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Kinder Morgan(KMI) - 2024 Q3 - Earnings Call Transcript
KMIKinder Morgan(KMI)2024-10-16 23:30
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Financial Data and Key Metrics - Earnings per share (EPS) remained unchanged in Q3 2024 compared to Q3 2023 [9] - EBITDA grew by 2% in Q3 2024 versus Q3 2023, with full-year 2024 EBITDA growth expected at 5% and EPS growth at 9% [9] - Debt-to-EBITDA ratio remained stable at 4.1x [9] - Revenue for Q3 2024 was 3.7billion,down3.7 billion, down 208 million from Q3 2023, but gross margin increased by 7% due to a 381millionreductionincostofsales[17]−NetincomeattributabletoKMIwas381 million reduction in cost of sales [17] - Net income attributable to KMI was 625 million, up 17% from Q3 2023, with adjusted net income of 557millionandadjustedEPSof557 million and adjusted EPS of 0.25, flat with last year [17] - DCF per share was 0.49,flatwithlastyear[18]BusinessLineDataandKeyMetrics−Naturalgastransportvolumesincreasedby20.49, flat with last year [18] Business Line Data and Key Metrics - Natural gas transport volumes increased by 2% in Q3 2024 versus Q3 2023, with gathering volumes up 5% driven by Haynesville and Eagle Ford, which saw 10% and 9% increases respectively [13] - Products Pipeline segment saw a 1% increase in Refined Products volumes but a 4% decline in Crude and Condensate volumes in Q3 2024 compared to Q3 2023 [14] - Terminals business segment maintained high liquids lease capacity at 95%, with Jones Act tankers 100% leased through 2024 and 97% leased in 2025 [15] - CO2 segment experienced a 6% decline in oil production volumes, a 3% decline in NGL volumes, and a 3% increase in CO2 volumes in Q3 2024 versus Q3 2023 [16] Market Data and Key Metrics - The company expects significant growth in natural gas demand driven by LNG exports, exports to Mexico, and power generation, with an internal estimate of 25 Bcf/day growth over the next five years [10] - The Southeastern US market is seeing increased demand for natural gas due to population and business migration, the CHIPS Act, and data center growth [10] - The company announced a 3 billion South System Expansion 4 Project to increase Southern Natural Gas South Line capacity by 1.2 Bcf/day, targeting the Southeastern US market [7] Company Strategy and Industry Competition - The company is focused on expanding its natural gas infrastructure to meet growing demand, with a backlog of 5.1billioninprojects,up345.1 billion in projects, up 34% from 3.8 billion in Q3 2023 [28] - Key projects include the South System Expansion 4 Project and the GCX expansion, with additional significant projects expected to be announced in the coming months [7][12] - The company sees large opportunities in natural gas infrastructure, particularly in LNG, exports to Mexico, and power generation, with potential projects ranging from 1.5billionto1.5 billion to 2 billion [12] Management Commentary on Operating Environment and Future Outlook - Management highlighted the strong demand for natural gas driven by AI, data centers, and industrial growth, with significant opportunities for infrastructure build-out [6][10] - The company expects to grow EPS, EBITDA, and DCF on a consistent and sustainable basis as new projects come online [8] - Management noted that while some projects may take longer to develop, the overall opportunity set has increased significantly over the past year [12] Other Important Information - The company declared a dividend of 0.2875pershareforQ32024,up20.2875 per share for Q3 2024, up 2% from 2023 [17] - The company ended Q3 2024 with 31.7 billion in net debt, a 150milliondecreasefromthebeginningoftheyear,drivenby150 million decrease from the beginning of the year, driven by 4.2 billion in cash flow from operations and 2 billion in total CapEx [20] Q&A Session Summary Question: Growth potential and backlog size [22] - The company noted that the opportunity set for projects has increased significantly, with a backlog of 5.1 billion, up from 3.8billioninQ32023[23][28]−Projectsrangefromsmaller"singlesanddoubles"tolargerprojectslikeMississippiCrossingandTrident,whichareincompetitivespaces[27]Question:Guidanceandtrendsfor2025[29]−Managementexpectsnaturalgastransmissionassetstocontinueperformingwell,offsettingsomeweaknessingatheringvolumesduetolowercommodityprices[30]−Thecompanyanticipatesstrongerdemandinthesecondhalfof2025asLNGexportvolumescomeonline[31]Question:CapExtrendsandfunding[34]−Thecompanyexpectstomaintainits3.8 billion in Q3 2023 [23][28] - Projects range from smaller "singles and doubles" to larger projects like Mississippi Crossing and Trident, which are in competitive spaces [27] Question: Guidance and trends for 2025 [29] - Management expects natural gas transmission assets to continue performing well, offsetting some weakness in gathering volumes due to lower commodity prices [30] - The company anticipates stronger demand in the second half of 2025 as