Q4 2023 Kinder Morgan Inc Earnings Call
Welcome to the quarterly earnings conference call at this time, all participants are in a listen only mode until the question and answer session of today's conference.
You May press Star one on your phone to ask.
Speaker Change: Quick question.
I would like to inform all parties that today's conference is being recorded.
Speaker Change: You may disconnect at this time I would now.
Speaker Change: I'd like to turn the conference over to Mr. Rich Kinder executive Chairman of Kinder Morgan. Thank you you may begin.
Richard D. Kinder: Thank you Sheila before we begin as usual I'd like to remind you that Cam is earnings released today in this call.
Rich Kinder: Forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Rich Kinder: On the Securities and Exchange Act 1934.
Rich Kinder: 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 latest filings with the SEC for important material assumptions expectations.
Rich Kinder: Risk factors that may cause actual results to differ materially from those anticipated and described in such forward looking statements.
Rich Kinder: As we look at our financial outlook for 'twenty 'twenty four we are projecting very healthy growth in EBITDA EPS and DCF per share while there are always headwinds and <unk> for a company your size, but with Kinder Morgan.
Rich Kinder: Here's that our strategy of expanding our assets through expansion Capex and acquisitions, primarily in our natural gas segment is delivering real benefits to the bottom line, Kevin The management team will be taking you through our 24 budget in great detail at the Investor Copper next week.
Rich Kinder: In my remarks on these calls over the last few quarters I've tried to outline the tremendous growth that we and most energy experts expect in natural gas production and demand over the coming years.
Rich Kinder: Driven primarily by LNG exports and exports to Mexico.
Rich Kinder: The obvious relief of all of you on this call I won't be repeating the details supporting our outlook, but that growth is leading to extensive opportunities to grow our system, which already delivers about 40% of the nation's natural gas throughput.
Rich Kinder: Through selective expansion and extension of our enormous system. We can benefit from this expansion thankfully most of these opportunities you're concentrated along the Gulf coast, where permitting and construction usually moves more quickly than elsewhere.
Rich Kinder: I conclude with a bit of humor someone's recently said in comparing our growth because out of high tech companies.
Rich Kinder: We were like the tortoise and aesop stable compared to the hair represented by high Tech.
Rich Kinder: Oh, that's probably true, but I like to think that looking at 'twenty to 'twenty four.
Rich Kinder: <unk> is moving a little faster and then I would remind you of who won that race and then and with that I'll turn it over to Ken.
Ken: Thanks, Brett I'll make a few overall points and then turn it over to Tom and David because with the details. We ended 2023 slightly below budget is about 1% on DCF per share and about 3% on EBIT jocks, there's not a whole different moving pieces, but more than all of it can be attributed to lower commodity prices.
Tom: Just before year end, we closed roughly $1 8 billion dollar Nextera South Texas acquisition. Just asked are these assets that nicely into our existing Texas I'm, sorry in the Gulf Coast and Mexico demand market.
We were excited to be able to get that transaction done a little more quickly than we expected.
Tom: Looking forward to 2024 as rich said, we expect really nice growth over 23 with every business unit expected to contribute incremental earnings.
Tom: Updated the preliminary budget guidance, we released in early December of last year to incorporate the South Texas acquisition.
Tom: As a result, our final 2020 for budget now project, 15% growth in earnings per share versus 2023, and 8% growth in D. C F for sure.
Tom: Our commodity assumptions and the final budget are unchanged versus our preliminary budget.
Tom: He assumed W. T I of $82, a barrel and $3.50 for Henry hub natural gas, which was consistent with the forward curve during our annual budget process.
Tom: While current prices are lower we did not ethane.
Tom: At current prices and our final final guidance given their potential to change over the year. However.
Tom: However, based on our commodity central Texas, even at current prices, we would still expect strong for us over 2023, given our relatively relatively modest commodity exposure.
Tom: For example at <unk>.
Tom: T I price of $72 per barrel and Henry hub of $2 80 earnings per share would grow at 12% versus 23, and DCF per share would grow at 6%.
Tom: During the fourth quarter, we put $965 million of projects in service and added $344 million to the backlog, which currently stands at approximately $3 billion.
Tom: Despite the decline versus last quarter, we're still confident in our ability to spend at the high end of the $1 billion to $2 billion per year discretionary Capex range for the next few years.
Tom: Our confidence is supported by the roughly 20% expected growth in the natural gas market between now and 2030.
Tom: Driven by LNG exports exports to Mexico and industrial demand.
Tom: We're looking at multiple expansion projects some of them significant in size to supply LNG exports from Texas from the Texas Coast, Louisiana Coast, and the West Coast to supply Mexico exports from both Texas, and Arizona to bring incremental supply to the southeast markets for Permian acreage.
