Q4 2024 Kinder Morgan Inc Earnings Call
Speaker Change: Good afternoon and thank you for standing by and welcome to the Quarterly Earnings Conference Call. Your lines are in a listen-only mode until the question and answer session of today's conference. At that time, you may press star followed by the number 1 to ask a question. Please unmute your phones and state your first and last name when prompted.
Speaker Change: Today's conference is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. Sir, you may begin.
Speaker Change: Thank you, Michels. And before we begin, as we always do, I'd like to remind you that KMI's earnings were released today. And this call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
and the Securities and Exchange Act of 1934.
Speaker Change: as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosure on forward-looking statements and use of 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, and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements.
Speaker Change: I usually kick off these earnings calls with an overview of developments present and future in the midstream energy space, with special emphasis on the various growth drivers for natural gas demand.
Speaker Change: These drivers are creating enormous opportunities for expansion of the natural gas pipeline and storage system across America.
Speaker Change: and especially in the Gulf Coast and Southeast regions. At the beginning of this new calendar year, I thought it might be appropriate to be a little more specific about Kinder Morgan's response to those opportunities. In the last few months, we have announced the FID of four new major projects. The expansion of our GCX system out of the Permian Basin, our SS4 expansion on our Southern Natural Gas System,
Speaker Change: Our Mississippi Crossing Line, which will serve SS-4 and other increased demand in the Southeast.
in excess of five billion dollars.
Speaker Change: and will have the capacity to transport over 5 BCF a day of natural gas. And all of these projects, I would point out, are supported by long-term contracts with creditworthy customers almost entirely on the demand side.
Speaker Change: And while, for obvious reasons, we're not disclosing specific IRR targets for these projects, I know you realize our board would not have approved without returns that are significantly above our cost of capital.
Speaker Change: In addition to these projects, we are seeing other sizable opportunities to grow our business.
Speaker Change: as exemplified by our recently announced outriggers transaction which will expand our position in the Bakken.
Speaker Change: In fact, this is the most exciting time to be in the midstream natural gas market.
Speaker Change: that I've seen in my long decades in this business. We believe that our investments as they come online will drive growth in EBITDA and EPS for years to come.
Speaker Change: That, I'll turn it over to Kim. Okay, thanks Rich. 2024 was a very good year in terms of our financial performance. We grew EBITDA and EPS, and we improved our leverage metric. And we set the company up for future success.
Kim: are securing commercial contracts to underpin $6.3 billion in new expansion projects that will add growth for the future.
Kim: Today we announce we're proceeding with the $1.7 billion Trident project, as Rich just said. And we also announce today that we successfully secured contracts to upsize our previously announced MSX project by 300 million cubic feet a day to 1.8 BCF a day.
Kim: For the quarter, we added 3.5 billion dollars in expansion projects to the backlog, which is primarily comprised of Trident and MSX.
Kim: For the year, we have added $6.3 billion in projects to the backlog and placed $1.2 billion of projects in service, growing the backlog from $3 billion at the beginning at the end of last year to $8.1 billion today.
These projects will pay benefits for many years to come.
Kim: As a result of the projects added to the backlog, we now expect to spend approximately two and a half billion dollars per year in expansion CapEx for the next several years, up from our prior estimate of approximately two billion dollars per year.
Kim: During the quarter, we also agreed to purchase a natural gas gathering and processing system in the Bakken, which is complementary to our existing Bakken assets for $640 million.
Kim: The system is backed by long-term contracts from credit-worthy counterparties. On a gap basis, the purchase price translates into an eight-times multiple, but based on the cash we receive in 2025, the multiple is approximately six times.
Kim: In addition, in the future, we expect the acquisition to reduce CapEx that we would have otherwise had to spend to expand for our customers.
Kim: As we look to the future, we continue to see additional growth opportunities in natural gas between LNG, exports to Mexico, power, and industrial growth. Our internal number for growth in the overall natural gas business is roughly 28 BCF a day of growth between now and 2030.
Our assets are well positioned to serve this growth.
Kim: We currently serve approximately 45% of the export LNG demand, 50% of the export to Mexico, and 45% of the power demand in the combined region of the desert southwest, Texas, and the southeast.
Kim: 2024 was a successful year that brought numerous opportunities and nice growth, and we're looking forward to further growth and capitalizing on additional opportunities in 2025. And with that, I'll turn it over to Tom to give you more details on the business performance.
