Q2 2023 Kinder Morgan Inc Earnings Call

Speaker 1: Welcome to the quarterly earnings conference call. Today's call is being recorded. If you have any objections, you may disconnect at this time. All participants are in a listen-only mode until the question-and-answer session of today's call. At that time, you may press star-1 on your phone to ask a question.

Speaker 2: I will now turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. You may begin. Thank you, Jordan. Before we begin, I'd like to remind you, as we always do, that KMI's earnings released today and this call include forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995.

Speaker 2: and the Securities and Exchange Act of 1934, as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosures on forward-looking statements and use of non-GAAP financial measures set forth at the end of our earnings release.

Speaker 2: as well as review our latest filings with the SEC for important material assumptions, expectations and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements.

Speaker 2: About the most important thing a board of directors does is to structure and implement orderly succession planning. And I'm proud of the job we've done at Kinder Morgan. In our 26 year history we've only had two CEOs and we'll welcome our third on August 1st. This will be Steve King's last investment call as CEO .

Speaker 2: and I want to thank him for all his dedication and hard work in that position for the last eight years and for his service to the company over the past two decades.

Speaker 2: He's been a fine leader of the organization with the ability to understand the big picture and still pay attention to the details, and I can assure you that's a unique combination. We're happy that Steve will stay on our board, and I'm sure he will continue to contribute to our success in that role. As all of you know, Kim Dang, our current president, will succeed Steve.

Speaker 2: Kim joined Kinder Morgan in 2001 and Tom in 2003, so they both have long experience at the company and in the midstream energy business. They've both been outstanding contributors to our success and I know they'll be great leaders of the company in the coming months and years.

Speaker 2: In short, the board and I are very comfortable that we will march forward without missing a beat. Now, as we make this change, it's important to again emphasize why we're bullish about the long-term future of Kinder Morgan. The single most important reason for optimism is the role natural gas will play in this country.

Speaker 2: and around the world in the coming decades.

Speaker 2: We forecast U.S. natural gas demand will grow by about 20 BCF a day between 2023 and 2028 to about 121 BCF a day and that's a 20% increase.

Speaker 2: We expect a 13.5 BCF a day of that growth to come from LNG and Mexico exports with moderate growth in the power, residential, and commercial sectors. Almost all of that LNG and Mexico growth will occur in Texas and the Gulf Coast.

Speaker 2: where we have a superb and multifaceted pipeline system. That's why we believe that growth and demand, combined with the strategic location of our network, will drive expansion and extension opportunities for our network and significant bottom line growth for years to come.

Speaker 3: And with that, for the last time, I'll turn it over to Steve. Thank you, Rich. Thanks for the kind words. It's been an honor to work for you, for the board, for our shareholders, and to work with this great management team that we have around the table. And I can only double down on what you said about Kim and Tom. They work extremely well together and with the rest of the management team. And this is going to be very good for the company. So.

Speaker 3: We had a good quarter and a solid year so far. We beat our budget for the second quarter and although our outlook predicts slight underperformance on a full year basis.

Speaker 3: That is all more than explained. More than explained.

Speaker 3: by commodity prices coming in lower than our budget year-to-date and according to the forward curve for the balance of the year. Put another way, our business is performing better and that is partially offsetting the lower commodity prices.

Speaker 3: We also continue to see a strong market from our business development standpoint.

Speaker 3: While our backlog is roughly even with the first quarter update at $3.75 billion, that's the net result of having placed about $450 million of projects in service during the quarter while adding roughly $500 million of new projects to the backlog during the quarter.

Speaker 3: As we have noted many times, these projects are getting done at attractive returns well above our cost of capital.

Speaker 3: Notable among the projects brought into service was the first of our Wabash Valley RNG projects. Those projects were part of our Conetrics acquisition from 2021. The first one went into service on June 27. The project was later than planned and a little more expensive.

Speaker 3: but still a nice return and we expect the whole portfolio of Conetrix projects.

Speaker 3: to yield a very attractive return on our overall investment, even with the delays we've experienced. I'll note also on our RNG business that we got a favorable outcome from the EPA.

Speaker 3: Those are four or five words that you don't often hear from an energy executive. Favorable outcome from the EPA on its June order establishing the renewable volume obligation for the next three years. That pushed D3 RINs, those are the RINs values that matter most to us, up over $3. And we held off on selling RINs until after that ruling came out.