Tom: <unk> as well as expansion of storage and for incremental power and industrial demand.
Tom: We're in a strong position as we exit 2023 and move into 2024.
Tom: Our balance sheet is the strongest it's been in about a decade, we're projecting nice growth for 2024, and the natural gas business, which is greater than 60% of <unk> EBITDA.
Tom: Is underpinned by 20% growth in that market, leading to nice expansion opportunities we.
Tom: We will continue to return significant capital to our investors through dividends and opportunistic share repurchase.
Tom: Next week at our annual Investor Conference, We will review in much more detail, our 24 budget industry fundamentals and our future opportunities that and answer all your questions.
Tom: And with that I'll turn it over to Tom to give you details on our performance for the quarter.
Tom: Thanks Kim.
Tom: Starting with our natural gas business unit transport volumes increased by 5%, a 1.9 million <unk> per day for the quarter.
Versus the fourth quarter of 2022.
Tom: Driven primarily from <unk> line 2000 returned to service and the Texas in 12 States increased LNG feed gas demand and increased power demand.
Tom: These increases were partially offset by a decrease delivers to local distribution companies.
Tom: While natural gas gathering volumes were up 27% in the quarter compared to the fourth quarter of 'twenty two.
Tom: Driven by Haynesville volumes, which were up 59%.
Tom: <unk> volumes, which were up 14% in the Eagle Ford volumes up 18%.
Tom: Gathering volumes grew 14% compared to Q3 2023.
Tom: For the full year gathering volumes were up nicely at 19% over 2022, and just slightly below our 2023 plan.
Tom: We continued to see high demand for and utilization of our natural gas assets, which is driving in many instances longer term contracts higher rates and increased project opportunities in our growing U S market.
Tom: And our products pipeline segment refined product volumes were up slightly about 1% for the quarter versus the fourth quarter of 2022, driven by an increase in jet fuel, partially offset by a slight reduction in diesel volumes.
Tom: Celine volumes were flat for the comparable quarter last year.
Tom: We continue to see a considerable ramp in renewable diesel volumes slowing in our pipelines serving California.
Tom: The pipeline volumes from the already hub projects, we placed into service earlier this year.
Tom: Growing from 700, a day in Q1 to 27000, a day in Q4, and we're currently expecting well above 30000, a day in January.
As we stated previously these R&D hub projects are largely underpinned.
Tom: We'll take or pay contracts associated with our terminal facilities. So we get paid most of our revenue even if those volumes do not flow.
Tom: Over when R&D volumes.
Tom: Actually slow on our pipelines with collecting additional tariff on those barrels as well.
We didnt condensate volumes were up 7% in the quarter versus fourth quarter 2022, driven by higher Highland wellhead volumes unfavorable double H transportation fundamentals from the backup.
In our terminals business segment, our liquids lease capacity remains high at 93%.
Tom: Excluding tanks out of service for required inspections, approximately 97% of our capacity at least.
Tom: Utilization at our key hubs in the Houston ship Channel and New York Harbor strengthened in the quarter versus fourth quarter of 2022.
Tom: You need to see nice rate increases in those markets and leasing remains near all time record levels.
Tom: Our Jones Act tankers.
Tom: That lease through 2024, assuming likely options or exercise.
Tom: On the bulk side overall volumes were up 3% from the fourth quarter of 2022.
Tom: Primarily from metals pet Coke and soda ash tonnage, partially offset by decrease.
Tom: Creases in grain in aggregate volumes.
Tom: Grain volumes are minimum have minimal impact on our financial results, excluding grain bulk volumes were up 5%.
Tom: The <unk> segment experienced lower overall volumes on Ngls C O two and oil production and lower prices on Ngls and Seo to versus the fourth quarter 2022 overall.
Tom: Overall oil production decreased by 7% from the fourth quarter last year, but was above our plan for this quarter.
Tom: For the year net oil volumes slightly exceeded our plan largely due to better than expected performance from projects at Yates and <unk> as well as strong base volumes post the February outage at <unk>.
Tom: These favorable volumes relative to the 2023 plan helps offset some of the price weaknesses that we have experience.
Speaker Change: With that I'll turn it over to David Michael.
David Patrick Michels: Thank you Tom so.
David Patrick Michels: So for the fourth quarter of 2023, we're declaring a dividend of $2 <unk> to $5 per share or $1 13.
David Patrick Michels: Per share annualized which is 2% up from the 2022 dividend.
David Patrick Michels: We continued with our opportunistic share repurchase program in the fourth quarter, bringing our total year to date repurchases to over 31 million shares at an average price of $16 56.
David Patrick Michels: Per share, creating a good value for our shareholders.