Tom: Thanks, Kim. Starting with the natural gas business unit, transport volumes were essentially unchanged in the quarter versus the fourth quarter of 2023.
Tom: Natural gas gathering volumes were down 7% in the quarter compared to the fourth quarter of 2023, driven by lower Haynesville and Bakken volumes partially offset by higher Eagleford volumes.
Tom: Sequentially gathering volumes were flat, quarter over quarter. For the year, our gathering volumes averaged 8% below our 2024 plan.
Tom: 6% over 2023. We have budgeted for a 5% increase in gathering volumes in 2025 versus 2024 actuals.
Tom: We view this slight pullback in gathering volumes due to lower prices as temporary given that higher production volumes will be necessary to meet the demand growth from LNG expected in the second half of 2025.
Tom: Looking forward, we continue to see significant incremental project opportunities across our natural gas pipeline network to expand our transportation and storage capabilities in support of the growing natural gas market.
Tom: On our products pipeline segment, we find products volumes were up 2%, including condensate volumes were down 5% in the quarter, compared to the fourth quarter of 2023.
Tom: For the full year, refined products volumes were down 3% below our plan, but 1% over 2023.
Tom: We have budgeted for a 1% increase in refined product volumes in 25 versus 24 actuals.
Tom: In December 2024, BP North America exercises unilateral right to extend their contract for five years at existing rates for all of the petroleum condensate processing capacity at our facility on the Houston Ship Channel.
Tom: The extension is recognition of the strategic value of Kinder Morgan's 100,000 barrels per day processing capability at our facility and the locational value of Kinder Morgan's footprint in the area.
Tom: In our terminals business segment, our liquid's lease capacity remains high at 95%. Though refining cracks and blending margins have softened, they remain constructive and supportive of strong rates and utilization at our key hubs at the Houston Ship Channel and New York Harbor.
Our Jones Act tanker fleet is fully leased today.
Tom: 97% lease through 2025, 94% lease through 2026, assuming likely options are exercised.
Tom: We have opportunistically chartered a significant percentage of the fleet at higher market rates and extended the average length of firm contract commitments to four years.
The CO2 segment experienced 3% lower oil production volumes.
Tom: 4% lower NGL volumes and 3% lower CO2 volumes in the quarter versus the poor quarter 2023
Tom: For the full year, oral volumes were down 6% versus 2023, but within 1% of our budget.
Speaker Change: With that, I'll turn it over to David Michels. All right. Thanks, Tom.
David Michels: So for the quarter, we're declaring a dividend of 28.75 cents per share, which is $1.15 per share annualized and up 2% from 2023.
David Michels: During the fourth quarter, we generated net income attributable to KMI of $667 million, or up 12% from the fourth quarter of 2023.
David Michels: Those two items are 12 and 14 percent up from last year, respectively.
David Michels: This year-over-year growth was driven by greater contributions from our natural gas products
David Michels: with the main growth drivers being contributions from our acquired South Texas midstream assets, which we acquired at the end of 2023, greater contributions from our Texas intrastate natural gas system, as well as from natural gas projects that were placed in service.
David Michels: For the full year, we generated EPS of $1.17, which was up 10% over last year.
And our adjusted EPS was up 7% from last year.
David Michels: As we've messaged for the last two quarters, we finished 2024 a little bit below our budget, mainly driven by commodity prices lower than what we had budgeted and lower production from our R&G plants.
David Michels: But despite those headwinds, we still experienced nice growth from 2023.
David Michels: Moving to our balance sheet, we ended the year with $31.7 billion of net debt and a 4.0 times net debt to adjusted EBITDA ratio, which is right in the middle of our leverage target range of 3.5 to 4.5 times.
David Michels: Our net debt decreased $112 million from the beginning of 2024.
And here's a high-level reconciliation of that change.
David Michels: We generated $5.6 billion of cash flow from operations. We spent $2.6 billion in dividends. We spent $2.7 billion of capital, and that's growth, sustaining, and our contributions to our joint ventures.
David Michels: And then we had about $200 million of other uses, and that gets you pretty close to the $112 million decrease in net debt for the year.
David Michels: For 2025, as we previewed in December, we expect another good year of growth.
David Michels: We expect net income growth of 8% from 2024, EBITDA growth of 4%, and adjusted EPS growth of 10%.
