Q3 2022 Kinder Morgan Inc Earnings Call
Welcome to the quarterly earnings conference call at this time, all participants are in a listen only mode.
Q&A session, if you'd like to ask a question. Please press star one on your phone.
This call is being recorded if you have any objections. Please disconnect at this time I will now turn the call over to rich Kinder executive Chairman of Kinder Morgan. Thank you Jed and before I begin as we always do I'd like to remind you that.
The 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 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 our law.
<unk> 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 in such forward looking statements.
And analysts recently described Kinder Morgan as our capital efficient business model leverage to natural gas infrastructure growth.
Largely agree with that assessment, although it Mitch.
Significant steps in our energy transition efforts, including renewable natural gas renewable diesel and potentially carbon capture and sequestration I spent the last several quarters on this call describing that capital efficient business model and today I want to spend a bit of time discussing natural gas infrastructure.
Value of our existing infrastructure in today's environment.
As we all know it's become increasingly difficult to build new Greenfield pipeline projects, particularly in the northeast and other areas outside the U S Golf course coast. While this situation is in my opinion unfortunate and poor public policy. It does make existing infrastructure even more valuable.
Don't think that value is fully recognized by the equity markets. The difficulty in building new pipeline and ancillary facilities widens. The moat do you use Warren Buffett sprays.
All of the existing assets that a company like <unk>.
That's an obvious source of additional value.
Beyond that having such an extensive network already in place affords great opportunity for a company like ours to extend and expand our assets on an incremental basis without the herculean task of permitting and building a new Greenfield project those.
Step out projects can provide great service to our customers and yield a very good return for our shareholders.
We're fortunate that a large portion of our network is in Texas, and Louisiana States that understand and appreciate the need for new energy infrastructure.
So much of the demand for additional throughput, particularly natural gas is located.
Let me be more specific there.
Demand for natural gas in those states is projected to grow enormously over the rest of this decade.
Growth is driven by a number of end users, but let me just focused on LNG export facilities.
Year to date in 2022, LNG is consuming over 11 Bcf a day and that number incorporates the absence of roughly two Bcf a day of demand from the Freeport facility, which has been shut down since June .
According to the S&P global LNG forecast that number is predicted to grow to 22 Bcf a day by 2027 as new facilities come online that's virtually doubling the current demand which has already grown by 400% in the last five years, we project that after 27 LNG demand will continue.
To grow and expect it to be 28 Bcf a day by 2030.
Given the situation in Europe today, which will result in more long term contracts and the continuing issues in Asia. This hyper growth scenario actually seems pretty reasonable to me.
That's a huge increase and most of it will occur in Texas, and Louisiana, where so much of our asset base is located.
That is what we in the pipeline business called demand pool, which in many respects is more valuable than supply push.
As you know we currently move about 50% of all the gas consumed by LNG facilities, and we expect to maintain or expand that share in the future.
To serve our customers both producers and end users we are continuously expanding our system.
On an incremental basis.
To accommodate the growth we expect just a couple of examples of that effort includes the expansion of our PHP system like <unk>.
The Permian basin to the Gulf Coast and the building of the Evangeline pass system to serve the venture capital LNG facility and Plaquemines parish, Louisiana, and we expect to announce additional projects in the coming months when you add the increasing need for natural gas for industrial uses electric generation and exports to Mexico.
Do that massive LNG demand. The result is an enormous opportunity to grow our system in a capital efficient manner, which in turn will grow the value of our company Steve Yes.
Yes. Thanks, Rich we are having a good year, we are projecting to be nicely above plan for the year and substantially better year over year Q3 to Q3, as Kim and David will show you.
Some of the outperformance is commodity price tailwind, but were also up on commercial and operational performance. Just a couple of highlights our capacity sales and renewals in our gas business. Our strong gathering and processing is also up versus plan and up year over year existing capacity is growing in value.
On our natural gas network, and we're seeing it across our network on our major Interstate systems and on our Texas Intrastate system and we're seeing it in both storage and transportation service offerings, and we're eating even seeing it on a previously challenged system the mid continent Express pipeline.
C O two sack rock production has well above plan and of course, we are benefiting from higher commodity prices. In this segment still prices are not as elevated as they were when we talked after Q2.
We are facing cost headwinds, mostly because of added work this year, but 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 of what we can reliably track we are well below the headline PPI numbers that you're saying actually we appear to be experiencing about half of that increase.
Much good works by our procurement and operations teams and much of this good performance is attributable to our culture, we are frugal with our investors' money.