Speaker 3: More significantly, our natural gas and terminals businesses are leading the way without performance versus plan. One other performance highlight to note, our CO2 business is beating plan on production. Kim and David will give you the percentages there, but we're actually up year over year. Now that's more than offset by lower commodity prices.

Speaker 3: as I mentioned, but it's a significant accomplishment given the significant outage that we had at our SACROC, our largest field, in the first quarter. That's very strong work by our EOR team.

Speaker 3: Other than that, the song remains the same. We're maintaining a strong balance sheet, originating new projects at attractive returns, and returning value to our shareholders through a well-covered dividend and opportunistic share repurchases.

Speaker 3: And now I'll turn it over to our president soon to be CEO , Jim Dyer. Alright, and let me say that I've enjoyed very much working with Steve for the last eight years.

Speaker 4: He has been selfless in his transition.

Speaker 4: and he's really helped put me in a position to do this role. And as Rich said, Tom and I are also very excited about the future of this company and we're grateful for the opportunity to lead it.

Speaker 4: So with that, I'll start with the NAPL GAFS of this unit as always.

Speaker 4: Here, our transport volumes increased by 5% versus the second quarter of last year. That was driven by EPMG's line 2000's return to service.

Speaker 4: We also saw increased power demand, which was up 6%, increased LBC demand, which was up 6%, and increased industrial demand, which was up 5%.

Speaker 4: These increases were offset by reduced LNG volume and that was due to maintenance of several export facilities and decreased exports to Mexico.

Speaker 4: Natural gas gathering volumes were up 19% in the quarter compared to the second quarter of last year. Driven by Haynesville volumes, which were up 29%. Bockett volumes up 26%. And Eagleford volumes up 21%.

Speaker 4: Sequentially, gathering volumes were up 7% with all three basins I just mentioned contributing to the increase.

Speaker 4: For the year we expect gathering volumes to be up nicely, about 16 percent. That's about 4 percent below our budget, driven by egress project delays and an asset sale. So largely what we're seeing is that we're not seeing...

Speaker 4: much of a volume decline from our big producers. Where we're seeing some price sensitivity is on some of our smaller producers. And so that's why we still expect that we'll be up 16% per the year. As you can see from the volume increases that I just mentioned, despite a brief wall and new export LNG demand.

Speaker 4: and lower prices in the quarter versus the second quarter of 2022, the natural gas market continues to be robust.

Speaker 4: In our product pipeline segment, refined products were flat for the quarter versus the second quarter of last year. Road fuels were down about 2%. Our gasoline volumes were impacted by refinery maintenance during the quarter. Diesel volumes were down as renewable diesel volumes in California were down.

Speaker 4: are currently being transported by other methods than pipelines, and that's replaced some of the conventional diesel that previously moved on our pipes.

Speaker 4: However, the reduction in conventional diesel volumes doesn't really reflect the true economic picture as the RD volumes and projects we placed in service earlier this year are largely underpinned with taker pay contracts. So, even though the volumes may not be moving on our pipeline yet. We get paid most of the revenue.

Speaker 4: from those projects. Jet fuel volumes increased 9%

Speaker 4: Crude and condensate volumes were up about 4% and that was driven primarily by higher blocking volumes. Conventional volumes were up about 8% and that was primarily driven by the Eagle first.

Speaker 4: In terminals, our liquid lease capacity remains high at about 94 percent, excluding the tanks out of service for required inspections. Approximately 96 percent of our capacity is leased.

Speaker 4: Although we were down financially in the quarter, utilization at our key hubs, Houston Ship Channel and the New York Harbor, strengthened in the quarter. And we saw nice increases on our New York Harbor contract renewables that were negotiated during the quarter. Rates on our renewals in the Houston Ship Channel were slightly positive.

Speaker 4: And our Jones Act tankers were 97% leased through 2024, assuming likely options for exercise. Signing off Downloaded From www.il uptight.org

Speaker 4: On the bulk side, overall volumes were flat with increases in coal, fertilizer, and salt, also a reduction in grain.

Speaker 4: The grain volumes have a minimal impact on our financial results and so excluding grain, bulk volumes were up five and a half percent. We also benefited financially from rate escalations.

