Q2 2022 Kinder Morgan Inc Earnings Call
Welcome to the quarterly earnings Conference call today's call is being recorded.
You may disconnect at this time, all participants are in a listen only mode until the question and answer portion of today's call I would now like to.
Turn the call over to Mr. Rich Kinder executive Chairman of Kinder Morgan.
Thank you Jordan.
As I always do before we begin I'd like to remind you that <unk> earnings release today and this call.
Forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and the Securities 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 disclosure on forward looking statements and use of <unk>.
non-GAAP financial measures set forth at the end of our earnings release as well as review our latest filings with the SEC.
Important material assumptions expectations and risk factors, which may cause actual results to differ materially from those anticipated and described in such forward looking statements.
Let me start by saying that in these turbulent and volatile times. It seems to me that every public company Osage investors, a clear explanation of its strategy and its financial philosophy.
These days platitudes unsubstantiated hockey stick growth projections don't play well to my way of thinking and despite the pronouncements of celebrities.
<unk> may not favor the Braves so much as it favors the cash.
The ability to produce sizeable amounts of cash from operations should be viewed as a real positive bin picking investments but.
But I believe that generating cash is only part of the story. The rest is dependent on how that cash was utilized at Kinder Morgan, we consistently produced solid and growing cash flow and we demonstrated that once again this quarter at the board and the management level, we spend a lot of time and effort deciding how to deploy that cash.
Cash as I've said AD nauseum, our goals are to maintain a strong investment grade balance sheet bond expansion and acquisition opportunities pay it hasn't been growing dividend and further reward our shareholders by repurchasing our shares on an opportunistic basis.
Steve and the team will explain in detail we used our funds for all of those purposes in the second quarter.
To further clarify our way of thinking we approve new capital projects were only when we are assured that these projects will yield a return well in excess of our weighted cost of capital.
Obviously in the case of new pipeline projects. Most of the return is normally based on long term throughput contracts, which we were able to negotiate prior to the start of construction.
But we also look at the long term horizon, and we're pretty conservative in our assumptions on renewal contracts after expiration of the base term and on the terminal value of the investment that said, we are finding good opportunities to grow our pipeline network as demonstrated by our recent announcement of the expansion of our permanent highway pipe.
<unk>, which will enable additional natural gas to be transported out of the Permian basin.
So if we're generating lots of cash and using it in productive ways why isn't that reflected at a higher price per K ams stock or to use that old phrase if you're so smart why aren't you rich.
In my judgment market pricing has disconnected from the fundamentals of the midstream energy business, resulting in a <unk> yield dividend yield.
Approaching 7%, which seems ludicrous for a company with a stable assets of Kinder Morgan and the robust coverage of our dividend.
I don't have an answer for this disconnect and you know it's easy to blame factors over which we have no control like the mistaken belief in energy companies have no future or the volatility of crude prices.
Would you in fact have a relatively small impact on our financial performance specific to <unk>. Some of you may prefer that we adopt a swing for the fences philosophy, rather than our balanced approach while others may think we should be even more conservative than we are to paraphrase Abe Lincoln I know we can't please all of you all.
The time, but I can assure you that this board and management team are firmly committed to return value to our shareholders and that we will be as transparent as possible and explaining our story to you and to all of our constituents Steve.
We're having a good year, we're projecting to be nicely above plan for the year and substantially better year over year Q2 to Q2, as Ken and David will tell you.
Some of the outperformance as commodity price tailwind, but were also up on commercial and operational performance and here are some highlights.
Our capacity sales and renewals in our gas business, our strong gathering and processing is also strong up versus plan and up year over year existing capacity is growing in value I'll give you. An example, after years of talking about the impact of contract roll offs were now seeing value growth in men.
Places across our network. One recent example on our mid Continent Express pipeline. We recently completed an open season, where we awarded a substantial chunk of capacity at maximum rates those rates are above our original project right.
While not super material to our overall results I think it's a stark and good illustration of the broader trend of rate and term improvements on many of our renewals in the natural gas business unit.
Second in C. O. Two <unk> production is well above plan and of course, we are benefiting from higher commodity prices in this segment.
The product segment is ahead of plan and terminals is right on plan.
We're facing some cost headwinds, mostly because of added work. This year, while costs are up we're actually doing very well and holding back the impacts of inflation.
It's hard to measure precisely, but based on our analysis, we are well below the headline PPI numbers youre seeing and actually we appear to be experiencing less than half of those increases.
That's due to much good work by our procurement and operations teams and much of this good performance is attributable to our culture, we are frugal with our investors' money.
A few comments on capital allocation the order of operations remains the same as it has been for years first a strong balance sheet. We expect to end this year a bit better than our $4 five ex debt to EBITDA target, giving us capacity to take advantage of opportunities and protect us from risk as we noted at our Investor day. This year has.
That capacity is valuable to our equity owners.
We invest in attractive opportunities to add to the value of the firm. We have found some incremental opportunities and expect to invest about one 5 billion this year and expansion capital.
