR contends that SFPP must comply with the more expensive American Railway Engineering and Maintenance-of-Way Association (AREMA) standards in determining when relocations are necessary and in completing relocations. Each party has sought declaratory relief with respect to its positions regarding the application of these standards with respect to relocations. In 2011, a jury verdict was reached that SFPP was obligated to comply with AREMA standards in connection with a railroad project in Beaumont Hills, California. In 2014, the trial court entered judgment against SFPP, consistent with the jury’s verdict. On June 29, 2015, the parties entered into a confidential settlement of all of the claims relating to the project in Beaumont Hills and the case was dismissed.
Since SFPP does not know UPRR’s plans for projects or other activities that would cause pipeline relocations, it is difficult to quantify the effects of the outcome of these cases on SFPP. Even if SFPP is successful in advancing its positions, significant relocations for which SFPP must nonetheless bear the cost (i.e., for railroad purposes, with the standards in the federal Pipeline Safety Act applying) could have an adverse effect on our financial position, results of operations, cash flows, and our dividends to our shareholders. These effects could be even greater in the event SFPP is unsuccessful in one or more of these lawsuits.
Plains Gas Solutions, LLC v. Tennessee Gas Pipeline Company, L.L.C. et al.
On October 16, 2013, Plains Gas Solutions, LLC (Plains) filed a petition in the 151st Judicial District Court for Harris County, Texas (Case No. 62528) against TGP, Kinetica Partners, LLC and two other Kinetica entities. The suit arises from the sale by TGP of the Cameron System in Louisiana to Kinetica Partners, LLC on September 1, 2013. Plains alleges that defendants breached a straddle agreement requiring that gas on the Cameron System be committed to Plains’ Grand Chenier
gas-processing facility, that requisite daily volume reports were not provided, that TGP improperly assigned its obligations under the straddle agreement to Kinetica, and that defendants interfered with Plains’ contracts with producers. The petition alleges damages of at least $100 million. Under the Amended and Restated Purchase and Sale Agreement with Kinetica, Kinetica is obligated to defend and indemnify TGP in connection with the gas commitment and reporting claims. After agreeing initially to defend and indemnify TGP against such claims, Kinetica withdrew its defense and disputed its indemnity obligation. We intend to vigorously defend the suit and pursue Kinetica, if necessary, for indemnity and costs of defense.
Brinckerhoff v. El Paso Pipeline GP Company, LLC., et al.
In December 2011 (Brinckerhoff I), March 2012, (Brinckerhoff II), May 2013 (Brinckerhoff III) and June 2014 (Brinckerhoff IV), derivative lawsuits were filed in Delaware Chancery Court against El Paso Corporation, El Paso Pipeline GP Company, L.L.C., the general partner of EPB, and the directors of the general partner at the time of the relevant transactions. EPB was named in these lawsuits as a “Nominal Defendant.” The lawsuits arise from the March 2010, November 2010, May 2012 and June 2011 drop-down transactions involving EPB’s purchase of SLNG, Elba Express, CPG and interests in SNG and CIG. The lawsuits allege various conflicts of interest and that the consideration paid by EPB was excessive. Brinckerhoff I and II were consolidated into one proceeding. Motions to dismiss were filed in Brinckerhoff III and Brinckerhoff IV, and such motions remain pending. On June 12, 2014, defendants’ motion for summary judgment was granted in Brinckerhoff I, dismissing the case in its entirety. Defendants’ motion for summary judgment in Brinckerhoff II was granted in part, dismissing certain claims and allowing the matter to go to trial in late 2014 on the remaining claims. On April 20, 2015, the Court issued a post-trial memorandum opinion (Memorandum Opinion) in Brinckerhoff II entering judgment in favor of all of the defendants other than the general partner of EPB, but finding the general partner liable for breach of contract in connection with EPB’s purchase of 49% interests in Elba and SLNG and a 15% interest in SNG in a $1.13 billion drop-down transaction that closed on November 19, 2010 (Fall Dropdown), prior to our acquisition of El Paso Corporation in 2012. In its Memorandum Opinion, the Court determined that EPB suffered damages of $171 million from the Fall Dropdown, which the Court determined to be the amount that EPB overpaid for Elba. We believe the claim is derivative in nature and was extinguished by our acquisition on November 26, 2014, pursuant to a merger agreement, of all of the outstanding common units of EPB that we did not already own. On December 2, 2015, the Court denied our motion to dismiss the remaining claims in Brinckerhoff II based upon our acquisition of all of the outstanding common units of EPB, and held that damages should be calculated by considering the unaffiliated unitholders’ ownership percentage as of the effective date of the merger. Based on this ruling, the Court entered judgment on February 4, 2016 in the amount of $100.2 million plus interest at the legal rate for the period from November 15, 2010 until the date of payment, if any payment is ultimately required. We will file an appeal to the Delaware Supreme Court and execution on the judgment has been stayed until the appeal is decided. At the present time, we do not believe that an ultimate award, if any, will have a material financial impact on our Company. We continue to believe the transactions at issue were appropriate and in the best interests of EPB and we intend to continue to defend the lawsuits vigorously.
Price Reporting Litigation
Beginning in 2003, several lawsuits were filed by purchasers of natural gas against El Paso Corporation, El Paso Marketing L.P. and numerous other energy companies based on a claim under state antitrust law that such defendants conspired to manipulate the price of natural gas by providing false price information to industry trade publications that published gas indices. Several of the cases have been settled or dismissed. The remaining cases, which were pending in Nevada federal court, were dismissed, but the dismissal was reversed by the 9th Circuit Court of Appeals. The U.S. Supreme Court affirmed the 9th Circuit Court of Appeals in a decision dated April 21, 2015, and the cases were then remanded to the Nevada federal court for further consideration and trial, if necessary, of numerous remaining issues. Although damages in excess of $140 million have been alleged in total against all defendants in one of the remaining lawsuits where a damage number is provided, there remains significant uncertainty regarding the validity of the causes of action, the damages asserted and the level of damages, if any, that may be allocated to us. Therefore, our costs and legal exposure related to the remaining outstanding lawsuits and claims are not currently determinable.
Kinder Morgan, Inc. Corporate Reorganization Litigation
Certain unitholders of KMP and EPB filed five putative class action lawsuits in the Court of Chancery of the State of Delaware in connection with the Merger Transactions, which the Court consolidated under the caption In re Kinder Morgan, Inc. Corporate Reorganization Litigation (Consolidated Case No. 10093-VCL). The plaintiffs originally sought to enjoin one or more of the proposed Merger Transactions, which relief the Court denied on November 5, 2014. On December 12, 2014, the plaintiffs filed a Verified Second Consolidated Amended Class Action Complaint, which purports to assert claims on behalf of both the former EPB unitholders and the former KMP unitholders. The EPB plaintiff alleged that (i) El Paso Pipeline GP Company, L.L.C. (EPGP), the general partner of EPB, and the directors of EPGP breached duties under the EPB partnership agreement, including the implied covenant of good faith and fair dealing, by entering into the EPB Transaction; (ii) EPB, E
Merger Sub LLC, KMI and individual defendants aided and abetted such breaches; and (iii) EPB, E Merger Sub LLC, KMI, and individual defendants tortiously interfered with the EPB partnership agreement by causing EPGP to breach its duties under the EPB partnership agreement.
The KMP plaintiffs allege that (i) KMR, KMGP, and individual defendants breached duties under the KMP partnership agreement, including the implied duty of good faith and fair dealing, by entering into the KMP Transaction and by failing to adequately disclose material facts related to the transaction; (ii) KMI aided and abetted such breach; and (iii) KMI, KMP, KMR, P Merger Sub LLC, and individual defendants tortiously interfered with the rights of the plaintiffs and the putative class under the KMP partnership agreement by causing KMGP to breach its duties under the KMP partnership agreement. The complaint seeks declaratory relief that the transactions were unlawful and unenforceable, reformation, rescission, rescissory or compensatory damages, interest, and attorneys’ and experts’ fees and costs. On December 30, 2014, the defendants moved to dismiss the complaint. On April 2, 2015, the EPB plaintiff and the defendants submitted a stipulation and proposed order of dismissal, agreeing to dismiss all claims brought by the EPB plaintiff with prejudice as to the EPB lead plaintiff and without prejudice to all other members of the putative EPB class. The Court entered such order on April 2, 2015.
On August 24, 2015, the Court issued an order granting the defendants’ motion to dismiss the remaining counts of the complaint for failure to state a claim. On September 21, 2015, plaintiffs filed a notice of appeal to the Supreme Court of the State of Delaware, captioned Haynes Family Trust et al. v. Kinder Morgan G.P., Inc. et al. (Case No. 515). The plaintiffs are only appealing the dismissal of claims brought against defendants KMGP, Ted A. Gardner, Gary L. Hultquist, and Perry M. Waughtal and not those asserted against KMI, P. Merger Sub LLC, Richard D. Kinder, Steven J. Kean, KMP and KMR. The Supreme Court will hear oral argument on March 9, 2016. The defendants believe the allegations against them lack merit, and they intend to vigorously defend the lawsuit.
Kinder Morgan Energy Partners, L.P. Capex Litigation
Putative class action and derivative complaints were filed in the Court of Chancery in the State of Delaware against defendants KMI, KMGP and nominal defendant KMEP on February 5, 2014 and March 27, 2014 captioned Slotoroff v. Kinder Morgan, Inc., Kinder Morgan G.P., Inc. et al (Case No. 9318) and Burns et al v. Kinder Morgan, Inc., Kinder Morgan G.P., Inc. et al (Case No. 9479) respectively. The cases were consolidated on April 8, 2014 (Consolidated Case No. 9318). The consolidated suit asserted claims both individually and on behalf of a putative class consisting of all public holders of KMEP units during the period of February 5, 2011 through the date of the filing of the complaints. The suit alleged direct and derivative causes of action for breach of the partnership agreement, breach of the duty of good faith and fair dealing, aiding and abetting, and tortious interference. Among other things, the suit alleged that defendants made a bad faith allocation of capital expenditures to expansion capital expenditures rather than maintenance capital expenditures for the alleged purpose of “artificially” inflating KMEP’s distributions and growth rate. The suit alleged that hundreds of millions of dollars were distributed improperly and sought disgorgement of any distributions to KMGP, KMI and any related entities, beyond amounts that would have been distributed in accordance with a “good faith” allocation of maintenance capital expenses, together with other unspecified monetary damages including punitive damages and attorney fees.
On August 14, 2015, the parties entered into a Stipulation and Agreement of Settlement pursuant to which defendants paid $27.5 million (the “Settlement Fund”) to a class of former holders of KMEP common units, and all claims asserted in the consolidated suit are released. Following notice to the putative class members, on December 22, 2015, the Court approved the settlement which also includes a release of all claims asserted in the Walker litigation discussed below, and awarded attorneys’ fees and litigation expenses to Plaintiffs’ counsel to be paid from the Settlement Fund. All of the defendants believe they acted properly, in good faith, and in a manner consistent with any and all legal, contractual and equitable duties and obligations, including those contained in the Limited Partnership Agreement. We entered into this settlement solely to avoid the substantial burden, expense, inconvenience and distraction of continued litigation and to resolve each of the released claims.
Walker v. Kinder Morgan, Inc., Kinder Morgan G.P., Inc. et al.