Speaker 4: On the CO2 segment, lower prices on NGLs and CO2 more than offset the increase in oil production.

Speaker 4: Overall oil production increased 7% and that was driven by SACROC volumes where our projects have performed much better than we expected.

Speaker 4: And we've also seen strong volumes post the January outage. And we've seen strong volumes post the January outage.

Speaker 4: For the year, we still expect net oil volumes to exceed our plans, which helps offset some of the priceliness.

Speaker 4: With that, I'll turn it over to David. Okay, thank you, Kim. All right, so for the second quarter of 2023, we're declaring a dividend of $0.2825 per share, which is $1.13 annualized, up 2% from last year.

Speaker 5: I'll start with a few highlights before getting into the quarterly performance. We ended the second quarter of 2023 with a net debt to adjust the DBA of 4.1 times.

Speaker 5: ratio, leaving us with a good amount of capacity under our leverage target of around 4.5 times.

Speaker 5: We also had almost $500 million of cash at the end of the quarter and nothing drawn on our $4 billion revolving credit facility. We also repurchased over $203 million worth of shares in the quarter which brings our total share of purchases for the year to $5 million.

Speaker 5: we think is very good value for our shareholders.

Speaker 5: While we are forecasting to be slightly below budget for the full year, more than all of that can be explained by the lower than budgeted commodity prices. We're seeing better than budgeted performance in both our natural gas and in our terminals segments. For the quarterly performance, we generated revenue of $3.5 billion. That is down 1.65.

Speaker 5: Texas intrastate natural gas pipeline system, those arrangements result in an effective take or pay transportation service and while that leaves us leaves our revenue and our cost of sales exposed to price fluctuations, our margin from that activity is not impacted by price. In fact netting the revenue and the offsetting cost of sales

Speaker 5: impacts, gross margin grew. Interest expense was higher versus 2022 as expected which is driven by the short term interest rates impacting our floating rate swaps.

Speaker 5: And we generated net income of $586 million, down 8% from the second quarter of last year. The first year's earnings was $540 million, down 13% compared to the second quarter of 22.

Speaker 5: Excluding the impact from commodity prices and interest expense, we would have been favorable to last year's for cameras.

Speaker 5: Our share count was down $28 million or 1% this quarter versus the second quarter of last year due to our share repurchase efforts.

Speaker 5: On to our business segment performance, improvements in our natural gas and terminal segments, which were both up, were partially offset by our performance in our products and our CO2 segments.

Speaker 5: In natural gas, the largest driver of the outperformance came from greater sales margin in our Texas intrastate system, favorable rates on recontracting at our Mid-Continent Express Pipeline, as well as contributions from climate and geosynt TW and other international coalitions. 33 years, 2020 was around 22th and we are in a moment of slow change. We have largelyacks and concerned Mode.

Speaker 5: EPMG due to a pipeline returning to service and higher value capacity sales on Stagecoach and our Tennessee gas pipeline. And those were partially offset by an unfavorable route contracting impacts on our South Texas assets. The product pipeline segment was down mostly due to unfavorable pricing impacts.

Speaker 5: which were all partially offset by lower truck rack volumes and some higher operating costs. Our CO2 segment was down due to our CO2, NGL, and oil prices, partially offset by, as Steve and Kim both mentioned, higher oil production volume. Our adjusted EVA dial was 1.8...

Speaker 5: billion dollars for the quarter, down 1% in last year.

Speaker 5: DCF was 1 billion 76 million down 9% from last year and our DCF per share was 48 cents down 8% from last year.

Speaker 5: On these non-GAAP measures, just like on our GAAP measures, excluding interest expense and commodity price headwinds, we were favorable to last year.

Speaker 5: Moving on to the balance sheet, we ended the second quarter with $30,800,000,000 of net debt and a net debt to adjusted EVA die ratio of 4.1 times, as I mentioned. And that debt decreased 139,000,000 dollars since the beginning of the year. And I'll provide a high level reconciliation.

Speaker 5: We generated cash flow from operations of $2.883 billion. We've paid out dividends of $1.265 billion.