David Patrick Michels: We ended 2023 with net debt to adjusted EBITDA of four two times.
David Patrick Michels: And that includes $522 million of repurchase shares and the $1 $8 billion closing of our.
David Patrick Michels: <unk> of the South, Texas midstream assets before year end.
David Patrick Michels: Our leverage would have been four one times. If we had included a full year adjusted EBITDA contribution from those acquired assets.
David Patrick Michels: We ended 2023, just slightly below budget for the full year.
David Patrick Michels: And more than all of that underperformance can be explained by lower than budgeted commodity prices, we saw better than budgeted performance.
David Patrick Michels: Both our natural gas and terminals businesses.
Now for the quarterly performance, we generated revenues of four 4 billion, which was down $541 million from the fourth quarter of 2022 cost of sales were down a bit more than that at a reduction of $614 million. Both of those declines were due to a decline in commodity.
David Patrick Michels: This year over year as Youll recall, we enter offsetting purchase and sales positions in our Texas intrastate business.
David Patrick Michels: Which is primarily why our revenue and cost of sales are exposed to price fluctuations, but our margin has generally not impacted by price.
David Patrick Michels: Interest expense was higher versus 2022 as expected driven by short term interest rates impacting our floating rate interest swaps.
David Patrick Michels: We generated net income attributable to <unk> of $594 million down 11% from the fourth quarter of 2022.
David Patrick Michels: Our EPS was <unk> 27 down <unk> <unk> from 2022.
David Patrick Michels: Our average share count reduced by 27 million shares or 1%.
David Patrick Michels: Due to the repurchase shares.
David Patrick Michels: For our business segment performance terminals and products segments were up natural gas and Cotwo costs were down versus the fourth quarter of 2022, and the natural gas segment was down mostly due to mild winter weather in 2023 versus 2022, the product pipelines segment was up due to higher rates on existing.
David Patrick Michels: Assets as well as contributions from new expansion projects, including our renewable diesel assets.
David Patrick Michels: Terminals was up due to improved rates on our Jones Act business contractual rate escalations across multiple assets and improved tank lease rates in the northeast region.
David Patrick Michels: Our <unk> segment was down due to lower oil and CRT volumes.
David Patrick Michels: DCF per share was <unk> 52.
David Patrick Michels: Down <unk> <unk> from last year, excluding interest expense, we were favorable to last year.
David Patrick Michels: For the balance sheet, we ended the year with $31 8 billion of net debt.
David Patrick Michels: Which was an increase from year end of $901 million a.
David Patrick Michels: At year end 2022 that is.
David Patrick Michels: So a high level reconciliation for the year to date or the full year 2023 change in net debt.
David Patrick Michels: He is as follows we generated $6 $5 billion of cash flow from operations, we spent $2 5 billion in dividends.
We expect $2 5 billion of total Capex that includes our growth sustaining.
David Patrick Michels: And contributions to <unk>.
David Patrick Michels: We repurchased we repurchased $500 million of stock and we spent $1 $8 billion on our South, Texas Midstream acquisition, which gets you close to the $9 $901 million increase in net debt for the year.
David Patrick Michels: As Kim mentioned, we updated our 2020 for budget for the South Texas acquisition from the December guidance that we released and as you can see the acquisition was quite accretive accretive on both EPS and DCF per share.
David Patrick Michels: Very pleased with the resulting growth projected for 2024 with EPS growth of 15%.
David Patrick Michels: <unk> per share and EBITDA growth of 8% and a nice improvement in our leverage ratio to three nine times by year end 2024.
And as rich said, we'll be providing all the details behind those at our annual Investor Day meeting one week from today.
David Patrick Michels: Back to Kevin.
Kevin: Sheila we'd like now to open it up for questions. We would request that those asking questions. If you'd please limit it to one question and one follow up.
Kevin: And if you have additional questions. Please get back in the queue.
Kevin: And we will stay here until we get to everyone.
Thank you we will now begin the question and answer session to ask a question. Please press star one if you need to withdraw your question Press Star Q.
Speaker Change: Our first question will come from Jeremy Tonet with Jpmorgan. Your line is open.
Jeremy Bryan Tonet: Hi, good afternoon.
Jeremy Bryan Tonet: Good afternoon Jeremy.
Jeremy Bryan Tonet: Maybe just starting off here wanted to.
Jeremy Bryan Tonet: Let's start off with the recent whether it's been a cold snap that we've seen across a lot of the country and in Texas as well and last time, we saw cold snap.
Speaker Change: Yuri It led to notable opportunities for midstream and <unk> and granted it's probably not the same order of magnitude here by any means just wondering if you could shed any color on if you are seeing kind of increased opportunities in this environment or how we should think about that in general.