And notably we added an expansion of our Permian Highway pipeline, we picked up mass energy that's M. A S. A renewable natural gas company and we're close on a couple of more.
Additions to our renewable natural gas business, we're finding these opportunities and others all at attractive returns well above our cost of capital. Finally, we return the excess cash to our investors in the form of a growing well covered dividend and share repurchases. So far this year, we have purchased about six <unk>.
<unk> point 1 million shares while raising the dividend 3% year over year. As we look ahead, we have a $2 $1 billion backlog, 75% of which is in low carbon energy services, that's natural gas.
RMG as well as renewable diesel and associated feedstocks in our products and terminals segment.
Again, all of these are attractive returns and I want to emphasize is we've said I think many times now our investments in the energy transition businesses, we have done without sacrificing our return criteria a nice accomplishment.
Natural gas in particular, we are focused on continuing to be the provider of choice for the growing LNG market, where we expect to maintain and even expand on potentially our 50% share and a natural gas storage, which is highly cost effective energy storage in a market that will continue to need more.
<unk> again, we are having a very good year. We are further strengthening our balance sheet, finding excellent investment opportunities and returning value to shareholders and we are setting ourselves up well for the future.
Yeah.
Thanks, Steve starting with the natural gas business segment for the quarter.
Transport volumes were down about 2% approximately <unk> 6 million <unk> per day versus the second quarter of 2021 and that was driven primarily by reduced volumes to Mexico. As a result of third party pipeline capacity added to the market.
Pipeline outage on AT&T and continued decline in the Rockies production.
These declines were partially offset by higher LNG deliveries and higher power demand.
Deliveries to LNG facilities off of our pipelines averaged approximately $5 8 million deck with arms per day up 16% higher than the second quarter of 'twenty one.
But lower than the first quarter of this year due to the Freeport LNG outage.
Our current market share of deliveries to LNG facilities remains around 50%.
We currently have about seven Bcf a day of LNG feed gas contracted on our pipes and we've got another two six Bcf a day of highly likely contract where projects have been built or where we expect them to F. D. In the near term.
We're also working on a significant amount of other potential projects and given the proximity of our assets to the planned LNG expansion, we expect to maintain or grow that market share as we pursue those opportunities deliver.
Deliveries to power plants in the quarter or robot.
Up about 7% versus the second quarter of 'twenty one.
The overall demand for natural gas is very strong and it seems that that drives a nice demand for our transport and storage services for the future. We can send you to anticipate growth in LNG export power industrial and exports to Mexico.
Our LNG demand are internal and wood Mac numbers project between 11% and 15 Bcf a day of LNG demand growth by 2028.
Our natural gas gathering volumes in the quarter were up 12% compared to the second quarter of 'twenty, one sequentially volumes were up 6% with a big increase in the Haynesville volumes up 15% in Eagle Ford volumes up 10%.
These increases were somewhat offset by lower volumes in the Bakken overall.
Overall, our gathering volumes in the natural gas segment were budgeted to increase by 10% for the full year and we're off.
Currently on track to exceed that number.
And our products pipeline segment refined products volumes were down 2% for the quarter versus the second quarter of 2021 gasoline and diesel were down, 3% and 11%, respectively, but we don't see a 19% increase in jet fuel demand.
For July we started the mark down versus 2021 on refined products, but we have seeing gasoline prices decreased nicely over the last month or so.
Crude and condensate volumes were down 6% in the quarter versus the first quarter 'twenty one.
<unk> volumes were down 2% with a reduction in the Bakken volumes more than offsetting an increase in the Eagle Ford.
In our terminal business segment liquids utilization percentage remains high at 91% excluding tanks out of service for required inspections, utilizations, approximately 94% and liquids throughput during the quarter was up 4% driven by gasoline diesel and renewable.
We have seen some rate weakness on renewal on renewal of contract renewals in our hub terminal.
Impacted by the backwardation in the market just.
Just like we saw some marginal benefit when the curve wasn't a contango position a couple of years ago. Although we were hurt in the quarter by lower average rates on our marine tankers. All 16 vessels are currently sailing under firm contracts and rates are now at pre COVID-19 levels.
On the bulk side overall volumes increased by 1% driven by pet Coke and coal and that was somewhat offset by lower sales volume.
And the C O two segment crude NGL and C. O two volumes were down compared to Q2 of 'twenty, one, but that was more than offset by higher commodity by higher commodity prices persist.
Versus our budget crude NGL and C O two volume as well as price on all of these commodities.
Are all expected to exceed our expectations.
Overall, we had a very nice first half of the year. We currently project that we will exceed our full year 2020 plan DCF and EBITDA by 5% and we've approved a number of nice new projects, including the PHP expansion and events eventually in past phase one.
With that I'll turn it over to David Michael Thank.
Thank you Kim.
For the second quarter of 2022, we're declaring a dividend of <unk>.
277, $5 per share, which is $1 11 per share annualized up 3% from our 2021 dividend.
And one highlight before we begin the financial performance review as Steve mentioned, we took advantage of a low stock price by tapping our board approved share repurchase program year to date, we've repurchased 16 1 million shares for $17.09 per share.