Speaker 5: We've spent capital growth sustaining and contributions to our joint ventures of 1.18 billion and we had stock share repurchases through the end of the quarter of $317 million and that gets you pretty close to the reconciliation.

Speaker 3: year-to-date net debt change. Dr. Seuss. Okay, we're going to take your questions now, and as usual, we have a good chunk of our management team around the table. We'll try to make sure that you hear from them as well. Jordan, if you would, please open up the line for questions.

Speaker 1: Thank you. We will now begin our question and answer session. If you would like to ask a question over the phone lines, please press star 1 from your phone. Our first question comes from Brian Reynolds with UBS. Your line is open.

Speaker 6: Hi, good morning everyone. My first question is just around the guidance. We've seen 1Q and 2Q come roughly in line with the original quarterly guidance outlined at the analyst day. But in their prepared remarks you talked about how commodity ahead wins have been really offset by base business outperformance. So kind of looking ahead to second half, should we expect continued outperformance in kind of the next.

Speaker 5: in our natural gas assets.

Speaker 5: And we saw some outperformance there in our intrastate business, like I've mentioned. Our storage is a bit full, which might limit our ability to take advantage of that going into the end of the year. We'll be good to go.

Speaker 5: But there might be some additional ability to take advantage of that if prices and storage capacity becomes more available.

Speaker 4: Yes, so go ahead. And so we haven't assumed that same level of outperformance in the back half of the year as what we experienced in the first part of the year and therefore that's why we're saying that we will be slightly down versus planned to the extent that we see some of that outperformance in the back half of the year.

Speaker 6: then that could improve the outlook that we've given you here today. Great, I really appreciate that color. As a follow-up, just wanted to talk RIN pricing. It's been very volatile year-to-date based on the RVO outlook, so just curious if you could help sensitize perhaps the ability for Kindred to utilize its RINs on the balance sheet.

Speaker 3: that were held on the first half and then monetized in the back half of second half of 23. Thanks. Yeah, so as I mentioned, and I'll let Anthony expand on it, we did, we knew that there was another round coming from the EPA in June and we expected

Speaker 3: that based on all the comments and the feedback and the data, that they were going to increase the renewable volume obligation, which they did, on the order of 30% for each this year and the following two years. There was 33% this year, then last, the next two years. And so, anticipating that we'd see some positive news.

Speaker 3: rather than selling at $1.95, we held on and sold at $2.90 and above.

Speaker 6: I think we have taken advantage of the increase in pricing. I think part of the reason why, and I mentioned this a little bit, I think on the first quarter call, why it was trading so low in the first half of the year is everybody had a similar strategy as we are, there was really no liquidity in the market which was holding prices down.

Speaker 6: And our anticipation is that as far as we can see, there's no reason for wind prices to diminish in the next remainder of the year.

Speaker 6: Great, thanks. I'll leave it there.

Speaker 1: Our next question comes from Colton Bean with TTH and Company. Your line is open.

Speaker 7: Steve, you mentioned the incremental 500 million was added to the backlog. Can you provide a bit more detail on the nature of those projects and then safe to assume those are additive to mostly 24 and 25 so the runway is extending a bit here?

Speaker 3: Yes, so I think we had some additions in our business. We had some additions in our natural gas sector as well. I think those were the 2 primary contributors. David

Speaker 5: And I think those were those are on the back, those are a little bit later in the backlog than most of our backlog. So it is adding some length to the backlog overall.

Speaker 7: Maybe a question for Anthony on the landfill R&D development. I think we're tracking a bit slower than expected at time of acquisition. Could you just update us on what some of those delays may be attributable to, whether it's permitting, supply chain, construction, just generally curious as to the build out there? Yeah, sure. We have seen multi-month delays.

Speaker 6: On the priority projects that we've been that are in construction this year. Those have been primarily, I would say supply chain. Weather and then most recently we've had some commissioning issues. Which have pushed back the in service of some of the facilities.

Speaker 6: The good news is we do have our first facility in service to Inbridges and I think we have good line of sight for in service for the next two projects as well.

Speaker 8: Great, thank you.

Speaker 1: Our next question comes from Theresa Chen with Barclays. Your line is open. Your line is open.

