Kinder Morgan(KMI) - 2024 Q1 - Quarterly Results

Executive Summary & Financial Highlights First Quarter 2024 Financial Performance Kinder Morgan reported a strong first quarter 2024, with significant year-over-year increases in earnings per share, net income, and distributable cash flow, and the board approved a 2% increase in the cash dividend | Metric | Q1 2024 | Q1 2023 | % Change | | :-------------------------------------- | :------ | :------ | :------- | | Earnings per Share (EPS) | $0.33 | $0.30 | 10% | | Distributable Cash Flow (DCF) per share | $0.64 | $0.61 | 5% | | Net income attributable to KMI | $746 million | $679 million | 10% | | DCF | $1,422 million | $1,374 million | 3% | | Adjusted EPS | $0.34 | $0.30 | 13% | | Adjusted Net Income Attributable to KMI | $758 million | $675 million | 12% | | Adjusted EBITDA | $2,137 million | $1,996 million | 7% | | Declared Cash Dividend per Share | $0.2875 | $0.2825 | 2% | Management Commentary & Strategic Outlook Management emphasized Kinder Morgan's critical role in energy security, its consistent dividend growth, and a robust balance sheet, anticipating substantial growth in natural gas demand driven by LNG exports, increased exports to Mexico, and new demand from AI, cryptocurrency mining, and data centers, with a significant portion of the project backlog dedicated to lower-carbon energy investments - Executive Chairman Richard D. Kinder highlighted the crucial role of energy security and Kinder Morgan's leadership in the midstream sector with an extensive, interconnected network of fee-based assets and a growing footprint in energy transition[2][3] - CEO Kim Dang noted a strong start to the quarter, with increased financial contributions from Natural Gas Pipelines, Products Pipelines, and Terminals business segments[3] - The company ended the quarter with a strong balance sheet, reflected by a Net Debt-to-Adjusted EBITDA ratio of 4.1 times[5] - Demand for natural gas is expected to grow substantially by 2030, led by more than a doubling of demand for liquefied natural gas (LNG) exports and a more than 50% increase in exports to Mexico, with additional demand from artificial intelligence operations, crypto currency mining, and data centers[5] - The project backlog at the end of the first quarter was $3.3 billion, up from $3 billion at year-end 2023, with nearly 80% devoted to lower-carbon energy investments including natural gas, renewable natural gas (RNG), renewable diesel (RD), and carbon capture and sequestration[5] 2024 Financial Outlook Kinder Morgan reaffirmed its 2024 budget guidance, projecting increases in net income, dividends, DCF, and Adjusted EBITDA, and an improved year-end leverage ratio, despite lower natural gas prices - Despite natural gas prices being expected to be significantly below budget for the full year, the company maintains its full-year budget guidance due to modest direct commodity price exposure and strong execution across businesses[7] 2024 Budgeted Financials | Metric | 2024 Budget | Change vs 2023 | | :-------------------------------- | :---------- | :------------- | | Net income attributable to KMI | $2.7 billion ($1.22 per share) | Up 15% | | Declared Dividends per Share | $1.15 | Up 2% | | Distributable Cash Flow (DCF) | $5 billion ($2.26 per share) | Up 8% | | Adjusted EBITDA | $8.16 billion | Up 8% | | Year-end Net Debt-to-Adjusted EBITDA | 3.9 times | | - The budget assumes average annual prices for West Texas Intermediate (WTI) crude oil of $82 per barrel and Henry Hub natural gas of $3.50 per million British thermal unit (MMBtu)[6] Overview of Business Segments Natural Gas Pipelines The Natural Gas Pipelines segment's financial performance improved in Q1 2024, driven by higher margins on storage assets, increased gathering volumes, and contributions from the recent STX Midstream acquisition - Financial performance was up in Q1 2024 compared to Q1 2023, largely due to higher margins on storage assets, increased gathering volumes, and additional contributions from the STX Midstream acquisition[10] Natural Gas Pipelines Segment Performance | Metric | Q1 2024 | Q1 2023 | | :-------------------------- | :------ | :------ | | Transport volumes (BBtu/d) | 41,432 | 40,429 | | Gathering volumes (BBtu/d) | 3,584 | 3,069 | | Adjusted Segment EBDA | $1,524 million | $1,430 million | Products Pipelines The Products Pipelines segment saw increased financial contributions in Q1 2024, attributed to