David Michels: We also expect to see our balance sheet improve further, ending the year at 3.8 times.
David Michels: As we say in the press release, we'll be publishing our budget materials on February 5th, and that will provide more detail behind the summary budget that we provided in December.
David Michels: Our budget does not include the recently announced outrigger acquisition, which we expect to close in the first quarter. And we expect that acquisition to be immediately accretive. And we expect our year-end leverage will remain at 3.8 times even after taking into account that transaction.
David Michels: With that, I'll turn it back to Kim. Okay. Michels, if you'll come on, and we'll take questions. And if everyone can ask one question and one follow-up, and then if you have further questions, please get back in line.
Speaker Change: Thank you. And once again, that is star one if you would like to ask a question. Our first caller is Teresa Chen with Barclays. You may go ahead.
Teresa Chen: Good afternoon and thank you for taking my questions. When we look at the last update of the backlog, including CO2 and GMP, comparing the backlog today, the implied multiple of 6.4 times is pretty compelling.
Teresa Chen: So for projects like Mississippi Crossing and Triton and future natural gas infrastructure projects
Speaker Change: Can you talk about the economic moat that you have, the competitive moat that you have, the financial considerations, and how you can maintain these types of multiples and returns for growth projects under development?
Speaker Change: Sure, and let me just say there's been, you know, no change in our return criteria and the way we think about and the way we look at these projects.
Speaker Change: As you know, our required return moves around a little bit depending on the risk inherent in the cash flows.
Speaker Change: And so we do have different returns for different risk projects that make up the overall multiple of the backlog that is less than six times.
Speaker Change: I think that these projects are competitive, and as you know, on MSX we were competing for that project. We also competed on the TriDent project with other people that were attempting to build.
Speaker Change: I do think that having the infrastructure that we have, having the reputation that we have as an operator
Speaker Change: and our ability to bring these projects in in a timely manner does help us to be successful as we go out and try to get new projects and new business.
Speaker Change: But this return is consistent with the returns that we have achieved over time on these projects.
Speaker Change: Yeah, let me make a couple of comments on that. So there are, these assets fit in well with our existing system. So there are potential capital synergies and commercial synergies with our existing assets in this acquisition.
Thank you. See you next time. Bye.
Speaker Change: You know, at this point in time, you know, we're not quantifying exactly what those are just because those can move around.
Speaker Change: based on a number of different factors, including the producer's drilling schedule.
Speaker Change: But I think, you know, that we're in a good position to deliver at least some of those synergies, and hopefully we will get significant synergies from this.
Speaker Change: In terms of downstream synergies, I think that there are some existing contracts in place, and we may have a potential for downstream synergies, but I think that will come later in time. There's nothing immediate with respect to downstream synergies.
Got it, thank you.
Speaker Change: Thank you. Our next caller is Manav Gupta with UBS. You may go ahead, sir.
Manav Gupta: Good morning. A quick observation. I think on December 9th when you announced your CAPEX you were looking for an adjusted EPS growth of 8% and today it's already 10 and I'm hoping as the year progresses this number just moves up and can you help us understand some of the macro trends or favorable factors which could help you push even higher than 10% EPS growth in 2025?
Sure.
Manav Gupta: So I think, one, you know, that we have some sensitivity to commodity prices.
Manav Gupta: and currently commodity prices are a little bit higher than what we budgeted.
Manav Gupta: There's crude, there's natural gas, and then we have some REM sensitivity, and so we've got upside on the first two, we've got a little bit of downside on the last one, but when you net all those together...
David Michels: Today, there's some upside on the overall commodity picture. Now, it's early in the year, and commodity prices can move, and so I don't think you can take that to the bank at this point. The outrigger acquisition, as David said in his comments, is not in the budget, and so there's... That's going to be...
a creative and will be a positive versus our budget.
David Michels: There's the potential, I think, for some upside on the Jones Act tankers that we've got. Right now, I think, interest expense, the rates that we budgeted are largely in line with where the current market is.
You know, they're...
David Michels: If the prices stay high, you could see some upside on GMP volumes over time, and if we continue to deplete the inventory that's in storage as a result of winter weather.
David Michels: You know, I think the winter weather, we probably did a little bit better than what we budgeted with respect to winter weather. But again, it's early in the year, there's a lot of different moving parts in our budget. And so
David Michels: I'd just say, at this point in time, we are not changing our guidance, we're sticking to our budget, but it is a nice start to the year.
