Kinder Morgan Reports Second Quarter 2023 Financial Results
Beats Budget for the Second Quarter, Returns Value to Shareholders and Maintains Healthy Balance Sheet
HOUSTON–(BUSINESS WIRE)–Kinder Morgan, Inc.’s (NYSE: KMI) board of directors today approved a cash dividend of $0.2825 per share for the second quarter ($1.13 annualized), payable on August 15, 2023, to stockholders of record as of the close of business on July 31, 2023. This dividend is a 2% increase over the second quarter of 2022.
The company is reporting second quarter net income attributable to KMI of $586 million, compared to $635 million in the second quarter of 2022 and distributable cash flow (DCF) of $1,076 million, compared to $1,176 million in the second quarter of 2022. Adjusted Earnings were $540 million for the quarter, versus $621 million in the second quarter of 2022. Adjusted EBITDA and DCF for the quarter were both above our 2023 plan.
“As we reiterate every quarter, the KMI board and management team are fully committed to the use of our strong cash flow to benefit our shareholders,” said Executive Chairman Richard D. Kinder. “We focus on maintaining a strong balance sheet while internally funding capital projects that produce returns well in excess of our cost of capital — including projects that are part of the ongoing energy evolution toward a lower carbon future. We also continue to pay a healthy and growing dividend which, based on our current stock price, results in a top 10 yield in the S&P 500 with robust coverage. Finally, we have continued the opportunistic repurchasing of our shares, totaling almost 20 million repurchased shares for approximately $330 million so far this year.”
“KMI once again saw the value of its existing natural gas transportation and storage assets that are able to respond to volatile market conditions caused by extreme weather events and an increasingly intermittent resource-based electric grid,” said Chief Executive Officer Steve Kean. “Our 700 billion cubic feet (Bcf) of operated natural gas storage capacity is particularly useful in backstopping intermittent renewable electricity resources. Financial contributions from the Natural Gas Pipeline business segment were up relative to the second quarter of 2022 and ahead of budget. Our Terminals business segment also over performed relative to both the second quarter of 2022 and budget.
“We are executing on capital-efficient expansions of our existing natural gas pipeline and storage systems. We continued working to add approximately 550 million cubic feet per day (MMcf/d) of capacity to the Permian Highway Pipeline (PHP) system. We also began construction on an expansion project at our Markham Storage facility along the Texas Gulf Coast, where we will be adding more than 6 Bcf of incremental working gas storage capacity.”
“In the face of lower commodity prices and higher interest expense versus the second quarter of 2022, the company generated earnings per share of $0.26, DCF per share of $0.48 and robust excess coverage of our dividend. Significantly, both Adjusted EBITDA and DCF for the quarter were above our 2023 plan,” said KMI President Kim Dang.
“Earnings per share for the quarter were down 7%. DCF per share was down 8% as compared to the second quarter of 2022. In addition to lower commodity prices and higher interest expense, DCF was also impacted by higher sustaining capital expenditures versus the prior year period. Excluding the impact of lower commodity prices and higher interest expense, our performance would have been favorable to the prior year period.
“KMI’s balance sheet is strong, as we ended the second quarter with a Net Debt-to-Adjusted EBITDA ratio of 4.1 times, in line with our budget and well below our long-term target of approximately 4.5 times. This is especially noteworthy given that we executed approximately $200 million in unbudgeted, opportunistic share repurchases during the quarter,” continued Dang.
“Our project backlog at the end of the second quarter was $3.7 billion, flat to the first quarter. In calculating backlog Project EBITDA, we exclude the CO2 business segment, where there is more variability to earnings than our other business segments, but higher return thresholds to compensate. We have also adjusted the calculation this quarter to exclude gathering and processing projects due to the similarly uneven earnings associated with those projects. This exclusion has the effect of increasing our backlog multiple compared to what has previously been reported. We expect the remaining $2.6 billion in projects in the backlog to generate an average Project EBITDA multiple of approximately 4.2 times, which compares to a multiple of 3.9 times calculated on the same basis for the prior quarter.