Looking ahead, we are seeing good opportunities across our network and a gas in particular rich emphasized LNG and that is clearly the biggest long term opportunity and our network is especially well positioned and I'll give you an illustration of that we currently have five seven Bcf a day under long term contracts serving existing.
LNG facilities.
Associated investment for that five seven Bcf was one $3 billion that is very capital efficient expansion of our network.
There are other opportunities as well, we have identified and talk to customers on our Texas intrastate system about over a Bcf a day each of power plant industrial and utility expansions of course, not all of that's going to happen, but it shows the level of economic activity and one of our biggest natura.
Gas markets, we now have a backlog of $2 $7 billion of projects, that's up 600 million on a net basis since last quarter, mainly taking into account the projects that rolled into service over the quarter and almost 80% of that backlog is a low carbon investments natural gas energy transition venture.
<unk> and renewable diesel and renewable feedstocks projects in our products and terminals businesses.
On energy transition ventures, we expect with what we have already acquired and with the projects under construction or development right now to invest about $1 $2 billion at an EBITDA multiple of a little over five times when everything is up and running I'll add that while we have experienced some delay and modest cost increases in this.
Business. The returns are very good and the EBITDA multiple is strong.
We also closed on the sale of an interest in our Elba liquefaction facility during the quarter the implied enterprise value to EBITDA multiple of the sale was approximately 13 times and sort of think about in terms of use of proceeds that compares very favorably to our expansion project multiple of five five times in aggregate over the last.
Three years as well as to our share price multiple again, we're having a very good year and we are setting our business up well for the future. Our balance sheet is strong we are seeing good value, particularly in natural gas and renewables, we are finding and executing on projects with attractive returns and we are returning value to shareholders.
And I'll turn it over to Jeff Okay. Thanks, Steve.
Starting with natural gas.
Transport volumes were roughly flat for the quarter versus the second quarter 'twenty, one and we saw increased volumes from power demand not was offset by reduced volumes to Mexico. As a result of our third party pipeline capacity added to the market the pipeline outage on PNG the freight.
LNG outage and continued decline in Rockies production.
If you adjust that our volumes for the AT&T and Freeport outages, which are temporary in nature, we estimate volumes would've been up about 4%.
Deliveries to LNG facilities off our pipe averaged about $5 2 million <unk> per day, that's about 1% higher than the third quarter of 'twenty one.
But it is lower than the second quarter. This year, yeah, not due to the Freeport LNG outage deliveries to a power plant where robots in the quarter. They were up about 11% driven by record summer power demands, that's 880 million <unk> per day of incremental gas moving to power plant, it's pretty incredible.
Our natural gas gathering volumes were up about 13% in the quarter compared to the third quarter of 'twenty, one and that was driven by the haynesville volumes, which were up about 70% sequentially.
Sequentially volumes are up 6% with big increases in the Bakken up 14%, Haynesville, 8% and engelhard up 7%.
Overall, our natural gas gathering volumes, our budgeted increase about 10% for the full year and we're currently on track for about 13%.
Overall demand for natural gas was very strong in South ranch as Dave mentioned driving the demand for our transport and storage services and we expect that demand to continue to grow.
To add onto what Richard Steve that our fundamentals group estimates natural gas demand to grow from roughly 100 Bcf a day market currently.
Protein 130 Bcf market at 2031.
So the world needs a reliable supplier of natural gas in the United States is positioned to be that supplier. According to the EIA. We have 80 plus years of recoverable reserves and from an environmental perspective. The U S is one of the lowest emission producers in the world.
On the product segment refined products volumes were down about 2% in the quarter versus the third quarter of 'twenty, one slightly outperforming E I E, which was down 3% gas.
Gasoline and diesel were down three and 5% respectively, but we did see a 11% increase in jet fuel the math.
For October we started the month, a little bit stronger than the Q3 results.
On crude and condensate volumes were down about 5% in the quarter sequentially. They were down 2% with a reduction in the Eagle Ford more than offsetting an increase in the Bakken.
On the terminal fragment, our liquids percentage remains high at 91% excluding tanks out of service for required inspections or that lease percentage is roughly 95%.
Liquids throughput, which does not drive current resolved that's an indicator of our ability to renew contracts in the future was up about 7% driven by gasoline diesel and renewable volumes, which comprised over 85% of our liquids volumes.
We continue to experience some weakness in the New York Harbor, and our tank car business was bought in the quarter by lower average rates, but that doesn't that does continue to improve we currently have all 16 vessels sailing under firm contract with average remaining term of over five years for 'twenty three we have approximately.