Speaker Change: Perfect. My quick follow-up is, it looks like we have a new administration which is really pushing the AI goals here. The $500 billion investment announced yesterday. And I'm trying to understand, in terms of this execution, are we still in very early stages of this positive macro trend where this trend could continue for like five, seven, eight, or nine years as these data centers come on and the demand for power just keeps rising and how Kinder fits into that? Thank you.
Speaker Change: Yeah, I think we are early in, you know, in the data center trend and the power that's going to be needed there. And so...
Speaker Change: You know, I think that the encouragement that this administration has given on the data center development, the...
Speaker Change: their desire to see American energy do well, I think all plays into a nice long-term trend for natural gas demand.
Speaker Change: As I said in my opening comments, you know, we think the natural gas demand is going to grow by 28 B.C.F. a day between now and 2030, and part of that is power demand.
Speaker Change: In those numbers, though, we only have power demand up about 3 BCF a day.
Speaker Change: And I think, you know, there are a lot of numbers that are much higher than that 3 BCF a day in terms of power demand.
Speaker Change: You know, I've seen numbers at 10 BCF a day, and so I think, you know, there is a potential for upside, you know, above the 28 BCF of growth that we are projecting.
Thank you.
Speaker Change: Thank you. Our next caller is Michael Bloom with Wells Fargo. You may go ahead, sir.
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Speaker Change: Thanks. Good afternoon, everyone. So maybe staying on President Trump's recent AI infrastructure announcement, one of the projects involved there seems like it's going to be a large data center campus.
in Abilene, Texas, which...
Speaker Change: If I'm not mistaken, it's pretty close. I can't hear you. Hang on. Can you hear me?
Yes, now I can. Are you guys there? Yes.
Dr. Prima, Dr. Prima,
Speaker Change: Okay, great. So, sorry about that. So, you hear me okay?
Yeah, something in Texas.
Okay, uh, Dave, uh, Trump's
Speaker Change: AI data center announcement includes a large data center in Abilene, Texas.
Speaker Change: So, which I think is pretty close to some of your pipelines. I'm wondering if you, if there's an opportunity there for you and do you have availability to address it?
Speaker Change: So, Michael, this is Cecil. One, it's a good announcement. Our intrastate footprint or NGPL footprint, you know, it's all in and around the area. I think it's an opportunity, but once again, you know, there's a lot of folks that are going to be chasing the opportunity, so I think we're well positioned.
to partake in some of that growth.
R.J.
Thanks.
Speaker Change: Absolutely. So, you know, part of, you know, one, I think the open season closed and we do have binding commitments.
Speaker Change: to build that segment. Part of the overall strategy here is there is a lot of interconnectivity needed with all the gas coming from multiple directions.
Speaker Change: And so I think this is a good platform for us to...
Speaker Change: you know, extending that into the Louisiana Corridor. And so I think that when you think about it, you know, this first phase here is contracted and ready to go and is a position as well for future growth.
Speaker Change: And let me just further on that, you know, the existing header is in the TriDep project.
Speaker Change: in terms of the economics that we get from that. And then future, you know, it's there. We have future expansion potential, but that would be another project, you know, that we would get approved at that time.
Speaker Change: Yeah, so just to clarify, you know, the KMLP expansion is, you know, one of the pipes that it will connect to is Trident. You know, it's separate and apart from Trident itself and, you know, and it could potentially be a leg into the Louisiana Corridor down the line.
Right, but in the future. In the future, that's right.
Michael, does that make sense?
Yep, thank you.
Thank you very much.
Speaker Change: Thank you. Our next caller is Neil Dingman with Truist Securities. You may go ahead sir.
Speaker Change: Hey, good afternoon. This is Jack Wilson on for Neil. Can you at least speak to your positioning in regards to LNG exports specifically?
Yeah, sure. We serve about 50% of that market.
So it's just under that, it's 45%.
Speaker Change: I think our total contracts that we've got in place for LNG exports is about 10.7 BCF a day. Not all of that is online today, but that's the position that we will grow into over time. I think it's a little less than 10 today.
Speaker Change: And then, you know, the opportunity set is in the range of 15 BCF a day.
