Q4 2020 Kinder Morgan Inc Earnings Call
Welcome to the quarterly earnings conference call at this time, all participants are in a listen only mode until the question and answer session of today's conference at that time, you May Press Star one on your phone to ask the question I would like to inform all parties of today's conference is being recorded if you have any objections you may disconnect at this.
Time.
I will now turn the call over to Mr. Richard Kinder Executive Chairman of Kinder Morgan.
Thank you Denise and good afternoon.
Before we begin as usual I'd like to remind you. The <unk> earnings release today on this call include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 of the Securities and Exchange Act of 1934, as well of certain non-GAAP financial measures before making any.
The decisions we strongly encourage you to read our full disclosures on forward looking statements and use of non-GAAP financial measures set forth at the end of our earnings release as well as review of our latest filings with the SEC for important material assumptions expectations and risk factors that may cause actual results to differ materially.
<unk> from those anticipated and described in such forward looking statements before turning the call over to Steve on the rest of the team I'd just make a short statement before because we now have actual results for the full year 2020, and have released our preliminary outlook for 2021.
This is a good time in my judgment to examine both our current results and future outlook at Kinder Morgan Inc.
It seems to me that the cash.
Share takeaway is the strength of the cash flow, which allows us in both years to fund our dividend and all discretionary capex from internally generated funds and still have significant cash left to pay down debt and buy back shares. This room age of the core of our financial strategy.
And it should be comforting to our shareholder base as it demonstrates our ability to return value to our shareholders, even the under adverse conditions like we experienced in 2020 I would make two additional important points number one there is a long runway for the products, we moved drug pipelines.
Particularly in natural gas and as the world transitions to the future of lower emissions. My second point is that our assets are well positioned to participate in that translation will discuss all of these subjects you in detail at our upcoming virtual Investor Conference on January 27th and I look for.
All of your participation Steve.
Thanks Rich.
So I'll give you a brief look back on what we accomplished in 2020 of look ahead on 2021 and beyond which as rich said will cover in greater detail at our annual Investor Day next week.
Then I'll turn it over to our president of Kim Dang to cover the business updates our CFO, David Michaels as usual will take you through the financials and then we'll take your questions.
2020 has shown us how important it is to have our priorities and principles straight we kept our focus throughout the year on keeping our coworkers safe and on keeping our essential assets running for the people businesses and communities that depend on us like everyone in our sector, we didn't shut down we kept running.
Adjusting our operating procedures on the fly to keep people safe, while we help utilities and factories in other businesses keep running and serving our communities during the pandemic the pandemic on the downturn in U S energy markets impacted that's for sure, but we were still able to maintain our financial principles, which remain the same first main.
Training of strong balance sheet, we managed to reduce net debt by almost another $1 billion, taking our overall net debt reduction of the last five years to well over $10 billion 10 eight.
Since the Q1 of 2015.
And achieving and maintaining our triple B flat credit rating share.
We maintained our capital discipline through our return criteria of good track record of execution and by self funding our investments.
On that front, we evaluated all of our 'twenty 'twenty expansion capital projects and reduce capex by about $700 million from our 2020 budget for about 30% in response to the changing conditions in our markets, while still completing our largest project the Permian highway pipeline in the face of substantial opposition.
And then in the middle of the global pandemic. We're also maintaining our cost discipline, we achieved about $190 million of expense and sustaining capital savings for 2020 that includes deferrals, we view of about $119 million or so as a as permanent reductions for the year.
The result of this work on our capital budget budget and our costs is that our DCF less discretionary capital spend has actually improved versus our plan and when compared to 2019 as well about 200 million better versus our plan and about 665 million better than 2019, notwithstanding what was going on.
The U S energy.
So we more than offset the degradation to our DCF with spending and capital investment cuts in 2020 and the following its noteworthy to I think our DCF less discretionary capital was $2 2 billion in 2019. It grew to $2 9 billion in 2020 and is $3 65.
$5 billion and our budget for 2021.
Finally, we're returning value to shareholders with the 5% year over year dividend increase to $1 five annualized for 2020, providing an increase of the well covered dividend that the board plans to raise to of $1 eight declared in 2021 and as contemplated in our approved 2021 budget. So.
The strong balance sheet capital and cost discipline.
Returning value to our shareholders those of the principles, we continue to operate <unk>.
So in addition to completing the Permian Highway pipeline. We also achieved some other milestones, which we believe are going to lead to long term distinction, we're already inefficient the operator, but we're getting more efficient and cost effective as I mentioned, we believe that's one of the keys to success on our business for the long term during 2020, we completed a full review.
Of how we're organized and how we operate we centralize certain functions in order to be more efficient and effective and we made appropriate changes to how we manage and how we are staffed and we are achieving as a result substantial savings as we described in our guidance release in December on which will also cover next week.
We're also building what we believe is the more effective organization for the future. The centralization of certain functions will enable us the spread spread our best practices throughout the organization and project management and permitting safety pipeline integrity, ESG and other core functions.
We also published our third ESG report during the fourth quarter, we've incorporated the ESG reporting and risk management into our existing management processes sustain of Lytic says ranked us number one in our sector for how we manage ESG risk and our updated MSCI rating also improved drew.
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These things are all important to our long term success being a responsible effective and efficient operator with the ability to complete large projects under extremely difficult circumstances that.
Yet we were able to do all of this during a pandemic and of difficult U S energy market backdrop is the <unk>.
Testament to the strength and resilience of our people our leaders in our culture.
All of this positions us well for the future and we'll be talking about this in more detail at the conference, but here are a few thoughts on what the opportunities look like.
First there are the things that we're already doing that are likely to grow as time goes on first on that list is our largest business natural gas, which will continue to be needed to serve domestic needs and export facilities for a long time to come and it will continue to reduce G. H G emissions as we expand its use.
Around the country and the globe.
Related to that is the enabling role that our natural gas assets play in supporting intermittent renewable resources in the generation stack. Most important to US is the value of what we do which is less about providing the commodity of more about providing the transportation and storage capacity or deliverability.
That value increases as more intermittent resources are relied on for power generation.
Gas is clean affordable and reliable on and pipelines deliver that commodity by the safest most efficient most environmentally sound means.
Also we're making our low methane emissions performance part of our marketing as responsibly produced and transport of natural gas. That's a very good synergy between our ESG performance, which is in part about lowering methane emissions and our commercial opportunities distinguishing ourselves as an environmentally.
Possible provider. This is important for example, not only to our domestic customers, but to our customers serving international markets.