We believe those repurchases will generate an attractive return for our shareholders. Our savings from the current dividends alone without regard to terminal value assumptions or dividend growth in the future is six 5% a nice return to our shareholders.
Moving on to the second quarter financial performance, we generated revenues of $5. One 5 billion up $2 billion from the second quarter of 2021.
Our associated cost of sales also increased by $1 7 billion combining those two.
Items, our gross margin was $254 million higher this quarter versus a year ago.
Our net income was $635 million up from a net loss of $757 million in the second quarter of last year, but that includes a noncash impairment items for 2021, our adjusted earnings which excludes certain items, including that noncash impairment was $621 million this quarter up.
20% from the adjusted earnings in the second quarter of 2021.
As for our DCF performance each of our business units generated higher EBITDA in the second quarter of last year.
Natural gas and natural gas segment was up $69 million with greater contributions from Stagecoach, which we acquired in July of last year greater volumes through our Kinderhook system favorable commodity price impacts on our ultimate in Copano, South Texas systems and.
And those are partially offset by lower contributions from <unk> and <unk>.
Products segment was up $6 million driven by favorable price impacts, partially offset by lower crude volumes on Highland and double H as well as higher integrity costs. Our terminals segment was up $7 million with greater contributions from expansion projects placed in service a gain on a sale of an idled facility and great.
<unk> coal and pet Coke volumes those are partially offset by lower contributions from our New York Harbor Harbor terminals, and our Jones Act tanker business versus the second quarter of last year.
Our Cotwo segment was up $60 million driven by favorable commodity prices more than offsetting lower year over year oil and cotwo as well as some higher operating costs.
Also adding to that segment were contributions from our energy transition ventures renewable natural gas business kinetics, which we acquired in August of last year.
The DCF in total was 117 $6 billion.
15% over the second quarter of 2021, and our DCF per share was <unk> 52.
Up 16% from last year.
So very nice performance.
Onto our balance sheet, we ended the second quarter with $31 billion of net debt and a net debt to adjusted EBITDA ratio of four three times, that's up from year end at three nine times.
So that three nine times includes the nonrecurring EBITDA contributions from the winter storm event in February of 2021 the.
The ratio at year end would have been four six times, excluding the Uri EBITDA contributions. So we ended the quarter favorable to our yearend recurring metric.
Our net debt has decreased $185 million year to date.
I will reconcile that change too.
Through the end of the second quarter, we've generated year to date DCF of $2 63, $1 billion, we've paid out dividends of $1 $2 billion.
We have spent $500 million on growth capital and contributions to our joint ventures.
We've posted about $300 million of margin related to hedging activity.
Through the second quarter, we had $170 million of stock repurchases and we've had approximately $300 million of working capital usage year to date and that explains the majority of the year to date net debt change.
And with that I'll turn it back to Steve Alright.
Alright. Thank you. So we'll open up to the Q&A part of the session and as a reminder, as we've been doing we ask you to limit your questions in one question and one follow up and then if you've got more.
Get back in the queue and we will get to you and here in the room, we have a good portion of our management team and <unk>.
As you ask your questions I'll, let you hear directly from them on your question about questions about their businesses, though Jordan you would open up the Q&A.
Thank you we will now begin the question and answer session, if you'd like to ask a question over the phone lines. Please press Star then one.
<unk> company.
Withdraw your question Press Star two.
Our first question comes from Jeremy Tonet from Jpmorgan. Your line is open.
Hi, good afternoon.
Noon.
So I guess, a big claim and shouldn't be on the high on the list for organic growth projects anytime soon I'm taking it.
But moving on to the Permian just wanted to see as far as takeaways concern whats your latest look there as far as when tightness could materialize and at the same time with <unk> just wondering if.
What it takes to recap I D. There if the basin is tight then could this be a near term event.
Tom Yes, so I think with.
With the projects, including ours.
And are proceeding in the construction mode.
There may be on a near term tightness, but once those projects, though on the surface, we feel like the market's.
Pretty well served until the latter part of the decade. So I think the next projects will likely come out.
Those need to be up high teens on Tom on 24 may be 25, and there is still maybe opportunities on the near term for <unk> we are.
In several discussions with a lot of additional customers, therefore pockets of capacity, especially to serve LNG markets, but I think for.
For now I think the markets at least one of them.
Near term to intermediate term pretty well served and.
<unk> is fast to market as a compression expansion.
In the middle part of the decade, our 27 to 30 months to complete Luckily for us.
Got it so just want to confirm there not back half a decade next pipe you sat there as far as beyond what's currently out there.
Got it and real quick just on the renewable natural gas.
Just wanted to see if you could provide more details on the acquisition here.
Can am.
As far as the economics, what type of renewable credits were kind of baked in their expectations and should we expect kind of more acquisitions of this nature going forward is this an area that is ripe for consolidation for Kinder to go after just wondering broader thoughts there.
Yes, so the acquisition we're excited about it.