Speaker Change: You know, the future capacity that is included in the 28 BCF a day of growth that we see between now and 2030. And that's, you know, so we'll be focused on trying to capture some of those opportunities.
Speaker Change: And then a lot of times, as we've said before, you know, there's the initial opportunities to, you know, connect, you know, to the header systems or directly to those facilities.
Speaker Change: And, you know, in addition, sometimes some of them are looking for some insurance capacity and therefore they
Speaker Change: contract for more than just the capacity of the facility to make sure that they can get molecules there. So a lot of times those initial projects lead to future projects. So there's a lot of opportunity on the Export LNG side.
Thank you very much.
Speaker Change: Thank you. Our next caller is Keith Stanley with Wolf Research.
Hi, good afternoon.
First question, just curious...
You just did an acquisition a couple weeks ago.
Speaker Change: How you're thinking about incremental acquisitions at this point, so on the one hand, you have greatly increased organic investment opportunities, so you probably want some excess financial capacity.
Speaker Change: But you also have a much improved currency and it's probably pretty easy to make deals accretive at this point So just how are you balancing those factors and thinking about MNI?
Speaker Change: Yeah, so you know we think about M&A on a very opportunistic basis, and so
You know, we can't predict that.
Speaker Change: and therefore, you know, it's hard to budget or schedule for it. Our criteria in terms of acquisitions...
hasn't changed, so it's still the same.
Speaker Change: So we're not modifying the criteria, and then we just evaluate each one as it comes to fruition.
Speaker Change: You know, right now, you know, we are able to fully fund all of our contracts with internally generated cash. We have no need to issue equity.
Speaker Change: You know, if we saw some big, huge acquisition, you know, not opposed to issuing equity, but it would have to make economic sense, and so we would just have to view it in the context of the overall deal when that opportunity came before us.
Speaker Change: Thanks for that. The second one just wanted to follow up on the quarter. So before EBITDA was about $100 million below the initial quarterly budget and you talked about commodities, volumes, and some of the RNG headwinds. Is there anything else you'd flag for the quarter in particular or are those the main factors?
The first time I've seen this video, I've seen it.
Speaker Change: The commodity headwind was part of it. We had some, you know, the R&G sales were down relative to what we had expected.
Speaker Change: And then we had some of the RINs that we produced in the quarter were pushed out of the year into the next year because there was a lack of liquidity in the market, so that also contributed to it. But you hit the main ones.
Thank you.
Speaker Change: Thank you. Our next caller is Jean Ann Salisbury with Bank of America.
Speaker Change: which might be lower absolute capex but better multiples or you're not really ready to call that shift yet.
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Speaker Change: It's hard to call. I think we're going to have opportunities on both fronts. I think more of the opportunities probably come in what I call the singles and doubles, connecting to power plants, that type of thing.
Speaker Change: And, you know, that's largely just because the larger projects, to do those, you've got to put together a lot of customers.
Speaker Change: You know, it's just a lot more complicated and a lot harder to do, but that being said...
Speaker Change: We do have some large-scale opportunities that we're evaluating and looking at.
Speaker Change: that have the potential to come to fruition, it's just harder to call your shots on those, again, because you face competition and you've got to bring a lot of different factors have to come together to make those possible.
Speaker Change: So, it's going to continue just to be a combination of things, Jean Anne, but I do think that the larger ones are going to be more infrequent than we'll just have a lot of smaller opportunities, singles and doubles.
Speaker Change: We were very fortunate this year that we got a number of them in one year.
Speaker Change: That makes sense. Great. And then as a follow-up, can you kind of talk about how you're forecasting the cadence of Haynesville volumes coming back? I think rig count in that basin is falling more than most would have thought, and you've seen some producers saying that you need far higher prices than today's strip for them to come back.
Speaker Change: Gene, this is Cecil. Yes, so I think, you know, last year we did see a little pullback in the Haynesville as a result of the price environment.
Speaker Change: in light of what we're seeing, you know, currently in the expectation of the LNG demand coming on.
We are seeing activity pick back up in the Haynesville.
Speaker Change: And, you know, if any of this price is sustained as, you know, kind of we hope it is, I think you'll see a lot more activity in the Haynesville.
Okay, that's helpful. Thank you. That's all for me.
Speaker Change: Thank you. Our next caller is Beryl Dunis from Citi. You may go ahead, sir.