On March 6, 2014, a putative class action and derivative complaint was filed in the District Court of Harris County, Texas (Case No. 2014-11872 in the 215th Judicial District) against KMI, KMGP, KMR, Richard D. Kinder, Steven J. Kean, Ted A. Gardner, Gary L. Hultquist, Perry M. Waughtal and nominal defendant KMEP. The suit was filed by Kenneth Walker, a purported unit holder of KMEP, and alleged derivative causes of action for alleged violation of duties owed under the partnership agreement, breach of the implied covenant of good faith and fair dealing, “abuse of control” and “gross mismanagement” in connection with the calculation of distributions and allocation of capital expenditures to expansion capital expenditures and maintenance capital expenditures. The suit sought unspecified money damages, interest, punitive damages, attorney and expert fees, costs and expenses, unspecified equitable relief, and demanded a trial by jury. On January 5, 2016,
Plaintiffs filed a Notice of Nonsuit, with prejudice, which the Court subsequently granted, dismissing all claims in the action with prejudice.
Pipeline Integrity and Releases
From time to time, despite our best efforts, our pipelines experience leaks and ruptures. These leaks and ruptures may cause explosions, fire, and damage to the environment, damage to property and/or personal injury or death. In connection with these incidents, we may be sued for damages caused by an alleged failure to properly mark the locations of our pipelines and/or to properly maintain our pipelines. Depending upon the facts and circumstances of a particular incident, state and federal regulatory authorities may seek civil and/or criminal fines and penalties.
General
As of December 31, 2015 and 2014, our total reserve for legal matters was $463 million and $400 million, respectively. The reserve primarily relates to various claims from regulatory proceedings arising in our products and natural gas pipeline segments and certain corporate matters. The overall increase in the reserve from December 31, 2014 is related to certain legal developments during the year ended December 31, 2015 on corporate matters.
Environmental Matters
We and our subsidiaries are subject to environmental cleanup and enforcement actions from time to time. In particular, CERCLA generally imposes joint and several liability for cleanup and enforcement costs on current and predecessor owners and operators of a site, among others, without regard to fault or the legality of the original conduct, subject to the right of a liable party to establish a “reasonable basis” for apportionment of costs. Our operations are also subject to federal, state and local laws and regulations relating to protection of the environment. Although we believe our operations are in substantial compliance with applicable environmental law and regulations, risks of additional costs and liabilities are inherent in pipeline, terminal and CO2 field and oil field operations, and there can be no assurance that we will not incur significant costs and liabilities. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies under the terms of authority of those laws, and claims for damages to property or persons resulting from our operations, could result in substantial costs and liabilities to us.
We are currently involved in several governmental proceedings involving alleged violations of environmental and safety regulations. As we receive notices of non-compliance, we attempt to negotiate and settle such matters where appropriate. We do not believe that these alleged violations will have a material adverse effect on our business, financial position, results of operations or dividends to our shareholders.
We are also currently involved in several governmental proceedings involving groundwater and soil remediation efforts under administrative orders or related state remediation programs. We have established a reserve to address the costs associated with the cleanup.
In addition, we are involved with and have been identified as a potentially responsible party in several federal and state superfund sites. Environmental reserves have been established for those sites where our contribution is probable and reasonably estimable. In addition, we are from time to time involved in civil proceedings relating to damages alleged to have occurred as a result of accidental leaks or spills of refined petroleum products, NGL, natural gas and CO2.
Portland Harbor Superfund Site, Willamette River, Portland, Oregon
In December 2000, the EPA issued General Notice letters to potentially responsible parties including GATX Terminals Corporation (n/k/a KMLT). At that time, GATX owned two liquids terminals along the lower reach of the Willamette River, an industrialized area known as Portland Harbor. Portland Harbor is listed on the National Priorities List and is designated as a Superfund Site under CERCLA. A group of potentially responsible parties formed what is known as the Lower Willamette Group (LWG), of which KMLT is a non-voting member and pays a minimal fee to be part of the group. The LWG agreed to conduct the remedial investigation and feasibility study (RI/FS) leading to the proposed remedy for cleanup of the Portland Harbor site. Once the EPA determines the cleanup remedy from the remedial investigations and feasibility studies conducted during the last decade at the site, it will issue a Record of Decision (ROD). Currently, KMLT and 90 other parties are involved in a non-judicial allocation process to determine each party’s respective share of the cleanup costs. We are participating in the allocation process on behalf of KMLT and KMBT in connection with their current or former ownership or operation of four facilities located in Portland Harbor. We expect the RI/FS process to conclude in 2016. We expect EPA will publish a Proposed Remedial Action Plan by April 2016 leading to a final ROD targeted for late 2016 or early 2017. The allocation
process will follow the issuance of the ROD with an expected completion date of 2018. We anticipate that the cleanup activities will begin within two years after the ROD is issued.
Roosevelt Irrigation District v. Kinder Morgan G.P., Inc., Kinder Morgan Energy Partners, L.P. , U.S. District Court, Arizona
The Roosevelt Irrigation District sued KMGP, KMEP and others under CERCLA for alleged contamination of the water purveyor’s wells. The First Amended Complaint sought $175 million in damages against approximately 70 defendants. On August 6, 2013 plaintiffs filed their Second Amended Complaint seeking monetary damages in unspecified amounts and reducing the number of defendants to 26 including KMEP and SFPP. The claims now presented against KMEP and SFPP are related to alleged releases from a specific parcel within the SFPP Phoenix Terminal and the alleged impact of such releases on water wells owned by the plaintiffs and located in the vicinity of the Terminal. We have filed an answer, general denial, and affirmative defenses in response to the Second Amended Complaint.
Mission Valley Terminal Lawsuit
In August 2007, the City of San Diego, on its own behalf and purporting to act on behalf of the People of the State of California, filed a lawsuit against us and several affiliates seeking injunctive relief and unspecified damages allegedly resulting from hydrocarbon and methyl tertiary butyl ether (MTBE) impacted soils and groundwater beneath the City’s stadium property in San Diego arising from historic operations at the Mission Valley terminal facility. The case was filed in the Superior Court of California, San Diego County and was removed in 2007 to the U.S. District Court, Southern District of California (Case No. 07CV1883WCAB). The City disclosed in discovery that it is seeking approximately $170 million in damages for alleged lost value/lost profit from the redevelopment of the City’s property and alleged lost use of the water resources underlying the property. Later, in 2010, the City amended its initial disclosures to add claims for restoration of the site as well as a number of other claims that increased its claim for damages to approximately $365 million.
On November 29, 2012, the Court issued a Notice of Tentative Rulings on the parties’ summary adjudication motions. The Court tentatively granted our partial motions for summary judgment on the City’s claims for water and real estate damages and the State’s claims for violations of California Business and Professions Code § 17200, tentatively denied the City’s motion for summary judgment on its claims of liability for nuisance and trespass, and tentatively granted our cross motion for summary judgment on such claims. On January 25, 2013, the Court rendered judgment in favor of all defendants on all claims asserted by the City.
On February 20, 2013, the City of San Diego filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit. On May 21, 2015, the Court of Appeals issued a memorandum decision which affirmed the District Court’s summary judgment in our favor with respect to the City’s claim under California Safe Drinking Water and Toxic Enforcement Act, but reversed both the District Court’s summary judgment decision in our favor on the City’s remaining claims and the District Court’s decision to exclude the City’s expert testimony. The Court of Appeals issued a mandate returning the case to the U.S. District Court. On January 25, 2016, the District Court heard oral argument on motions we previously filed to exclude certain expert testimony offered by the City and for partial summary judgment on the City’s claims. By its Order dated February 2, 2016, the Court granted in part and denied in part our motion to exclude certain expert testimony, granted in part and denied in part our motion for partial summary judgment, found that the City is limited to seeking alleged damages relating to the three year period immediately preceding the filing of the lawsuit, found that the City lacks expert opinions or testimony to support its claim for water damages, including the alleged loss of use of the Mission Valley aquifer as a source of both supply and storage of potable water, and denied our motion for partial summary judgment on the City’s alleged real estate and restoration damages. As a result of the Court’s Order, the City’s alleged damages will be reduced from approximately $365 million to approximately $160 million. Trial is scheduled to begin April 5, 2016. We intend to continue to vigorously defend the case.
This site remains under the regulatory oversight and order of the California Regional Water Quality Control Board (RWQCB). SFPP has completed the soil and groundwater remediation at the City of San Diego’s stadium property site and conducted quarterly sampling and monitoring through 2015 as part of the compliance evaluation required by the RWQCB. SFPP expects the RWQCB to issue a notice of no further action with respect to the stadium property site. SFPP’s remediation effort is now focused on its adjacent Mission Valley Terminal site.
Uranium Mines in Vicinity of Cameron, Arizona
In the 1950s and 1960s, Rare Metals Inc., a historical subsidiary of EPNG, mined approximately twenty uranium mines in the vicinity of Cameron, Arizona, many of which are located on the Navajo Indian Reservation. The mining activities were in response to numerous incentives provided to industry by the U.S. to locate and produce domestic sources of uranium to support
the Cold War-era nuclear weapons program. In May 2012, EPNG received a general notice letter from the EPA notifying EPNG of the EPA’s investigation of certain sites and its determination that the EPA considers EPNG to be a potentially responsible party within the meaning of CERCLA. In August 2013, EPNG and the EPA entered into an Administrative Order on Consent and Scope of Work pursuant to which EPNG will conduct a radiological assessment of the surface of the mines. On September 3, 2014, EPNG filed a complaint in the U.S. District Court for the District of Arizona (Case No. 3:14-08165-DGC) seeking cost recovery and contribution from the applicable federal government agencies toward the cost of environmental activities associated with the mines, given the pervasive control of such federal agencies over all aspects of the nuclear weapons program. Defendants filed an answer and counterclaims seeking contribution and recovery of response costs allegedly incurred by the federal agencies in investigating uranium impacts on the Navajo Reservation. The counterclaim of defendant EPA has been settled, subject to final judicial approval, and no viable claims for reimbursement by the other defendants are known to exist.
Lower Passaic River Study Area of the Diamond Alkali Superfund Site, Essex, Hudson, Bergen and Passaic Counties, New Jersey
EPEC Polymers, Inc. (EPEC Polymers) and EPEC Oil Company Liquidating Trust (EPEC Oil Trust), former El Paso Corporation entities now owned by KMI, are involved in an administrative action under CERCLA known as the Lower Passaic River Study Area Superfund Site (Site) concerning the lower 17-mile stretch of the Passaic River. It has been alleged that EPEC Polymers and EPEC Oil Trust may be potentially responsible parties under CERCLA based on prior ownership and/or operation of properties located along the relevant section of the Passaic River. EPEC Polymers and EPEC Oil Trust entered into two Administrative Orders on Consent (AOCs) which obligate them to investigate and characterize contamination at the Site. They are also part of a joint defense group (JDG) of approximately 70 cooperating parties which have entered into AOCs and are directing and funding the work required by the EPA. Under the first AOC, draft remedial investigation and feasibility studies (RI/FS) of the Site were submitted to the EPA in 2015, and comments from the EPA are expected by the end of 2016. Under the second AOC, the JDG members conducted a CERCLA removal action at the Passaic River Mile 10.9, and the group is currently conducting EPA-directed post-remedy monitoring in the removal area. We have established a reserve for the anticipated cost of compliance with the AOCs.
On April 11, 2014, the EPA announced the issuance of its Focused Feasibility Study (FFS) for the lower eight miles of the Passaic River Study Area, and its proposed plan for remedial alternatives to address the dioxin sediment contamination from the mouth of Newark Bay to River Mile 8.3. The EPA estimates the cost for the alternatives will range from $365 million to $3.2 billion. The EPA’s preferred alternative would involve dredging the river bank-to-bank and installing an engineered cap at an estimated cost of $1.7 billion. In its FFS, the EPA stated that it has identified over 100 industrial facilities as potentially responsible parties and it is likely that there are hundreds more private and public entities that could be named in any litigation concerning responsibility for the Site contamination.