At three on three <unk> landfill gas.
Asset.
One RMG facility in Arlington, and Thats, the bulk of the value here.
$355 million.
Two medium btu facility, and the sheep, and Shreveport, and Victoria as well.
It is a little bit different from the metrics deal.
That's the operating assets is largely de risked.
Arlington has favorable royalty arrangements in place.
A longtime contract into the transportation market. So it is we weren't exposed here.
And the longer long term EBITDA multiple here is around eight times.
Okay.
Prospects for additional yeah, and so I think Steve mentioned, we have line of sight for some additional growth.
There are some opportunities on the M&A side, but I think largely.
We will be looking at.
To grow organically in the future.
Yes.
Got it that's helpful. Thank you and you're right Jeremy.
Bitcoin is not even in the shadow backlog.
Got it.
Yes.
I didn't think so thank you.
Okay.
Our next question comes from Jean Ann Salisbury with Bernstein. Your line is open.
Hi.
The operation had to adjust for the outage can you talk about interesting workflows into Louisiana Mexicana or getting absorbed by Texas weather are.
Or are you just kind of not getting paid and some of it then it's a good question here.
Yes, so I would say a fairly a material financial impact to us, but as far as an impact to the market.
We're certainly seeing the basis market.
Katy ship channel area weekend.
Additional volumes that are hitting the Texas market I think could help support.
George Gulf Coast storage more broadly, but certainly has been at.
At least partially offset by the extreme power demand that we've been saying.
Serum, Texas and along the Gulf Coast, and I would say just with the connectivity with the <unk>.
Interstate pipeline grid between and trials on Interstates.
Those volumes are getting pretty well dispersed.
Great. Thank you.
And then my second question is very long term.
<unk> asked about this in general, let's move on to make sure I'm getting it right.
Just kind of wanted to understand or find chronic pain.
And the kind of concern I'm hearing if we play out in energy transition scenario, we're flowing them and 15 years, it's much lower than today, let's say can you talk about what would happen.
The pipe revenue or.
Is it mostly cosponsored with datacenter negotiated or something to that.
Yes, <unk>, yes, I guess I would say first of all.
It depends on where sort of where it happens I mean, I think from a from an economic protection perspective, we have the ability.
Two.
We wrapped ratemaking protection on the pipes to be able to take into account decreased volumes, they increased rates to be able to to protect us.
And so I think the place it's probably been most.
Progressive on this has been California with the conversation about potentially banning the internal combustion engine, but if you look at that really what that gets to his road fuels consumed in the state of California.
We obviously transport a lot of.
Products out of there to other states and we did an analysis on that and that that came to about 11% of products EBITDA are.
On a 2019 basis. So if you look at the place that's probably the most progressive on it.
That's that's really kind of what youre looking at from our segments perspective, and that's before you put in place.
Tariff protection. So that's the way we look at it yeah. So Jean Ann there's a bit of a contrast here between how things work on the products pipeline and for example, how things work on on the natural gas pipelines. We do tend to do a lot of negotiated rate transactions on the natural gas pipeline grid.
In the regulated Interstate while even intrastate refined products pipelines. Those are typically those are they are cost of service regulated common carrier pipelines were just recently settled.
A significant rate case with long running rate case on our <unk> system, we have an ongoing one on the intrastate and the CPUC business, but if you think about these pipes economically they really are the cheapest and best way to move the product from point a to point B and so there is good.
Strength in their market position and so yes, if there was a decrease in volume.
You would go in and you would say I have lower volume units of spreading the same cost of service over a lower number a lower number of barrels and I want a rate increase no. That's not how we run the railroad and that's not something that we've had to do with the one exception of the California intrastate.
Market and it.
It is a bit of a different dynamic between refined products pipelines in the natural gas pipelines.
The other great.
We can renewable diesel.
Through our pipe so to the extent that you know that gets replaced renewable destocking go through and also.
Sustainable aviation fuel could be moved through our pipes as well.
So it does sort of replacement products.
Great and.
That's very helpful and thank you for that Theyre out there I'll answer and that's all for me.
Our next question comes from Colton Bean with Tudor Pickering, Holt <unk> co. Your line is open.
Good afternoon on the guidance increase it looks like EBITDA step up into $350 million of better first are there any offsets at the cash flow level that result in DCF also being 5% or is that just a function of rounding and then second I think you all had flagged about $750 million of discretionary cash in the original budget.
Should we assume the guidance increases attitude to that total, including the 100 million bump in capex in this quarter.
Hey, Andy.
The offsets are the items that are unfavorable between EBITDA and DCF for us our interest expense and sustaining capital interest expense versus our budget is just up because short term rates are.
Meaningfully above what we had budgeted.
And our longer term rates are also up a little bit and then the sustaining capital we have some incremental class change costs that we had that we didn't budget for and a little bit of inflation costs, increasing our sustaining capital and <unk>.
Of the available capacity that we talked about at the beginning of the year the $750 million.
It was based on available capacity, given our budgeted EBITDA.
