Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kinder Morgan Inc (KMI, Financial) reported a solid quarter with adjusted EPS increasing by 4% and EBITDA by 3%, driven by growth in the natural gas segment and refined products business segments.
- The company ended the quarter with a debt to EBITDA ratio of 4.1 times and continues to return significant value to shareholders, including a dividend of $0.2875 per share.
- Kinder Morgan Inc (KMI) announced significant new projects, including the South System 4 expansion and the conversion of the Double H pipeline to natural gas liquids service, increasing their project backlog by $1.9 billion to $5.2 billion.
- The company is seeing substantial opportunities in the natural gas market, with commercial discussions on over 5 bcf a day of opportunities related to power demand, including data center demand.
- Kinder Morgan Inc (KMI) benefited from favorable Supreme Court decisions that are expected to mitigate regulatory challenges, providing a more favorable operating environment.
Negative Points
- Natural gas gathering volumes are expected to average about 6% below the 2024 plan due to the current gas price environment, although still 8% over 2023.
- The CO2 segment experienced lower production volumes, with oil production down 13%, NGL volumes down 17%, and CO2 volumes down 8% compared to the second quarter of 2023.
- Refined product volumes are expected to be slightly below the plan for the full year, about 1% below the initial budget.
- The company has faced operational challenges in its RNG (Renewable Natural Gas) business, leading to a temporary stand-down on significant acquisition opportunities until existing operations are stabilized.
- Interest expense increased due to a higher short-term debt balance, partly from the acquisition of South Texas midstream assets.
Q & A Highlights
Q: The backlog went up significantly, but the multiple also increased slightly. Can you explain the dynamics behind this?
A: (Kimberly Dang, CEO) The backlog increased by $1.9 billion, driven by the South System 4 and Double H projects. The multiple increased slightly, but we focus on internal rate of return rather than targeting a specific multiple. Despite the increase, these projects still offer very attractive returns.
Q: Have data center operators become more open to using natural gas due to reliability concerns?
A: (Kimberly Dang, CEO) Yes, reliability and speed to market are key factors. Initially, we thought they would target renewables, but discussions have shown a significant interest in natural gas due to its reliability.
Q: Can you provide more details on the geographic distribution and speed to market for the 5 bcf of power demand discussions?
A: (Kimberly Dang, CEO) The demand is spread across various states including Texas, Arkansas, Kentucky, Georgia, and Arizona. The speed to market will vary depending on whether the market is regulated or unregulated.
Q: What is the timeline for regulatory approval and construction for the SNG South System project?
A: (Sital Mody, President - Natural Gas Pipelines) We plan to pre-file and then do a third filing next summer, targeting an in-service date of late 2028. Initial phases will start in 2028 with volumes trickling in the following year.
Q: How does the Texas loan program for gas-fired power plants present opportunities for Kinder Morgan?
A: (Sital Mody, President - Natural Gas Pipelines) We have about a 40% market share in Texas. The capital investment to connect plants will vary depending on location and whether they are on our existing system or require new infrastructure.
Q: What are the capital needs and opportunities for the new CO2 portfolio?
A: (Anthony Ashley, President, CO2 & Energy Transition Ventures) We don't expect a material change in annual capital numbers. The new assets offer excellent flood potential, and we will conduct pilots to prove out these opportunities.
Q: How are you funding the South System Expansion 4 project?
A: (David Michels, CFO) We prefer to fund at the parent level due to our attractive cost of capital. While we are evaluating all options, including non-recourse debt, we generally avoid project financing due to its pressures.
Q: Are you considering acquisition opportunities in RNG within the Energy Transition Ventures?
A: (Kimberly Dang, CEO) We have paused significant acquisition opportunities until we can consistently operate our existing plants. Once we achieve stable operations, we may reevaluate acquisition opportunities.
Q: What is the contractual structure behind the new projects announced?
A: (Kimberly Dang, CEO) The South System 4 project has 20-year take-or-pay contracts with creditworthy shippers. The Double H project is also underpinned by a contract, ensuring good quality cash flow.
Q: Which basins are tracking below expectations for gathering volumes?
A: (Kimberly Dang, CEO) The Eagle Ford, Haynesville, and Bakken basins are tracking below expectations, with the Haynesville showing more weakness due to producer reactions to pricing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