“With continued strong emphasis on our base business, we are also devoting roughly 80% of our project backlog to lower-carbon energy investments, including natural gas as a substitute for higher emitting fuels, producer certified natural gas, renewable natural gas (RNG), renewable diesel (RD), and feedstocks associated with RD and sustainable aviation fuel (SAF),” said Dang.
Dang continued, “During the quarter, we placed in service our renewable feedstock storage and logistics hub project with Neste at our Harvey, Louisiana Terminal, and continued work on the RD and SAF feedstock storage and logistics offering at our Geismar River Terminal in Geismar, Louisiana.
“In our Energy Transition Ventures group, the Twin Bridges landfill RNG facility began commercial in-service at the end of June, while permitting and engineering design continue to progress on our conversion of the Autumn Hills landfill gas site to an RNG facility. Along with the Indiana RNG projects under construction at the Liberty and Prairie View landfills, we continue to seek projects in the energy evolution that we expect to generate attractive returns for our shareholders.”
For the first six months of 2023, the company reported net income attributable to KMI of $1,265 million, compared to $1,302 million for the first six months of 2022; and DCF of $2,450 million, down 7% from $2,631 million for the comparable period in 2022. Net income and DCF were down compared to the prior period due to lower commodity prices and higher interest expense. DCF was further impacted by higher sustaining capital expenditures versus the prior year period.
2023 Outlook
For 2023, KMI budgeted net income attributable to KMI of $2.5 billion ($1.12 per share) and expects to declare dividends of $1.13 per share, a 2% increase from the dividends declared for 2022. The company also budgeted 2023 DCF of $4.8 billion ($2.13 per share), Adjusted EBITDA of $7.7 billion and to end 2023 with a Net Debt-to-Adjusted EBITDA ratio of 4.0 times, well below our long-term target of 4.5 times.
While we are on budget year-to-date, we now expect to finish 2023 slightly below our plan on a full-year basis, all of which can be explained by expected lower commodity prices. So far, crude oil and natural gas prices have been below our full year 2023 budget assumptions of $85 per barrel and $5.50 per MMBtu, respectively, and our NGL to crude ratio has been below our budgeted ratio of 45%. We do expect strong performance in our overall business to partially offset the weaker pricing.
This press release includes Adjusted Earnings and DCF, in each case in the aggregate and per share, Adjusted Segment EBDA, Adjusted EBITDA, Net Debt, free cash flow (FCF) and Project EBITDA, all of which are non-GAAP financial measures. For descriptions of these non-GAAP financial measures and reconciliations to the most comparable measures prepared in accordance with generally accepted accounting principles, please see “Non-GAAP Financial Measures” and the tables accompanying our preliminary financial statements.
Overview of Business Segments
“The Natural Gas Pipelines business segment’s financial performance was up in the second quarter of 2023 relative to the second quarter of 2022, primarily on higher contributions from Midcontinent Express Pipeline, our Texas Intrastate system, El Paso Natural Gas (EPNG), our Stagecoach asset and Tennessee Gas Pipeline (TGP), partially offset by lower contributions from our Eagle Ford gathering system assets,” said Dang.
Natural gas transport volumes were up 5% compared to the second quarter of 2022, primarily from increases on EPNG due to returning a pipeline to service and the retirement of a coal-fired power plant, and on our Texas Intrastate system across a variety of existing shippers and new contracts, partially offset by reduced volumes on TGP. Natural gas gathering volumes were up 19% from the second quarter of 2022 across most of our systems.
“Contributions from the Products Pipelines business segment were down compared to the second quarter of 2022 largely due to the impact in the prior year period of sharply rising commodity prices, primarily impacting our transmix business. The crude and condensate business was also impacted by lower recontracting rates in the Eagle Ford. Total refined products volumes were relatively flat compared to the second quarter of 2022,” Dang said. “Gasoline volumes were below the comparable period last year by 1% and diesel volumes were down 4%. Jet fuel volumes continued their strong rebound, up 9% versus the second quarter of 2022. Volumes in our crude and condensate business were up 4% in total.”