Also among the energy transition businesses that we participate in today is the storage handling and blending of liquid renewable transportation fuels and our products pipelines and terminals segments, we've handled ethanol and biodiesel for a long time today, we're handling of about 240000 barrels a day of the nine.
100000 barrel day ethanol market for example, but we also handle renewable diesel today, that's part of our business that is a part of our business that is ripe for expansion on attractive returns.
Moving out the next concentric circle of opportunities is the set of things that we can largely use our existing assets and expertise to accomplish those include things like blending hydrogen in our existing natural gas network and transporting and sequestering C O two of.
A further step out would be businesses that we might participate in if the returns are attractive such as hydrogen production renewable diesel production and carbon capture from.
From industrial and power plant sources as always we will be disciplined investing when returns are attractive in operations that we are confident we can build and manage safely reliably and efficiently we will not be chasing press releases energy.
The energy transitions for a variety of reasons take a very long time, we'll look hard as we leap.
I hear more details from Kim on the business unit Presidents about all of this at next week's conference.
We believe the winners in our sector will have strong balance sheets low cost operations that are safe and environmentally sound and the ability to get things done in difficult circumstances, we're proud of our team and our culture and as always we will evolve to meet the challenges and opportunities and with that I'll turn it over to Kim.
Okay. Thanks, Steve I'm going to go through our AR business units today first starting with natural gas.
Transport volumes were down 2% or approximately 600000 deck at the arms per day versus the fourth quarter of 2019 and that was driven primarily by declines in Rockies production Inc.
And increases in transportation alternatives out of the Permian Basin. These.
These declines were partially offset by higher volume driven by increased demand for LNG exports and industrial customers.
Our physical deliveries to LNG facilities off of our pipes averaged almost $5 million deck at the arms per day, that's a 50% increase versus the fourth quarter of 2019, that's a big increase versus the third quarter of this year and it's above Q1, 2020, which was largely unaffected by the pandemic.
For 2020, Kinder Morgan pipe smoothed, well over 40% of the volume to LNG export facilities.
Exports to Mexico were up about 4% when you compare it to the fourth quarter 2019 for.
For 2020, our share of Mexico of deliveries ran out of our 55%.
Overall deliveries of the power plants were down about 2%.
Our natural gas gathering volumes were down about 20 per cent of the quarter compared to the fourth quarter of 2019.
For gathering volumes I think the more informative. The comparison is bursts of the immediately prior quarter or the third quarter of 2020 when.
When compared to the third quarter of 2020 volumes were down about three per stop.
Kinder Hawk, which served the haynesville was down due to lack of drilling and declines on existing wells.
We're still expecting based on our conversations with producers that the new drilling in that based on this year.
Volumes were also down.
The bright spot again this quarter was our high one system in the Bakken volumes, there were up well over 20% versus the third quarter of this year.
On the project side as Steve said, we completed the PHP, we place out in the service on January 1st of this year, which is a really amazing accomplishment by our team.
We fought through multiple legal attempts to delay or stop the pipeline, including one request for a temporary restraining order and three preliminary injunction with class.
Permits took longer than they have historically and therefore, we received the key permit approximately four on a half months later than what we anticipated.
Yet despite the league all of the permit and the other challenges we face the pipe we put the pipeline in service just three months later than our original schedule.
On our products pipelines segment refined products volumes were down about 13% for the quarter versus the fourth quarter 2019.
As a result of the continued pandemic impact the fourth the 13 per se, it's very close to the fourth quarter E on a number.
Our gasoline volumes were off about 10% of jet volumes remained weak all 47 per cent. The diesel was up about seven per stop.
Looking at the most recent data volumes of December were down about 17% versus December of 2019.
And that's not surprising given the rise in Covid cases.
So right now projected January volumes are currently estimated to be down about 13% versus January of 2020 net.
The next week on the Investor Conference will take you through all of our 2020 budget assumptions in detail, including a refined product volume assumptions.
Crude and condensate volumes were down about 26 per cent on the quarter versus 2019 and down about 6% over the third quarter. The one bright spot similar to what we saw on natural gas gathering was in the Bakken.
We're gathering crude gathering volumes were up slightly.
And terminals refined product volume throughput continued to reflect reduced demand due to the pandemic.
But they've recovered since the second half of this year the impact of throughput volumes on the segment is mitigated by our fixed take or pay contracts per tank capacity, our liquids utilization percentage, which reflects the percentage of tanks. We have under contract remains high at 95 per cent.
If you exclude the tanks out of service for required inspection utilization of 98 per cent.
Given the pandemic, we did see some weakness on our Jones Act tanker business, but that was offset by incremental earnings from expansion projects.
The bulk side of the business, which accounts for roughly 20 per cent of the terminals earnings saw a strong rebound in steel volumes industry wide mill utilization improved to over 70% from the lows of 50% on the second quarter.
And C O to O part of oil production was down approximately 16 per SAP and C. O. Two sales volumes were down about 35% on.
He's done a tremendous job here of adjusting to the current environment, finding cost savings and cutting non economic capex the more than offset the degradation and segment performance as a result full year 2020, DCF less capex for the segment of $466 million was over 100 of.
Dollars better than 2019 and over $40 million better than budget.
The last thing I'll point out for you is that for the full year, we were only off $10 million versus the DCF guidance that we gave you in April when the pandemic began there were lots of puts and takes for sure on EBITDA was slightly weaker but amazingly close of all.
And with that I'll turn it over to David Michael.
Alright, Thank you Kim.
So for the fourth quarter of 2020, we are declaring a dividend of point of 2625.
Dollars per share or a dollar of O five annualized which is flat with last quarter and five per cent up from the fourth quarter of 2019.
Moving on to the fourth quarter 2020 performance versus the fourth quarter of 2019.
In the fourth quarter of 2019, there were a few items that were categorized as certain items.
The certain items captured in gain loss on divestitures and impairments earnings loss from equity investments and higher income expenses.
All of nearly offset within the fourth quarter of 2019.
That leaves us with 237 million of lower revenues in the fourth quarter 2020 versus the fourth quarter of 2019, offset by lower O&M expenses, lower depreciation expense and lower interest expense.
Which explains why net income attributable to K M. I $607 million is about flat with Q4 of 2019.
Our adjusted earnings of 604 is three.
As three per cent.
It's about flat with Q4 2019, and our adjusted earnings per share of 27 cents for the quarter is up one set for the from the prior year.