No final remedy for this portion of the Site will be selected until the public comment and response period for the FFS is completed and the Record of Decision (ROD) is issued by the EPA, which is expected by March 31, 2016. Until the ROD is issued, there is uncertainty about what remedy will be implemented and the extent of potential costs. There is also uncertainty as to the impact of the RI/FS that the CPG is currently preparing for portions of the Site. The draft RI/FS was submitted by the CPG earlier in 2015 and proposes a different remedy than the FFS announced by the EPA. Therefore, the scope of potential EPA claims for the lower eight miles of the Passaic River is not reasonably estimable at this time.
Philadelphia and Point Breeze Terminals, Notices of Violation
On August 7, 2015, KMLT’s Philadelphia Terminal received a Notice of Violation (NOV) from the Pennsylvania Department of Environmental Protection (PADEP) related to an alleged ethanol release from an above ground storage tank at the facility. The NOV alleged a failure to investigate and confirm a suspected release within the regulatory time period and failure of emergency containment to contain a release from a tank. On July 30, 2015, KMLT’s Point Breeze Terminal received a NOV from the PADEP relating to an alleged violation of a regulatory requirement to remove storm water from the emergency containment areas surrounding above ground storage tanks at the facility prior to capacity of containment being reduced by ten percent (10%) or more. Following an informal administrative hearing with the PADEP on October 14, 2015 with respect to both matters, the NOV related to the Philadelphia Terminal was settled for $570,000 and the NOV related to the Point Breeze Terminal was settled for $175,000.
Central Florida Pipeline Release, Tampa, Florida
On July 22, 2011, our subsidiary Central Florida Pipeline LLC (CFPL) reported a refined petroleum products release on a section of its 10-inch diameter pipeline near Tampa, Florida. The pipeline carries jet fuel and diesel to Orlando and was
carrying jet fuel at the time of the incident. There was no fire and no injuries associated with the incident. CFPL cleaned up the release in coordination with federal, state and local agencies. The cause of the incident was determined to be a third party line strike. In August 2015, the EPA requested that CFPL engage in settlement discussions regarding potential penalties sought by the EPA under the Clean Water Act up to the statutory maximum of approximately $0.9 million. Although CFPL does not believe it caused the incident, and is prepared to vigorously defend any claims that might be asserted by the EPA, we are engaging in good faith settlement negotiations as requested by the EPA.
Southeast Louisiana Flood Protection Litigation
On July 24, 2013, the Board of Commissioners of the Southeast Louisiana Flood Protection Authority - East (SLFPA) filed a petition for damages and injunctive relief in state district court for Orleans Parish, Louisiana (Case No. 13-6911) against TGP, SNG and approximately 100 other energy companies, alleging that defendants’ drilling, dredging, pipeline and industrial operations since the 1930’s have caused direct land loss and increased erosion and submergence resulting in alleged increased storm surge risk, increased flood protection costs and unspecified damages to the plaintiff. The SLFPA asserts claims for negligence, strict liability, public nuisance, private nuisance, and breach of contract. Among other relief, the petition seeks unspecified monetary damages, attorney fees, interest, and injunctive relief in the form of abatement and restoration of the alleged coastal land loss including but not limited to backfilling and re-vegetation of canals, wetlands and reef creation, land bridge construction, hydrologic restoration, shoreline protection, structural protection, and bank stabilization. On August 13, 2013, the suit was removed to the U.S. District Court for the Eastern District of Louisiana. On February 13, 2015, the Court granted defendants’ motion to dismiss the suit for failure to state a claim, and issued an order dismissing the SLFPA’s claims with prejudice. The SLFPA filed a notice of appeal on February 20, 2015. The U.S. Court of Appeals for the Fifth Circuit will hear oral argument on February 29, 2016.
Plaquemines Parish Louisiana Coastal Zone Litigation
On November 8, 2013, the Parish of Plaquemines, Louisiana filed a petition for damages in the state district court for Plaquemines Parish, Louisiana (Docket No. 60-999) against TGP and 17 other energy companies, alleging that defendants’ oil and gas exploration, production and transportation operations in the Bastian Bay, Buras, Empire and Fort Jackson oil and gas fields of Plaquemines Parish caused substantial damage to the coastal waters and nearby lands (Coastal Zone) within the Parish, including the erosion of marshes and the discharge of oil waste and other pollutants which detrimentally affected the quality of state waters and plant and animal life, in violation of the State and Local Coastal Resources Management Act of 1978 (Coastal Zone Management Act). As a result of such alleged violations of the Coastal Zone Management Act, Plaquemines Parish seeks, among other relief, unspecified monetary relief, attorney fees, interest, and payment of costs necessary to restore the allegedly affected Coastal Zone to its original condition, including costs to clear, vegetate and detoxify the Coastal Zone. In connection with this suit, TGP has made two tenders for defense and indemnity: (1) to Anadarko, as successor to the entity that purchased TGP’s oil and gas assets in Bastian Bay, and (2) to Kinetica, which purchased TGP’s pipeline assets in Bastian Bay in 2013. Anadarko has accepted TGP’s tender (limited to oil and gas assets), and Kinetica rejected TGP’s tender. TGP responded to Kinetica by reasserting TGP’s demand for defense and indemnity and reserving its rights. On November 12, 2015, the Plaquemines Parish Council adopted a resolution directing its legal counsel in all its Coastal Zone cases to take all actions necessary to cause the dismissal of all such cases. By the end of 2015, the Parish’s legal counsel had not taken any action to dismiss the cases, and the defendants in the cases, including TGP in the instant case, filed motions to dismiss on the basis of the Parish Council’s November 12, 2015 resolution. Those motions are pending.
General
Although it is not possible to predict the ultimate outcomes, we believe that the resolution of the environmental matters set forth in this note, and other matters to which we and our subsidiaries are a party, will not have a material adverse effect on our business, financial position, results of operations or cash flows. As of December 31, 2015 and 2014, we have accrued a total reserve for environmental liabilities in the amount of $284 million and $340 million, respectively. In addition, as of December 31, 2015 and 2014, we have recorded a receivable of $13 million and $14 million, respectively, for expected cost recoveries that have been deemed probable.
- Recent Accounting Pronouncements
Accounting Standards Updates
ASU No. 2014-09
On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU is designed to create greater comparability for financial statement users across industries and jurisdictions. The provisions of ASU No. 2014-09 include a five-step process by which entities will recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the payment to which an entity expects to be entitled in exchange for those goods or services. The standard also will require enhanced disclosures, provide more comprehensive guidance for transactions such as service revenue and contract modifications, and enhance guidance for multiple-element arrangements. ASU No. 2014-09 will be effective for us January 1, 2018. Early adoption is permitted for the interim periods within the adoption year. We are currently reviewing the effect of ASU No. 2014-09 on our revenue recognition and assessing the timing of our adoption.
ASU No. 2015-02
On February 18, 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810) - Amendments to the Consolidated Analysis.” This ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. ASU No. 2015-02 was effective January 1, 2016. We do not expect the effect of ASU No. 2015-02 to have a material impact on our financial statements.
ASU No. 2015-11
On July 22, 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” This ASU requires entities to subsequently measure inventory at the lower of cost and net realizable value, and defines net realizable value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU No. 2015-11 will be effective for us January 1, 2017. We are currently reviewing the effect of ASU No. 2015-11.
- Guarantee of Securities of Subsidiaries
KMI, along with its direct and indirect subsidiaries KMP, and Copano, are issuers of certain public debt securities. After the completion of the Merger Transactions, KMI, KMP, Copano and substantially all of KMI’s wholly owned domestic subsidiaries, entered into a cross guarantee agreement whereby each party to the agreement unconditionally guarantees, jointly and severally, the payment of specified indebtedness of each other party to the agreement. Accordingly, with the exception of certain subsidiaries identified as Subsidiary Non-Guarantors, the parent issuer, subsidiary issuers and other subsidiaries are all guarantors of each series of public debt. As a result of the cross guarantee agreement, a holder of any of the guaranteed public debt securities issued by KMI, KMP, or Copano are in the same position with respect to the net assets, income and cash flows of KMI and the Subsidiary Issuers and Guarantors. The only amounts that are not available to the holders of each of the guaranteed public debt securities to satisfy the repayment of such securities are the net assets, income and cash flows of the Subsidiary Non-Guarantors.
In lieu of providing separate financial statements for each subsidiary issuer and guarantor, we have included the accompanying condensed consolidating financial statements based on Rule 3-10 of the SEC’s Regulation S-X. We have presented each of the parent and subsidiary issuers in separate columns in this single set of condensed consolidating financial statements.
Excluding fair value adjustments, as of December 31, 2015, Parent Issuer and Guarantor, Subsidiary Issuer and Guarantor-KMP, Subsidiary Issuer and Guarantor-Copano, and Subsidiary Guarantors had $13,346 million, $19,985 million, $332 million, and $6,882 million of Guaranteed Notes outstanding, respectively. Included in the Subsidiary Guarantors debt balance as presented in the accompanying December 31, 2015 condensed consolidating balance sheets are approximately $177 million of capitalized lease debt that is not subject to the cross guarantee agreement.
The accounts within the Parent Issuer and Guarantor, Subsidiary Issuer and Guarantor-KMP, Subsidiary Issuer and Guarantor-Copano, Subsidiary Guarantors and Subsidiary Non-Guarantors are presented using the equity method of accounting for investments in subsidiaries, including subsidiaries that are guarantors and non-guarantors, for purposes of these condensed consolidating financial statements only. These intercompany investments and related activity eliminate in consolidation and are presented separately in the accompanying balance sheets and statements of income and cash flows.
A significant amount of each Issuers’ income and cash flow is generated by its respective subsidiaries. As a result, the funds necessary to meet its debt service and/or guarantee obligations are provided in large part by distributions or advances it receives from its respective subsidiaries. We utilize a centralized cash pooling program among our majority-owned and consolidated subsidiaries, including the Subsidiary Issuers and Guarantors and Subsidiary Non-Guarantors. The following Condensed Consolidating Statements of Cash Flows present the intercompany loan and distribution activity, as well as cash collection and payments made on behalf of our subsidiaries, as cash activities.
Effective December 31, 2015, Kinder Morgan (Delaware), Inc. and Kinder Morgan Services LLC merged into KMI. As a result of such merger, both entities are no longer Subsidiary Guarantors, and for all periods presented, financial statement balances and activities for Kinder Morgan (Delaware), Inc. and Kinder Morgan Services LLC are reflected within the Parent Issuer and Guarantor column.
