Q1 2021 Kinder Morgan Inc Earnings Call

Good afternoon, and thank you for standing by and welcome to the quarterly earnings Conference call. Today's call is being recorded if you have any objections you may disconnect. At this time your lines are in a listen only mode until the question and answer session of today's conference at that time, you May Press Star followed by the number one to ask a question.

And then.

And I admit your phones and state your first and last name.

My pleasure to turn the call over to arrest Mr. Rich Kinder executive Chairman of Kinder Morgan. Sir you may begin okay. Thank you Michelle and before we begin I'd like to remind you as we always do.

<unk> earnings release today, and this call Inc.

<unk> forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and the Securities and Exchange Act of 1934, as well as certain non-GAAP financial measures before making any investment decisions. We strongly encourage you to read our full disclosures on forward look.

These statements and use of non-GAAP financial measures set forth at the end of the earnings release as well as review our latest filings with the SEC for important material assumptions expectations and risk factors that may cause actual results to differ materially from those anticipated and described as.

Such forward looking statements.

And as kick the call off.

In addition to detailing our first quarter results, we made two important announcements and our earnings release today, we revised our full year 2021 estimate for DCF and EBITDA.

Statuary upward, Steve Kim and David will explain the underpinnings of that change.

We also increased our dividend.

Two and annualized rate of $1 eight per share as we promised when we released our original outlook for 2020 one back in December.

And my judgment this increase as an indicator of two significant parts.

And of our corporate financial policies.

First it shows we are intent on returning value to our shareholders second and demonstrates the consistent strength of our cash flow.

But this and perspective. This is the fourth consecutive annual increase and our dividend since 2017, when we were paying an annual dividend of <unk> 50 per share and we have accomplished that while maintaining a real focus on our balance sheet, having reduced our debt from its peak of almost 43 billion.

And 2000 $15 billion to $37 billion today, a decrease of over $12 billion quieter and improvement and where.

Doing all of this while continuing to pursue opportunities with our natural gas assets to firm up deliverability and supply to our customers opportunities that were highlighted by the recent winter storm in Texas and also while examining opportunities and the energy transition efforts.

At Kinder Morgan, we remain guided by what we believe is a sound corporate philosophy.

Fund, our capital needs internally maintain a healthy balance sheet and return excess cash to our shareholders through dividend increases and opportunistic share repurchases. We think this is a recipe for long term financial success for <unk> and its shareholders and with that I'll turn it over to Steve Kean our CEO.

Alright, Thank you rich I'll focus on our performance during winter storm, Yuri which is what drove our financial results and the quarter.

I'll turn it over to our President Kim Dang to cover the business updates and our CFO, David Michaels will take you through the financials and then we'll take your questions.

Starting with our performance during the February Winter storm.

We were prepared and.

That preparation served us well our.

And our previous investments and our assets, particularly on our store gas storage assets, where a huge L.

We were on maximum withdrawals for days at several of our skills and also helpful, where our investments and backup generators are key compressor stations on our system.

And other royalty for US was our team our operations team deployed in advance to keep our facilities running and quickly repair them. If they went down.

We deployed additional generators and tested our generators before the storm Gauthier our people were at locations that are normally automated and they were there and the bitter cold and undoubtedly many of them have their own families at home without power and water.

Our team went to key compressor stations.

George facilities and delivery points to keep gas flowing including a key delivery point to the city of Boston.

Our people kept us going our investments and especially our team winterized us against the terrible storm.

We purchased additional gas summit very high prevailing prices to serve power plants and gas utilities and the result of all of this was that we enabled our wholesale customers to serve needs that would've otherwise gone on Matt mitigating the tragedy that too many texans endured.

We performed well operationally and commercially across our entire gas network, but our financial performance was especially strong in our Texas intrastate pipeline and storage network and as I've mentioned and admitted and our C O two business.

And as I'll explain.

A key difference between our Texas intrastate system and our state gas pipeline systems is that we have a purchase and sale business and Texas supported by high deliverability storage assets.

In contrast, our interstate pipelines are nearly exclusively selling unbundled transportation and storage services.

We do that and Texas too, but we also have a purchase and sale business that business is generally done with reference to an index price. For example, we sell gas at the Houston ship Channel Index plus something.

And by and Houston ship channel minus something and normal circumstances, we're effectively getting a transport margin on our purchases and sales and using our proprietary storage to extract margin from price differences across time periods and.

When prices are in a normal range and so very stable business and we view, our Texas Central states, roughly 80% or so take or pay and <unk>.

February supply and demand conditions caused prices to go up by more than 100 times and back down by the same order of magnitude over the course of a week.

Market volatility like we experienced that week reveals that value of reliable pipeline and storage assets and a reliable operations team at <unk>.

Reveals the value of having gas in storage and previous purchase arrangements in place. It also reveals the value of preparation and such circumstances and with supply and demand conditions, causing prices to go up by more than 100 times, we were able to perform well financially as well as operationally.

Many of our additional sales whether as a result of higher takes under our existing contracts or incremental sales that we were able to do during that week took place at prevailing market prices, which during that week at the Houston ship channel range from $180 and and it would be two to $400.

Versus $3 earlier and the sandbox.

What does this mean for our business longer term we transact.

Act with sophisticated customers, who have choices one of those choices as to purchase firm services from us and a long term basis and many of them do well.

While we view the events and our financial results is largely non recurring we are already pursuing more long term firm capacity sales and some associated capital investments that will help our customers to be better positioned for future extreme weather and.

And create incremental value from Kinder Morgan and.

There is substantial interest and our services following the storm, which should help us and our base business and in new origination.

The result could be long term additional and more consistent earnings and investment without the extraordinary and rare game that we experienced in the first quarter.

Big lesson and that should be taken away is that an appropriate amount of contracting for firm deliverability should be and everyone's portfolio and.

In February of that reveals the value of storage and firm transport capacity and we would hope and any changes made and are the market structure with adequately compensate and incent parts to do so.

I mentioned our C. O. Two business also this is a bit of a different effect.

That's our biggest power consuming business and the state of Texas, our power contract with our provider enables us to shed load and be compensated at the prevailing power prices.

When they started to see pilot where power prices were headed Jesse or in Davis and his team started looking at shutting load.

So we shut down oil production and shed the load back into the market, where it could be allocated to higher priority human needs.

The contract work as designed and particularly with prices as high as $9000 a megawatt hour. We earned a substantial financial benefit while letting those megawatts will be made available to serve human needs.

Notable for the longer term Jesse and his team were able to restore production quickly and fully following the storm that's a great accomplishment.

They had some practice when power when oil prices went drastically down last year and we've gotten better at it since then our flexibility is greater.

This is great flexibility that we've now built into a part of our business that consumes about 340 megawatts in the state of Texas. So good flexibility that you have and the power market and the state of Texas.

So we're very proud of our whole team's performance.