higher rates on existing assets and new capital projects, despite a slight decrease in total refined products and crude/condensate volumes - Contributions from the Products Pipelines business segment were up compared to Q1 2023 due to higher rates on existing assets and contributions from new capital projects[10] Products Pipelines Segment Performance | Metric | Q1 2024 | Q1 2023 | | :-------------------------------------- | :------ | :------ | | Total refined product volumes (MBbl/d) | 1,533 | 1,547 | | Crude and condensate volumes (MBbl/d) | 456 | 460 | | Adjusted Segment EBDA | $293 million | $251 million | Terminals The Terminals business segment reported increased earnings in Q1 2024, driven by liquids terminals expansion projects and higher rates on Jones Act tankers, partially offset by lower petroleum coke volumes - Terminals business segment earnings were up compared to Q1 2023, primarily due to increased contributions from liquids terminals expansion projects and higher rates on Jones Act tankers[11] - Increased earnings were partially offset by lower petroleum coke volumes resulting from refinery turnarounds and unplanned outages, while the Jones Act fleet remains fully contracted[11] Terminals Segment Performance | Metric | Q1 2024 | Q1 2023 | | :------------------------ | :------ | :------ | | Liquids leased capacity % | 93.8% | 92.8% | | Adjusted Segment EBDA | $269 million | $254 million | CO2 The CO2 business segment experienced a decline in earnings in Q1 2024, mainly due to a 7% decrease in net CO2 sales volumes, although price movements across its primary commodities largely offset each other - CO2 business segment earnings were down compared to Q1 2023, primarily due to lower CO2 sales volumes, which were down 7% on a net-to-KMI basis[11] - Price movements across the three primary commodities roughly offset one another, and growth in NGL sales volumes was offset by lower crude volumes[11] CO2 Segment Performance | Metric | Q1 2024 | Q1 2023 | | :-------------------------------- | :------ | :------ | | CO2 sales volumes - net (Bcf/d) | 0.335 | 0.362 | | Total oil production - net (MBbl/d) | 27.41 | 28.61 | | NGL sales volumes - net (MBbl/d) | 8.87 | 8.16 | | Adjusted Segment EBDA | $166 million | $173 million | Other News & Project Updates Corporate Developments Kinder Morgan adjusted its long-term leverage target to a range of 3.5 to 4.5 times Net Debt-to-Adjusted EBITDA, reflecting its operational history and asset quality, and successfully issued senior notes at favorable rates to manage debt and fund general corporate purposes - KMI is adjusting its long-term leverage target from around 4.5 times Net Debt-to-Adjusted EBITDA to a range of 3.5 to 4.5 times, consistent with past operations and appropriate given its scale and high-quality, fee-based assets[12] - In January 2024, KMI issued $1.25 billion of 5.00% senior notes due February 2029 and $1.00 billion of 5.40% senior notes due February 2034, with rates favorable compared to budgeted rates[14] - The proceeds from the senior notes issuance were used to repay outstanding commercial paper (mainly for the STX Midstream acquisition), maturing debt, and for general corporate purposes[14] Natural Gas Pipelines Projects Kinder Morgan is actively progressing several natural gas pipeline projects, including expansions of storage and transport capacity across its network, with expected in-service dates ranging from mid-2024 to mid-2025, all supported by long-term agreements - Construction is nearly complete on the Markham Storage facility expansion, adding over 6 Bcf of incremental working gas storage capacity and 650 MMcf/d of incremental withdrawal capacity, with full commercial service expected in June 2024 and all capacity subscribed under long-term agreements[15] - The Tejas South Texas to Houston Market expansion project ($97 million) will add compression to increase natural gas deliveries by approximately 0.35 Bcf/d, targeting an in-service date in Q1 2025[15] - An approximately $180 million expansion of the KMTP system is underway to provide transportation and treating services for Eagle Ford producers, designed to deliver up to 500 MMcf/d, with an expected in-service date of November 2024[16] - Construction has begun on both phases of the $673 million Evangeline Pass project, which will deliver approximately 2 Bcf/d of natural gas to Venture Global's proposed Plaquemines LNG facility, with Phase 1 expected