Speaker Change: Sure Jeremy.
Jeremy Bryan Tonet: Yeah, I mean, the cold weather Youre right. It does lead to incremental opportunities for us and Youre also right that this is not the same order of magnitude as as a journey.
Jeremy Bryan Tonet: What we can do our budget, we do budget for or some cold weather.
Jeremy Bryan Tonet: And I think.
Jeremy Bryan Tonet: Coming into the year, we are a little bit nervous about that.
Jeremy Bryan Tonet: The.
A warmer than expected weather with this call front I think we have made good progress.
Jeremy Bryan Tonet: On on achieving on our on our way to achieving some of those cold weather budget assumptions, So I'm very happy with the progress today.
Speaker Change: Got it that's helpful. Thanks, and then.
Speaker Change: Just wanted to come back to capital allocation as maybe we talked about in the past and we've seen kinder execute on repurchases. This year and also some sizable M&A and just wondering on a go forward basis here. If you could walk us through I guess, how those two specific opportunities could stack up in your mind clearly there is still room on the kinder balance sheet given leverage targets.
Speaker Change: And when our leverage is today and just wondering.
Speaker Change: How those two stack up and as it relates to buybacks is there a certain kind of cap in pace or any other thoughts that we should think about there.
Speaker Change: No I mean, I think we like the flexibility that.
Speaker Change: That we have on our balance sheet and we've been around for his time.
Speaker Change: For the last three years I think end of 'twenty, one we were at three nine.
Speaker Change: Last year, we were on and right now we're at <unk>, but if you adjusted for the EBITDA and the acquisition of <unk>.
Speaker Change: For one and so that gives us flexibility to do acquisitions that gives us flexibility to do share repurchases and so last year, we were able to do share repurchase with a $522 million as you heard David say.
Speaker Change: We made a $1 8 billion dollar acquisition and our balance sheet and add essentially in the same place that we started the year. So.
Speaker Change: When especially when we're doing it.
Speaker Change: Attractive acquisitions.
It's not that dilutive to our GAAP metric.
And so we are we are.
Speaker Change: Required that Nextera acquisitions added about $8 six times.
Speaker Change: So relative to our debt metrics, even though we are 100% debt funded it wasn't back away to have so I.
Speaker Change: I think where our balance sheet as it gives us lots of flexibility and we were able to execute on multiple opportunistic transactions occurring during 2023, and that's quite frankly, what we would look to do going forward as well.
Speaker Change: Got it makes sense see at analyst day. Thank you.
Speaker Change: Thank you next we will hear from Brian Reynolds with UBS you May proceed.
Hey, Brian Good afternoon, everyone, maybe just start off on just the quarterly performance and the 24 guidance kind of as it relates specifically to the natural gas segment.
Speaker Change: You know Jeremy touched on it a little bit, but we saw the year over year decline in Nat gas segment, driven by some winter storms in <unk> 'twenty, two but it would be great. If you could just refresh us on maybe some of the marketing exposure in the business. You know previously we kind of view it as mostly contracted at this point, but just given the year over year earnings decline and maybe looking forward just given you know.
Significant amount of Nat gas price volatility expected to head and Kinder strategic positioning and natural gas storage just kind of curious how we should think about maybe the marketing side of this business on a go forward basis versus kind of kindred over the last five years.
Speaker Change: Let's start on.
Speaker Change: The entire state transmission side, and so when you have a winter storm people are going to need more balancing services theyre going to need more storage services youre going to have more you said that you feel like as you have more.
Speaker Change: Our molecule is falling and so what happens around a lot of time since winter storms is we're providing ancillary services to our customers that they need and they want.
Speaker Change: In order to serve their customers so.
Speaker Change: So you see some incremental business on the interstate side in and around those services.
Speaker Change: On the intrastate side there.
Speaker Change: Actually we do hold some storage and our own name.
Speaker Change: And then our customers have storage as well so.
Speaker Change: We make money from time to time on the small amount of stores that we do hold in our name.
Speaker Change: We also have a little bit of transport capacity that we hold in our name is not significant overall, but we can make money on that where we haven't already hedged it.
Speaker Change: And then some of the same types of services that that's the interstate customers need the amtrust eight customers.
Speaker Change: So you know they will overall coal on our system above their rights and those thus far versus com at premium rates.
Speaker Change: So those are the types of things that you say when we have winter weather that leads to some incremental margin.
Speaker Change: On the margin.
Great. Thanks, appreciate that and maybe as a follow up to the Permian natural gas egress looking forward.
Seem to be appear to be short natural gas in the Agua Dolce market going forward with LNG demand coming online in the back half of the decade. So kind of just curious if you could just talk about you know potential new projects, including Gtx expansion, what are the updates there and or the potential for a newbuild longer term. Thanks.