Beryl Dunis: Thanks, operator. Afternoon, team. I just want to go back to the project backlog again. Now at $8.1 billion, largest we've seen in a while here. And, Kim, you mentioned the $2.5 billion a year annually.
Beryl Dunis: And I guess if we sort of track that through 2028, it gets you to about $10 billion all-in. So just curious, is that the right way to think about maybe your visibility?
Beryl Dunis: on the sort of unsanctioned backlog from here at least through 28.
Speaker Change: And in that context, you know, kind of what GM was getting at, you added over five billion dollars of projects in this last year.
and potentially some new LNG FIDs coming this year.
Speaker Change: When do you think we do see a year like that again? I know it's hard to predict, but just think about it as you see some of the data.
Speaker Change: Well I hope next year, but this has been a pretty spectacular year is what I would say in terms of backlog additions and the four really big projects.
Speaker Change: So, but again, you know, we have outlined, there's going to be a lot of growth in natural gas, 28 BCF a day, again, between now and 2030, that's a large amount of demand growth, and it's all happening, you know, across the southern United States.
Speaker Change: where we've just got a really good position of assets, whether that's in Texas, or that's going across to the southeast, or that's going out to the desert southwest.
Speaker Change: And so, you know, I think we've tried to give you, you know, two and a half billion dollars a year, yeah, that, you know, we filled in a few things there. But in terms of our expectations on what's going to happen,
Speaker Change: And, but I think, you know, there is the opportunity for that to grow over time, I believe.
Speaker Change: And so, you know, I think that's what we would expect to happen.
Speaker Change: is that we continue to add to this backlog, but we're also going to be placing projects in service. And so, not sure how to tell you exactly how much we can add over time.
Speaker Change: Okay, yep, understood. That's helpful. Second question, quickly, just thinking about some weather events that have kind of occurred so far here in the first quarter. Obviously, we had the LA fires. I know you guys have assets out in that region. We've also had some cold weather just along the U.S. Gulf Coast. I'm just curious how much either of those events has kind of impacted operations so far in the first quarter.
Speaker Change: on some pipes, but I think those volumes will largely be able to make up and then...
Speaker Change: You know, on the cold weather, I mean, our operations guys have done a fantastic job. We went out and manned stations.
Speaker Change: Yeah, we had something go off, but they would get it right back on. So really, no impact in terms of being able to operate from the fires or from the cold weather.
Great, I'll leave it there. Thanks for the time.
Operator: Thank you. Our next caller is Zach Van Everen with TPH. You may go ahead, sir.
Speaker Change: Hey, thanks for taking my question. Maybe first one on the Bakken acquisition, can you maybe touch on a high level, you know, what type of contracting that plant and the pipeline had, you know, is it MBCs, is it mostly contracted, or just any more color there would be great.
Speaker Change: Yes, sure. So, this is Staple. One, I think the asset fits well in our kind of overall integrated strategy.
Speaker Change: There's some firm obligations there, you know, as we think about, you know, the footprint.
Speaker Change: One of the things that this asset does for us is it gives us processing north of the river. We've always been kind of south of the river if you're familiar with that area, and so I think it opens up some potential flexibility that we can leverage as we move forward.
Speaker Change: Gotcha, that makes sense. And then maybe just one on Trident, you know, I know that
shortly after announcing it.
Speaker Change: Golden Pass came out talking about them being one of the anchor shippers. I know in the press release today, you kind of know
Speaker Change: LNG and industrial demand, you know, could you touch on maybe just the high-level makeup of the demand contract? Is it mostly LNG or is there also some, you know, power and industrial demand you're seeing as well?
Speaker Change: You know since the last time we've spoken I can't I won't say any names, but we've got some power behind behind power demand behind the contracts
Speaker Change: and end-use customers on the ability to potentially even expand the pipe from the 1.5 that we've got it at now all the way up to the 2.8 PCF that we think we could get through some capital efficient expansion.
Gotcha. Super helpful. I appreciate the time today. Thanks.
Thank you. Our next caller is John Makaiwa Goldman Sachs.
John Makaiwa: Hey, thanks for the time. I think the first one, I want to go back to, I think it was Spiro's question just on touching on the $2.5 billion a year. Can you...
John Makaiwa: Kind of frame up. Is that a ceiling on how much you think you can spend a year? Can that number move higher? And I guess generally speaking, how do you think about setting that? Is that a leverage question? Is that a free cash? Is that a dividend? Just frame that up for us to be helpful.