Speaker 9: Hi, I'd like to follow up on the line of thought related to RNG and D3RINs. Just looking beyond this year, I'd love to hear about your outlook for D3RIN pricing over time that underlies the returns of these projects. Do you think that his campaign involves an updated pronouns for for- Bruce-ructure wealth? Do you think that the beginning that needs to be updated too? A daily process like this?

Speaker 9: How do you take into account the supply of additional D3 RINs, even when an e-RIN pathway eventually becomes available, even if it's on pause for now? Yeah, good question. So, I think we obviously have the forecast for our D3 RINs when we're looking at it from now on out.

Speaker 6: from an investment standpoint, we do sensitize it down to where we feel like it's sort of a you know, a low case or a worst case type of situation and to make sure that we're satisfied with you know the types of returns we're getting we know we we do assume in some cases that we

Speaker 6: sell also into transportation market. Some percentage is the transportation market, I'm sorry, the voluntary market, which is more of a fixed price environment. And we do have some price points that we use there as well. But I think as I was saying earlier with the RVO targets that just came out, and they came out for the first time for three consecutive years.

Speaker 6: that's supportive. I think, obviously you mentioned e-rins as well, which has been delayed or postponed. I think our long-term view on e-rins...

Speaker 6: is that that provides another avenue for demand growth for our projects. So that's supportive as well for long term for pricing as well. We'll have to see when that actually comes into play..

Speaker 9: to your project backlog so excluding CO2 and GNP the remaining 2.6 billion dollars in project can you talk about why the average multiple is now 4.2 times versus 3.9 previously and what's driving that upward pressure and over to lower returns

Speaker 5: Sure Teresa, the change there is just the mix of the backlog, what went in service during the quarter versus what we added in the quarter.

Speaker 5: When in service were lower multiple. So, stronger returning type projects. And what came into the backlog mostly were. Very attractive returning projects, but a little bit had a little bit of a higher higher multiple. More in line with our longer haul.

Speaker 5: longer-haul pipeline type opportunities. And so that was the biggest driver of it. Thank you.

Speaker 7: Our next question comes from Michael Bloom with Wells Fargo. Your line is open. Thanks. Maybe I want to stay on this topic. I guess the decision to exclude the CO2 and GNP projects from the backlog multiples, I wonder if you could just expand on your thinking there.

Speaker 7: Because you say that the cashless dreams are a little less predictable, does this change at all how you think about making those type of investments and anything around minimum hurdle to allocate capital there?

Speaker 4: Yeah, no Michael it doesn't. So I think the reason to exclude those projects is because the other projects that we have on natural gas and products and terminals, they typically have a very consistent cash flow. And so, you know, people, a lot of the self-side like you are using the backlog and

Speaker 4: they ultimately decline over time. And in many cases, you know, that cash flow is replacing other cash flows which are declining. And so all we were trying to do is give people a better proxy for estimating, you know, what cash flow is incremental and stably recurring.

Speaker 4: It does not change the way that we think about the CO2 or GMP projects. You know, those projects, they have more variability and therefore we require a higher return on those projects. And so as you know, when we're doing CO2 projects, we're typically requiring 20% or higher returns. I think those are very attractive terms.

Speaker 10: Thanks for that. I also wanted to ask about Mid-Continent Express. You've had a really nice uptick there the last couple of quarters and I think you mentioned in the prepared remarks some favorable recontracting on MEP. So I wonder if you could just maybe just clarify just how sustainable

Speaker 10: And then how much of the capacity is now contracted and duration of contracts? Thanks.

Speaker 5: Yeah, Michael, so. You know, when we're taking when we take a step back and look at MEP over the past. You know, a couple of years we've seen, you know, a lot of the Oklahoma base and drilling driving some of that basis. But as we move forward. Really, we see that basis strengthening not as all the LNG facilities come on that.

Speaker 5: Louisiana Gulf Coast corridor, as well as some of our southeast markets competing for supply. So we do see that basis continuing to sustain, if not grow. We've got incremental LNG facilities coming on in 2024. As you know, golden past, you know, first up.

Speaker 5: So, nothing but support, we think, for the basis. We've been opportunistic in terms of how we're selling that capacity, trying to capture the highest margins. And so we'll continue to do so. Probably in the two to three year tranche, we've been selling out the capacity, waiting for that spread to widen a little bit.

Speaker 10: Got it. Thank you very much.