“Terminals business segment earnings were up compared to the second quarter of 2022. Earnings contributions from our Jones Act tanker business were meaningfully higher compared to the prior year period on higher average charter rates. The fleet remains fully contracted under term charter agreements. Our bulk business benefited from rate escalations across multiple commodities as well as higher coal and fertilizer volumes compared to the prior year period,” continued Dang. “Our liquids business was down modestly, as contributions from growth projects and rate escalations were more than offset by higher operating costs and weakness across certain of our domestic truck rack assets. Utilization, particularly at our key refined product hubs along the Houston Ship Channel and in New York Harbor, strengthened in the quarter. The earnings variance for the quarter was also impacted by a gain on the sale of an idled petroleum rack terminal realized in the prior year period.”
“CO2 business segment earnings were down compared to the second quarter of 2022, primarily due to lower realized natural gas liquids (NGL) and CO2 prices. Our realized weighted average NGL price for the quarter was down 25% from the second quarter of 2022 at $31.22 per barrel, our realized weighted average CO2 prices were down $0.65 or 35%, and our realized weighted average crude oil price was $67.73, down 2%,” said Dang. “Second quarter 2023 combined net oil production across our fields was up 7% compared to the same period in 2022. Crude volumes for the year are forecasted to be above plan, a remarkable achievement given the impact of an extended outage at SACROC in the first quarter. NGL sales volumes net to KMI were flat versus the second quarter of 2022. CO2 sales volumes were down 2% on a net-to-KMI basis compared to the second quarter of 2022. CO2 volumes are expected to be above plan for the year.”
Other News
Corporate
- During the second quarter, KMI repurchased approximately 12.3 million shares for $203.4 million at an average price of $16.57 per share. Year-to-date, KMI has repurchased approximately 19.9 million shares for $329.9 million at an average price of $16.61 per share, leaving $1.73 billion in remaining authorized capacity for additional share repurchases.
Natural Gas Pipelines
- Construction continues on the project to expand PHP’s capacity by approximately 550 MMcf/d, increasing natural gas deliveries from the Permian to U.S. Gulf Coast markets. The project remains on track for an expected in-service of December 2023. PHP is jointly owned by subsidiaries of KMI, Kinetik Holdings Inc. and Exxon Mobil Corporation. KMI is the operator of PHP.
- KMI has begun construction on its Markham Storage Expansion project which will expand the working gas storage capacity at its Markham Storage facility (Markham) in Matagorda County along the Texas Gulf Coast. The project involves an additional cavern at Markham to provide more than 6 Bcf of incremental working gas storage capacity and 650 MMcf/d of incremental withdrawal capacity on KMI’s extensive Texas intrastate system. Shippers have subscribed to most of the available capacity under long-term agreements, and commercial in-service for the project is expected in January 2024.
- On July 12, 2023, Kinder Morgan Tejas Pipeline LLC (Tejas) announced a project to expand its Eagle Ford natural gas transportation system to deliver nearly 2 Bcf/d of Eagle Ford production to Gulf Coast markets. As part of the approximately $251 million project, Tejas is constructing an approximately 67-mile, 42-inch pipeline commencing at its existing Kinder Morgan Texas Pipeline compressor station near Freer, Texas to the Tejas pipeline system near Sinton, Texas. Construction activities are already underway, and the pipeline is expected to be in service in the fourth quarter of 2023.
- Construction activities are well underway on all three of the compressor stations involved in TGP’s approximately $263 million East 300 Upgrade project. TGP has entered into a long-term, binding agreement with Con Edison to provide approximately 115 MMcf/d of capacity to its distribution system. The expansion project involves upgrading and adding compression facilities on TGP’s system. Pending receipt of all required permits, the project has an expected in-service date of November 1, 2023.
- The two-phase $678 million Evangeline Pass project includes modifications and enhancements to portions of the TGP and Southern Natural Gas (SNG) systems in Mississippi and Louisiana, enabling the delivery of the full FERC-certificated project volumes to Venture Global’s proposed Plaquemines LNG facility. Construction activities are underway for phase 1 of the project, which includes general operational upgrades enabling TGP to provide approximately 900 MMcf/d of natural gas transportation capacity to Venture Global’s facility. Pending receipt of all required permits, TGP and SNG expect to begin construction on phase 2 of the project sometime in the third quarter of 2023. Phase 2 will allow TGP and SNG to jointly provide an additional 1.1 Bcf/d of natural gas transportation capacity to the Plaquemines LNG facility. The expected in-service dates for each phase will be aligned with Venture Global’s in-service dates.