John Makaiwa: So, you know, the $2.5 billion is generally what we think, based, looking at all the projects that we have in the backlog.
John Makaiwa: and other things you know that we think are probably very highly likely you know what we think we can spend and it's I mean it's over the next several years three to four years
John Makaiwa: That two and a half billion is on, you know, on average per year. I mean, are you going to have years where, you know, it could be three and others where it could be two? Yes. I mean, it's not going to be perfectly.
John Makaiwa: It's not going to be perfectly allocated $2.5 billion each year. So it can be loppy, and that depends on the project timing.
John Makaiwa: But we're trying to give you a sense of what we see in terms of our opportunities to invest capital over time.
John Makaiwa: You know, we can fund $2.5 billion per year out of internally generated cash.
John Makaiwa: So, you know, no concerns that we need external capital for that. We can fund in some years a little bit more than that.
John Makaiwa: If it's lumpy during that time frame, we've got our balance sheets in good shape and in this year at four times and expected at the end of 25 at 3.8 times.
John Makaiwa: And so we can absorb that lumpiness on the balance sheet once those projects come on.
You know, we'll grow out of that.
John Makaiwa: I think we will continue to look at that number and update it, and if we add significant new projects to the backlog, then
John Makaiwa: I think we have the potential that that number increases over time.
John Makaiwa: But we have made some, as pointed out earlier, some estimate of some additional growth beyond what's in the backlog.
John Makaiwa: Because, as someone noted, the backlog adds up to 8.1 and, you know, if you take four years or two and a half, you get 10. So there is a little bit of capital that we're assuming, based on our opportunity set, we'll be able to fill in.
Speaker Change: I appreciate that. Thank you. Maybe just second one from me.
John Makaiwa: We've talked a lot about these big kind of marquee projects you've added.
John Makaiwa: Is there anything you can share on, kind of, knock-on effects across the...
John Makaiwa: Rest of the kinder system now that you're going to be moving a lot more gas Is there you know some kind of operating leverage on the rest of footprint that you could think about adding to these returns?
John Makaiwa: Uh, sure. This is people again. So, you know, as we think about, you know, as you as you put these arteries in across
John Makaiwa: With the developments that are coming in and around data centers, you know, and just power in general, there's opportunities for us to kind of leverage our footprint to
John Makaiwa: to kind of establish capillaries to these facilities. You know, one of the things that Jean-Anne talked about was, you know, kind of the smalls, you know, the small...
John Makaiwa: Capital Efficient Projects, there's opportunities on top of these large expansions for those type of projects in strategic areas that we can further expand.
John Makaiwa: You know, and that really applies across the footprint, you know, we're also looking at some opportunities, you know, moving out west to the desert southwest, you know, those might be that might be an area where we can see some primary and secondary expansion opportunities.
John Makaiwa: And the other thing I'll point out is like MSX, it will connect our three legs of the Tennessee gas pipeline. Over time, that's going to give us some operating flexibility and potentially upside to help our customers.
John Makaiwa: And then, you know, on Trident, it'll come into the intrastate market and it'll integrate well with our Texas intrastates and, you know, hopefully over time that'll give us the ability to deliver more value to our customers and sharing some of that.
Speaker Change: I think the message here that all the team is trying to deliver is we have an unparalleled system.
Speaker Change: that bridges the part of the country that needs the most new natural gas delivery system. We have that, and all of what we're saying, I think, lends itself to
Speaker Change: Lots of expansion opportunities coming off of this great footprint that we have. That's really our whole strategy over the next several years, is to move forward with the system we have, expand it, extend it, and drive home real nice earnings growth and growth in EBITDA.
Speaker Change: That's great. Thank you, Rich. Thank you, team. Appreciate the time.
Speaker Change: Thank you. Our next caller is Gabe Moraine with Mizzou Ho. You may go ahead, sir.
Gabe Moraine: Hey, good afternoon everyone. I just want to start out by saying that I think Pete's, based on how the share price has performed, Pete's making a good case for saving himself work and not holding analyst days in future years too, but with that said, I wanted to ask a question on the MSX project timeline being four years plus or minus.