On January 1, 2015, EPB and its subsidiary, EPPOC merged with and into KMP with KMP surviving the merger. As a result of such merger, all of the wholly owned subsidiaries of EPB became wholly owned subsidiaries of KMP and effective January 1, 2015, EPB is no longer a Subsidiary Issuer and Guarantor. The condensed consolidating financial information reflects this transaction for all periods presented below.
| Condensed Consolidating Statements of Income and Comprehensive Income for the Year Ended December 31, 2015 (In Millions) | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent Issuer and Guarantor | Subsidiary Issuer and Guarantor - KMP | Subsidiary Issuer and Guarantor - Copano | Subsidiary Guarantors | Subsidiary Non-Guarantors | Consolidating Adjustments | Consolidated KMI | ||||||||||||||||||||||
| Total revenues | $ | 37 | $ | — | $ | — | $ | 12,607 | $ | 1,808 | $ | (49 | ) | $ | 14,403 | |||||||||||||
| Operating costs, expenses and other | ||||||||||||||||||||||||||||
| Costs of sales | — | — | — | 3,745 | 369 | 1 | 4,115 | |||||||||||||||||||||
| Depreciation, depletion and amortization | 22 | — | — | 1,898 | 389 | — | 2,309 | |||||||||||||||||||||
| Other operating expenses | 71 | 38 | 632 | 4,071 | 770 | (50 | ) | 5,532 | ||||||||||||||||||||
| Total operating costs, expenses and other | 93 | 38 | 632 | 9,714 | 1,528 | (49 | ) | 11,956 | ||||||||||||||||||||
| Operating (loss) income | (56 | ) | (38 | ) | (632 | ) | 2,893 | 280 | — | 2,447 | ||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||||
| Earnings (losses) from consolidated subsidiaries | 1,430 | 1,643 | 68 | 307 | (30 | ) | (3,418 | ) | — | |||||||||||||||||||
| Earnings from equity investments | — | — | — | 384 | — | — | 384 | |||||||||||||||||||||
| Interest, net | (686 | ) | 23 | (47 | ) | (1,299 | ) | (42 | ) | — | (2,051 | ) | ||||||||||||||||
| Amortization of excess cost of equity investments and other, net | — | 1 | — | (17 | ) | 8 | — | (8 | ) | |||||||||||||||||||
| Income (loss) from continuing operations before income taxes | 688 | 1,629 | (611 | ) | 2,268 | 216 | (3,418 | ) | 772 | |||||||||||||||||||
| Income tax expense | (435 | ) | (4 | ) | — | (5 | ) | (120 | ) | — | (564 | ) | ||||||||||||||||
| Net income (loss) | 253 | 1,625 | (611 | ) | 2,263 | 96 | (3,418 | ) | 208 | |||||||||||||||||||
| Net loss attributable to noncontrolling interests | — | — | — | — | — | 45 | 45 | |||||||||||||||||||||
| Net income (loss) attributable to controlling interests | 253 | 1,625 | (611 | ) | 2,263 | 96 | (3,373 | ) | 253 | |||||||||||||||||||
| Preferred stock dividends | (26 | ) | — | — | — | — | — | (26 | ) | |||||||||||||||||||
| Net income (loss) available to common stockholders | $ | 227 | $ | 1,625 | $ | (611 | ) | $ | 2,263 | $ | 96 | $ | (3,373 | ) | $ | 227 | ||||||||||||
| Net income (loss) | $ | 253 | $ | 1,625 | $ | (611 | ) | $ | 2,263 | $ | 96 | $ | (3,418 | ) | $ | 208 | ||||||||||||
| Total other comprehensive loss | (444 | ) | (460 | ) | — | (325 | ) | (326 | ) | 1,111 | (444 | ) | ||||||||||||||||
| Comprehensive (loss) income | (191 | ) | 1,165 | (611 | ) | 1,938 | (230 | ) | (2,307 | ) | (236 | ) | ||||||||||||||||
| Comprehensive loss attributable to noncontrolling interests | — | — | — | — | — | 45 | 45 | |||||||||||||||||||||
| Comprehensive (loss) income attributable to controlling interests | $ | (191 | ) | $ | 1,165 | $ | (611 | ) | $ | 1,938 | $ | (230 | ) | $ | (2,262 | ) | $ | (191 | ) |
| Condensed Consolidating Statements of Income and Comprehensive Income for the Year Ended December 31, 2014 (In Millions) | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent Issuer and Guarantor | Subsidiary Issuer and Guarantor - KMP | Subsidiary Issuer and Guarantor - Copano | Subsidiary Guarantors | Subsidiary Non-Guarantors | Consolidating Adjustments | Consolidated KMI | ||||||||||||||||||||||
| Total revenues | $ | 36 | $ | — | $ | — | $ | 14,310 | $ | 1,886 | $ | (6 | ) | $ | 16,226 | |||||||||||||
| Operating costs, expenses and other | ||||||||||||||||||||||||||||
| Costs of sales | — | — | — | 5,737 | 499 | 42 | 6,278 | |||||||||||||||||||||
| Depreciation, depletion and amortization | 21 | — | — | 1,655 | 364 | — | 2,040 | |||||||||||||||||||||
| Other operating expenses | 30 | 5 | 32 | 2,927 | 514 | (48 | ) | 3,460 | ||||||||||||||||||||
| Total operating costs, expenses and other | 51 | 5 | 32 | 10,319 | 1,377 | (6 | ) | 11,778 | ||||||||||||||||||||
| Operating (loss) income | (15 | ) | (5 | ) | (32 | ) | 3,991 | 509 | — | 4,448 | ||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||||
| Earnings from consolidated subsidiaries | 2,080 | 3,977 | 224 | 664 | 1,120 | (8,065 | ) | — | ||||||||||||||||||||
| Earnings from equity investments | — | — | — | 407 | (1 | ) | — | 406 | ||||||||||||||||||||
| Interest, net | (513 | ) | (111 | ) | (46 | ) | (1,039 | ) | (89 | ) | — | (1,798 | ) | |||||||||||||||
| Amortization of excess cost of equity investments and other, net | — | — | — | (13 | ) | 48 | — | 35 | ||||||||||||||||||||
| Income from continuing operations before income taxes | 1,552 | 3,861 | 146 | 4,010 | 1,587 | (8,065 | ) | 3,091 | ||||||||||||||||||||
| Income tax expense | (278 | ) | (7 | ) | — | (71 | ) | (292 | ) | — | (648 | ) | ||||||||||||||||
| Net income | 1,274 | 3,854 | 146 | 3,939 | 1,295 | (8,065 | ) | 2,443 | ||||||||||||||||||||
| Net income attributable to noncontrolling interests | (248 | ) | (211 | ) | — | — | — | (958 | ) | (1,417 | ) | |||||||||||||||||
| Net income attributable to controlling interests | $ | 1,026 | $ | 3,643 | $ | 146 | $ | 3,939 | $ | 1,295 | $ | (9,023 | ) | $ | 1,026 | |||||||||||||
| Net income | $ | 1,274 | $ | 3,854 | $ | 146 | $ | 3,939 | $ | 1,295 | $ | (8,065 | ) | $ | 2,443 | |||||||||||||
| Total other comprehensive (loss) income | (24 | ) | 275 | — | 288 | (168 | ) | (351 | ) | 20 | ||||||||||||||||||
| Comprehensive income | 1,250 | 4,129 | 146 | 4,227 | 1,127 | (8,416 | ) | 2,463 | ||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | (273 | ) | (203 | ) | — | — | — | (1,010 | ) | (1,486 | ) | |||||||||||||||||
| Comprehensive income attributable to controlling interests | $ | 977 | $ | 3,926 | $ | 146 | $ | 4,227 | $ | 1,127 | $ | (9,426 | ) | $ | 977 |
| Condensed Consolidating Statements of Income and Comprehensive Income for the Year Ended December 31, 2013 (In Millions) | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent Issuer and Guarantor | Subsidiary Issuer and Guarantor - KMP | Subsidiary Issuer and Guarantor - Copano | Subsidiary Guarantors | Subsidiary Non-Guarantors | Consolidating Adjustments | Consolidated KMI | ||||||||||||||||||||||
| Total revenues | $ | 36 | $ | — | $ | — | $ | 12,511 | $ | 1,512 | $ | 11 | $ | 14,070 | ||||||||||||||
| Operating costs, expenses and other | ||||||||||||||||||||||||||||
| Costs of sales | — | — | — | 4,739 | 468 | 46 | 5,253 | |||||||||||||||||||||
| Depreciation, depletion and amortization | 20 | — | — | 1,466 | 320 | — | 1,806 | |||||||||||||||||||||
| Other operating expenses | 22 | 8 | 38 | 2,325 | 663 | (35 | ) | 3,021 | ||||||||||||||||||||
| Total operating costs, expenses and other | 42 | 8 | 38 | 8,530 | 1,451 | 11 | 10,080 | |||||||||||||||||||||
| Operating (loss) income | (6 | ) | (8 | ) | (38 | ) | 3,981 | 61 | — | 3,990 | ||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||||
| Earnings from consolidated subsidiaries | 2,025 | 4,010 | 163 | 255 | 1,755 | (8,208 | ) | — | ||||||||||||||||||||
| Earnings from equity investments | — | — | — | 323 | 4 | — | 327 | |||||||||||||||||||||
| Interest, net | (539 | ) | (100 | ) | (36 | ) | (965 | ) | (35 | ) | — | (1,675 | ) | |||||||||||||||
| Amortization of excess cost of equity investments and other, net | (1 | ) | — | (1 | ) | 549 | 249 | — | 796 | |||||||||||||||||||
| Income from continuing operations before income taxes | 1,479 | 3,902 | 88 | 4,143 | 2,034 | (8,208 | ) | 3,438 | ||||||||||||||||||||
| Income tax (expense) benefit | (41 | ) | (11 | ) | — | 50 | (740 | ) | — | (742 | ) | |||||||||||||||||
| Income from continuing operations | 1,438 | 3,891 | 88 | 4,193 | 1,294 | (8,208 | ) | 2,696 | ||||||||||||||||||||
| Loss from discontinued operations | — | — | — | (4 | ) | — | — | (4 | ) | |||||||||||||||||||
| Net income | 1,438 | 3,891 | 88 | 4,189 | 1,294 | (8,208 | ) | 2,692 | ||||||||||||||||||||
| Net income attributable to noncontrolling interests | (245 | ) | (236 | ) | — | — | — | (1,018 | ) | (1,499 | ) | |||||||||||||||||
| Net income attributable to controlling interests | $ | 1,193 | $ | 3,655 | $ | 88 | $ | 4,189 | $ | 1,294 | $ | (9,226 | ) | $ | 1,193 | |||||||||||||
| Net income | $ | 1,438 | $ | 3,891 | $ | 88 | $ | 4,189 | $ | 1,294 | $ | (8,208 | ) | $ | 2,692 | |||||||||||||
| Total other comprehensive income (loss) | 81 | (135 | ) | — | (99 | ) | (172 | ) | 365 | 40 | ||||||||||||||||||
| Comprehensive income | 1,519 | 3,756 | 88 | 4,090 | 1,122 | (7,843 | ) | 2,732 | ||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | (232 | ) | (237 | ) | — | — | — | (976 | ) | (1,445 | ) | |||||||||||||||||
| Comprehensive income attributable to controlling interests | $ | 1,287 | $ | 3,519 | $ | 88 | $ | 4,090 | $ | 1,122 | $ | (8,819 | ) | $ | 1,287 |
| Condensed Consolidating Balance Sheets as of December 31, 2015 (In Millions) | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent Issuer and Guarantor | Subsidiary Issuer and Guarantor - KMP | Subsidiary Issuer and Guarantor - Copano | Subsidiary Guarantors | Subsidiary Non-Guarantors | Consolidating Adjustments | Consolidated KMI | ||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 123 | $ | — | $ | — | $ | 12 | $ | 142 | $ | (48 | ) | $ | 229 | |||||||||||||
| Other current assets - affiliates | 2,233 | 1,600 | — | 9,451 | 695 | (13,979 | ) | — | ||||||||||||||||||||