90% of the vessel days under our firm charter and if you look at the shape of our contractual option likely to be exercised its 100% at average rates that are higher than 2022. We've also seen interest in chartering that vessel several years out.
On the bulk side overall volumes were flat pet Coke and steel were up nicely, but that was off I mean pet coke and coal were up nicely, but that was offset by lower steel and from a margin perspective, the higher pet coke and coal substantially offset the lower scale.
<unk> segment net oil production in the quarter was up 7% versus our project for the full year, we're expecting oil production to be about 4% above our budget too.
Two volumes to be about 8% of our budget and price to exceed our budget. These positives are partially offset by higher operating expenses not say the combination of a higher activity level flash production.
And in place.
For Q3 versus Q3, 'twenty, one crude production was down about 3% to sales volumes were down 11% notwithstanding and by the exploration of a carried interest in our project NGL volumes were up 1% and prices were higher across the board overall.
Overall, we had a very good quarter DCF per share was up 7% versus our plan and up 8% year to date.
Currently project that we will exceed our full year guidance.
On D C, our DCF per share and EBITDA by 4% to 5%.
Jaime on sustaining capex into the fourth quarter out of the second and third is the primary driver of the DCF difference between that year to date performance and the expected full year pro forma.
As we progress through the year, we're saying more high return expansion opportunities in the quarter as Steve said, our backlog increased about $600 million and as a result going forward, we would expect to be in the middle of our $1 million to $2 million range or maybe to the higher end and with that I'll turn it over to David Michael.
Thank you Kim.
So for the third quarter of 2022, we are declaring a dividend of <unk> two $775 per share, which is a $1 11, annualize and 3% up from our 2021 dividend.
One highlight before I start on the financial performance, we continued to take advantage of our low stock price by repurchasing shares this past quarter.
We added over $90 million of repurchases to what we reported last quarter and so year to date, we have now repurchased approximately $21 7 million shares.
At an average price of $16 94 per share. We believe those share repurchases are going to generate an attractive return for our shareholders.
Our savings from the current dividend alone without regard to the terminal value or dividend growth is six 6%.
For the financial performance for the quarter, we generated revenues our revenue of $5 2 billion up 135 billion from the third quarter of 2021.
The associated cost of sales also increased by $1 $1 6 billion. So combining those two our gross margin was $195 million higher.
Our net income was $576 million up 16% from $495 million in the third quarter of last year, our adjusted earnings which excludes certain items was up 14% compared to the third quarter of last year.
On a distributable cash flow basis. Our performance was also very strong natural gas and natural gas segment was up $69 million with greater volumes on our Kinder Hawk system expense will hire re contracting rates on <unk> and GTO and S. M G greater contributions from our Texas intrastate systems and favorable commodity.
Prices impacting the Altamont and Copano South Texas.
Our products segment was down $23 million driven by a decline in commodity prices impactful.
Our inventory values lower crude volumes on our double H system as well as higher integrity cost partially offset by higher.
Buy rate escalations year over year.
Our terminal segment was up $7 million with as Kim mentioned, greater coal and pet Coke volumes, partially offset by lower contributions from our New York Harbor in Houston ship channel liquids terminals versus the third quarter of last year.
<unk> segment.
Was up $41 million, driven mostly by favorable commodity prices.
So our EBITDA of one 773 billion was up 7% from last year and our DCF was 112 2 billion. Our DCF per share was <unk> 49 volt, 11% above last year.
For the full year as Kim mentioned, we expect to be 4%, 5% above our budget.
For the quarter DCF was ahead of budget by six 5% some of that is due to a shift of sustaining capital into the fourth quarter.
And as a reminder, at our Investor day presentation in January we set about 22% of our DCF would come in the third quarter of this year.
If you apply that 22% to our budgeted DCF increased by 5%, which is what we guided you to last quarter.
You would see that we exceeded that expectation this quarter. So a helpful reminder, that we provide useful information on quarterly shaping at our Investor day.
Moving onto the balance sheet, we ended the third quarter with $31 2 billion of net debt and our net debt to adjusted EBITDA ratio of four two times.
That's up from three nine times at year end.
As the nonrecurring EBITDA contribution from the winter storm here in February 2021 was captured in that year end ratio.
Our year end ratio was four six times, excluding your EBITDA contribution. So we ended this quarter nicely favorable and a year end metric excluding area.
Our net debt decreased to $10 million or has decreased $10 million year to date.
So I'll go through a high level reconciliation of that.