And assume spend for the year, our EBITDA is up nicely. So that's increased the available balance sheet capacity that we have but we've also spent we're also increasing our spend a little bit more than what we had budgeted given the modest transaction.
We have a couple of additional projects in <unk>.
And our discretionary spend that Steve talked about.
And we've repurchased.
We've repurchased some shares that werent in our budget. So overall, our available or available capacity is still higher.
Then what we had budgeted but we've also spent a fair amount.
More than what we had budgeted as well.
Okay, and then David maybe just sticking on the financing side of things I think you. All had noted that you had locked in roughly $5 billion of your floating rate exposure through the end of this year any update there shifts in how you are thinking about managing that heading into 2023.
Yes, we havent had a similar opportunity to lock in favorable rates for 2023. So we're very pleased that we locked it in for this year, it's been a almost a $70 million benefit to us this year, but it will continue to look at ways that we could potentially mitigate that going into 2023, but so far we havent found any favorable.
Opportunities to do that because we just continue to see as we go through the year more pressure on falling short term rates going into next year with some of the recessionary pressures that we've seen in the market I think thats starting to loosen up a little bit. So we will continue to take a look at it but nothing yet.
Great. Thank you.
[laughter].
Our next question comes from Chase Mulvehill with Bank of America. Your line is open.
Hey, good afternoon.
Yes, I wanted to come back and kind of hit on guidance a little bit.
I guess I'm just.
Specifically on gathering volumes I think you got it up originally 10%.
And I think you noted you are going to be above that and you kind of mentioned that in last quarters conference call as well and you've obviously given us the sensitivity here that we can use towards your guidance.
How much do you think that.
Gathering volumes will be up now.
And I guess, maybe what's included in the updated guidance.
So we think it's going to be up I think it's around 13%.
And versus the plan and it is included in our updated guidance.
Okay great.
Can I ask kind of maybe it's a little more technical question, but a rail and kind of brownfield Permian egress expansions.
How should we think about the timing and how this incremental capacity will pull through.
Your mental volumes basically what I'm asking is will you be able to pull through more volumes gradually as you add each incremental compression station.
You ultimately all star.
The incremental production at once if and when you have all the compression stations added.
No I think it's a it's more of a white light switch experience as.
As we approach November December 'twenty three.
It will be certainly tests volumes additional volumes.
Volumes that we do tests along the way.
But I think to get to the ultimate delivery point, where the customers want to go a little little wall happen.
November November December 'twenty three.
Okay, perfect I'll turn it back over thanks.
Our next question comes from Michael Blum with Wells Fargo. Your line is open.
Thanks, Good afternoon, everyone I wanted to maybe just start with the opening comments about the stock price I'm. Just wondering if you could expand a little more there and I guess specifically are there any are there any specific actions that you are contemplating that to impact the stock price here.
Well I've learned a long time ago that the ability of.
The management team to influence the stock prices are pretty remote.
But let me just say in the point of what I was trying to do is I think there. It's not just kinder Morgan and I think there is a tremendous disconnect between the way the market is valuing your midstream energy companies.
Because theres much more of a correlation with crude oil prices and our stock and there ought to be.
As we tell everybody at the beginning of the year exactly how much the impact is per dollar of change in crude and natural gas prices and of course, that's relatively small number of lessons as you get further end of the year.
That's just one example of I think kind of a knee jerk reaction.
The market.
I think the best thing, we can do as a management and board.
His distress again and again the strength of our cash flow and the fact that we're using it wisely.
And I think we demonstrated that in this quarter and the way we've deployed.
Cash.
So that's that's our game plan pretty simple and not very imaginative really but.
I think in the long run.
And maybe where the charters versus a hair, but in the long run I think we get rewarded for the kind of performance. We have produced now quarter after quarter after quarter.
Alright, great. Thank you for those those comments I guess my my second question well first of all Anthony Congratulations on these expanded responsibilities.
Maybe I'm reading into this but Mike. My question is really you know with the promotion to run both the energy transition and C. O. Two can I read anything into that about maybe enhanced prospects for carbon capture you are kind of bringing these two things under the same roof.
But look I think we feel like there are some synergies there and I'll ask Anthony to expand on that but I mean.
We'll use the same geologist for carbon capture and sequestration as we do for <unk> I mean, we've been sequestering cotwo decades, and we use it in connection with the enhanced oil recovery operations, obviously, but it's the same technology, if you will and.
And so we think there is synergy there and there are a few others, but I'll turn it over to Anthony to answer the rest.
I suggest you had a great opportunity and we wish him well.
And it's a great opportunity for me and I've inherited a really great team. So I appreciate that.
I don't think youre going to see.
I don't think materially different from the way, we kind of run things.
Moving forward.
As Steve mentioned I think as we have been moving forward with ETV, it's become more and more apparent that there's a lot of overlap, especially with our with the C. O two groups and all the technical experience that we've been using.
And we will be further integrating those groups and taking advantage of that and I think that will provide some nice commercial synergies down the road, but.
We don't have anything.
Special to announce and I don't think you're going to see.