| All other current assets | 126 | 119 | — | 2,163 | 195 | (8 | ) | 2,595 | ||||||||||||||||||||
| Property, plant and equipment, net | 252 | — | — | 32,195 | 8,100 | — | 40,547 | |||||||||||||||||||||
| Investments | 16 | 2 | — | 5,906 | 116 | — | 6,040 | |||||||||||||||||||||
| Investments in subsidiaries | 27,401 | 28,038 | 2,341 | 4,361 | 3,320 | (65,461 | ) | — | ||||||||||||||||||||
| Goodwill | 15,089 | 22 | 287 | 5,221 | 3,171 | — | 23,790 | |||||||||||||||||||||
| Notes receivable from affiliates | 850 | 21,319 | — | 2,070 | 380 | (24,619 | ) | — | ||||||||||||||||||||
| Deferred income taxes | 7,501 | — | — | — | — | (2,178 | ) | 5,323 | ||||||||||||||||||||
| Other non-current assets | 215 | 307 | 1 | 4,943 | 114 | — | 5,580 | |||||||||||||||||||||
| Total assets | $ | 53,806 | $ | 51,407 | $ | 2,629 | $ | 66,322 | $ | 16,233 | $ | (106,293 | ) | $ | 84,104 | |||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||
| Current portion of debt | $ | 67 | $ | 500 | $ | — | $ | 132 | $ | 122 | $ | — | $ | 821 | ||||||||||||||
| Other current liabilities - affiliates | 1,328 | 8,682 | 39 | 3,216 | 714 | (13,979 | ) | — | ||||||||||||||||||||
| All other current liabilities | 321 | 458 | 7 | 1,987 | 527 | (56 | ) | 3,244 | ||||||||||||||||||||
| Long-term debt | 13,845 | 20,053 | 378 | 7,447 | 683 | — | 42,406 | |||||||||||||||||||||
| Notes payable to affiliates | 2,404 | 448 | 622 | 19,840 | 1,305 | (24,619 | ) | — | ||||||||||||||||||||
| Deferred income taxes | — | — | 2 | 594 | 1,582 | (2,178 | ) | — | ||||||||||||||||||||
| Other long-term liabilities and deferred credits | 722 | 193 | — | 907 | 408 | — | 2,230 | |||||||||||||||||||||
| Total liabilities | 18,687 | 30,334 | 1,048 | 34,123 | 5,341 | (40,832 | ) | 48,701 | ||||||||||||||||||||
| Stockholders’ equity | ||||||||||||||||||||||||||||
| Total KMI equity | 35,119 | 21,073 | 1,581 | 32,199 | 10,892 | (65,745 | ) | 35,119 | ||||||||||||||||||||
| Noncontrolling interests | — | — | — | — | — | 284 | 284 | |||||||||||||||||||||
| Total stockholders’ equity | 35,119 | 21,073 | 1,581 | 32,199 | 10,892 | (65,461 | ) | 35,403 | ||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 53,806 | $ | 51,407 | $ | 2,629 | $ | 66,322 | $ | 16,233 | $ | (106,293 | ) | $ | 84,104 |
| Condensed Consolidating Balance Sheets as of December 31, 2014 (In Millions) | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent Issuer and Guarantor | Subsidiary Issuer and Guarantor - KMP | Subsidiary Issuer and Guarantor - Copano | Subsidiary Guarantors | Subsidiary Non-Guarantors | Consolidating Adjustments | Consolidated KMI | ||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 4 | $ | 15 | $ | — | $ | 17 | $ | 279 | $ | — | $ | 315 | ||||||||||||||
| Other current assets - affiliates | 2,251 | 1,335 | 11 | 11,565 | 403 | (15,565 | ) | — | ||||||||||||||||||||
| All other current assets | 655 | 152 | 3 | 2,547 | 358 | (278 | ) | 3,437 | ||||||||||||||||||||
| Property, plant and equipment, net | 263 | — | 5 | 29,490 | 8,806 | — | 38,564 | |||||||||||||||||||||
| Investments | 16 | 1 | — | 5,910 | 109 | — | 6,036 | |||||||||||||||||||||
| Investments in subsidiaries | 25,286 | 33,414 | 1,911 | 4,628 | 3,337 | (68,576 | ) | — | ||||||||||||||||||||
| Goodwill | 15,087 | 22 | 920 | 5,419 | 3,206 | — | 24,654 | |||||||||||||||||||||
| Notes receivable from affiliates | 522 | 19,832 | — | 2,415 | 496 | (23,265 | ) | — | ||||||||||||||||||||
| Deferred income taxes | 7,644 | — | — | — | — | (1,993 | ) | 5,651 | ||||||||||||||||||||
| Other non-current assets | 258 | 249 | — | 3,772 | 113 | — | 4,392 | |||||||||||||||||||||
| Total assets | $ | 51,986 | $ | 55,020 | $ | 2,850 | $ | 65,763 | $ | 17,107 | $ | (109,677 | ) | $ | 83,049 | |||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||
| Current portion of debt | $ | 1,486 | $ | 699 | $ | — | $ | 381 | $ | 151 | $ | — | $ | 2,717 | ||||||||||||||
| Other current liabilities - affiliates | 1,153 | 11,949 | 115 | 1,482 | 866 | (15,565 | ) | — | ||||||||||||||||||||
| All other current liabilities | 236 | 498 | 12 | 2,153 | 1,024 | (278 | ) | 3,645 | ||||||||||||||||||||
| Long-term debt | 11,833 | 20,564 | 386 | 6,599 | 715 | — | 40,097 | |||||||||||||||||||||
| Notes payable to affiliates | 2,619 | 153 | 753 | 18,500 | 1,240 | (23,265 | ) | — | ||||||||||||||||||||
| Deferred income taxes | — | — | 2 | 487 | 1,504 | (1,993 | ) | — | ||||||||||||||||||||
| All other long-term liabilities and deferred credits | 583 | 78 | 2 | 987 | 514 | — | 2,164 | |||||||||||||||||||||
| Total liabilities | 17,910 | 33,941 | 1,270 | 30,589 | 6,014 | (41,101 | ) | 48,623 | ||||||||||||||||||||
| Stockholders’ equity | ||||||||||||||||||||||||||||
| Total KMI equity | 34,076 | 21,079 | 1,580 | 35,174 | 11,093 | (68,926 | ) | 34,076 | ||||||||||||||||||||
| Noncontrolling interests | — | — | — | — | — | 350 | 350 | |||||||||||||||||||||
| Total stockholders’ equity | 34,076 | 21,079 | 1,580 | 35,174 | 11,093 | (68,576 | ) | 34,426 | ||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 51,986 | $ | 55,020 | $ | 2,850 | $ | 65,763 | $ | 17,107 | $ | (109,677 | ) | $ | 83,049 |
| Condensed Consolidating Statements of Cash Flows for the Year Ended December 31, 2015 (In Millions) | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent Issuer and Guarantor | Subsidiary Issuer and Guarantor - KMP | Subsidiary Issuer and Guarantor - Copano | Subsidiary Guarantors | Subsidiary Non-Guarantors | Consolidating Adjustments | Consolidated KMI | ||||||||||||||||||||||
| Net cash (used in) provided by operating activities | $ | (4,218 | ) | $ | 6,824 | $ | 98 | $ | 10,691 | $ | 811 | $ | (8,903 | ) | $ | 5,303 | ||||||||||||
| Cash flows from investing activities | ||||||||||||||||||||||||||||
| Funding to affiliates | (3,204 | ) | (8,388 | ) | (1 | ) | (8,004 | ) | (1,066 | ) | 20,663 | — | ||||||||||||||||
| Capital expenditures | (10 | ) | — | (2 | ) | (3,557 | ) | (332 | ) | 5 | (3,896 | ) | ||||||||||||||||
| Contributions to investments | (21 | ) | — | — | (70 | ) | (10 | ) | 5 | (96 | ) | |||||||||||||||||
| Investment in KMP | (159 | ) | — | — | — | — | 159 | — | ||||||||||||||||||||
| Acquisitions of assets and investments, net of cash acquired | (1,843 | ) | — | — | (236 | ) | — | — | (2,079 | ) | ||||||||||||||||||
| Distributions from equity investments in excess of cumulative earnings | 2,653 | — | — | 143 | — | (2,568 | ) | 228 | ||||||||||||||||||||
| Other, net | — | 24 | 5 | 55 | 58 | (5 | ) | 137 | ||||||||||||||||||||
| Net cash (used in) provided by investing activities | (2,584 | ) | (8,364 | ) | 2 | (11,669 | ) | (1,350 | ) | 18,259 | (5,706 | ) | ||||||||||||||||
| Cash flows from financing activities | ||||||||||||||||||||||||||||
| Issuances of debt | 14,316 | — | — | — | — | — | 14,316 | |||||||||||||||||||||
| Payments of debt | (14,048 | ) | (675 | ) | — | (383 | ) | (10 | ) | — | (15,116 | ) | ||||||||||||||||
| Funding from (to) affiliates | 5,502 | 6,989 | (100 | ) | 7,486 | 786 | (20,663 | ) | — | |||||||||||||||||||
| Debt issue costs | (24 | ) | — | — | — | — | — | (24 | ) | |||||||||||||||||||
| Issuances of common shares | 3,870 | — | — | — | — | — | 3,870 | |||||||||||||||||||||
| Issuance of mandatory convertible preferred stock | 1,541 | — | — | — | — | — | 1,541 | |||||||||||||||||||||
| Cash dividends | (4,224 | ) | — | — | — | — | — | (4,224 | ) | |||||||||||||||||||
| Repurchases of shares and warrants | (12 | ) | — | — | — | — | — | (12 | ) | |||||||||||||||||||
| Contributions from parents | — | 156 | — | 3 | 16 | (175 | ) | — | ||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | 11 | 11 | |||||||||||||||||||||
| Distributions to parents | — | (4,944 | ) | — | (6,133 | ) | (380 | ) | 11,457 | — | ||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | (34 | ) | (34 | ) | |||||||||||||||||||
| Other, net | — | (1 | ) | — | — | — | — | (1 | ) | |||||||||||||||||||
| Net cash provided by (used in) financing activities | 6,921 | 1,525 | (100 | ) | 973 | 412 | (9,404 | ) | 327 | |||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | — | — | — | — | (10 | ) | — | (10 | ) | |||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 119 | (15 | ) | — | (5 | ) | (137 | ) | (48 | ) | (86 | ) | ||||||||||||||||
| Cash and cash equivalents, beginning of period | 4 | 15 | — | 17 | 279 | — | 315 | |||||||||||||||||||||
| Cash and cash equivalents, end of period | $ | 123 | $ | — | $ | — | $ | 12 | $ | 142 | $ | (48 | ) | $ | 229 |
| Condensed Consolidating Statements of Cash Flows for the Year Ended December 31, 2014 (In Millions) | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent Issuer and Guarantor | Subsidiary Issuer and Guarantor - KMP | Subsidiary Issuer and Guarantor - Copano | Subsidiary Guarantors | Subsidiary Non-Guarantors | Consolidating Adjustments | Consolidated KMI | ||||||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 1,419 | $ | 3,810 | $ | (77 | ) | $ | 5,876 | $ | 1,174 | $ | (7,735 | ) | $ | 4,467 | ||||||||||||
| Cash flows from investing activities | ||||||||||||||||||||||||||||
| Funding to affiliates | (1,949 | ) | (6,644 | ) | — | (3,886 | ) | (1,088 | ) | 13,567 | — | |||||||||||||||||
| Capital expenditures | (1 | ) | — | (63 | ) | (3,050 | ) | (705 | ) | 202 | (3,617 | ) | ||||||||||||||||
| Contributions to investments | — | (189 | ) | — | (389 | ) | — | 189 | (389 | ) | ||||||||||||||||||
| Investment in KMP | (550 | ) | — | — | — | — | 550 | — | ||||||||||||||||||||
| Acquisitions of assets and investments | — | — | — | (1,370 | ) | (18 | ) | — | (1,388 | ) | ||||||||||||||||||
| Drop down assets to KMP | 875 | (875 | ) | — | — | — | — | — | ||||||||||||||||||||
| Distributions from equity investments in excess of cumulative earnings | 93 | 440 | — | 183 | — | (534 | ) | 182 | ||||||||||||||||||||