Speaker 1: Our next question comes from Tristan Richardson with Scotiabank. Your line is open. That is the first one in three soybeans ArIES on Jersey.

Speaker 7: Hey, good evening guys. Just a question on the mainstream side. Obviously, seeing very strong year over year growth rates across your 3 primary basins. Maybe you also mentioned the prepared comments, though, that you are seeing at the margin. Maybe some smaller producers being a little bit more price sensitive. Maybe curious about regionally where you are seeing that most.

Speaker 5: across the three basins in midstream. D.ville. Yeah, so good question. Across the three basins, really at the, you know, Haynesville, we have some of our smaller producers that, you know, given the current pricing environment, that have kind of tapered off some of their drilling plans. Obviously our big producers, our larger producers there.

Speaker 5: I think you know who they are, but I mean, those guys still anticipate the LNG demand coming on at the back half of the year, as well as Europe's potential volatility that may arise. So our sense is they're going to continue to keep these rigs up in the Bakken. We've continued to see growth in the Bakken. And then in the Eagle Fords, here's a data point for you. We're ahead of our volumes. And people arefuturely looking forward to the next year, and then they fall down.

Speaker 7: Pre-COVID, even in this price environment. So all those systems are pretty well, all systems go. That's great. And then just a quick follow up on the Gulf Coast storage expansion. You guys announced, I think the Markham project. Can you maybe give some context around relative magnitude versus your overall storage portfolio? And then maybe just some of the logistics. Are we assuming third?

Speaker 5: We're adding about 650,000 of incremental withdrawal capacity. And at this point, you know, our plan is to offer it up to our customer base. In fact, we sold most of it at rates really higher than we sanctioned the project with. So returns are even better than we anticipated.

Speaker 1: Did I answer your question there? Yep, that's very helpful. Thank you guys. Our next question comes from Keith Stanley with Wolf Research. Your line is open. Hey Keith.

Speaker 6: Hi, thank you. First question, kind of a random one, but how is the company thinking about gas marketing, which I think some of your peers are more active in? Is that a business that you could try to grow in to increase margins? It just seems like if your view is gas is going to be more volatile.

Speaker 6: you have a lot of storage and other physical asset positions, is marketing something that's becoming more interesting, given the direction that gas is going?

Speaker 3: Yes it is, but with an important note of caution there. We have done a fair amount of enhancement in our crude pipeline assets by picking up capacity that would otherwise not be utilized by third party shippers and making use of it and attracting additional volumes to the system in order to recover additional tariffs. So we've done very well with it.

Speaker 3: now, which is in our Texas intrastate business, where we buy and sell natural gas. As David pointed out in his comments about revenue versus cost of goods sold, that is often done with reference to the same Houston Ship Channel price, purchase at Houston Ship Channel minus, sell it at Houston Ship Channel or Houston Ship Channel plus, and pull out a transport margin in between.

Speaker 3: But we have storage and we often find that we have excess storage that we can optimize and make money on it in the state of Texas and we've done very well with that and that shows up in some of the optimization numbers that David was going through.

Speaker 3: So it's an activity that we're already in in kind of a limited way in Texas and we're looking to pick up Additional and have picked up additional bits of capacity here and there around our system in order to expand on that business But doing it in a very a very I would say very conservative and careful way Make sense, thanks and the second question on the buybacks so you

Speaker 7: The unbudgeted comment just meant that we didn't budget for those. And we don't budget for share repurchases. Because we take an opportunistic approach, it's share price dependent. We don't take a program or in general we don't take a programmatic approach to share repurchases.

Speaker 7: if it makes sense, if the price makes sense for us to repurchase, but we want to do so in a way that's measured. We've worked really hard to improve our balance sheet. We've got it in a really good spot and we don't want to do anything to damage that, but we also want to take advantage of good share repurchase opportunities.

Speaker 8: Thank you.

Speaker 1: Our next question comes from Neil Dingman with Truist Securities. Your line is open. Thanks.

Speaker 3: Yeah, pretty guys, maybe quick broad one first. Not surprising you all mentioned just healthier, lower than budget commodity prices, impacted results. I'm just wondering kind of go forward. Now, have you reset or how you're thinking about. Sort of the remainder of the year and into 24 how much differently now just maybe in broad strokes.