in service July 1, 2024, and Phase 2 by July 1, 2025[16] - The TGP Muskrat project ($63 million) is designed to deliver up to 225 MMcf/d of supply to Southeast markets, with an expected in-service date of August 1, 2025, supported by long-term contracts[17] Terminals Projects Kinder Morgan is expanding its Geismar River Terminal to enhance its storage and logistics capabilities for renewable diesel and sustainable aviation fuel feedstocks, with the project expected to be in service by Q4 2024 - Civil and tank foundation work continues on the ~$54 million Geismar River Terminal project in Louisiana, which will add approximately 250,000 barrels of heated storage capacity and various marine, rail, and pipeline infrastructure improvements for renewable diesel and sustainable aviation fuel feedstock storage and logistics, with the project expected to be in service by Q4 2024 and supported by a long-term commercial commitment[18][20] Energy Transition Ventures Kinder Morgan is advancing its energy transition initiatives by converting a landfill gas-to-electric facility into a renewable natural gas (RNG) facility, significantly increasing its RNG generation capacity, and securing a substantial CO2 pore space lease for carbon sequestration solutions - Construction continues on the conversion of the Autumn Hills, Michigan, landfill gas-to-electric facility to an RNG facility, expected in service in Q4 2024 with a capacity of 0.8 Bcf of RNG annually, which will bring KMI's total RNG generation capacity to 6.9 Bcf per year[21] - Kinder Morgan Energy Transitions Ventures (ETV) group executed a pore space lease agreement for approximately 10,800 acres near the Houston Ship Channel, providing over 300 million tonnes of total CO2 storage capacity for developing sequestration solutions[21] Non-GAAP Financial Measures Non-GAAP Definitions and Reconciliations This section provides detailed definitions and explanations of Kinder Morgan's non-GAAP financial measures, including Adjusted Net Income, DCF, Adjusted Segment EBDA, Adjusted EBITDA, Net Debt, Project EBITDA, and FCF, clarifying their calculation, purpose in evaluating performance and leverage, and their limitations as analytical tools compared to GAAP measures - Kinder Morgan uses several non-GAAP financial measures, including Adjusted Net income attributable to KMI, DCF, Adjusted Segment EBDA, Adjusted EBITDA, Net Debt, FCF, and Project EBITDA, to evaluate performance, leverage, and compare companies across the industry[9][22] - These non-GAAP measures should not be considered alternatives to GAAP measures and have important limitations, which management compensates for by reviewing comparable GAAP measures and understanding the differences[24] - Certain Items are adjustments to GAAP net income that typically do not have a cash impact or are sporadic, such as fair value amortization, changes in derivative contracts, and gains/losses on divestitures and impairment[25] - DCF (Distributable Cash Flow) is a significant performance measure used to evaluate the ability of assets to generate economic earnings after paying interest, cash taxes, and sustaining capital, serving as the primary financial performance target for annual bonuses and equity compensation[28] - Adjusted EBITDA (on a rolling 12-months basis) is used in conjunction with Net Debt to evaluate leverage and as an important metric to compare company valuations across the industry[30] - Net Debt is calculated by subtracting cash and cash equivalents, debt fair value adjustments, and foreign exchange impact on Euro-denominated bonds from total debt, used to evaluate leverage[31] - FCF (Free Cash Flow) is calculated by reducing cash flow from operations for capital expenditures (sustaining and expansion), providing additional insight into cash flow generation and leverage[35] Financial Statements & Supplemental Data Preliminary Consolidated Statements of Income The consolidated statements of income for Q1 2024 show a 10% increase in Net income attributable to Kinder Morgan, Inc. and basic/diluted EPS compared to Q1 2023, despite a slight decrease in total revenues Q1 2024 vs Q1 2023 Consolidated Statements of Income Highlights | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | % Change | | :-------------------------------------- | :----------------- | :----------------- | :------- | | Revenues | $3,842 | $3,888 | -1% | | Operating income | $1,223 | $1,194 | 2% | | Net income