We've generated year to date DCF of $3 seven 5 billion, we paid dividends of $1 eight 3 billion.
We've contributed but we paid growth capital and contributed to joint ventures $700 million.
We have $225 million of increased restricted deposits, which is mostly due to past cash posted on margins related to our hedging activity.
We've repurchased $331 million.
Stock through the third quarter.
Had about $500 million of acquisitions.
For the two renewable natural gas companies.
We received approximately $560 million from the sale of our interest in the Elba liquefaction company and we've had about $750 million of working capital use which is primarily interest expense payments.
And some other some other legal settlements and that gets you close to the reconciliation for year to date change in net debt.
So that completes the financial overview and I'll turn it back to Steve Alright, Ted Let's go ahead and open up.
The channel for questions here and I'll just remind everybody.
Limit yourself to one question and a follow up and then if you've got more get back in the queue and we will get we will get to you and get your questions answered and also we have a good chunk of our management team sitting around the table here today and I'll make sure that you hear from them on questions about their businesses alright, Ted with that let's take the <unk>.
First question.
Alright, the phone lines are now open for questions. If you would like to ask a question over the phone. Please press star one and record.
Your name if you'd like to withdraw your question Chris starts to first question on the Hughes from Chase Mulvehill Bank of America. Your line is now open.
Hey.
Good afternoon, everybody I guess, firstly I wanted to hit on is just kind of Permian residue gas egress.
And you get <unk> outage today.
And I guess, maybe could you talk about you know the timing and how much incremental throughput you would see.
Out of line 2000, or basically <unk> <unk> system.
<unk> 2000 is back up and running.
Okay, Tom Martin.
Yes.
Given the nature of that outage, we can't say too much in detail, but just in general we see somewhere between.
Five and 700000, a day of incremental volumes flowing west.
When that line is back in service.
Okay perfect.
Unrelated follow up I know, it's a little early to talk 2023, I know youre not going to give us exact numbers or anything, but maybe just some puts and takes as you see the overall business as we kind of look out to 2023.
Yeah. It is it is too early we're just.
In the middle of our annual.
Annual budget process and so we will as we always do we'll we'll give you an update when we've got that information complete but I mean, I think it's the things that we've talked about here today is we've got some nice tailwind as who knows what commodity prices are going to look like next year, but we have some nice tail winds in our natural gas business and a good backlog of projects and good.
<unk> opportunities and so.
Those are the pluses.
On the minus as you know, we don't know what's going to happen with interest rates, but we do have about $7 $5 billion of floating rate debt and we have some renewals on or some refinancings on about $3 2 billion, which is actually our highest year.
Next year, we don't see another year of above $2 1 billion after that.
So those are those are some of the big.
Puts and takes.
Okay, perfect I'll turn it back over thanks, Steve.
Next question is from Jeremy Tonet with J P. Morgan Your line is now open.
Hi, good afternoon.
Afternoon.
Capital allocation is a big.
Debate point in the market our focus if you will and just wondering if you could update us as how you see your capital allocation.
Philosophy. These days you know on the one hand does it does a case to be made for repurchases saw something in the quarter, but how do you weigh I guess, maybe ramping up the pace of buybacks there relative to the other opportunities you have especially with regards to RMG consolidation or other energy transition.
Growth Capex opportunities as you laid out there yeah. You know we look at all of those things and of course, we're kind of a broken record on this but the first in the order of operations, making sure. We've got a strong balance sheet, we do and our metrics are proving to be stronger than the long term approximately four and a half X and so we're in we're in good.
There.
Having as David said at the beginning of the year and the Investor contracting rents, having a little extra capacity is a good thing including for equity investors because it positions you well against the four the pluses and also against the Minuses then from there we want to invest in attractive returning a high NPV projects well above.
All of our cost of capital that we're confident we can execute on well and so that goes to what you see has happened in our backlog and the opportunities that Cam alluded to and then from there it's returning value to shareholders and that's a combination of a growing but well covered dividend so were up 3% on the dividend year over year as David.
And then opportunistic share repurchases, which we've done a significant amount of this year and so that's kind of the order of operations for how we think about capital allocation in all of it keeping in mind, bringing value to our investors.
Got it. Thank you for that very helpful and just wanted to circle up with L. Bob Real quick just wondering could elba be expanded and might you look to monetize more of that or similar assets in the future.
Okay.
So yes, it can be expanded and we are.
Going through the evaluation process now for early days.
At potentially a little over $5 million.
Yeah.
Five and PPA.
Opportunity there, but again very early days to know whether.
That will work, but we do have the space for that.