LNG export volumes come online [31] Question: CapEx trends and funding [34] - The company expects to maintain its 2 billion annual growth CapEx target, with potential for higher spending depending on project timing [36] - The company has the capacity to fund up to 2.5billioninCapExannuallyfromcashflowandcouldleverageitsbalancesheetforadditionalfundingifneeded[37]Question:Expectedreturnsonprojects[38]−Managementstatedthatreturnsonprojectsareconsistentwithhistoricaltargets,withnosignificantdeviationinreturnsforlargerprojectslikeSouthSystem4[39]Question:MississippiCrossingprojectandcommercialdrivers[40]−Theprojectisdrivenbytheneedforincrementalsupplyanddiversification,particularlywiththegrowthofLNGintheGulfCoast[41]Question:Potentialseparationofproductsbusiness[42]−Managementbelievesthenaturalgasandproductsbusinessesarestrategicallyalignedandseesnosignificantbenefitinseparatingthematthistime[43]Question:Cumberlandprojectandpermittingchallenges[46]−ThecompanyisworkingtodefenditspermitsfortheCumberlandproject,whichiscurrentlydelayedduetoacourtstay[47]−Managementnotedthatpermittingchallengesarenotnewandthatthecompanyhassuccessfullydefendedpermitsinthepast[48]Question:GulfCoastExpressexpansiontimeline[49]−ThecompanyexpectstheGulfCoastExpressexpansiontotakeapproximately22months,withatargetin−servicedateofmid−2026[50]Question:DemandriskinAguaDulcearea[52]−ManagementacknowledgedpotentialpricingexposureifLNGdemandisdelayedbutnotedthatlong−termcontractsanddownstreamoptionalitymitigatesomerisk[53][55]Question:Storagemarketrates[56]−Thecompanyexpectscontinuedstrengthinthestoragemarket,with252.5 billion in CapEx annually from cash flow and could leverage its balance sheet for additional funding if needed [37] Question: Expected returns on projects [38] - Management stated that returns on projects are consistent with historical targets, with no significant deviation in returns for larger projects like South System 4 [39] Question: Mississippi Crossing project and commercial drivers [40] - The project is driven by the need for incremental supply and diversification, particularly with the growth of LNG in the Gulf Coast [41] Question: Potential separation of products business [42] - Management believes the natural gas and products businesses are strategically aligned and sees no significant benefit in separating them at this time [43] Question: Cumberland project and permitting challenges [46] - The company is working to defend its permits for the Cumberland project, which is currently delayed due to a court stay [47] - Management noted that permitting challenges are not new and that the company has successfully defended permits in the past [48] Question: Gulf Coast Express expansion timeline [49] - The company expects the Gulf Coast Express expansion to take approximately 22 months, with a target in-service date of mid-2026 [50] Question: Demand risk in Agua Dulce area [52] - Management acknowledged potential pricing exposure if LNG demand is delayed but noted that long-term contracts and downstream optionality mitigate some risk [53][55] Question: Storage market rates [56] - The company expects continued strength in the storage market, with 25% of its storage on market-based rates and contracts rolling over a three-year period [58] Question: Backlog growth expectations [60] - Management expects the backlog to potentially grow further, with significant projects in the pipeline and ongoing opportunities for smaller projects [61] Question: CO2 portfolio and capital spend [62] - The company approved 150 million in CO2 projects this quarter, with annual expansion spending of around 200millionexpectedtocontinue[63][64]Question:Operatingleverageandcapacity[67]−Thecompanyhascapacityinitsgatheringandtransmissionsystems,withpotentialforexpansioninareasliketheEagleFordandHaynesville[68]Question:Powerdemandandupstreamopportunities[69]−Thecompanyisexploringopportunitiestoprovidegasdirectlytopowerplants,includingpotentialbehind−the−metersolutions,thoughnoconcreteplansareinplace[70]Question:CapExfundingcapacity[72]−Thecompanyiscomfortablefundingupto200 million expected to continue [63][64] Question: Operating leverage and capacity [67] - The company has capacity in its gathering and transmission systems, with potential for expansion in areas like the Eagle Ford and Haynesville [68] Question: Power demand and upstream opportunities [69] - The company is exploring opportunities to provide gas directly to power plants, including potential behind-the-meter solutions, though no concrete plans are in place [70] Question: CapEx funding capacity [72] - The company is comfortable funding up to 2.5 billion in growth CapEx annually from cash flow and could leverage its balance sheet for additional funding if needed [73] Question: Permitting challenges post-Chevron decision [75] - Management does not see the Chevron decision as significantly impacting its permitting strategy and expects to continue defending permits as it has in the past [76]