- On June 30, 2023, TGP received its Final Environmental Impact Statement from the FERC for its $180 million project that includes a new 32-mile pipeline to transport approximately 245 MMcf/d of natural gas from its existing system to the Tennessee Valley Authority’s (TVA) proposed 1,450 megawatt generation facility at an existing site in Cumberland, Tennessee. The new generation facility supports TVA’s initiative to build the energy system of the future, focusing on cleaner energy that provides low-cost, reliable electricity to the Tennessee Valley. Pending receipt of all required permits and clearances, the TGP project has an expected in-service date of September 1, 2025.
Terminals
- Detailed engineering and design work continues on KMI’s latest expansion to the company’s industry-leading RD and SAF feedstock storage and logistics offering in its lower Mississippi River hub. The scope of work at its Geismar River Terminal in Geismar, Louisiana includes the construction of multiple tanks totaling approximately 250,000 barrels of heated storage capacity as well as various marine, rail and pipeline infrastructure improvements. The approximately $52 million project, which is supported by a long-term commercial commitment, is expected to be in service by the fourth quarter of 2024.
- Field work is nearing completion on a previously-announced vapor recovery unit (VRU) project that will significantly reduce the emissions profile of KMI’s refined products terminal hub along the Houston Ship Channel. The approximately $64 million investment will address emissions related to product handling activities at KMI’s Galena Park and Pasadena terminals and will generate an attractive return on invested capital. The expected Scope 1 & 2 CO2 equivalent emissions reduction across the combined facilities is approximately 34,000 metric tons per year, or a 38% reduction in total facility greenhouse gas emissions, versus 2019 (pre-pandemic) emissions. The VRU project is expected to be in service by the third quarter of 2023.
- KMI’s renewable feedstock storage and logistics hub project with Neste at its Harvey Terminal was placed in-service on May 8, 2023. The facility serves as a hub in the U.S. where Neste, a leading provider of RD and SAF, is storing a variety of feedstocks such as used cooking oil. The project is supported by a long-term commercial commitment from Neste and, at Neste’s option, the facility can be further expanded.
CO2
- On June 1, 2023, KMI closed its $15 million acquisition of Parallel Petroleum’s interest in the Diamond M Field. Diamond M is located directly adjacent to our existing SACROC field and is currently producing 466 barrels of oil per day on a net basis. It is currently under waterflood, but it is expected to be very receptive to CO2 flooding given its proximity to SACROC. Implementation of enhanced oil recovery is projected to begin in 2024.
Energy Transition Ventures
- The Twin Bridges landfill RNG facility began commercial in-service at the end of June 2023. Together with the other Indiana RNG projects under construction at the Liberty and Prairie View landfills, which are expected to begin commissioning in the third quarter of 2023, these three projects will add approximately 3.9 Bcf to KMI’s total annual RNG capacity.
- Permitting and engineering design continue to progress on KMI’s previously announced conversion of the Autumn Hills, Michigan, landfill gas site to an RNG facility. The site is expected to be placed in service in the second quarter of 2024 with a capacity of 0.8 Bcf of RNG annually.
Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy infrastructure companies in North America. Access to reliable, affordable energy is a critical component for improving lives around the world. We are committed to providing energy transportation and storage services in a safe, efficient and environmentally responsible manner for the benefit of the people, communities and businesses we serve. We own an interest in or operate approximately 82,000 miles of pipelines, 140 terminals, 700 billion cubic feet of working natural gas storage capacity and have renewable natural gas generation capacity of approximately 3.8 Bcf per year with an additional 3.1 Bcf in development. Our pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2, renewable fuels and other products, and our terminals store and handle various commodities including gasoline, diesel fuel, jet fuel, chemicals, metals, petroleum coke and ethanol and other renewable fuels and feedstocks. Learn more about our work advancing energy solutions on the lower carbon initiatives page at www.kindermorgan.com.
Please join Kinder Morgan, Inc. at 4:30 p.m. ET on Wednesday, July 19, at www.kindermorgan.com for a LIVE webcast conference call on the company’s second quarter earnings.