Sure I can talk about both of the Atlanta all.
Speaker Change: As CFO to add.
Speaker Change: And so yes, we think there is going to be a need for further Permian engraft in the back half of the decade, I think thats consistent with the.
Speaker Change: With what we have been saying, we think we are well positioned for that.
Speaker Change: We've got <unk>.
Speaker Change: Felt multiple pipeline successfully they've been generally very close to being on time.
Speaker Change: We also have an existing system that we can interconnect with until we can offer our anchor shippers on our Permian gas pipeline.
Speaker Change: Storage services and other downstream services that I think some of our competitors that so.
Speaker Change: I think it's a it's a project we're very interested in but we will be disciplined in how we approach it and make sure that the returns are attractive to our shareholders.
Speaker Change: You know I think GCE Act some of the same dynamics around GCI GC Act, obviously because of the compression expansion of an existing system and get to market with it with that much quicker. We've continued to have conversations with shippers on that capacity not quite there yet.
Speaker Change: But Tom.
Speaker Change: Hum.
Yes, I mean, if we get one.
Speaker Change: We participated in the.
Speaker Change: Newbuild on the Gtx expansion there also could be a further downstream expansions of our existing stockpiles.
Speaker Change: That's something that we're also looking at as a as part of this.
Speaker Change: Great makes sense I'll leave it there so you next week.
Speaker Change: Hey, guys, Hey, I'll follow up there just so you get a little sense, when we think about the need for the capacity.
Speaker Change: We say back half of the decade, but what we're hearing from our customers is probably late 'twenty six early 'twenty seven so clearly we're in a competitive environment here. So I won't go through a lot of details but.
Speaker Change: Something probably needs to be action here in the next couple of quarters to be able to meet that timeline.
Speaker Change: And the question is really is it just one pipe or two.
Speaker Change: When you think about the incremental demand that's coming on.
Speaker Change: Great makes sense I appreciate that extra color and have a great rest of your day.
Yes.
Speaker Change: Thank you. Our next question will come from Jean Ann Salisbury with Bernstein. Your line is open.
Speaker Change: Hi, and Theres a lot of differing reports around haynesville production trajectory and whether it's in decline and kind of has been in decline for a couple of months and.
Speaker Change: It seems like your fourth quarter. It was up quite a lot from your third quarter Haynesville volumes, but I was wondering if you could just talk about what you've been seeing on your acreage are there the last month or two I guess towards the end of the fourth kartik.
Speaker Change: So if you look at our Haynesville volumes.
They are I think.
Speaker Change: I pondered, but end up 14% quarter over quarter Haynesville was up over 30%.
Speaker Change: So we've continued to see increase.
Speaker Change: <unk> and our Haynesville volumes.
Speaker Change: Yes, I mean, so look we the team has done a wonderful job with our acreage.
Speaker Change: Our acreage position in prime tier one acreage.
Speaker Change: Larger customer there is planning for the upcoming LNG wave.
Speaker Change: So.
Speaker Change: While we have seen some of the smaller producers.
Speaker Change: Pull back I think everyone is getting ready for the upcoming demand thats coming our way and so.
Speaker Change: If you ask me I think some of the pullback has helped US we've had a little bit we're trying to keep up with the demand in terms of physical capacity and so this year hopefully we will get the rest of that capacity on and be primed and ready to support our customers when they are ready to take.
Speaker Change: It's been a it's pretty good right.
Speaker Change: We're pretty much doubled our volumes over the last couple of years.
Speaker Change: Great. That's helpful. Thank you.
Speaker Change: Follow up and do you see any risks this year that gas infrastructure out of the Bakken might limit aircrafts out of that basin.
Speaker Change: Well no I think look I think we've got you know I think we talked about this in the last quarter. We had our we have two projects that we're looking at bringing incremental gas out of the Bakken one which was we just put into service.
Speaker Change: This past November.
Speaker Change: We call it our Bakken Express we had a phase one into phase III.
Speaker Change: First wave is already in service and flowing for 92000, a day coming into the Cheyenne hub out of the Bakken. So we don't think gas will be the limiting factor anymore, especially once we get the second phase out.
Speaker Change: I think we're in pretty good shape there.
Speaker Change: Great. That's all for me thank you.
Speaker Change: Thank you. Our next question will come from John Mackay with Goldman Sachs. Your line is open.
John Edwards: Hey, Thanks for the time, I'm I'm going to start out on a pretty simplistic one might have a straightforward answer but just in terms of the 'twenty 'twenty four guidance increase going from 80816 is that is that all on F. T. X is there any other change in there that you can frame up and maybe just how do we think.