Moving on to DCF natural gas was down $59 million for the quarter lower contributions were driven by the sale of our Cochin pipeline, along with lower contributions from multiple gathering of processing assets.
And those were partially offset by greater contributions from our Texas intrastate systems as well as expansion project contributions.
The product segment was down $64 million driven.
Driven by lower refined product volumes, and lower crude and condensate volumes driven mainly due to the continued demand impacts from the pandemic.
The terminals segment was down $32 million, which was driven by the sale of KML.
Lower refined product and lower contributions from our Jones Act vessels.
Contributions from expansion projects placed in service, partially offset those items.
C O two segment was down $18 million and that's due to that was due to lower oil and the C. O. Two sales volumes, partially offset by lower operating costs and improved year over year realized pricing.
So that brings us to adjusted EBITDA of $183 million of 9% of lower than Q4 of 2019.
The low EBITDA interest expense was $63 million favorable which was driven by lower.
Floating rate excuse me by a lower of floating rates benefiting our interest rate swaps.
As well as lower overall debt balance and lower rates on all the parts.
Long term debt.
Sustaining capital was the favorable 30 million driven largely by deferrals and the terminals segment.
The other item includes the increased cash pension contributions in the in the Q4 2020 versus Q4 of last year of 2019.
Total DCF of one point to two 5 billion is down $104 million or 8%.
DCF per share of 55 cents was down four cents from last year.
Moving on to the balance sheet, we ended the year with a four six times debt to EBITDA level, which is the same as last quarter and up from 4.3 as of year end 2019, we ended the year with $1 $2 billion of cash on hand, which will allow us to easily manage our maturing.
The debt during the year this year.
We've already used some of that cash to repay $750 million of debt maturing of the first quarter. So that leaves us with just 1.65 billion of debt maturing for the rest of the year.
So we have very strong liquidity we.
We have on Undrawn $4 billion credit facility.
And we also expect to generate $1 2 billion of DCF S. After capex and dividends in 2021.
Our net debt ended the quarter and ended the year at 32.0 billion, which is down 900, and almost 90 million from year end and down $556 million from last quarter and as Steve mentioned, our net debt is now down $10 $8 billion of since the first quarter of.
2015.
To reconcile the quarterly change in net debt.
At 1.25 billion of DCF, we paid dividends of $600 million.
We contributed our paid Oh of contributed JV contributions to growth capital of $250 million.
We received proceeds from asset sales of $200 million.
And we had of working capital use of $50 million in the quarter, which explains the majority of that $556 million change in net debt.
From year end of.
2019 of year end 2020, we generated DCF of 4.597 billion.
We had the payment of share sale in Q1 of $900 million.
The $200 million of asset sales.
Paid dividends of 2.3 dollars 7 billion.
We had growth capital on JV contributions of 1.65 billion.
Yeah, the taxes on on of the.
The Trans mountain sale, and Pembina shares of $260 million.
We repurchased $50 million of K of my shares and we had of working capital use of $385 million for the year, which explains the majority of the $989 million reduction of net debt for the for the year.
And that completes the financial quarterly review back to you Steve.
Okay.
So Denise we will open it up for questions now and I would ask Deanna.
One question and a follow up and then if you have as a courtesy to our other callers and if you have additional questions get back in the queue and we will come back around to you. So let's open it up the knees.
Thank you if you would like to ask a question. Please press star one once again it is star one to ask the question.
Thank you withdraw your question Please press star two.
Our first question does come from Jeremy Tonet with J P. Morgan Your line is open.
Hey, Hi, good morning.
Hi, good afternoon.
Thanks for taking my question here.
Just wanted to start off with the high level question here and you've laid out some pieces for kind of dividend growth expectations, but just wondering capital allocation philosophy. Overall, if you could refresh us on how you're thinking about that when it comes to you know dividend increases.
Versus buybacks and also it seems like the markets you know continue looking for lower leverage here. So that the multiple can be attributed more to the ex decides on the debt side. So just wondering how those different things worked together in the industry's still seems right for consolidation. So wondering if you could refresh us on that.
Okay, Yeah sure I mean, as I think we covered here we've done a lot of work on the balance sheet I have ourselves in what we believe is a very good position with the triple B flat a rating.
With all of the the net debt reduction that we've done over the years and including this year and we feel like we're on a very good place there and as we've examined that.
At an end.
Applying additional debt reduction to achieve.
Achieve and upgrade or whatever we don't really see much of the cost of capital benefit for our equity investors are resulting from that so we do think we're in a very good place there and so that.
That gives.
It gives us the opportunity of that and think about expansion capital projects, we exhaust the good returning high returning.
Nice margin about at above our weighted average cost of capital on those returns of those opportunities are.
The law.
Less than they were in years past and so we're funding the ones that make sense to fund and it leaves us with a substantial amount of cash available after that and so we've increased the dividend from the dollar to a dollar five and now.
On a dollar eight expectation for 'twenty, 'twenty, one and leaving room for as much as $450 million on share repurchases. So I think we've done the right things by the balance sheet. We're funding the things that add to the value of the firm in terms of additional projects, where those make sense, we're not stretching that if they don't make sense.
We're not doing them and then we don't sit on the cash that we have we look for ways to return that to our shareholders and and as you know I mean, the the evaluation between those two dividend versus share buybacks of dividend.
There's a there's a good reliable return of value to shareholders and that theres not as much flexibility on it.
So we've opted to have some flexibility to do share buybacks.
And that's how we've laid it out in terms of the consolidation opportunities are the answer is pretty much. The same there. We continue to look at those opportunities. The industry has been ripe for consolidation for years, one might say I'm not sure what the Catalyzing event turns out to be there, but it's something that we look at and evaluate its got a meter.
[noise] of criteria.
It has to deliver real value to our investors of course has to be in businesses that we're confident that we can run safely reliably and efficiently of course, it has to be accretive and it also can't.
Can't mess up our balance sheet, which you know as we've looked at it we've got of at least be leveraged neutral and if anything maybe leverage accretive and so are our disciplined there continues to be very robust.
Got it that's very helpful. And then maybe just one last one on ESG side, if I could just wondering in your conversations with the ESG Raiders with the ESG investors do you think they see the role for natural gas in the energy transition. The same way that you guys have outlined it here do they did they buy into that and do you guys have internal views.
On scope three emissions, how natural gas compares renewables and when you have these conversations with the with those stakeholders do they see things similar to you guys.
Yeah. So.
There's a lot of diversity as you know Jeremy and how people are evaluating this I think.