Non-GAAP Financial Measures
Our non-GAAP financial measures described below should not be considered alternatives to GAAP net income attributable to Kinder Morgan, Inc. or other GAAP measures and have important limitations as analytical tools. Our computations of these non-GAAP financial measures may differ from similarly titled measures used by others. You should not consider these non-GAAP financial measures in isolation or as substitutes for an analysis of our results as reported under GAAP. Management compensates for the limitations of our consolidated non-GAAP financial measures by reviewing our comparable GAAP measures identified in the descriptions of consolidated non-GAAP measures below, understanding the differences between the measures and taking this information into account in its analysis and its decision-making processes.
Certain Items, as adjustments used to calculate our non-GAAP financial measures, are items that are required by GAAP to be reflected in net income attributable to Kinder Morgan, Inc., but typically either (1) do not have a cash impact (for example, unsettled commodity hedges and asset impairments), or (2) by their nature are separately identifiable from our normal business operations and in most cases are likely to occur only sporadically (for example, certain legal settlements, enactment of new tax legislation and casualty losses). (See the accompanying Tables 2, 3, 4, and 6.) We also include adjustments related to joint ventures (see “Amounts from Joint Ventures” below).
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The following table summarizes our Certain Items for the three and six months ended June 30, 2023 and 2022. |
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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|
2023 |
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2022 |
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2023 |
|
2022 |
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(In millions) |
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Certain Items |
|
|
|
|
|
|
|
||||||||
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Fair value amortization |
$ |
4 |
|
|
$ |
(3 |
) |
|
$ |
— |
|
|
$ |
(7 |
) |
|
Change in fair value of derivative contracts (1) |
|
(62 |
) |
|
|
(27 |
) |
|
|
(130 |
) |
|
|
55 |
|
|
Loss on impairment |
|
— |
|
|
|
— |
|
|
|
67 |
|
|
|
— |
|
|
Income tax Certain Items (2) |
|
12 |
|
|
|
5 |
|
|
|
13 |
|
|
|
(15 |
) |
|
Other |
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
18 |
|
|
Total Certain Items (3)(4) |
$ |
(46 |
) |
|
$ |
(14 |
) |
|
$ |
(50 |
) |
|
$ |
51 |
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Notes |
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(1) |
Gains or losses are reflected when realized. |
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(2) |
Represents the income tax provision on Certain Items plus discrete income tax items. Includes the impact of KMI’s income tax provision on Certain Items affecting earnings from equity investments and is separate from the related tax provision recognized at the investees by the joint ventures which are also taxable entities. |
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(3) |
Amounts for the periods ending June 30, 2023 and 2022 include the following amounts reported within “Earnings from equity investments” on the accompanying Preliminary Consolidated Statements of Income: (i) $1 million and none for the three-month periods, respectively, and $(1) million and $5 million for the six-month periods, respectively, included within “Change in fair value of derivative contracts” and (ii) $67 million for the 2023 six-month period only included within “Loss on impairment” for a non-cash impairment related to our investment in Double Eagle Pipeline LLC in our Products Pipelines business segment. |
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(4) |
Amounts for the periods ending June 30, 2023 and 2022 include, in aggregate, $(5) million and $(17) million for the three-month periods, respectively, and $(13) million and $(61) million for the six-month periods, respectively, included within “Interest, net” on the accompanying Preliminary Consolidated Statements of Income which consist of (i) $4 million and $(3) million for the three-month periods, respectively, and none and $(7) million for the six-month periods, respectively, of “Fair value amortization” and (ii) $(9) million and $(14) million for the three-month periods, respectively, and $(13) million and $(54) million for the six-month periods, respectively, of “Change in fair value of derivative contracts.” |
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Adjusted Earnings is calculated by adjusting net income attributable to Kinder Morgan, Inc. for Certain Items. Adjusted Earnings is used by us, investors and other external users of our financial statements as a supplemental measure that provides decision-useful information regarding our period-over-period performance and ability to generate earnings that are core to our ongoing operations.
Contacts
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Media Relations
Investor Relations
(800) 348-7320