John Edwards: That increase versus kind of what you were guiding for the EBITA and those assets this year.
John Edwards: Alright.
Speaker Change: The eight Oh, when we published that was slightly below but it rounded up to eight hours and so.
Speaker Change: And then the eight one sex the only difference between those two numbers.
Speaker Change: Is the EBITDA on Nextera and.
Speaker Change: And the EBITDA and Nextera for 2024 is consistent with what we were expecting.
Speaker Change: Yeah. That's a that is clear then thanks for that and then maybe just shifting gears.
Speaker Change: But R&D contributions in the quarter a little bit.
Speaker Change: Kind of where that ended up trending for the year, how much of the twenty-three softness versus a bunch of it's driven by that and how much can bounce back in 'twenty four.
Speaker Change: Yeah, I mean, I would say that the contribution from the RMG plants in the fourth quarter was relatively small.
Speaker Change: And we do have three.
Speaker Change: Three plants and service now.
Speaker Change: We're not running as consistently as we would like them to Ron.
Speaker Change: And so I think.
Speaker Change: I think that's what we're focused on now we recently took over operations from waste management.
Speaker Change: And we think that once we really get our arms around this we will be able to run these uh huh guest needs to run very consistently.
Speaker Change: Take a couple of months end of 2024, but we think we will get on mining and stockpiling.
Speaker Change: I appreciate that thank you see you next week.
Speaker Change: Next we will hear from Tristan Richardson with Scotiabank you May proceed.
Tristan Richardson: Hey, Good evening, guys said, just maybe a question on the S. TX could you talk a little bit about what's driving the growth in 24 versus 23 and then.
Tristan Richardson: With respect to integration of those assets are there's obvious sort of near term low hanging fruit type of projects as part of the integration that could drive further or even sort of similar type of growth in 'twenty five and beyond.
Speaker Change: Sure. So between 23 and 'twenty four there is an expansion project contracted expansion project that came online and came online.
Speaker Change: By late very late last year, and so that that incremental EBIT dollar between 'twenty three 'twenty four is locked down with Wisconsin customer contracts with respect to 'twenty four and 'twenty five.
Speaker Change: Don't see anything as significant as that I'm driving the growth, we talked about a longer term multiple being between seven and seven and a half coming down from the eight six times that we bought it.
Speaker Change: That was driven a lot by.
Speaker Change: A small amount by some cost savings, but really by some commercial synergies and some incremental business that that.
Speaker Change: We think we can bring to those pipes, but that really occurred three to four years out.
Speaker Change: I appreciate the color Kim and then maybe just following on a previous question around leverage I mean can you talk a little bit about where you sort of see the high end of where you're comfortable should something sizeable whether it be M&A or organic hmm come across.
Speaker Change: Where do you see yourself sort of the high end in terms of comfortable in leverage.
Speaker Change: So our leverage targets or four and a half times and there is no change in that and so you know.
Speaker Change: I think we feel like that's appropriate given the size and scope of our assets.
Speaker Change: <unk> of our contracts that are underpinned by take or pay contracts with good customer credit quality.
Speaker Change: Ron as I said earlier around four times.
Speaker Change: The end of the last three years.
Speaker Change: We see value in having some pressure on or for opportunities <unk> RASK.
Speaker Change: Hum.
Speaker Change: So that gives us plenty of capacity to execute on.
Speaker Change: Some opportunity if we found it attractive now this is a burning a hole in our pocket.
Speaker Change: I think they'll go out and spend less money today, I mean, you've seen us as I talked earlier.
Speaker Change: Exercise.
Speaker Change: Acquire those at Nextera assets, not much impacts our debt to EBITDA multiple.
Speaker Change: Hmm.
Speaker Change: We purchased $500 million shares not much impact and so we've been able to do a lot of these things without genpact, but we've got a lot of capacity. There. If we find something that is a good strategic set.
Speaker Change: And that's a that has attractive economics for our shareholders.
Speaker Change: That's helpful. Appreciate it Ken Thank you.
Speaker Change: Our next question will come from Neal Dingmann with truly your line is open.
Speaker Change: Hey, guys. Thanks for the time here. This is J P on shelf for Neil.
J P: One clarification question, just kind of what we're doing.
J P: Earlier, the E. The Permian accurate Natgas sneakers.
J P: I know you guys were referring to.
J P: In 2026, I guess late 'twenty six 'twenty seven.
J P: <unk> been hearing from customers is that has that changed.
J P: At all I guess, maybe some last quarter or two quarters ago as has the tone changed from customers there or is that kind of been the expectation.
J P: For some time there.
Speaker Change: I don't think it's changed much I think it's been the expectation I think you know as the market. Both the market side is coming together from the LNG standpoint.