That would be synergistic with the existing tankage and dock usage there.
And as far as selling incremental.
Interest there I mean that would be on the existing <unk>.
Cash flow is really any any expansion opportunity would be separate and apart from.
And to be clear I mean, we like our position in Alberta, but we got a very very nice.
We made several very good deals at attractive multiples and actually have pulled in more proceeds than we've invested in the facility and we still own 25% of it and the expansion opportunity that Tom is referring to is outside of the JV and so if we are able to and we're not.
Not in our backlog, we're not projecting that for you today, but we are examining the opportunity to do an expansion.
Which would be.
To our account.
Got it thank you very much.
The next question is from Mark Sollecito with Barclays. Your line is now open.
Hi, good afternoon.
So maybe just to start on the guidance language, you referenced trending 4% to 5% above budget for EBITDA, yes.
Obviously, you announced the <unk> transaction the strip has come down a bit but wondering if you could talk about any other drivers around the subtle change in the language from last quarter Yeah.
Central last quarter, we've seen significant outperformance and the gas group.
We've got lower sustaining capex.
On the other hand, as you know commodity prices have decreased.
We have seen lower volumes in the Bakken is primarily because it took longer for them to recover from an April storm than we anticipated.
Lower refined products volumes and higher Amtrust.
Got it that's helpful and then in the event of a potential product export ban wonder if you could just talk about how your assets would be position that scenario, particularly thinking about storage products pipes.
Jones Act tankers business.
Yeah, but we will start with our terminals and as products access to weigh on to John .
From a terminal standpoint, we think it'll be neutral for us and on the negative side.
We will see a decrease at our export docks and we handle about 50 vessels a month there.
At about 43000, so it's roughly $2 million each month will see degradation on but on the positive side Youll see an increase in Jones Act volumes, you'll see an increase in volumes up colonial and explorer pipelines, which were the largest origin point and you'll see a spike in my opinion in the.
And the price of storage both in there and in New York Harbor.
And from a product for us, it's probably neutral to positive I think the west coast is probably reasonably neutral, but if you look at if you look at the southeast.
You've got products with backup in pad three and you've got to clear that out of there. We certainly have capacity on product southeast pipeline.
And.
I would expect that the products would move on that particularly of colonial moves in or continues to stay and allocation. We clearly have storage position in the south east that I think to John's point with benefit as well.
Then you know probably a little bit less important but on <unk> I think that some of the imports that youre seeing coming into port Canaveral that gets dropped into central Florida would probably get backed off and we could see some benefit on CF bill as well, so and Mark just a comment on probability here I mean, I think that some of you have written about this.
It won't have the desired effect right, it's not going to improve things at the pump for U S consumers.
This is a global and integrated market and and as a consequence, we think that as.
As it Scott through more it becomes less and less likely to happen.
Got it that's very helpful. I appreciate the time.
Yeah.
Next question is from Neal Dingmann with true Securities. Your line is now open.
This afternoon, guys could you talk you.
You mentioned on Ccs.
Just wondered maybe in broad strokes can you talk about what type of opportunities you may be seeing near term or the magnitude of that obviously I think you guys have a lot of them.
Things going on and I'm, just wondering what you think that maybe that in any detail.
Yeah, I'll start and ask Anthony to Anthony Ashley who runs that group to weigh in but.
<unk> looked at the out of the the IRI. The inflation reduction Act. There was an increase in the 45, Q credit, which is a refundable credits and that increase in the credit.
<unk> has made more sources of Seo to economic for capture so picking up things like ammonia plants. So we started with kind of processing plants and ethanol plants now, it's picking up things like ammonia plants cement.
Some coal plants and some natural gas plants and so we had active discussions going on that kind of pause. While we were seeing how that worked out and then those discussions started picking up Anthony.
Yeah.
As Steve mentioned separately.
<unk> definitely seen increased activity since the IRI.
First I would say our focus areas have been around our existing footprint in west Texas.
Off of gas processing plants, which are a little bit of smaller opportunities I would say those are probably the most likely near term opportunities we have in this space.
But we are having much larger conversations and.
And all around the U S, especially around to that a bigger emissions areas.
But that will take a little bit longer to develop them and then to be able to discuss with you guys.
Got it guys great details and then just one follow up I don't know if you could say anything just.
Where do you sit currently with it.
The downside the downtime of the volumes associated around three port and I just didn't know if there's any update you could said what's up what's going on there.
We don't have anything other than what you can find out and you know reading in public and from the company itself.
Got it okay. Thank you al.