| Other, net | — | 27 | 202 | 20 | (46 | ) | (201 | ) | 2 | |||||||||||||||||||
| Net cash (used in) provided by investing activities | (1,532 | ) | (7,241 | ) | 139 | (8,492 | ) | (1,857 | ) | 13,773 | (5,210 | ) | ||||||||||||||||
| Cash flows from financing activities | ||||||||||||||||||||||||||||
| Issuances of debt | 10,594 | 13,979 | — | — | — | — | 24,573 | |||||||||||||||||||||
| Payments of debt | (5,479 | ) | (12,171 | ) | — | (142 | ) | (9 | ) | — | (17,801 | ) | ||||||||||||||||
| Funding from (to) affiliates | 956 | 4,129 | (63 | ) | 7,624 | 921 | (13,567 | ) | — | |||||||||||||||||||
| Debt issue costs | (74 | ) | (15 | ) | — | — | — | — | (89 | ) | ||||||||||||||||||
| Cash dividends | (1,760 | ) | — | — | — | — | — | (1,760 | ) | |||||||||||||||||||
| Repurchases of shares and warrants | (192 | ) | — | — | — | — | — | (192 | ) | |||||||||||||||||||
| Cash consideration of Merger Transactions | (3,937 | ) | — | — | — | — | — | (3,937 | ) | |||||||||||||||||||
| Merger Transactions costs | (74 | ) | — | — | — | — | — | (74 | ) | |||||||||||||||||||
| Contributions from parents | — | 1,912 | — | 533 | 64 | (2,509 | ) | — | ||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | 1,767 | 1,767 | |||||||||||||||||||||
| Distributions to parents | — | (4,475 | ) | — | (5,398 | ) | (411 | ) | 10,284 | — | ||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | (2,013 | ) | (2,013 | ) | |||||||||||||||||||
| Other, net | — | (1 | ) | — | (2 | ) | — | — | (3 | ) | ||||||||||||||||||
| Net cash provided by (used in) financing activities | 34 | 3,358 | (63 | ) | 2,615 | 565 | (6,038 | ) | 471 | |||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | — | — | — | 1 | (12 | ) | — | (11 | ) | |||||||||||||||||||
| Net decrease in cash and cash equivalents | (79 | ) | (73 | ) | (1 | ) | — | (130 | ) | — | (283 | ) | ||||||||||||||||
| Cash and cash equivalents, beginning of period | 83 | 88 | 1 | 17 | 409 | — | 598 | |||||||||||||||||||||
| Cash and cash equivalents, end of period | $ | 4 | $ | 15 | $ | — | $ | 17 | $ | 279 | $ | — | $ | 315 |
| Condensed Consolidating Statements of Cash Flows for the Year Ended December 31, 2013 (In Millions) | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent Issuer and Guarantor | Subsidiary Issuer and Guarantor - KMP | Subsidiary Issuer and Guarantor - Copano | Subsidiary Guarantors | Subsidiary Non-Guarantors | Consolidating Adjustments | Consolidated KMI | ||||||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 1,792 | $ | 3,669 | $ | (408 | ) | $ | 5,118 | $ | 769 | $ | (6,818 | ) | $ | 4,122 | ||||||||||||
| Cash flows from investing activities | ||||||||||||||||||||||||||||
| Funding to affiliates | (413 | ) | (7,183 | ) | (1 | ) | (3,944 | ) | (1,332 | ) | 12,873 | — | ||||||||||||||||
| Capital expenditures | (6 | ) | — | (141 | ) | (2,418 | ) | (804 | ) | — | (3,369 | ) | ||||||||||||||||
| Proceeds from sales of assets and investments | — | — | — | 118 | 372 | — | 490 | |||||||||||||||||||||
| Contributions to investments | (6 | ) | (52 | ) | — | (217 | ) | — | 58 | (217 | ) | |||||||||||||||||
| Investment in KMP | (68 | ) | — | — | — | — | 68 | — | ||||||||||||||||||||
| Acquisitions of assets and investments | — | — | 5 | (297 | ) | — | — | (292 | ) | |||||||||||||||||||
| Drop down assets to KMP | 994 | — | — | (994 | ) | — | — | — | ||||||||||||||||||||
| Distributions from equity investments in excess of cumulative earnings | 41 | 296 | — | 183 | — | (335 | ) | 185 | ||||||||||||||||||||
| Other, net | — | (12 | ) | — | 105 | (12 | ) | — | 81 | |||||||||||||||||||
| Net cash provided by (used in) investing activities | 542 | (6,951 | ) | (137 | ) | (7,464 | ) | (1,776 | ) | 12,664 | (3,122 | ) | ||||||||||||||||
| Cash flows from financing activities | ||||||||||||||||||||||||||||
| Issuances of debt | 3,028 | 10,300 | — | 14 | 239 | — | 13,581 | |||||||||||||||||||||
| Payments of debt | (3,624 | ) | (7,802 | ) | (854 | ) | (106 | ) | (7 | ) | — | (12,393 | ) | |||||||||||||||
| Funding from affiliates | 570 | 2,984 | 1,400 | 7,127 | 792 | (12,873 | ) | — | ||||||||||||||||||||
| Debt issue costs | (15 | ) | (22 | ) | — | — | (1 | ) | — | (38 | ) | |||||||||||||||||
| Cash dividends | (1,622 | ) | — | — | — | — | — | (1,622 | ) | |||||||||||||||||||
| Repurchases of shares and warrants | (637 | ) | — | — | — | — | — | (637 | ) | |||||||||||||||||||
| Contributions from parents | — | 1,620 | — | 75 | 132 | (1,827 | ) | — | ||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | 1,706 | 1,706 | |||||||||||||||||||||
| Distributions to parents | — | (3,914 | ) | — | (4,776 | ) | (150 | ) | 8,840 | — | ||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | (1,692 | ) | (1,692 | ) | |||||||||||||||||||
| Other, net | 1 | (1 | ) | — | — | — | — | — | ||||||||||||||||||||
| Net cash (used in) provided by financing activities | (2,299 | ) | 3,165 | 546 | 2,334 | 1,005 | (5,846 | ) | (1,095 | ) | ||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | — | — | — | 1 | (22 | ) | — | (21 | ) | |||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 35 | (117 | ) | 1 | (11 | ) | (24 | ) | — | (116 | ) | |||||||||||||||||
| Cash and cash equivalents, beginning of period | 48 | 205 | — | 28 | 433 | — | 714 | |||||||||||||||||||||
| Cash and cash equivalents, end of period | $ | 83 | $ | 88 | $ | 1 | $ | 17 | $ | 409 | $ | — | $ | 598 |
| Supplemental Selected Quarterly Financial Data (Unaudited) | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarters Ended | |||||||||||||||
| March 31 | June 30 | September 30 | December 31 | ||||||||||||
| (In millions, except per share amounts) | |||||||||||||||
| 2015 | |||||||||||||||
| Revenues | $ | 3,597 | $ | 3,463 | $ | 3,707 | $ | 3,636 | |||||||
| Operating Income (Loss) | 1,078 | 892 | 721 | (244 | ) | ||||||||||
| Net Income (Loss) | 419 | 342 | 183 | (736 | ) | ||||||||||
| Net Income (Loss) Attributable to Kinder Morgan, Inc. | 429 | 333 | 186 | (695 | ) | ||||||||||
| Net Income (Loss) Available to Common Stockholders | 429 | 333 | 186 | (721 | ) | ||||||||||
| Basic and Diluted Earnings (Loss) Per Common Share | 0.20 | 0.15 | 0.08 | (0.32 | ) | ||||||||||
| 2014 | |||||||||||||||
| Revenues | $ | 4,047 | $ | 3,937 | $ | 4,291 | $ | 3,951 | |||||||
| Operating Income | 1,147 | 1,013 | 1,332 | 956 | |||||||||||
| Net Income | 601 | 497 | 779 | 566 | |||||||||||
| Net Income Attributable to Kinder Morgan, Inc. | 287 | 284 | 329 | 126 | |||||||||||
| Basic and Diluted Earnings Per Common Share | 0.28 | 0.27 | 0.32 | 0.08 |
Supplemental Information on Oil and Gas Producing Activities (Unaudited)
Operating statistics from our oil and gas producing activities for each of the years ended December 31, 2015, 2014 and 2013 are shown in the following table:
| Results of Operations for Oil and Gas Producing Activities – Unit Prices and Costs | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Consolidated Companies(a) | |||||||||||
| Production costs per barrel of oil equivalent(b)(c)(d) | $ | 17.68 | $ | 20.55 | $ | 18.81 | |||||
| Crude oil production(MBbl/d) | 41.7 | 40.8 | 37.6 | ||||||||
| SACROC crude oil production(MBbl/d) | 28.1 | 27.6 | 25.5 | ||||||||
| Yates crude oil production(MBbl/d) | 8.5 | 8.8 | 9.0 | ||||||||
| NGL production(MBbl/d)(d) | 4.1 | 4.2 | 4.1 | ||||||||
| NGL production from gas plants(MBbl/d)(e) | 6.2 | 5.9 | 5.8 | ||||||||
| Total NGL production(MBbl/d) | 10.3 | 10.1 | 9.9 | ||||||||
| SACROC NGL production(MBbl/d)(d) | 3.9 | 3.9 | 3.8 | ||||||||
| Yates NGL production(MBbl/d)(d) | 0.2 | 0.2 | 0.2 | ||||||||
| Natural gas production(MMcf/d)(d)(f) | 0.5 | 1.0 | 1.1 | ||||||||
| Natural gas production from gas plants(MMcf/d)(e)(f) | 2.2 | 1.2 | 1.7 | ||||||||
| Total natural gas production(MMcf/d)(f) | 2.7 | 2.2 | 2.8 | ||||||||
| Yates natural gas production(MMcf/d)(d)(f) | 0.3 | 1.0 | 1.1 | ||||||||
| Average sales prices including hedge gains/losses: | |||||||||||
| Crude oil price per Bbl(g) | $ | 73.11 | $ | 88.41 | $ | 92.70 | |||||
| NGL price per Bbl(d)(g) | $ | 18.85 | $ | 42.61 | $ | 46.11 | |||||
| Natural gas price per Mcf(d)(h) | $ | 2.19 | $ | 4.04 | $ | 3.23 | |||||
| Total NGL price per Bbl(e) | $ | 18.35 | $ | 41.87 | $ | 46.43 | |||||
| Total natural gas price per Mcf(e) | $ | 2.30 | $ | 3.91 | $ | 3.21 | |||||
| Average sales prices excluding hedge gains/losses: | |||||||||||
| Crude oil price per Bbl(g) | $ | 47.56 | $ | 86.48 | $ | 94.94 | |||||
| NGL price per Bbl(g) | $ | 18.85 | $ | 42.61 | $ | 46.11 | |||||
| Natural gas price per Mcf(h) | $ | 2.19 | $ | 4.04 | $ | 3.23 |
| (a) | Amounts relate to KMCO2 and its consolidated subsidiaries. |
| (b) | Computed using production costs, excluding transportation costs, as defined by the SEC. Natural gas volumes were converted to barrels of oil equivalent using a conversion factor of six Mcf of natural gas to one barrel of oil. |
| (c) | Production costs include labor, repairs and maintenance, materials, supplies, fuel and power, and general and administrative expenses directly related to oil and gas producing activities. |
| (d) | Includes only production attributable to leasehold ownership. |
| (e) | Includes production attributable to our ownership in processing plants and third party processing agreements. |
| (f) | Excludes natural gas production used as fuel. |
| (g) | Hedge gains/losses for crude oil and NGL are included with crude oil. |
| (h) | Natural gas sales were not hedged. |
The following three tables provide supplemental information on oil and gas producing activities, including (i) capitalized costs related to oil and gas producing activities; (ii) costs incurred for the acquisition of oil and gas producing properties and for exploration and development activities; and (iii) the results of operations from oil and gas producing activities.