Speaker Change: And the producing side I think it's probably a perfect match in terms of timing.
Speaker Change: But I do I do sense that there is.
Speaker Change: More of the need to ensure that there is a solution in place.
Speaker Change: I'll be a little more urgent than maybe we had in the last couple of calls.
Speaker Change: Sure sure got it. Thank you and then just one follow up for me.
Speaker Change: The RV.
Speaker Change: Projects that you guys are accurate here.
Speaker Change: Just going through the release.
Speaker Change: You guys note that your potential capacity to expand in subsequent phases I guess in California.
Speaker Change: Do you mind elaborating on that I guess to the extent that you guys can I guess, what would time it looked like there and I guess what level of capacity will be expect to see.
Speaker Change: Ramping in that timeframe.
Speaker Change: Yes. This is Dan good question I would just just to reiterate kind of what we've got now between.
Speaker Change: Between the two hubs, we've got about 60000 barrels a day just under <unk> of capacity.
Speaker Change: And then in Los Angeles Harbored, our Carson terminal, we've got 750000 barrels of storage that will be fully in by by the end of the year of 20000 barrels a day of rack throughput at Los Angeles Harbor, I think we could easily double that.
Speaker Change: Both the storage as well as the sort of the rack throughput capacity on the hubs, we could double those as well if we did.
Speaker Change: 60.
Speaker Change: That would get us up to a rate.
Speaker Change: We put rate that would be somewhat consistent with what we've historically supplied in the state of California.
Speaker Change: Call it roughly around 120, now, California uses about 250000 barrels a day of diesel.
And so theoretically I think we could convert even even above that because I think we will see we've got our first facility now Bradshaw, which is just outside of Sacramento, which we've converted 100% too.
Speaker Change: Two renewable diesel no hydrocarbon diesel going through there so but why do we do that it will all be determined by the market I mean, we will be continuously engage with our customers and.
Watching the ramp up of these two northern California refineries.
Speaker Change: We'll do whatever wherever our customers perhaps too.
Speaker Change: Perfect. Thank you very much guys I appreciate it.
Speaker Change: Our next question comes from Neel Mitra with Bank of America Your line.
Neel Mitra: Hi, Good afternoon, I was wondering how it wasn't volume assumptions youre using it on the gas side for the S. T X acquisition in the Eagle Ford and maybe just the dynamics that you're seeing there with GR ratios and activity.
Neel Mitra: Yeah, Neil on with respect to the 2020 for budget assumptions were.
We're going to go through all of those at the conference next week. So if you can hold to your question and we'll make sure we address it next week at the Investor Conference. When we go through the 24 budget in detail.
Speaker Change: Okay fair enough.
Speaker Change: And then maybe asking the same question a different way.
Speaker Change: All else equal if you don't make an acquisition you are trending towards I guess, the 0.8 times leverage and 24 D.
Speaker Change: Do you see value in and lowering the leverage ratio and staying under four times.
Speaker Change: Or do you still see kind of four five times is the proper leverage ratio given your asset base.
Speaker Change: I think we're comfortable at four five times as I said earlier, given the size scope.
Speaker Change: Size and scope of our assets and the stability of our cash flow.
Speaker Change: And so that being said.
We see value in having some cushion and we've been operating with a cushion for the last couple of years.
Speaker Change: Okay can I ask one additional once since the first one is going to go to the.
Speaker Change: [laughter].
Speaker Change: When you said that gtx can support that the downstream assets.
Speaker Change: Maybe with an expansion can you explain.
Speaker Change: What you meant by that comment.
This is stable I think what Ken was talking about is what we.
Speaker Change: One we have the ability to expand <unk>.
Speaker Change: Thank you know as as the intrastate industrial market and power market evolve.
Speaker Change: There is an opportunity to probably do some downstream expansions to carry that with volumes into that corridor.
Speaker Change: I think thats, what Ken was referring to.
Speaker Change: And I think just to add something this just demonstrates the tremendous ability we have to expand and extend our system I think it's hard for people to realize exactly how extensive this is in Texas, Louisiana, but every time, we put more gas into the system. It brings the opportunity to expand further downstream.
Speaker Change: And that's a big reason why camera said repeatedly that.
Speaker Change: Expansion Capex target, we think we'll be at the upper end of that range from 1 billion to 2 billion will be at the upper end of that range and that's the kind of opportunities we're seeing they don't necessarily bake it into our backlog, but they're out there and things we can take advantage of as more and more gas flows through the system.
Speaker Change: Got it I appreciate all the color.
Speaker Change: Thank you next we'll hear from Theresa Chen with Barclays. You May proceed.
Theresa Chen: Good afternoon. Thank you for taking my questions first just a quick follow up related to and get longer term guidance on the X T X acquisition.