The way, we run the CEO to business or <unk> to be materially different from from the wide Jesse was doing.
I think the further integration benefits that we have the same operational organization. So some of these where it was a small company we acquired and we have other acquisition that we're integrating and so having a common operations platform I think will be very helpful. We also have a common project management platform, which is also helpful and of course, we've always had.
Centralized procurement organization and bringing the power of that procurement organization to bear on these development opportunities I think all that will pay dividends, but this is not this is not leaning into the cc U S that will we think there are opportunities. There. We think there they are coming but coming slowly and there is some <unk>.
Resolution of $45, two tax credit levels, and things like that that still needs to unfold, but anyway. This business fits together so it stays together.
Great. Thank you very much.
Our next question comes from Keith Stanley with Wolfe Research. Your line is open.
Hi, good afternoon.
First wanted to ask just on.
The next wave of LNG projects. So you have this 600 million dollar projects Youre announcing.
On T. G. P M S N G tied to blackmun's.
Can you talk to which specific LNG projects, we should track more closely that you see more opportunity to potentially provide gas services too and is there any way to frame the potential investment opportunity in dollars around new LNG projects. The next five years. So should we expect other 600 million type investment opportunities.
These tied to the next wave of projects.
Yes, I mean, so I don't want to cold winters of losers in here, but I mean, I think the way you would think about it.
As those that have been successful to this point already I think have a good chance of.
Being more successful over time by virtue of expansions of their existing footprints.
Theres certainly some new <unk>.
Entrants that we're very excited to be partnering with.
To grow along with Texas, Louisiana Gulf Coast.
And again I think given the proximity of our footprint.
We're talking to all of these developers and working with all of them.
And looking for ways to expand our footprint and even bill some greenfield.
Projects to support their of their growth. So we feel very bullish about this opportunity.
You know we think there are significant.
<unk> opportunity here over over the next three to five years and so as a result, some of the opportunities we will be able to utilize the capacity on our existing system or add compression and they'll be very very efficient and then some of the opportunities will require greenfield some level of Greenfield development.
So it will be a combination of both.
And I think the macro opportunity here is incredible I'll come back to what Kim said, depending on which expert you listen to.
The projections are that between now over the next five years or so youre going to have 11 through 13 or 14 Bcf a day growth in LNG.
We fully expect to be able to maintain our 50% share, which we have now that's an incredible increase in throughput.
A lot of which is attributable to the present system that we have in place along the Texas, Louisiana Gulf Coast, It's an incredible green shoot for Kinder Morgan.
Thank you all for that and.
Separate question, I guess kind of revisiting Michael's question from earlier so.
The company hasn't really done material stock buybacks since really kind of 2018 and it looks like you did 270 million. The average price implies that was kind of done over the past months for the most part so I know you've talked to being bullish on the stock price, but just any other color on.
What changed in the market or just the decision process, because it's a pretty material step up in buybacks and a brief period and how youre thinking about that I guess over the balance of the year since you still have available capacity.
Start David you can fill in but.
We kind of planned to look at how the year was unfolding over the first quarter.
To get you know get a lot of confidence around that.
We live in uncertain times right. So we were we have good strong cash flows are secured by contracts and all of that we've got a lot of stability in our business, but kind of wanted to see how the year was unfolding and so that was then things look good we talked about it looking good in Q1 thought we were going to be up on guidance, but didn't quantify it for you and and.
So that was a good opportunity we had to use some capacity and we've stuck to our opportunistic approach to share repurchases and that's exactly what we expect to continue to do and we would expect.
You can't call it for sure, but we would expect to have opportunities to do more through the course of the year.
And one more thing.
I think Steve covered it I, just we would balance some of the additional spend that we have already occurred incurred with the additional available capacity that we generated because of our EBITDA outperformance. So we'll look at a balance of those items along with the opportunistic opportunistic share repurchases for the rest of the year.
Thank you.
Okay.
Our next question comes from Mark Sollecito with Barclays. Your line is open.
Hi, good afternoon with inflation tracking where it is now.
It should be a nice tailwind for your products business. Just wondering if you could maybe comment on how the interplay with the broader macro and any competitive dynamics across your footprint and your ability to fully pass that through.
That's why as you said based on where PPI.
We follow the FERC methodology on a FERC policy at day 92 pipes.
Which right now is <unk> minus 21% and we implemented.
The rate.
Rate increase on July one of eight 7% across our assets and based on where it's tracking right now I think the.
Assuming we would.
BPI continues where it is and that we would implement the full thing which is what we would expect that.
We're in the neighborhood of 15% next year.
Great appreciate the color there.
And then on your Capex budget, the $1 5 billion for this year should we think the bulk of the Capex spend on ph people come in 'twenty, three or is that any context into what the capex cost component of these expansions could be.
And then on Evangeline pads could we see Capex move higher this year subject to definitive commercial agreements or that's been mostly come in later years.
They're going to be later.
Partly because we got a regulatory process to go through it and.
Right on.
On PHP.
It's going to be mostly in 'twenty three.