Speaker 4: So, yes, so the forecast that we gave you today has the gas prices and the crude prices at the roughly the current forward curve. So yes, we've reset it for the 2023 and 2024 we don't really get into that until we do our budget process later in the year.

Speaker 3: Okay, great answer. And then just lastly, again, also not surprising, you all mentioned just in the release how the crude and condensate business was impacted by the lower recontracting rates. I was just looking what I was looking in was in the Eagleford, and I'm just wondering, could you speak to the degree of rates?

Speaker 3: also in the same basin going forward, again, maybe the remainder of the year, that will need to be recontracted there. Yeah, Dax Anders? Yeah, so we did, we rolled one contract there, there's still a, you know, we've gone through over the last couple years the original legacy contracts from back in 2013, 2014 and not surprising the rates that they're rolling out are...

Speaker 3: intercompany marketing affiliate that Steve spoke about. Um, of that 85, uh, that rolls over the next kind of call it two to three years. Um, and we would expect, I mean, those contracts have largely already rolled from the high legacy rates of, you know, 10 years ago. So they'll roll.

Speaker 4: But we wouldn't expect that there would be any massive changes like you've seen over the past couple of years.

Speaker 3: we wouldn't expect that there would be any massive changes like you've seen over the past couple of years. That's helpful. Thanks, Dan. Thanks for your time to also enter a

Speaker 1: Our next question comes from Jean Ann Salisbury with Bernstein. Your line is open. Hi. I think that you were just addressing crude in the last question, but I think I have sort of a similar question, which is that Eagle Ford volumes for gas were up year on year pretty materially, but it sounds like Eagle Ford contribution is down. I think that that's …

Speaker 5: pretty much all because of the Copenoe roll off. Is that right? And has that fully rolled off now? Jean, yes, that's right. 2023 was the last year of those roll offs. And so now we should see, you know, as we contract, we've already done our recontracting through the 2023 period.

Speaker 5: And so, as we increase these volumes now, we're just going to focus on increasing our margins.

Speaker 1: Okay, that makes sense. And then as a follow-up, a lot of people are forecasting a widening of Texas and Louisiana gas differentials, as not all Permian gas is able to get to Louisiana LNG. Do you agree with this, and does it change how you're thinking about your next Permian gas takeaway solution?

Speaker 1: offering.

Speaker 5: Well, you know, one, we do see a need to get some infrastructure across to the Eastern Louisiana side. We are, you know, looking at some opportunities on our interstate networks to complement that or to accomplish that. You know, as we look at the next Permian project.

Speaker 5: We are having discussions, you know, not only with Gulf Coast LNG facilities, but also with the Louisiana facilities. So, all of that will be taken into context, but I do see a physical need to get across from the western side to the eastern side.

Speaker 5: are having discussions, you know, not only with Gulf Coast LNG facilities, but also with the Louisiana facilities. So all of that will be taken into context, but I do see a physical need to get across from the western side of the eastern side. Great, thanks, that's all for me.

Speaker 5: Our next question comes from Neil Mitchell with Bank of America. Your line is open. Hi. Thanks for taking my question. I wanted to follow up on LNG demand, specifically in the Clippus Christi area. Now that we have the Rio Grande Project sanctioned...

Speaker 5: Do you see any incremental interest in expanding GCX, given that there's more demand in the Corpus Christi area and the last two pipes have been built to the Houston area?

Speaker 5: Yes, so first congratulations to the next decade team on getting that project across to the FID.

Speaker 5: At the outset, you know, it's good for the network, period. But yes, there is incremental interest, not only in a Permian project, but also you've noticed we've sanctioned our Freer-Descenton project. We've also got renewed interest in GCX.

Speaker 5: those conversations are happening. But as you know, we're in a very competitive environment and returns are going to determine whether or not we proceed with the next project.

Speaker 3: So, and the reference to the next decade was separate and apart from GCX. We're not attributing that to any particular number. That's right. I think the main update there is we had told you before that those discussions had gone cold, and they are now active again. That's right. That's the change. Got it.

Speaker 5: And then the second follow up on the contract structure maybe for your Texas interstate network. We have a pretty weak basis in the second quarter. I think it averaged about 60 cents between Waha and Henry Hub because of the heat. So do you have marketing contracts or term contracts?