The the ratings show that we are doing an effective job of communicating our ESG measures and managing our ESG risk rating is based on how we're managing ESG risk. It's not based on you know having a really great ESG report, it's about how we manage that risk I think of.
Lot of people recognize the need for natural gas and the value of the natural gas has brought to.
The environment over the years you know if you look back in 2017, we were six giga tonnes are of.
Of annual emissions C O two equivalent emissions, we're now down to 5.1, and a big part of that in and of an economy. That's grown over that period of big part of that has been in the role of that natural gas has played in power generation and so yes. There are people who recognize the role of natural gas and also how we're doing with our ESG.
Our risk management and we are in our ESG funds as a result of that.
No that's not a universally held view, but but it is it is something that we're proud of and that we continue to continue.
Continue to elaborate on with the investors and continue to respond to questions and concerns as theirs is they are raised by the investment community you make a very good or you're asking a very good question about scope three emissions you know one of the one of the real advantages and it's been extremely stubborn advantage of hydrocarbons is that it's a very energy dense.
Form of energy and so that means that the relatively small footprint and relatively small amount of capital you can get an awful lot of energy.
From a power plant for example on natural gas power plant and it takes acres and acres and acres of.
Solar panels and windmills to make that up.
And.
Because of the lack of energy density on awful lot of manufacturing a lot of mining a lot of manufacturing a lot of disposal costs associated with building that up and so once we get to a point a point that we're not at just yet, but once we get to a point I think we're.
The public discourse around ESG expands to include those measurements on renewables it brings natural gas much closer.
In terms of environmental impact.
Look we work with renewable companies, we work with the utilities, who are increasing their renewable portfolios. We believe that our business plays an important enabling role there, but there is a lot more to I would say the natural gas story once you take everything into account.
That's very helpful. I'll stop there. Thank you.
Thank you and the next question comes from Shneur <unk> from UBS. Your line is open.
Happy New year, everyone. Good to you all of our speak to you all.
I guess two to start off I was wondering if we can sort of talk about sort of of the trends that you're seeing.
Pacifically for it.
Volume trends, I guess, I'm gonna find products and so forth, where we're pretty decent when you consider the fact that COVID-19 cases were going up.
'twenty, one it's kind of started off well and so forth when I think about the expectations that you laid out in December how how do you how would you say the Kinder Morgan is tracking the Florida I recognize it's early and you'll provide more depth on the guidance inputs next week, but just curious about sort of the trends at the end of December with the early January.
You know how are you how are you tracking thus far or is it kind of in line with what you expected or cautiously optimistic just any commentary on that would be helpful.
Okay. Kim you want to do you want to start on that.
Yeah, Hey, Shneur I think we'll get there all of the assumptions next week I noted that you know the volumes in January of down <unk>.
13% versus January of 2020, I think that's a slightly weaker was slightly weaker than what we what we planned on.
Our hope is that once you get the vaccine distributed that you know some of those volumes will come back you know when you look at how much volumes are off.
Comparing one month versus the month of the prior year you go back to October and November.
We were down like I think in October of like 11%, maybe and so hopefully you know once we get the vaccine distributed more widely and we will see some improvement on those numbers, but slightly weaker than the than what we budgeted but very early.
Yeah, Okay on the other hand, I'd say on the other hand, you know there are some some branches.
The on C. O two of them you know with the the stronger oil prices. You know there is the there's a little bit of upside on price if if those prices one of the hall.
Volumes that are the sock rock have have been pretty strong and stable over the last couple of months on.
We've seen a small amount of incremental C. O two sales volumes versus what we're expecting so there are a number of puts and takes there and we can go through the us actually.
No fair enough I appreciate that and maybe as a follow up I was just wondering if we'd return activity. The buyback question you you've highlighted a $450 million of opportunistic buyback capacity and so I kind of I guess the two part question here.
Should we as we sort of think about the word opportunistic should we be thinking about of watching for a quicker return of volumes.
That's what creates the opportunity versus the actual stock price and then secondly, when we sort of think about that capacity of sort of translates into roughly 50% of your free cash flow. After dividends is that kind of the expectation of how youre thinking about things house goes the debt pay down on half goes to buybacks, if there's an opportunistic opportunity.
Yeah. So.
I'll start and then ask David if you want to elaborate at all so on.
Opportunistic is kind of purposely open right. We are we're not talking about a specific target price or or particular are interim targets. We have principles that we are adhering to which is that we are we want of maintaining a strong balance sheet and so that's that's always a consideration.
And we want to we want to procure the the shares on what we believe is an attractive return, but beyond that we're not saying much more of an opportunistic meaning we're not programmatic.
And we're not specifying a target for the market out there, but we've got the capacity and I'll just say, it's good to be in a position to have this capacity.
In light of all of the work that has been done on the balance sheet.
We'll do it opportunistically and based on return expectations and again not publishing of target.
David anything I missed there.
Just to follow up on snares other piece there.
Share you'd said that half of of our available cash if he take DCF after capital after dividends, it's about $1 2 billion. So the $4 50 is a little bit less than half. The 750 of that is kind of dedicated to the balance sheet and so we are being pretty thoughtful about allocating the the the cash flow that we're generating of the year to the balance sheet.
And then as Steve covered we'll be opportunistic on the back on the buybacks.
Perfect. Thank you very much guys really appreciate the color on looking forward to chatting next week at the virtual Investor day.
Thank you.
And the next question comes from Spiro <unk> from Credit Suisse. Your line is open.
Hey afternoon, everyone happy new year.
Just.
Wanted to follow up on on <unk> first question, just looking at the macro outlook and the improvement since you all guided to in December.
So I'm just curious if producers have changed their tone or their attitude on gross.
And at all since that time line of Kim you mentioned ongoing discussions in the Haynesville curious if you're seeing positive momentum elsewhere. Since December and then maybe how you think about the direction of Capex next year, if we do see increased activity.
Yeah.
Sure.
You know I think it's it's different based on on the base on and so you know and in the Bakken, we've you're saying the year get off to a good start I think we finished the fourth quarter of a little bit better than we were thinking of here is off to a good start.
The Eagle Ford has still been a week if you look at the Permian.
The rig count there, that's where most of the rigs have been added since she came off the lows and in August and you know by our calculations, you're getting close to of rig level on the Permian that could get you back to flat volume sort of where we were on a pre pandemic that wont happen immediately but it will take.