And the county.
Incorporated in the $1 five.
Got it I appreciate the time.
Our next question comes from Michael <unk> with Goldman Sachs. Your line is open hey, guys. Congrats on a good quarter and congrats to Tom to Anthony for for the movement around in the greater opportunities one kind of near term question refined products pipeline volume or through.
During the quarter.
Little bit weak on gasoline a little bit weak on diesel can you just kind of talk about whether that's geographic specific to you whether that's more just general demand destruction due to price, especially on the diesel side.
Yes, we are seeing a little bit of.
Demand destruction.
You know a bit across the system I would say on road fuels jet fuel.
As you would expect as you see nationally a pretty a pretty strong increase I mean, I think the EIA numbers on jet or about 18 as Kim said, we're about 19.
Diesel you saw a larger decrease.
On our assets.
I was just.
Right around 3%, we were closer to 11.
But I will remind you on diesel.
Still within 2% of where we were in 2019, we saw a big jump last year on.
On diesel volume, so while we've seen a come off compared to Q2 of last year.
Still I'm still pretty robust, but we have seen a little bit of.
A little bit of demand destruction, but I think you've seen.
Gasoline prices across the country come off for I want to say 35 days straight so we've seen.
We've seen customer response, we've also seen a price response.
Got it.
And then maybe a follow up for Anthony just thinking about the landfill gas deal that you announced today and I think you made a comment that kind of build multiple cold call. It roughly eight times is that kind of a year, one and that therefore as we think about it over time that that build multiple actually gets better over time as as production.
[noise] ramps, where is that what you think kind of a steady state would be and how do you compare that to the EBIT down returns on capital that you get out of the natural gas pay you know kind of a core gas pipeline business.
Yes.
And ramps up to to aid and gets better from there. So there is growth that this landfill, which is really primarily driven by the Arlington asset.
We have perpetual gas rights, there and there is a potential expansion that we have down the road on that asset and so the EBIT or EBITDA multiple gets better over time, I'd say that that.
Eight times is more of an average.
In our over the medium term.
There.
With regards.
How we think about them.
Nat gas.
I think we'd look at it on on different types of opportunities is a very different type of investment so I'm not sure it's necessarily comparing apples to apples.
But I think in terms of the opportunity here as we think about our R&D portfolio.
These are assets, which are largely de risked.
There are in operations today.
There are as I said.
Long term gas rights here with Arlington is an expansion and growth opportunity.
So I think its an attractive acquisition in terms of how.
How we think about that.
In this space.
And this is a general comment Michael but as we said at the beginning of it.
Yeah.
We have not had to sacrifice our return criteria and have not had to sacrifice the margin above our weighted average cost of capital.
To be able to invest in these things we've been very selective about how we've entered this sector.
Got it. Thank you guys much appreciate it I'll follow up with the team offline.
Okay.
Our next question comes from Brian Reynolds with UBS. Your line is open.
Hi, good afternoon, everyone.
Curious just on Ruby pipeline, if there is any updates on the bankruptcy proceedings and if there are any initial thoughts on a near term resolution as it relates to Nat gas service and if there's any.
Commentary on potential long term CEO to transport given a regional peer looking to do the same. Thanks, Yeah, we'll ask Kevin Grommet, our head of corporate development.
In terms of the bankruptcy proceeding RUBI has in place a independent set of managers, who have been managing a lot of the day to day on the proceedings.
There had been some recent court activity around <unk>.
While proceeding forward.
A potential 363 sale and just.
Getting to a resolution of the case.
A lot of a certain timeline.
So that's where it stands I can't comment on any specific.
<unk> or discussions with with parties involved.
Ill point to our prior comments on this which is anything that I can I does around review is going to be in the interest of <unk> shareholders. I think as it relates to your question around potential conversion of Oh to service on the pipe I think first.
Pipe does continue to serve a need for the California market and so there. It is it is.
Pipe that has a good service and natural gas service today, but.
But across our network, we are looking at repurposing opportunities, but.
I think our general view at this point is those are those are longer dated opportunities.
Great I appreciate the color and then a quick follow up on the guidance range just given some of some of the acquisitions during the year I'm curious if you could just kind of break out organic raise versus the contribution from some of the acquisitions year to date. Thanks.
Okay.
Uh huh.
Yes, I mean, I would say, it's it's I mean, if we do have a little bit of benefit from commodity prices, but we also have the benefit from.
Our underlying base business and a lot of that has come from.
We're seeing some attractive renewals in the natural gas business and that's really in multiple places and it's on our Texas intrastate business. It's on.
It's on a N G P L.
Growth in our gathering business.
So it's really I think a lot of that is organic strength in.
In those contracts as we roll off there's some contribution from expansion capital during the but a lot of that ends up getting budgeted for the year based on what we know going in and a lot of what we do that we sanctioned in the year ends up benefiting subsequent years. So I think you can attributed to commodity price tailwind and and divorce.
And just for organic growth in the base existing footprint.
Because things.
To like stage coach we budgeted.