Next question is from Keith Stanley with Wolfe Research Your line is open.
Hi, Thank you I wanted to start on our N. G. I just curious if you have any takeaways from the BP RK ideal and I guess, how youre thinking about the competitive landscape over the long run and.
Relatedly are you open to a larger platform deal like this or is it is it pretty clear you're going to focus more on organic development there.
No.
BP is best to speak on the deal in the places, where they're getting synergies and other sources of value, but just on a bear kind of EBITDA multiple basis without taking into account those other things that they bring to the table, it's a very attractive valuation and well above that one to bill.
That are identified earlier.
Yeah.
Based on our investments or acquisitions in the things that we're doing I would say that the focus here is less on M&A at this point, we have a nice platform there, but we continue to have active discussions that are more organic growth.
Thank you a.
Second question just on interest rates so.
The higher rates if they are sustained over time does that make you rethink the leverage target at all or is it more kind of what you alluded to maybe keeping a little.
Financial cushion.
And then I.
I guess related to that just yet.
I believe in the past you've hedged some of your variable rate exposure heading into the current year.
Have you done any of that to date I think you had done that for this year for a fair amount of it.
So.
Heading into this year, we hedged about 75 billion.
The last one.
Five one.
Of the seven.
The swaps so that is going to roll off in 'twenty three.
So we will have seven 5 billion of floating and 23, and we have not hedged any going in to next year and right. Now we don't think that's a good opportunity to be able to hedge that.
In terms of our policy on floating.
The reason that we have the policy I'm quoting is because we've locked over long periods of time and it looks like that the forward curve over predicts.
We're floating rate that that's going to trade and so we want to take advantage.
Of that and so that means that some years.
Not going to we're going to pay more and Samir if we're going to pay less and we're going to pay less for more dollars right. So it ends up being a net present value positive.
Trade for us.
And so I don't think that's not our policy is not going to change because of one year, we have to pay them higher higher interest rate.
And as you know Keith it's worked very well for us over the years so over the long term.
The approach has been proven.
Value creative.
Yeah. It has just on the leverage target to like your there's no I mean, it seems like.
This is going to fluctuate in the leverage target, you're still very comfortable with the four and a half where things are today.
Yes, yes, we are now as we said and as David said.
At the beginning of the year, we're targeting to be better than that and we do think that there is value in having that capacity to take advantage of share repurchases potential for projects and potential for asset acquisitions that sort of thing and so we have trended a little lower.
Thank you very much.
Right now yeah.
Thank you. Thank you.
Yes.
Next question is from Jean Ann Salisbury with Bernstein. Your line is now open.
Two more questions that Permian gas takeaway in say late 'twenty 'twenty three is the target date for the Permian Highway expansion.
Even if they might be demand for that earlier than that I was wondering if that's the kind of project that can be brought on gradually like you added compression at 100. For example, and then you just sort of gradually do that.
Earlier than late 2023.
And we will just have to see how we get into <unk>.
Possible to do certainly.
See the same need in the marketplace that you do and we will we will look to do that if we can but nothing that we can really speak to uncertainty.
That's helpful. Thanks, and then Relatedly I was just wondering if there's any update on that and the Tcs expansion open season, or if we should sort of consider that night, maybe not in this in this upcoming round.
Yeah, nothing really new to report there continuing to market. It as we've talked about in the past you know the fuel is sort of the the.
The issue in the marketplace at these higher gas prices, but as prices come down.
There could be some opportunities there, but nothing really new to speak to right now.
Okay, Great. That's all for me thanks.
Next question is from Brian Reynolds with UBS. Your line is open.
Hi, Thanks for taking my question, everyone. Maybe just a quick follow up on the capital outlook capital allocation question. You know there are significant debt maturities coming due in 'twenty three.
So I was just curious you know as you think about the leverage target and just rising rates and the ability to you know, perhaps refinance at lower rates in the future I'm kind of curious if you can talk about how youre thinking about refinancing that debt.
Perhaps using some liquidity over the near term.
Some of the free cash flow.
Refinance that over the near term, but better rates in the back of 23.
Yes, Brian It will have a lot more information at the Investor Day haven't just having completed our budget had we've just really just begun our budgeting process. So we don't have a lot of detail to provide to you, but I guess just generally speaking.
Interest rates are much higher now than they have been in the recent past and have been for many years and so I think we're going to take a patient approach towards locking in rates at these levels.
We have the $4 billion of revolver capacity right now Thats that's available to us we're sitting on a healthy amount of cash. In addition, so we have flexibility.