Time that'll take time to get there and so you know I think with respect to two producers and and their guidance I'd say a couple of things one I think they have to feel like that or you know based on our conversation that they need to feel like that these low prices.
You know, especially on the crude side are going to stay strong for them for a long period of time and right now you've got the the Saudis and others are holding a lot of barrels off the market and so.
You know that create some price uncertainty I also think the producers are very focused on free cash flow and so it's not clear how much they would how much they would ramp up on.
Capex.
In response to our in the response to increasing price. So I think I'm a lot more to come there as we get into the year.
Okay Fair enough second question on on ESG.
Steve I appreciate your comments, there and in laying out some of those new items and initiatives.
One of focus specifically on the ones that would require a bit of a step out on your part debt you know a much maybe higher return hurdle of if they're there, but just wondering on that ESG strategy do you contemplate M&A being a part of that specifically or do you feel like you have enough of the internal core comps the competencies to execute that organically and then.
Just quickly related to this in terms of timing how should we be thinking about the timing of when those initiatives start to materialize and actually start to really show up on the Capex budget.
Okay, Yeah. So.
The distinguished between several different kinds of opportunities you know when you think about responsibly.
Responsibly sourced natural gas that's something we're out there marketing today, when you think about a blending of hydrogen in it to the extent that that becomes available or moving renewable natural gas, which is something that we already do today. The quantities are very small, but when it comes to originating in doing that kind of business, we're already very well fixed.
To do that within our existing business units that that extends also to things like additional renewable.
The renewable the liquid fuels like renewable diesel where both of our products group and in our terminals group. We are actively looking at and pursuing opportunities there today and it's in businesses that we understand and we know how to do and that we can help our customers get where they're going.
When it comes to the further step outs I think our approach is going to be again very conservative we're going to look at the things that are adjacent to us that we think makes sense for us to do and we think that we can do that with the with folks in our organization and with US taking of continuing to take a hard look at some of them.
The opportunities wouldn't rule out M&A, but I think.
That's that's an area, where you know you can move.
Move to more quickly than is prudent and you know we're gonna be prudent.
And in how we approach it and so I think it's it's more it's more organic but M&A or acquisitions wouldn't be off the table for the right opportunity, but I'm on purposely emphasizing organic using the tools the assets the people and the opportunities that we have.
Great. Thanks for the time guys I appreciate it.
And your next question is from Jean Ann Salisbury with Bernstein. Your line is open.
Hey, everyone I wanted to ask about Highland being up 20% versus the third quarter and I think that's quite a bit more than over all the Bakken gas was up quarter on quarter, but maybe you were down more earlier in the year do you have a sense of that if it with your specific acreage there that really moved up and can you maybe just get a sense that you can calibrate of.
We are Highland volumes were in fourth quarter versus Inc. First quarter of before Covid.
Sure thing Tom Martin you want to address that.
Tom are you there.
Are you muted.
Okay.
He's showing disconnected okay. Yeah. So we did have a nice uplift in in our gas volumes on Highland.
The the story on Highland as you look through the year there was a significant downturn in the second quarter as we had and this was all talked about publicly but we had a significant producer there go through a large amount of the shut in on.
On on their particular acreage and then when things came back they came back.
Isaly and some of that from shut in some of it from a flush production and and those volumes have continued to be strong, but theres no question that some of that was.
Aided by the turnaround in our what our producer was doing up there of one of our large producers Jim anything else at any of that.
Yeah, and I mean, you're not quite back to the first quarter.
2020 volumes in the fourth quarter of 2020.
Sure, but you you would kind of at your market share.
So to speak of is similar to where it was the bar.
Yeah, I don't have the specifics.
I don't know on that yeah, I don't know on the market share how our producers performed relative to holiday brought back volumes relative to others.
Yeah.
And I will say I mean, we've as we've looked at our producer activity or stated producer activity.
Where we are now what we're expecting versus what's being reported for Bakken production. It does seem that we and our customers are doing better than just the overall reported numbers for Bakken.
Okay, Great that's kind of a balance there that day and then the follow up on you mentioned weakness in the corner and Jones Act tankers and can you spend on that of bad I believe you know on during the second quarter of Genzyme take or Inc. Weights went up quite a bit and then come back down, but what's the customer appetite for re contracting and that mark.
Right.
Yeah, and I'll call on John Schlosser to add a little more detail, but what else. So what I'll tell you is that.
We John and the team of really nicely positioned for what you were just talking about meaning that you know we were gonna have.
The vessels rolling off charter right as charter.
Charter rates were improving which is where things were headed based on the overall supply and demand fundamentals there and then the pandemic cabinet and so.
As you saw on other refined products volumes and the demand for refined products.
Movements.
We saw that we saw that come off and come off relatively hard and so that that created the kind of an unexpected David and the overall picture now over the longer term.
There arent, New Jones Act vessels that would compete with our M. Ours anyway that are being that are being built right now.
We think that that market does come back into balance over time, but it has it has created some short term weakness in demand are beginning to see.
So nice uptick.
Up tick in our inquiries and calls for quotes as we've gotten into 'twenty and 'twenty, one, but we did take a reduction there now I would say you know overall Jones Act vessels are running probably again. This is of pandemic number Jean Ann So not representative of <unk>.
All of it normal.
Find products operations.
On a call it a 25 per cent off hire where about half of that.
Meaning about 12 of 12, 5%, so better, but we have some expirations coming up over the course of 2021. So what we're really drive this business is.
Post pandemic recovery in refined products of movements John.
You're correct the.
25% number is for the entire industry. So we're seeing about 25 per cent of the total tanker volume out we maneuver our way very well through the year and had avoided that for the year were up $2 $3 million, but we did see an impact on two of our vessels the loans.
Star in the Pelican in Q4, which amounted to a negative impact between debt and some price compression of about $6 7 million negative in Q4, but we are seeing some green shoots we're seeing more inquiries here over the last couple of weeks and we believe that that 25% overblown and should come back.
Back as the year goes on.
Well, thank you very much.
The next question comes from Colton Bean with Tudor Pickering, Holt and company. Your line is open.
Good afternoon. So I think historically the team has highlighted that you would not expect to pay corporate cash taxes until sometime after 2026 can you just update us on current thinking given the both the lower capital spend and if you have any preliminary thoughts on how that might change let me see of corporate tax increase.
The state those thoughts as well.
Yeah, that's still good guidance.
And it doesn't really change with the corporate tax increase because what we're describing there is nols, which are for that period that we've talked about which is beyond 2026 more than offsetting taxable income. So it's less driven by not driven by the rate.