attributable to Kinder Morgan, Inc. | $746 | $679 | 10% | | Basic and diluted earnings per share | $0.33 | $0.30 | 10% | | Declared dividends per share | $0.2875 | $0.2825 | 2% | Reconciliations of Non-GAAP Measures This section provides detailed reconciliations of GAAP Net Income to key non-GAAP measures, including Adjusted Net Income, Adjusted Net Income Attributable to Common Stock, DCF, and Adjusted EBITDA, illustrating the adjustments made for 'Certain Items' and other factors Q1 2024 vs Q1 2023 Non-GAAP Reconciliations Highlights | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | % Change | | :-------------------------------------- | :----------------- | :----------------- | :------- | | Net income attributable to Kinder Morgan, Inc. | $746 | $679 | 10% | | Total Certain Items | $12 | $(4) | 400% | | Adjusted Net Income Attributable to Kinder Morgan, Inc. | $758 | $675 | 12% | | Adjusted Net Income Attributable to Common Stock | $754 | $671 | 12% | | DCF | $1,422 | $1,374 | 3% | | DCF per share | $0.64 | $0.61 | 5% | | Adjusted EBITDA | $2,137 | $1,996 | 7% | Segment Performance Data This section presents the reconciliation of Segment EBDA to Adjusted Segment EBDA for each business segment, showing the financial performance after accounting for 'Certain Items' at the segment level Q1 2024 vs Q1 2023 Adjusted Segment EBDA | Segment | Q1 2024 (Millions) | Q1 2023 (Millions) | | :---------------------------------------- | :----------------- | :----------------- | | Natural Gas Pipelines Adjusted Segment EBDA | $1,524 | $1,430 | | Products Pipelines Adjusted Segment EBDA | $293 | $251 | | Terminals Segment EBDA | $269 | $254 | | CO2 Adjusted Segment EBDA | $166 | $173 | Segment Volume and Hedges Highlights This section provides detailed operational volumes for each segment, including natural gas transport and gathering, refined products, crude and condensate, liquids terminal capacity, bulk transload tonnage, and CO2 segment production and sales, along with crude oil and NGL hedge positions Q1 2024 vs Q1 2023 Segment Volumes | Metric | Q1 2024 | Q1 2023 | | :-------------------------------- | :------ | :------ | | Natural Gas Transport volumes (BBtu/d) | 41,432 | 40,429 | | Natural Gas Gathering volumes (BBtu/d) | 3,584 | 3,069 | | Total refined product volumes (MBbl/d) | 1,533 | 1,547 | | Crude and condensate (MBbl/d) | 456 | 460 | | Liquids leased capacity % | 93.8% | 92.8% | | Total oil production - net (MBbl/d) | 27.41 | 28.61 | | CO2 sales volumes - net (Bcf/d) | 0.335 | 0.362 | | RNG sales volumes (BBtu/d) | 7 | 5 | Realized Prices & CO2 Segment Hedges (Crude Oil & NGLs) | Metric | Q1 2024 | Q1 2023 | | :-------------------------------------- | :------ | :------ | | Realized weighted average oil price ($ per Bbl) | $68.70 | $67.15 | | Realized weighted average NGL price ($ per Bbl) | $28.23 | $34.06 | | Crude Oil Hedges (Remaining 2024) | | | | Price ($ per Bbl) | $66.16 | | | Volume (MBbl/d) | 22.73 | | | NGL Hedges (Remaining 2024) | | | | Price ($ per Bbl) | $47.77 | | Consolidated Balance Sheets The consolidated balance sheet data shows total assets of $71,020 million and total liabilities of $39,291 million as of December 31, 2023, with the Net Debt-to-Adjusted EBITDA ratio improving to 4.1x as of March 31, 2024, from 4.2x at year-end 2023 Consolidated Balance Sheet Highlights (as of Dec 31, 2023) | Metric | Amount (Millions) | | :------------------------- | :---------------- | | Total assets | $71,020 | | Total liabilities | $39,291 | | Total KMI stockholders' equity | $30,306 | - The Net Debt-to-Adjusted EBITDA ratio was 4.1x as of March 31, 2024, an improvement from 4.2x as of December 31, 2023[60][61] - Last Twelve Months Adjusted EBITDA was $7,703 million as of March 31, 2024, up from $7,561 million as of December 31, 2023[61] Preliminary Supplemental Information (Free Cash Flow) Kinder Morgan reported cash flow from operations of $1,189 million for Q1 2024, resulting in a Free Cash Flow (FCF) of $570 million, with FCF after dividends being negative $61 million, a decrease compared to the prior year Q1 2024 vs Q1 2023 Free Cash Flow Highlights | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | | :-------------------------- | :----------------- | :----------------- | | Cash flow from operations | $1,189 | $1,333 | | Capital expenditures (GAAP) | $(619) | $(507) | | FCF | $570 | $826 | | Dividends paid | $(631) | $(627) | | FCF after dividends | $(61) | $199 |