Speaker 5: How were you able to increase your earnings off of that with a narrow basis there this quarter? How were you able to increase your earnings off of that with a narrow basis this quarter?

Speaker 4: So, I just want to clarify a couple of things. First, you know, the, what Steve was talking about on the Texas intrastate business and the purchase and sales there, you know, typically we're locking in those purchase and sales, you know, over a year or two years or three years. And so-

Speaker 4: And it's real supply and it's real demand on the other end. And so it's not as affected by changing basis differentials. There's a market for what that transport spread is worth. And because there's demand on the other end, it doesn't necessarily move as much as the forward spreads move all the time. So it's not as affected by changing basis differentials.

Speaker 4: So that's with respect to the Texas intrastate market. With respect to the spread between Waha and Houston, we do have a little bit of capacity between Waha and Houston. We've hedged that capacity for this year and into next. And so we don't have much.

Speaker 9: exposure there to what's happening, good or bad, with those basis differentials. Okay, great. Thank you very much. Our next question comes from Jeremy Tonette with JP Morgan. Your line is open.

Speaker 11: Hi, good afternoon. Good afternoon. Steve, wish you the best of luck in retirement here. And just want to start off, I guess, in the past, I think, Paul, you talked about, you know, four or five as kind of a leverage level that the company thought about. And just wondering, is that still the case?

Speaker 11: the level that you guys are kind of seeing as appropriate for Tinder over time here. And if it is, what's the path to getting there given that leverage? If it's lower right now, would it be more buybacks? Would it be acquisitions or would it be...

Speaker 11: growth projects and just wondering, you know, what type of multiples are you seeing on new growth projects given that there was a little bit of shift as you guys talked about with the backlog update? Okay, let me make a couple of points on that. Okay, well, first one is we are very comfortable with the four and a half times leverage target given the breadth and the scope of our assets. And, you know, it we have looked at whether it makes sense to

Speaker 4: And so we're leaving our leverage target at four and a half times. Right now, as David told you, we're running at 4.1 times. It's not burning a hole in our pocket, right? I mean, so we like having some flexibility on our balance sheet. And so we don't feel some type of pressure to go from 4.1 to 4.5. When we see nice opportunities, we have flexibility there because we have that...

Speaker 4: What I would say about that is, you know, we target on average, you know, 15% unlevered after tax projects. You know, that can be, I mean, that can in some cases result in a going in multiple of seven or eight times. And just because our existing backlog is less than a year, it's not going to be a year. It's not going to be a year. It's not going to be a year.

Speaker 4: that determines whether we do the project. No. Is it a good return project? We go lower than 15% on the web or tax return for a project with long-term contracts. But we're not going to drop into single digits. So that's how I would think about it. Think about it more. We're out there. We're looking for projects. We're trying to earn the maximum return.

Speaker 11: That is very helpful. One last one, if I could. Regards to the CCS, we have seen action recently in the industry projects continue to move forward and other items developing there. Just wondering if there is anything new to share from the Morgan's perspective with regards to CCS potential.

Speaker 11: DCS. Carbon capture. Yeah. Okay. Good. Sorry. What was the rest of the question? Sorry. I didn't get my CPS on it.

Speaker 11: There's been some actions out there in the CCS industry, bigger projects moving forward in the Midwest and other actions out there in the industry at large. Just wondering if there's any updated thoughts from Kinder Morgan with regards to potential CCS efforts.

Speaker 6: Yeah, no, we continue to be very busy on the CTS run. I would say both around our existing infrastructure that we have in West Texas. We talked about our Red Cedar project in January that continues to progress. Well, we're talking to a number of other folks in West Texas as well.

Speaker 6: And then we're very active kind of in conversations and in the Gulf Coast as well, I would say, both on sort of the transportation and sequestration side of things as well as just for potential transportation opportunities.

Speaker 6: And so these are long development cycle opportunities. And I think once, when it's appropriate for us to talk to you guys about that, we'll talk about those projects. But there is a lot of activity, especially post-IRA, in that world. And we're definitely looking at it. And of course, what we bring to the table is the expertise.

Speaker 12: Have a good evening.

Speaker 13: Thank you for your participation in today's conference. You may disconnect at this time.