David anything you want to add there.
No you covered it Steven.
Okay.
With the lower capital spend and still no change there.
That's right no change to that guidance.
Okay.
And then with the Permian Highway now on line and while how pricing much closer to Gulf Coast hubs can you frame for us the impacts on the interruptible portion of the intrastate business there.
The interruptible puts a little bit more.
As of June so thinking of the non contracted portion of the interest States, who you know to the extent that you were moving just on the fee for service and then maybe a month to month evergreen contract or do you ever moving actual base the spreads and take advantage of it a bit of marketing opportunity just trying to understand how we should think about that portion of the business now with where was pricing.
Okay, Yeah, So let me.
Let me try this I mean, what we we were moving kind of interim service. This may not be what youre getting at we were moving on interim service on P. H P. As we were commissioning compressor stations and the likes of we were delivering in November and December delivering volumes on PHP until we got it fully commissioned and put it in service.
Look nominations under the long term firm contracts is fully underpinned by long term firm contracts starting on January one now we are.
We're also buying and selling gas you you made.
Mention of Interruptible, I think I know, what you've been there I mean, it is technically interruptible a lot of that true those business that business is interruptible, but it's generally not interrupted but we are buying and selling and optimizing on our Texas Intrastate network. Some of which this is a unique element of the Texas markets some of which of course like the Interstate Mark.
<unk> is on long term transportation arrangements, including sometimes transportation arrangements that are PHP shippers for example of whole downstream in order to get to an ultimate delivery point and then other transportation arrangements that we make with producers and with end users to connect production too.
Our plants and industrial facilities utilities et cetera, and so what I would point to there as we now have an additional two bcf a day hitting our system a little less than that it's not quite running a 100 per cent full we've got two Bcf a day coming from.
From a couple of years ago, when we bought.
G C ex and serve as another two bcf coming from Whistler of what that is going to mean for US I think ultimately is of a great amount of natural gas that we provide a lot of the last mile connectivity to on our system in Texas. So generally I think that's a a bullish development.
Youre right. The Wahoo spread has come in is that fully contracted pipeline system is up and running and I think it will take a while even with the development that Kim described of additional rigs coming back out there I think it was 20.
2022 prices were up fairly significantly from what we're currently seeing in <unk> and 'twenty 'twenty. One eventually we'd expect that system to fill back up basis, the widened back out and call. It the middle of the decade, we would need some additional.
Additional incremental transportation capacity, but overall you know the the new facility coming in is under contract. What it does is bring a lot more of the natural gas through our system, which is a good thing for our existing business on that system did I answer your question.
And I think called I think someone was asking about the we have a significant business that is subject to that spread and therefore because of that spread came in and we're going to take a hit in EBITDA.
And generally called then you know the.
Way that we are contracts as we're contracting on the back to back basis.
So we are not generally taking spread risk and so the the impact of that spread coming on is not gonna have on material effect on us.
Good point the understood that's helpful.
Okay.
And are you ready for the next question.
Yes.
That comes from Tristan Richardson with the Truest Your line is open.
Hi, Good afternoon, guys Kim I appreciate your comments on what Youre seeing in January of <unk>.
<unk> products curious about the fourth quarter commentary around diesel growth year over year can you talk about that strengths, either regionally or or what youre seeing on the demand recovery side with respect of diesel.
And the only thing.
We think debt that is largely driven by you know all of the the shipments that are moving as people are.
Ordering things online and having things shipped to their homes.
And so we think it's you know because when you compare it to gasoline volumes of gasoline volumes are down.
We did see we've seen that same phenomenon for a couple of quarters now and so that's that's what we wouldn't attribute that to.
18, wheelers moving down the highway hauling goods to what are the various facilities on homes.
Great. Yeah, I was just checking to make sure there wasn't some specific item or one specific region. That's helpful. And then quick follow up just on the Highland on the crude side.
Can you talk about either generally just conversations with customers around <unk>.
Capacity availability per your graphs, either working with these guys are on making contingency plans in the event the base in CS.
Disruption of the major pipeline, there or taking on additional contracts with Kinder Morgan, etc.
You know Dax you want to comment on that.
Yeah, Yeah, the I V.
Overall, there are positive and the volume trends. We're seeing are positive we were fourth quarter on double H, we were about <unk>.
64 day out of the total capacity of of about 88.
Right now for January we're looking to be pretty close to the full level. So.
The conversations I mean look we have absolutely no idea whats going to happen with Apple and certainly wouldnt speculate on that but the the conversations overall or are constructive and we're seeing it in volumes.
Thank you guys very much.
Thank you and the next question comes from Michael Blum with Wells Fargo. Your line is open.
Thanks, Good afternoon, everyone I wanted to go back to the the.
The Permian natural gas market.
You guys commented that El Paso natural gas on a reduction in volumes I just wanted to understand that a little better is that a result of a PHP coming on or is there weakening demand in California, I just wanted to better understand the dynamics there.
Yes, So Tom Martin got kicked off the call before the earlier question that he is back on and so I'm going to ask him to respond Tom.
Yes, I think the answer that question is is the combination of the book of both really just a weaker demand in California.
As well as increased outlets or Permian supply low.
<unk>. If you will has some impact on our volumes on the on the U P N G.
Again I think once.
I think much of that was seasonal related out west So oh, assuming we get the good demand in 2021 out in California, We think that a likely recovers a book.
Okay, great and just to follow up on that point.
Would you say that there that the long term secular trend in terms of declining demand in the California or do you think it's kind of just remains seasonal and weather dependent.
Well I think how we serve California's changing obviously with the renewable growth there. So volumes you know low.
Long term may not be as strong, especially to northern California.
But I think the amount of capacity need into that market problem, but where it actually grows over time as more renewable penetration.
Increases in that area.
Great. Thank you very much.
And the next question comes from Pearce Hammond with Simmons Energy Your line is open.
Thank you for taking my question just one question today for me Steve in your prepared remarks, you mentioned carbon capture is the potential business opportunity for Kinder Morgan and it sounded like in your prepared remarks that the economics for carbon capture not favorable at this time. So I was just curious what it would take to make this the more attractive business for Kinder more.
And the reason I ask is Kinder has a real expertise in C. O two and it seems like a natural outgrowth of your business and something that you would have a competitive advantage in so would love to just get your overall thoughts on the carbon capture opportunity.
Yeah sure there is a there's quite a hierarchy there and so.
If.
The recent recently published regulations on 45 Q.