Our capitalized costs consisted of the following (in millions):
| Capitalized Costs Related to Oil and Gas Producing Activities | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| As of December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Consolidated Companies(a) | |||||||||||
| Wells and equipment, facilities and other | $ | 5,332 | $ | 4,937 | $ | 4,432 | |||||
| Leasehold | 658 | 658 | 660 | ||||||||
| Total proved oil and gas properties | 5,990 | 5,595 | 5,092 | ||||||||
| Unproved property(b) | 142 | 103 | 38 | ||||||||
| Accumulated depreciation and depletion(c) | (5,052 | ) | (4,226 | ) | (3,520 | ) | |||||
| Net capitalized costs | $ | 1,080 | $ | 1,472 | $ | 1,610 |
| (a) | Amounts relate to KMCO2 and its consolidated subsidiaries. Includes capitalized asset retirement costs and associated accumulated depreciation. |
| (b) | As of December 31, 2015, capitalized costs related to the unproved property for the Tall Cotton Residual Oil Zone (ROZ) unproved exploration property was $135 million and other miscellaneous unproved property was $7 million. |
| (c) | 2015 amount includes impairment charges of $378 million for Goldsmith Landreth San Andres Unit, $10 million for Katz Strawn Unit and $11 million on other miscellaneous property. 2014 amount includes an impairment charge of $234 million on the Katz Strawn Unit and $1 million on other miscellaneous property. |
For each of the years ended December 31, 2015, 2014 and 2013, our costs incurred for property acquisition, development and exploration were as follows (in millions):
| Costs Incurred in Exploration, Property Acquisitions and Development | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Consolidated Companies | |||||||||||
| Acquisitions(a) | $ | — | $ | — | $ | 285 | |||||
| Development(b) | 399 | 481 | 471 | ||||||||
| Exploration(c) | 35 | 95 | 11 |
| (a) | Acquisition of Goldsmith Landreth San Andres Unit effective June 1, 2013. |
| (b) | Amounts relate to KMCO2 and its consolidated subsidiaries. |
| (c) | 2015 amounts relate to exploration wells drilled in the Tall Cotton Residual Oil Zone (ROZ) for $35 million. 2014 amounts relate to exploration wells drilled in the Residual Oil Zone (ROZ) for $87 million and the Yates Wolfcamp for $8 million. |
Our results of operations from oil and gas producing activities for each of the years ended December 31, 2015, 2014 and 2013 are shown in the following table (in millions):
| Results of Operations for Oil and Gas Producing Activities | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Consolidated Companies(a) | |||||||||||
| Revenues(b) | $ | 1,155 | $ | 1,412 | $ | 1,376 | |||||
| Expenses: | |||||||||||
| Production costs | 337 | 403 | 344 | ||||||||
| Other operating expenses(c) | 60 | 99 | 95 | ||||||||
| Exploration expense(d) | — | 8 | — | ||||||||
| Impairment(e) | 399 | 235 | — | ||||||||
| DD&A expenses | 388 | 430 | 415 | ||||||||
| Total expenses | 1,184 | 1,175 | 854 | ||||||||
| Results of operations for oil and gas producing activities | $ | (29 | ) | $ | 237 | $ | 522 |
| (a) | Amounts relate to KMCO2 and its consolidated subsidiaries. |
| (b) | Revenues include gains attributable to our hedging contracts of $389 million for the year ended December 31, 2015, $28 million for the year ended December 31, 2014 and losses of $31 million for the year ended December 31, 2013. |
| (c) | Consists primarily of CO2 expense. |
| (d) | Exploration charge for Yates Wolfcamp. |
| (e) | 2015 amount includes impairment charges of $378 million on the Goldsmith Landreth San Andres Unit, $10 million for Katz Strawn Unit and $11 million on other miscellaneous property. 2014 amount includes impairment charge of $234 million on the Katz Strawn Unit and $1 million on other miscellaneous property. |
Supplemental information is also provided for the following three items (i) estimated quantities of proved oil and gas reserves; (ii) the standardized measure of discounted future net cash flows associated with proved oil and gas reserves; and (iii) a summary of the changes in the standardized measure of discounted future net cash flows associated with proved oil and gas reserves.
The technical persons responsible for preparing the reserves estimates presented in this Supplemental Information meet the requirements regarding qualifications, independence, objectivity, and confidentiality set forth in the standards pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. They are independent petroleum engineers, geologists, geophysicists, and petrophysicists; they do not own an interest in our oil and gas properties; and we do not employ them on a contingent basis.
The reserves estimates shown herein have been independently evaluated by Netherland, Sewell & Associates, Inc. (NSAI), a worldwide leader of petroleum property analysis for industry and financial organizations and government agencies. NSAI was founded in 1961 and performs consulting petroleum engineering services under Texas Board of Professional Engineers Registration No. F-2699. Within NSAI, the technical persons primarily responsible for preparing the estimates set forth in the NSAI reserves report incorporated herein are Mr. Derek Newton and Mr. Mike Norton. Mr. Newton, a Licensed Professional
Engineer in the State of Texas (No. 97689), has been practicing consulting petroleum engineering at NSAI since 1997 and has over 14 years of prior industry experience. He graduated from University College, Cardiff, Wales, in 1983 with a Bachelor of Science Degree in Mechanical Engineering and from Strathclyde University, Scotland, in 1986 with a Master of Science Degree in Petroleum Engineering. Mr. Norton, a Licensed Professional Geoscientist in the State of Texas, has been practicing consulting petroleum geoscience at NSAI since 1989 and has over 10 years of prior industry experience. He graduated from Texas A&M University in 1978 with a Bachelor of Science Degree in Geology. Both technical principals meet or exceed the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers; both are proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.
Our employee who is primarily responsible for overseeing NSAI’s preparation of the reserves estimates is a registered Professional Engineer in the states of Texas and Kansas with a Doctorate of Engineering from the University of Kansas. He is
a member of the Society of Petroleum Engineers and has over 30 years of professional engineering experience. We believe the geologic and engineering data examined provides reasonable assurance that the proved reserves are recoverable in future years from known reservoirs under existing economic and operating conditions. Estimates of proved reserves are subject to change, either positively or negatively, as additional information become available and contractual and economic conditions change.
Furthermore, our management is responsible for establishing and maintaining adequate internal control over financial reporting, which includes the estimation of our oil and gas reserves. We maintain internal controls and guidance to ensure the reliability of our crude oil, NGL and natural gas reserves estimations, as follows:
| • | no employee’s compensation is tied to the amount of recorded reserves; |
| • | we follow comprehensive SEC compliant internal policies to determine and report proved reserves, and our reserve estimates are made by experienced oil and gas reservoir engineers or under their direct supervision; |
| • | we review our reported proved reserves at each year-end, and at each year-end, the CO2 business segment managers and the Vice President (President, CO2) review all significant reserves changes and all new proved developed and undeveloped reserves additions; and |
| • | the CO2 business segment reports independently of our five remaining reportable business segments. |
For more information on our controls and procedures, see Item 9A “Controls and Procedures—Management’s Report on Internal Control Over Financial Reporting” included in our Annual Report on Form 10-K for the year ended December 31, 2015.
Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and NGL which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, that is, current prices and costs calculated as of the date the estimate is made. Pricing is applied based upon the twelve month unweighted arithmetic average of the first day of the month price for the year. Future development and production costs are determined based upon actual cost at year-end. Proved developed reserves are the quantities of crude oil, NGL and natural gas expected to be recovered through existing investments in wells and field infrastructure under current operating conditions. Proved undeveloped reserves require additional investments in wells and related infrastructure in order to recover the production.
As of December 31, 2013, we had 67.4 MMBbl of crude oil and 6.7 MMBbl of NGL classified as proved developed reserves. Also, as of year end 2013, we had 39.6 MMBbl of crude oil and 8.0 MMBbl of NGL classified as proved undeveloped reserves. Total proved reserves as of December 31, 2013, were 107.0 MMBbl of crude oil and 14.8 MMBbl of NGL.
During 2014, production from the fields totaled 14.8 MMBbl of crude oil and 1.5 MMBbl of NGL. For 2014, we incurred $502 million in capital costs, and this capital investment resulted in the development of 5.7 MMBbl of crude oil and their transfer from the proved undeveloped category to the proved developed category. The reclassifications from proved undeveloped to proved developed reserves reflect the transfer of 14.5% of crude oil from the proved undeveloped reserves reported as of December 31, 2013 to the proved developed classification of reserves reported as of December 31, 2014. Revisions to previous transfers of NGL’s resulted a downward revision of 0.1 MMBbl for NGL‘s in the proved developed category that have been reclassified to the proved undeveloped category as of December 31, 2014. This reclassification reflects the transfer of 1.8% of proved developed NGL’s reported as of December 31, 2013 to the proved undeveloped classification of reserves reported as of December 31, 2014.
Also during 2014, previous estimates of proved developed reserves were revised upward by 2.0 MMBbl of crude oil and downward 0.5 MMBbl of NGL, and proved undeveloped reserves were revised upward by 3.4 MMBbl of crude oil and downward 1.9 MMBbl of NGL. These revisions are mainly attributed to the addition of projects and the use of higher projected oil recoveries resulting from updated performance at SACROC used to calculate reserves. The proved developed reserves for SACROC represent 32.5% of proved developed reserves. The Katz Strawn Unit also received an addition of proved developed nonproducing reserves volumes. The proved developed reserves for Katz Strawn Unit represent 12.3% of proved developed reserves. Contrarily, there was also a decrease of proved developed producing reserves and proved undeveloped reserves in Goldsmith due to higher operating costs and lower well performance. The proved developed reserves for Goldsmith represent 13.4% of proved developed reserves.
These revisions to our previous estimates, as well as the transfer of proved undeveloped reserves to the proved developed category as discussed above, resulted in the percentage of proved undeveloped reserves increasing from 39.0% at year end 2013 to 40.0% at year end 2014. After giving effect to production and revisions to previous estimates during 2014, total proved reserves of crude oil decreased by 9.5 MMBbl and total proved reserves of NGL decreased by 4.0 MMBbl.
As of December 31, 2014, we had 60.3 MMBbl of crude oil and 4.6 MMBbl of NGL classified as proved developed reserves. Also, as of year end 2014, we had 37.3 MMBbl of crude oil and 6.2 MMBbl of NGL classified as proved undeveloped reserves. Total proved reserves as of December 31, 2014, were 97.6 MMBbl of crude oil and 10.8 MMBbl of NGL.