We'll be patient.
Great appreciate that.
And thanks for the color around the expected Nat gas demand growth for both local and LNG exports.
Prepared remarks.
I was just curious if you could just talk about Kinder is positioning to support that 16 views of Nat gas demand growth over the next seven years.
What type of growth implies a lot of capex spend along the Nat gas value chain and just given you know your previous remarks around trying to maintain that 50, 50% market share for LNG was kind of curious if you could talk about areas of.
Opportunities for future growth around the Permian Haynesville in north east to supply North east to supply that 16 visa growth over the next call. It seven years. Thanks guys.
Yes, so I mean clearly are.
As discussed in the earlier remarks, our proximity to the Texas, Louisiana Gulf Coast from many of our assets, where there'd be the central States, Tennessee gas pipeline in <unk> and.
And others, Kinder, Morgan, Louisiana, and a really great position.
To expand and extend our network in support of our LNG growth and also.
Grow with.
The haynesville and the Permian as those volumes grow as well.
The Eagle Ford is another nice Lane Eagle Ford is a nice.
Another nice opportunity for us to support.
Texas, Louisiana markets as well.
You mentioned the Marcellus Utica.
What a great resource base a lot harder to.
To get incremental volumes to the Gulf coast there.
So I think what the market will see as you know haynesville growing really concurrently with <unk>.
If not sooner than incremental Permian.
The Eagle Ford largely <unk>.
Supplying the next wave of projects across Texas, Louisiana, and we think we're in a great position to maintain.
Hanging off 50% or even exceed that as we go forward and look I think I tried to.
Illustrate.
The proximity of our network to these outlets right to the liquefaction facilities and the capital efficient nature of the expansions, we can do of that network.
By talking about the five seven Bcf, that's under a long term contract theres more than that thats flowing on our system. It was really more like seven but that $5 seven thats under contract. The capacity was created with about $1.3 billion of investment and as we look ahead look there could absolutely be chunkier projects right bigger bigger.
Builds as you get to the 28 Bcf that rich mentioned, there could be some bigger ones, but there's also a fair number of.
$150 million to $300 million projects call. It roughly that are not ready for prime time, but as we look at people who have not yet F. I D, but but may and we look at where they are sitting on our network. We think we can reach them with expanded quantities with relatively capital efficient investments.
Great. That's super helpful enjoy the rest of your evening everyone.
Next question is from Michael Lapidus with Goldman Sachs. Your line is open.
Hey, guys. Thank you for taking my question I actually had two of them first of all.
Given the volatility in southern California gas pricing, there any future opportunity to expand the PNG. Once the outage is done that's the first question and second question is probably one for David working capital has been a negative cash drag to here a little over $500 million should we assume that that that's just kind of.
Temporary and it reverses or is this something leftover from kind of the nerdiness from the first quarter of 2021.
Any thoughts on the cash flow impact there.
Start with the PNG LNG.
Certainly we.
We continue to look at those opportunities I think the challenge is getting.
The proper proper term on incremental projects that it would take.
To support capital out there.
We have been looking at storage opportunities in Arizona continue to look at that I think really the volatility largely.
Revolves around.
Supporting power demand, which I think high deliverability storage is a better solution there, but we're looking at all of that again I think it's about you know can we get contracts for the right term to support that kind of capital.
David.
On the working capital use we have had.
The amount of working capital use of our cash year to date.
Some of that is going to turnaround the interest expense payments are generally heavier in the first and the third quarters.
Second and fourth do you see that turnaround a little bit so for the full year I'd expect that piece to turn around a bit.
Also had we had a legal illegal settlement and a rate settlement. This year, which were unique to 2022, so I wouldn't see those as recurring items.
Finally, we had some cash margin I called out in the reconciliation earlier on the call.
Margin calls on our hedging activity and that's driven by commodity price fluctuations.
It.
Could turn around but it depends on commodity prices.
Got it. Thank you David Thanks, guys much appreciated.
Next question is from Michael Cusmano with Pickering Energy Partners. Your line is now open.
Hi, good afternoon, everyone.
To quickly follow on to Keith's question earlier, and R&D could you maybe speculate on the value attributed to <unk> versus with RK evaluation was and how you feel about options work.
How you feel about the option you mentioned earlier about.
Maybe like a separate public vehicles down the road.
Yeah. So I mean look as I tried to.
I'm not commenting on Bp's economics, okay. They have a lot that they bring to the table across their portfolio their user of brands, there's a whole bunch of things going on there. So my comment earlier was about really just focusing on the EBITDA and what that multiple looks like in <unk>.