The do make a certain parts of the carbon capture opportunity.
The more economic.
When used in combination with enhanced oil recovery and so the.
The of the allowance the tax credit allowance for per E O R.
You know at the at the at the the rate now approved makes things like.
The gas processing.
Ethanol facilities, more economic and may be economic and and that's an opportunity for us there's nothing you know nothing.
Nothing specific right now are deal specific to talk about there, but it's it's gotten a lot closer in and may actually be economic and so as we look at it from our business standpoint from our business perspective, we do have in our trading business today.
Which is you know just.
The standard long existing aiming technology to separate C O two from.
Whether it's the gas stream or or a of process facility separated. It then also has to be captured in the pure the stream the better right. So it's pure or in things like processing facilities and ethanol facilities.
Gotta be captured it's gotta be powered up it's got to be transported which is where we come in and its got to be put on the ground and stay there, which is also where we come in and better still.
The oil from it and that helps make the whole thing work and so we're we're beginning to see.
Some of those applications creep into economic territory.
And then marching.
Marching up from there to the things like capturing it from power plants and from the other industrial uses of it gets more expensive and then direct air capture is extremely expensive given the very low concentrations of C. O two in the atmosphere.
You know about point O, 4% versus from of flu stream run from between 3% and 20% of 75 to a you know of hundreds of times more economics on from a flu stream. So we're just kind of on the edges of that now starting to see some things that are getting interesting Jesse or any of the anything you want to add.
Ed.
I think he will tabulate the Steve Thanks.
Okay.
Thank you Steve I appreciate it.
Thank you and the next question comes from the Schwab brought on with Bank of America. Your line is open.
Good afternoon. Thanks for taking my question just wanted to first of all low up on the premium gas, particularly item will likely be more takeaway and Caribbean next year after the the Worcester and.
Some other smaller projects come online just wanted to follow up on the where the discussions on adding third GAAP.
The spike in the Permian the stand the Permian pass.
And what is the competitive environment like sort of that.
Okay I'll start and then Tom you fill in.
It's not anytime soon right I mean, it's not this year, it's not the it's not next year when we look at it both the third party of analyses as well as our own internal house model of it we see the need beginning to emerge.
Call. It 2025 and people will generally try to get in front of that.
Given the amount of time that it takes even in Texas to get pipelines built and.
So we'd expect to.
If you're talking to people ahead of that in order to be able to get something in service by call. It the middle of this decade, we think that we the advantage that we bring there are.
Several fold one is that we've got a great I think the best.
Texas Gulf Coast pipeline network, you've gotta get you've got to get the supply to market and the increasingly that means getting it to LNG.
LNG markets.
The Mexico getting into the export markets, but also finding.
End users are in the growing petrochemical.
Petrochemical and industrial market, along the Texas Gulf Coast. So we get people there and then we've shown that in and far more difficult circumstances than what we would anticipate for Permian pass, we'd been able to get projects done.
So we think we're in a good position and that's not a guarantee of course, but we think it's it's a ways off it's not that we're not having any conversations with people. There are some very long term planners out there as you know the producer community and so we continue to talk about it but but it's the waves off Tom.
Yes, really nothing more to out of there I think just the trajectory of growth on the rig activity in the Permian book goes a lot over the coming months.
The couple of years.
Yeah.
Got it thank you and the switching gears.
My follow up is <unk>.
Adding a U S Army of course with a decision to move forward with the excluding the nation.
Nationwide permit 12 into two separate permits.
You on specifically for oil and gas pipelines.
Steve How do you think this changes the regulatory picture for the new pipeline projects from my perspective.
Yeah. So the nationwide 12 is who knows what we've relied on to do.
P H P.
And it's a it's a it's a long standing on the process. It's been in place for decades. It gets refreshed every five years and you're right. There's some examination of.
Of splitting it meaning oil and gas would be treated differently from other other linear infrastructure. That's typically used under nationwide rule 12 in what I would say the impact of that is likely to be if it happens is that it takes us more time and more effort to.
To accomplish what we could have accomplished more quickly, but it doesn't prohibited. So for example, you know that's the permitting.
Structure that allowed us to cross.
Waterways with our construction activity and you know that might.
That might become.
More individualized examinations of those crossings, where rather than having them grouped under a single permit umbrella, which adds time and cost but it doesn't.
It doesn't eliminate our ability to demonstrate that we're making those crossings are in.
On an environmentally responsible way right. So it's a it's losing the advantage of of all of the permitting process, where NIPA has been taken care of.
The environmental impact statement et cetera has been taken care of in one.
One fell swoop versus having to do it on an individual project basis. So it adds time it doesn't eliminate the opportunity.
Got it that's helpful. Thanks the stake.
The next question comes from Michael Lapides with Goldman Sachs. Your line is open.
Yeah, Hey, guys. Thank you for taking my question I actually have two and I'll ask them just back to back in the interest of time first you all did a good job on the income statement in terms of managing cost in 2020, G&A and even probably some other areas as well.
Can you talk first question is can you talk a little bit about what the expectation is for 2021 do you expect some of that cost to come back or or the sale of kind of permanent cost reduction.
That's point a point B is more of a policy one we're starting to see some states take a bit of of the policy driven action work guarding the future of demands for their gas regulated utilities and trying to really restrict cap of limit demand or even shrink the main growth out of cash.
The utilities, just curious how you're thinking about how that would kind of what the impact is on your business going forward. If if that kind of plays out and it's really it looks like it's more of some of the east coast States and some of the West Coast States that are the ones looking at it.
Okay, Alright, thank you Michael on the cost side no those those cost adjustments that we made as part of the organizational efficiency the efficiency and <unk>.
Factored in this project I think it's fair to think of those as permanent.
Those are costs, we took out of the out of the structure of labor costs and other costs that we took out you know every budget is a bottoms up review and cost requirements change plus or minus.
Depending on what the emerging.
Whether it's regulatory requirements or maintenance requirements or other things are but.
But we did some.
Permanent long lasting work there. So I think that's the right way to think about that and we'll give you some more detail in the conference. Some of that came through about 50 50 sort of split between the segments and between the corporate costs like G&A and the like.
On the policy question, Yeah, it's something that we watch with some concern it's not something that we are is directly involved in in terms of how states are thinking about their end users.
And users of natural gas I would point out, though as you say as you pointed out that it is it is in limited areas, where this has become an issue it's of course prospective and so dealing with the new construction of new homebuilding et cetera, and that's so that's a long turnover.
In that.
The market as you know.