You know expansions that we knew about before the year started we budgeted and most exciting.
Spansion that we found that we're doing this year don't come on until 2023, and 2024 and beyond.
Great that's super helpful and just for a clarification just for the original guide on a landfill acquisition was that included before or is that included in the kind of 5% rates.
Yeah.
Kinetics wasn't included in the budget.
And manner would be incremental I mean off would be incremental to the budget.
Okay I appreciate it and have a great rest of your evening everyone.
Thank you. Our next question comes from Michael Cusimano from Pickering Energy Partners. Your line is open.
Hi, good afternoon, everyone.
Two questions for me.
First just is it fair to assume that the declines on Highland and double H, where.
Weather related and can you talk through like how that has recovered and maybe.
Other volume growth outlook has changed if any going forward.
Do you have an answer on the volumes yeah definitely on Highland I would say the overwhelming majority of it is I mean, just to give you some of the numbers and that was the unexpected storm that came through in April .
We were doing roughly you know north of 200000 barrels a day in.
Prior to that in April we ended up doing $1 63.
And then we averaged about 188 for the quarter, but we're back you know in June doing roughly 207. So it was a big chunk of it.
For double H less that has a lot more to do with the <unk>.
The spreads out of the Bakken, but it was absolutely the issue for how incurred.
And the gas volumes.
Covered back to sort of pre outage levels.
Okay. That's helpful.
And then looking at the terminals business.
You mentioned utilization and rates are down a little bit because of the degradation.
And then Jones Act sounds like it's kind of trough at this point.
Am I wrong in thinking that we've reached like maybe like a new base level from that segment or are there other puts and takes that you think of that.
No Youre correct.
The rate degradation that we've seen is specifically just the New York Harbor.
We've seen great to actually return to the levels. We saw last year in the Houston area, and we're back to a 100% utilization there.
As it relates to <unk>, we saw a trough last year rates to spending into the mid fifties per day.
And they are back into the mid <unk> now, we're 100% utilized all of the vessels are moving and we're actually seeing an increase in term where we were around two year term last year. We're now looking at six two years.
With likely renewals so the answer to your question yes.
Okay and was the.
Can you all mentioned that that was excluded from the reported.
What was the gain sohail pain.
Gain on sale was gain on sale was that excluded from EBITDA.
So we have a we have a level at a certain level 15 $15 million.
Hum that anything Thats below 15 million. That's you know like the gain on sale or something like that it stays in the DCF.
Anything that is above that.
We take out the nonrecurring in nature.
We take out of D. C. Yeah, Yeah, we had a lower threshold for a long time it created a lot of noise in our numbers and made things confusing for people and so we've raised that threshold, which I think it makes it.
Simpler for our investors and also is better at excluding really the one time.
Items, because you know from time to time, we do have some land sales that you know and so I think that the higher threshold just makes a lot of those smaller nonrecurring pluses and minuses and I'll get reflected.
Okay got you.
Is that something that you would quantify in the cure.
Our materials going forward.
The amount of smaller non recurring items that are impacting our EBITDA and DCF no we won't.
Let that flow through.
Like we are today like on this land.
<unk> will explain the gains.
And losses, if they're large enough to explain but will continue to explain the ones that are with larger nonrecurring items. So those will continue to be carved out, but there'll be less noise with this but again, the smaller positives and negatives will flow through.
Got it alright, that's all for me.
Clarification.
Our final question comes from Harry Mateer with Barclays. Your line is open.
Hi, good afternoon.
Just two for me I think the first now that we're at the Midway point of the year wed like to get an update on <unk>.
How you're navigating your refinancing plans you've got some maturities coming due early next year I think you could probably call them out late this year, so how you're thinking about navigating that and then.
Secondly, there was a line in the press release about.
Expected to meet or improve from the debt metric goal and I just want to confirm that that's referring to the.
Four three times budget, rather than like a formal change to the.
Approximately four and a half time school you guys have had for a couple of years. Thanks.
Yes, no that is referring to.
Yeah.
Ending the year better than or better than our budgeted level. That's what we currently expect.
But with regard to kind of how we are navigating it.
Issuances and how we're going to handle some of the maturities coming due.
As I'm sure you're aware Harry we are through our maturities for 2022.
We do have about a little bit north of $900 million in CP. Currently so, but that's why we have $4 billion credit facility to handle short term needs like this from time to time.
And since we have 3 billion plus of capacity available. We don't have any rush to term that out. So we can be patient they will look to potentially turn that out sometime in the near term, but we'll be patient, we'll wafer favorable conditions and then next year. It is a $3 2 billion maturity here.
Relatively large, but we get the full year to do it and we have the revolving capacity revolver capacity to manage the timing that out waiting for favorable market condition.
Okay got it but.
The company's formal leverage target is still four and a half turns is that right David <unk>.
Approximately around four five times, that's right got it okay. Thank you.
Yeah.
We have no more callers in the queue.
Okay, well, thank you very much Jordan and thanks to everybody for listening if they have a good day.
Thank you for your participation in today's conference you may disconnect at this time.