Gabe Moraine: and being almost two years longer than a similarly sized intrastate project. Is that a question of permitting, right-of-way, conservatives? Is there any conservatism built into that? And
Gabe Moraine: fitting into the regime change in D.C. with the new administration, you know, is there anything on the permitting wish list or discussions you've had that you maybe think can expedite something, which I think is your first kind of greenfieldish interstate in some time?
Gabe Moraine: Yeah, so I mean the difference, just horseshoes and hand grenades, we generally think about interstate pipes take us four years, two years of permitting and two years to build.
Gabe Moraine: And intrastate pipes where we don't have to go get a FERC certificate is usually two-ish years. And that's sort of the timeline that you see, the difference in the timeline that you see between Trident and an MSX or a South System 4.
Gabe Moraine: You know, we came up with these schedules when we, you know, when we sanctioned these projects so late last year. I would say that they were done in line with what we thought we would get under the prior administration.
Gabe Moraine: And so, you know, to the extent that FERC speeds up, and it's really the FERC permit that is going to be the primary saving item.
Gabe Moraine: These are the extent that FERC speeds up their timeline, you know, we could, you know, we could get it potentially in service earlier, but I think the flip side of that is we want to make sure that we get a good FERC permit that we can defend in court.
Gabe Moraine: And so we don't want them to skip or shortcut any of their processes. So we want to make sure that we get a good, defendable FERC permit out, but hopefully they can do that faster under this administration.
Speaker Change: Thanks, Kim. And I know there'll be some more details on 25 guidance in the not-too-distant future, but could I ask maybe just one on your NatGas sensitivity that you've got to the $0.10 change in gas prices? It's a bit higher this year than last. Kind of want to know what's behind that.
That's a sensitivity that we've had in the past.
Speaker Change: So, it's not anything new, Gabe. It's been hard to quantify because some of our producers on the gathering side
Speaker Change: You know, the contract can move, the price they pay, the tariff that they pay can move up and down.
Speaker Change: with some gas prices and so that's what this year we were right in the middle of the range and we've been trying to find a way to quantify it for investors and this year we were able to do it. So again, no difference from prior years.
Thanks, Kim.
Speaker Change: Thank you. Jeremy Tonett with JP Morgan. You may go ahead, sir.
Hi, good afternoon.
Dr. Prima, Dr. Prima,
Good afternoon, Jeremy.
Speaker Change: I just want to circle back, I guess, new administration, you know, new look out there. Just wondering, you know, Kinder's looked at expansions in the northeast before, but state-level permitting issues has, you know, impacted the calculus of moving forward with those type of projects. Just wondering if you're tracking anything on the federal side that maybe would change, I guess, you know, the permitting process or laws otherwise that would, you know, kind of, I guess, change your outlook.
Speaker Change: Dicks, and the Northeast is there, but just, you know, you see anything on the permitting side that might make you kind of look at things differently.
Speaker Change: Yeah, no, the, you know, it's not the federal permits that are the real problem in the Northeast. I mean, we can get the federal permits, it's the state permits, and I don't see anything changing there.
Speaker Change: The other thing I'd say about the Northeast is the commercial structure.
Wow
with the, uh, uh, the...
operator, RTO operator.
Speaker Change: does not allow for pass-through of fixed demand charges if you're an IPP, and so it makes it harder for the IPPs to contract on a firm basis for that capacity. And so, you know, those are the two largest hurdles, and we have not seen any change.
Speaker Change: Got it, understood, and might be dating myself a little bit here, but if I go back I think to around the 2009 time frame with Rocky's Express, I think it was described as the pig in the bowl of constrictor at that point.
Speaker Change: Cost inflation issues at that point in time. We see inflationary environment in the background now Just wondering you know how you think about I guess those risks going forward and you know how with ENCs You see out there that you think can you know best protect you just wonder I'm sure you guys are very thoughtful and all this but wanted to see a way to start
Yeah.
Speaker Change: You know, we are already engaged in procurement on all three big pipes.
Speaker Change: I'm not going to go pipe by pipe, but on some of the pipes, you know, we have already, we already have an agreement to purchase steel, purchase the compression.
Speaker Change: and, you know, on others I think we will do so in the not-too-distant future. So we are, you know, I think we're working hard to try to mitigate that risk.
Dr. Prado, Dr. Prado
Got it. OK, thank you.
Speaker Change: Thank you. At this time I am showing no further questions.
Okay, thank you all very much. Have a pleasant evening.