But the other thing is I think on closer examination of people are going to be more concerned about it. When you think about developers who would like to be showing houses that have natural gas water heaters and furnaces of natural gas ranges on the like theyre not going to like that that's less about what kinder Morgan. Thanks than it is about people who.
Our.
Building things and producing jobs in the in the states that issue we've seen in real life, our restaurant owners react in a very negative way to it and and actually in one community pushed back on attempt to eliminate natural gas usage of it also seen in another jurisdiction then I won't.
You mentioned that you know a lot of obstacles to getting natural gas infrastructure side of it and then when it became apparent that the.
Natural gas wasn't going to be available to end and users.
In the state of.
A complete about face in terms of asking the incumbent utilities to figure out of way to get additional natural gas in and not have moratoria in place and so I think I do think that there are many hands still to be played there and.
From our perspective, while it is narrow it's worth watching and it's also one where I think we benefit and society benefits from giving it a much closer examination.
Got it. Thank you guys much appreciate it.
The next question comes from Timm Schneider with Citi. Your line is open.
Yes. Thank you. Thank you I had a follow up to question that was asked earlier on.
The the whole renewables the hydrogen the biodiesel fuels push just kind of curious obviously it looks sounds great. When you talk about it but kind of what inning of.
Are we really in here in terms of when do you think this could actually meaningfully.
To your cash flow when do you think some of these cash.
Opex expenditures.
Are going to show up and then what's involved in terms of getting some of these projects from conception through completion.
Okay. That's the.
That's the ultimate question and it's a we're in different innings on different things you know on on things like responsibly sourced natural gas.
We're already there and we're talking to customers about it and as I said some of our LNG customers are very interested in it because it does matter if you're a low emissions low methane emissions transportation and storage provider, which we are we met our one future goal of seven years ahead of schedule and the allocation to our sector was.
300%, we're at point of 3%, So I mean, we really.
We've got a lot of good things to show our customers in that regard.
The serving as a backstop for renewables our capacity as a backstop our gas storage as probably the cheapest on most efficacious energy storage versus batteries were right. There right now renewable diesel were right. There right now the discussions we're having in California where of course the.
The whole market is aided thereby of low carbon fuel standard.
Dax would tell you you know our customers are saying what can you do for US today, you know we're talking about a renewable diesel hubs there that are where.
Where we can build out some capability of at good returns and provide good service to our customers and they're really in a hurry to get something there, it's a little bit longer you know it is.
Not in the ninth thing on you know in other parts of the country, but as low carbon fuel standard spread those things are going to be of of greater interest on the other hand things like hydrogen hydrogen hydrogen is as promising it's been the fuel of tomorrow for decades, and it takes a while to two and it takes I think so.
Subsidies to get it to a point, where it's really actionable, it's $19 an M. N V to you today and so will it will ultimately serve you know of.
The compelling fraction of the of the energy needs yeah, but it is if you think about it it's taking a very high quality energy like electricity, which is consumed primary energy to get there to get it to electricity taken electricity using it to separate hydrogen from water.
And.
In electrolysis, and then taking the hydrogen molecules in and of transport fuel context for example, putting them into a fuel cell in converting them back to what electricity. So there's a lot to be done there to make that a sensible thing to do but it could become sensible with the right are the right support and credits in the low.
And today as Ken pointed out we can blend whoever is willing to invest in and I think there are opportunities to invest in it.
We can blend that into our existing system today, and and I think that's an attractive proposition to those who are trying to lead the.
The energy transition effort and so if the if if if it were in existence next year, we could move it on our pipelines next year. So the.
That's not you know so Tim it does come down to it.
As I mentioned on C. O. Two capture there are some things that are moving into actionable territory right now.
There are the things that are of good ways off and that's why it's the it's important to be discerning about these things as we go and that's the way we're going to approach. It the things we can do today the things that we can do tomorrow with the assets and businesses that we have today and then what's the further step out from there and making sure that we're.
Learned about how we approach that so different innings on different <unk>.
Synergies.
Okay, and I really appreciate that and maybe as my follow up here just briefly I wouldn't want to stick the hydrogen how do you say how do you see the hydrogen the environment kind of developed for midstream players do you think this will really be an opportunity for maybe a set of two or three folks are more.
Or is it a broader opportunity set for more and how is whereas kinder Morgan's competitive advantage and in this whole of hydrogen value chain.
I'll start with the last I think our competitive advantages in the existing network, we have and the existing customer relationships that we have meaning we are serving a lot of customers who would be taking blended hydrogen whether that's on an industrial or a power plant or are on.
On an L. D. C. For example, we're serving those customers today on the network that we have today and so that's really that's really our advantage in terms of how broad the opportunity is likely to be I would say looking at it right now that it looks like it'll be pretty broad I mean, it doesn't look like to your point Theres really of a dominant player there one.
Emerge Oh.
Of course, as you know it could be the case in any business, but it doesn't appear to be one now right now I think it's still on the thousands of flowers blooming stage.
Okay I appreciate it and I'll be back next week with some more questions, but appreciate it for enough.
Thank you.
Thank you and the next question comes from Shneur <unk> with UBS. Your line is open.
Hi, guys just wanted to follow up on an earlier question about the the volume change on <unk>.
As I sort of think back to 2018 before things go crazy on the wall spreads and so forth.
If I recall, you had put in a little bit of of capital that are.
Our very high return on capital just sort of take care of the the challenges of the time, we're trying to address the the the spread of issues and so the the concept was that when you know of PHP Gulf Coast came into service that those opportunities would go away is that kind of what we're seeing now or is it the seasonal with CT response that was given.
In response to the question I'm, just trying to sort of I'm trying to understand if this is the the temporal earnings.
Going away, we're always expect it to go away, but it was very profitable to tell it.
Okay, Tom Martin.
Yes.
I think the macro response I gave is probably the bigger picture.
Answer I think there were clearly some very lucrative opportunities early on we captured.
The those opportunities by spending a little capital doing some some term contracts on those in the clearly as those deals come up for re contracting.
<unk> there'll be a bit lower but again, we're not talking about material dollars here I think really the bigger picture. The answer is the one that matters. The most of and it's it's the macro fundamentals that I described earlier.
Perfect. Thank you very much appreciate the clarification.
Okay.
And there are currently no further questions.
Thank you very much of a good evening.
Yeah.
And that does conclude today's COVID-19.
That's true.
One moment please.
That does conclude today's conference call and we appreciate your participation and you may disconnect at this time.