Theresa Chen: In order to get to the 77 five times multiple over multiple years and is there any capex associated with that and how much.
Theresa Chen: There may be a little bit, but it is not it's not material.
Theresa Chen: Got it and on the product side in California.
Theresa Chen: Given the ample supply of diesel into the state and with renewable diesel produced in state ethanol or entering into the state from other areas.
Theresa Chen: It looks like you know the state may be short gasoline overtime at instate refineries confer with this backdrop. If there is incremental paid for gasoline imports are there opportunities for your waterborne terminals there.
Theresa Chen: Okay.
Speaker Change: Yes, I think at the end of the day.
Speaker Change: Whether the barrels are supplied by the pad five refiners are imported I think they'll move on our pipelines.
I think as long as the demand is there the inland demand is there and as well as the demand in the bay areas.
Speaker Change: And the areas that we have across our racks, whether its produced in California or it comes it comes in I think it will I think it will find its way into our assets.
Thank you.
Speaker Change: Our next question comes from Zachman have rain with Tpa <unk> Company. Your line is open.
Zachman: Hey, Thanks, guys for taking my question just following back up on the Permian pipeline is there any market that you guys are looking more towards whether its language I'll say, our carthage or Houston that would make more sense at the time for NUPLAZID.
Zachman: So look we like them all.
Zachman: Sure.
Zachman: As I said within a very competitive environment that we're in I think.
Zachman: Ultimately.
Zachman: There is a need in <unk>.
Zachman: Probably both locations right and so.
Really that's all I'll say I mean, we're trying to like I said, we'd like them all I'm not sure we're going to get them all so.
Zachman: I'm not sure if I answered your question, but.
Zachman: I think theres, a theres, probably a pipe that needs to get to the eastern Louisiana coast ultimately across to serve kind of the Louisiana Gulf Coast corridor, and Theres, probably a pipe that needs to get to South Texas.
Zachman: And ultimately.
Speaker Change: Customers in our customer contracts will drive that that's right.
Speaker Change: Okay that makes sense and then turning to M&A I know you all don't rule it out and one of your peers. This year, we'll have some assets on the market curious if you guys would ever step out of the U S. For assets are mostly focused on just U S assets for M&A.
Speaker Change: I mean, we will look at the opportunity that's what I would say I would say in general what we have found outside of the U S.
Speaker Change: Is that it's hard to get the types of risk adjusted returns that we would like to get and so you know because you've got different tax issues associated with repatriating the cash and.
Speaker Change: Generally return, depending on which market you're talking about but returns have been lower and most of those international markets.
Speaker Change: So I think.
Speaker Change: What I'm, saying is I doubt that happens, but we will look at those opportunities. We don't we don't pass up you know looking at things and evaluating whether that could make sense and whether that have there are synergies with our existing asset.
Speaker Change: So you know obviously that at that.
Speaker Change: Alright, perfect. Thanks, guys.
Okay.
Speaker Change: Thank you. Our next question comes from Harry Mateer with Barclays. Your line is now open.
Harry Mateer: Hi, good afternoon.
Harry Mateer: First one for the past couple of quarters, you've been disclosing in your 10-Qs some potential financial section. The EPA has good neighbor Act with the high end of the range fairly material I'm. Just wondering if you can update us on where you stand in that process and things we can keep an eye out for.
Harry Mateer: You know in terms of whether the ultimate effect once a being towards the higher or lower end of the range.
Harry Mateer: Yeah.
Harry Mateer: And our paid some of the stuff that we've sat in the past, but I mean, we think this is a flawed rule was a flawed process.
It's heavily challenged.
Harry Mateer: <unk> challenged.
Harry Mateer: Every state that has requested a stay on.
Harry Mateer: On their state plan has prevailed. So this is state and a 468 and ninth circuit courts.
Harry Mateer: And with respect to the federal plan.
Harry Mateer: That has been appealed to the Supreme Court.
Harry Mateer: And what we think is a very positive sign the Supreme Court has requested a hearing that will happen later in February.
Harry Mateer: So where that leaves us is you know.
There are only three states right now.
Harry Mateer: Where <unk>, where the rule is not stayed in PMI is impacted.
Harry Mateer: Impact that and so that the impacts that we disclose in the 10-K.
Harry Mateer: Are much smaller and I think we are we discussed that in the air as well.
Harry Mateer: The potential impacts I should say got it alright. Thank you.
Harry Mateer: Yes.
Harry Mateer: Alright.
Speaker Change: Thank you we are showing no further questions at this time.
Speaker Change: Okay. Thank you Sheila. Thank you appreciate it have a good day.
Speaker Change: That does conclude today's conference. Thank you for participating you may disconnect at this time.