Call it middle decade, and if you apply that multiple to ours. It's it's it's.
It's a couple of times at least what we have invested in this business, we expect to invest when all those facilities are up and running and so and that's that's probably appropriate right. It's a growing a growing business and a growing opportunity. That's why we're in it and we think we'll do well with it.
Is there an opportunity to monetize at some point in the future when you reach critical mass, yes, but we also like the business and so we'd have to we'd have to compare those alternatives when we get there.
Got it that's helpful and then on the product segment can.
Can you give a little extra detail on the lower crude volumes, maybe where it stands today if theres a fully recovered from the weather outage and then also if you can talk a little bit about how like lower refined product prices affected margins.
Trying to think of like what's structural and what's variable to this quarter.
Yeah. So the biggest driver in crude for the quarter was on double H volumes on double H, they were down roughly 26% year over year and the biggest driver on that is.
Some of the Canadian operators are down which has had I think pad two refiners paying a pretty good premium for Bakken barrels, which is decrease the.
Decrease the Ah.
The basis differentials, both Guernsey and Cushing, which has had an impact on that.
And so hopefully we will see that.
As the upgrader has come back that will start to see a little bit of that basis come back and some additional barrels come on double H Highland crude to your point has or to Steves point has come back from the winter storms in April .
We are reasonably close to flat for the prior year.
A little bit less than what we had hoped.
Our budget, we budgeted for 186 wells right now we're forecasting about 154, but a good chunk of those are coming in in the fourth quarter and we're seeing some improvements on highland crude in the fourth quarter and we're looking at hopefully somewhere in the neighborhood of going from kind of call it flat to prior year to call it 7% above.
For Highland crude so so we're hoping to right now we're seeing some improvements in the fourth quarter.
Okay, Great and then any comment on the refined product pricing, maybe impacting margin kind of thinking about that going forward.
I guess, it's mostly on like the trends in this business.
Oh are you asking are you asking about retail prices impacting demand on refined products are you asking about putting up we don't understand.
Specifically about any any variability in your margin that you received from maybe transmits volumes that fluctuate with.
Refined product commodity prices, yes, well, what I'd say is we had to David's point, we had we took a low comp adjustment for closing price as of September .
The way that works clearly, we cant with a low comp adjustment, we can't write it back up but as we cycled inventory at higher prices, we can move it through and it works through margin right now where prices are as they are higher than where we mark from a low comp perspective. So I don't have a specific number on that but generally speaking they're high and you would expect as that inventory cycles through that.
It would be a positive.
Got it alright, that's all for me that was helpful. I appreciate it.
Next question is from Jeremy Jeremy Smith with J P. Morgan Your line is open.
Hi, Thanks for squeezing me back in here real quick just wanted to see after Matterhorn, what your thoughts are in Canadian cadence Permian gas production and the need for incremental infrastructure and what type what year do you think that might materialize at that point.
And then again.
Permian incremental Permian takeaway.
Yeah.
So you know.
It's very fluid I mean, I think the fundamentals would say you know later later in the decade, but I think some of our customers based on their destination desires.
They say sooner than that so you know I think sometime between the.
25, 26 at the earliest but I think the fundamentals by Fay.
Potentially even a little bit later.
So a range of like 25 to 28 is that what you're thinking about kind of book ending at just to make sure angina correct.
Yeah.
That's real big New long haul, yeah, I mean, I think expansions.
Can still be supported along the way.
But for a big Greenfield project.
Unaccepted, that's kind of a timeline.
Got it and just last one real quick Elba, great price tag There do you see other bids that are in the marketplace right. Now just wondering how you see the market interest rates moving up we thought might depress some interest from private equity, but obviously, you've got quite a nice price tag there. So I'm just trying to get a feeling on the market and your desire to transact.
Yes look I think we had a unique and interesting opportunity around the elbow that we were able to capitalize on and we were happy with the price not just from the price for the base assets, but also the ability to maintain the upside there was I think interest rates historically have helped drive some of the evaluations around infrastructure.
Investors and assets and so those are rising and probably eating a little bit into their returns that we continue to see interest across the midstream space.
For our assets from infrastructure investors, particularly as people think about the terminal value opportunities longer term for the space.
That's very helpful. I'll leave it there thank you.
And I'm showing no further questions at this time.
Well, thank you very much and for your baseball fans.
Couple of hours till the American League Championship series ROI, If you will from New York Good luck [laughter].
Yeah.
This concludes today's call. Thank you for your participation you may disconnect at this time.