During 2015, production from the fields totaled 15.2 MMBbl of crude oil and 1.56 MMBbl of NGL. For 2015, we incurred $396 million in capital costs, and this capital investment resulted in the development of 17.3 MMBbl of crude oil and 1.1 MMBbl of NGL and their transfer from the proved undeveloped category to the proved developed category. The reclassifications from proved undeveloped to proved developed reserves reflect the transfer of 46.4% of crude oil and 17.1% of NGL’s from the proved undeveloped reserves reported as of December 31, 2014 to the proved developed classification of reserves reported as of December 31, 2015.
Also during 2015, previous estimates of proved developed reserves were revised downward by 15.8 MMBbl of crude oil and downward 1.3 MMBbl of NGL, and proved undeveloped reserves were revised downward by 18.3 MMBbl of crude oil and downward 5.2 MMBbl of NGL. These revisions are mainly attributed to the substantial deterioration in the price of crude oil. As the result of the decrease in the crude oil price and high operating costs, both the Katz Strawn Unit and the Goldsmith Unit do not have economic proved reserves as of December 31, 2015. The proved developed reserves for the Yates field unit represent 55.2% of proved developed reserves. The proved developed reserves for SACROC represent 44.0% of proved developed reserves.
As of December 31, 2015, we had 46.6 MMBbl of crude oil and 2.8 MMBbl of NGL classified as proved developed reserves. Also, as of year end 2015, we had 1.7 MMBbl of crude oil and no NGL’s classified as proved undeveloped reserves. Total proved reserves as of December 31, 2015, were 48.4 MMBbl of crude oil and 2.8 MMBbl of NGL. We currently expect that the proved undeveloped reserves we report as of December 31, 2015 will be developed within the next five years.
During 2015, we filed estimates of our oil and gas reserves for the year 2014 with the Energy Information Administration of the U. S. Department of Energy on Form EIA-23. The data on Form EIA-23 was presented on a different basis, and included 100% of the oil and gas volumes from our operated properties only, regardless of our net interest. The difference between the oil and gas reserves reported on Form EIA-23 and those reported in this Supplemental Information exceeds 5%.
The following Reserve Quantity Information table discloses estimates, as of December 31, 2015, of proved crude oil, NGL and natural gas reserves, prepared by Netherland, Sewell & Associates, Inc. (independent oil and gas consultants), of KMCO2 and its consolidated subsidiaries’ interests in oil and gas properties, all of which are located in the state of Texas. This data has been prepared using current prices and costs, as discussed above, and the estimates of reserves and future revenues in this Supplemental Information conform to the guidelines of the SEC.
| Reserve Quantity Information | ||||||||
|---|---|---|---|---|---|---|---|---|
| Consolidated Companies(a) | ||||||||
| Crude Oil (MBbl) | NGL (MBbl) | Natural Gas (MMcf)(b) | ||||||
| Proved developed and undeveloped reserves: | ||||||||
| As of December 31, 2012 | 81,950 | 5,976 | 7,539 | |||||
| Revisions of previous estimates(c) | (2,573 | ) | (43 | ) | (5,063 | ) | ||
| Purchases of reserves in place(d) | 41,389 | 10,347 | — | |||||
| Production | (13,735 | ) | (1,499 | ) | (406 | ) | ||
| As of December 31, 2013 | 107,031 | 14,781 | 2,070 | |||||
| Revisions of previous estimates(e) | 5,378 | (2,419 | ) | 372 | ||||
| Production | (14,852 | ) | (1,542 | ) | (373 | ) | ||
| As of December 31, 2014 | 97,557 | 10,820 | 2,069 | |||||
| Revisions of previous estimates(f) | (34,041 | ) | (6,434 | ) | (1,234 | ) | ||
| Production | (15,152 | ) | (1,553 | ) | (309 | ) | ||
| As of December 31, 2015 | 48,364 | 2,833 | 526 | |||||
| Proved developed reserves: | ||||||||
| As of December 31, 2013 | 67,436 | 6,733 | 2,070 | |||||
| As of December 31, 2014 | 60,252 | 4,584 | 2,069 | |||||
| As of December 31, 2015 | 46,627 | 2,833 | 526 | |||||
| Proved undeveloped reserves: | ||||||||
| As of December 31, 2013 | 39,595 | 8,048 | — | |||||
| As of December 31, 2014 | 37,305 | 6,236 | — | |||||
| As of December 31, 2015 | 1,737 | — | — |
| (a) | Amounts relate to KMCO2 and its consolidated subsidiaries. |
| (b) | Natural gas reserves are computed at 14.65 pounds per square inch absolute and 60 degrees Fahrenheit. |
| (c) | Predominantly due to higher operating costs at the Katz Strawn Unit. |
| (d) | Represents volumes added with acquisition of the Goldsmith Landreth San Andres Unit in June 2013. |
| (e) | Predominately due to the addition of projects and redefined original oil in place values at SACROC, the addition of proved developed nonproducing reserves volumes in the Katz Strawn Unit offset by decreased expected oil recoveries in the Goldsmith Landreth San Andres Unit based on higher operating costs and lower well performance. |
| (f) | Predominately due to lower crude oil prices which resulted in the Goldsmith Landreth San Andres Unit and the Katz Strawn Unit proved reserves being uneconomical under SEC pricing guidelines. |
The standardized measure of discounted cash flows and summary of the changes in the standardized measure computation from year-to-year are prepared in accordance with the “Extractive Activities—Oil and Gas” Topic of the Codification. The assumptions that underly the computation of the standardized measure of discounted cash flows, presented in the table below, may be summarized as follows:
| • | the standardized measure includes our estimate of proved crude oil, NGL and natural gas reserves and projected future production volumes based upon year-end economic conditions; |
| • | pricing is applied based upon the 12 month unweighted arithmetic average of the first day of the month price for the year; |
| • | future development and production costs are determined based upon actual cost at year-end; |
| • | the standardized measure includes projections of future abandonment costs based upon actual costs at year-end; and |
| • | a discount factor of 10% per year is applied annually to the future net cash flows. |
The standardized measure of discounted future net cash flows from proved reserves were as follows (in millions):
| Standardized Measure of Discounted Future Net Cash Flows From Proved Oil and Gas Reserves | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| As of December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Consolidated Companies(a) | |||||||||||
| Future cash inflows from production | $ | 2,500 | $ | 9,406 | $ | 10,945 | |||||
| Future production costs | (1,276 | ) | (4,294 | ) | (4,214 | ) | |||||
| Future development costs(b) | (466 | ) | (2,113 | ) | (1,948 | ) | |||||
| Undiscounted future net cash flows | 758 | 2,999 | 4,783 | ||||||||
| 10% annual discount | (178 | ) | (1,089 | ) | (2,096 | ) | |||||
| Standardized measure of discounted future net cash flows | $ | 580 | $ | 1,910 | $ | 2,687 |
| (a) | Amounts relate to KMCO2 and its consolidated subsidiaries. |
| (b) | Includes abandonment costs. |
The following table represents our estimate of changes in the standardized measure of discounted future net cash flows from proved reserves (in millions):
| Changes in the Standardized Measure of Discounted Future Net Cash Flows From Proved Oil and Gas Reserves | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| As of December 31, | |||||||||||
| 2015 | 2014 | 2013 | |||||||||
| Consolidated Companies(a) | |||||||||||
| Present value as of January 1 | $ | 1,910 | $ | 2,687 | $ | 2,705 | |||||
| Changes during the year: | |||||||||||
| Revenues less production and other costs(b) | (375 | ) | (880 | ) | (965 | ) | |||||
| Net changes in prices, production and other costs | (1,871 | ) | (504 | ) | 258 | ||||||
| Development costs incurred | 396 | 502 | 452 | ||||||||
| Net changes in future development costs | 844 | (479 | ) | (629 | ) | ||||||
| Revisions of previous quantity estimates(c) | (502 | ) | 329 | (114 | ) | ||||||
| Purchase of reserves in place(d) | — | — | 683 | ||||||||
| Accretion of discount | 178 | 255 | 297 | ||||||||
| Net change for the year | (1,330 | ) | (777 | ) | (18 | ) | |||||
| Present value as of December 31 | $ | 580 | $ | 1,910 | $ | 2,687 |
| (a) | Amounts relate to KMCO2 and its consolidated subsidiaries. |
| (b) | Excludes gains attributable to our hedging contracts of $389 million for the year ended December 31, 2015, $28 million for the year ended December 31, 2014 and losses of $31 million for the year ended December 31, 2013. |
| (c) | 2015 revisions were primarily due to lower crude oil prices which resulted in the Goldsmith Landreth San Andres Unit and the Katz Strawn Unit proved reserves being uneconomical under SEC pricing guidelines. 2014 revisions were primarily due to, increases due to the addition of projects and redefined original oil in place values at SACROC, additional proved developed nonproducing reserves volumes in the Katz Strawn Unit offset by decreased oil recoveries and higher operating costs for the Goldsmith Landreth San Andres Unit. 2013 revisions were primarily due to increased operating costs at the Katz Strawn Unit. |
| (d) | Acquisition of the Goldsmith Landreth San Andres Unit in June 2013. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| KINDER MORGAN, INC. Registrant | ||
| By: /s/ Kimberly A. Dang | ||
| Kimberly A. Dang Vice President and Chief Financial Officer (principal financial and accounting officer) | ||
| Date: | February 16, 2016 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ KIMBERLY A. DANG | Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) | February 16, 2016 | ||
| Kimberly A. Dang | ||||
| /s/ STEVEN J. KEAN | President and Chief Executive Officer (principal executive officer) | February 16, 2016 | ||
| Steven J. Kean | ||||
| /s/ RICHARD D. KINDER | Executive Chairman | February 16, 2016 | ||
| Richard D. Kinder | ||||
| /s/ TED A. GARDNER | Director | February 16, 2016 | ||
| Ted A. Gardner | ||||
| /s/ ANTHONY W. HALL, JR. | Director | February 16, 2016 | ||
| Anthony W. Hall, Jr. | ||||
| /s/ GARY L. HULTQUIST | Director | February 16, 2016 | ||
| Gary L. Hultquist | ||||
| /s/ RONALD L. KUEHN, JR. | Director | February 16, 2016 | ||
| Ronald L. Kuehn, Jr. | ||||
| /s/ DEBORAH A. MACDONALD | Director | February 16, 2016 | ||
| Deborah A. Macdonald | ||||
| /s/ MICHAEL C. MORGAN | Director | February 16, 2016 | ||
| Michael C. Morgan | ||||
| /s/ ARTHUR C. REICHSTETTER | Director | February 16, 2016 | ||
| Arthur C. Reichstetter | ||||
| /s/ FAYEZ SAROFIM | Director | February 16, 2016 | ||
| Fayez Sarofim | ||||
| /s/ C. PARK SHAPER | Director | February 16, 2016 | ||
| C. Park Shaper | ||||
| /s/ WILLIAM A. SMITH | Director | February 16, 2016 | ||
| William A. Smith | ||||
| /s/ JOEL V. STAFF | Director | February 16, 2016 | ||
| Joel V. Staff | ||||
| /s/ ROBERT F. VAGT | Director | February 16, 2016 | ||
| Robert F. Vagt | ||||
| /s/ PERRY M. WAUGHTAL | Director | February 16, 2016 | ||
| Perry M. Waughtal | ||||
Previous: Item 14. Principal Accounting Fees and Services.