KINDER MORGAN, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Growth Outlook: Strong natural gas demand driven by LNG exports, Mexico exports, power, and industrial growth. Internal estimate of 25 Bcf/day growth in the natural gas market over the next five years. Power demand driven by population/business migration to the South, CHIPS Act, renewables, coal conversion, and data center demand.
• Projects: Announced ~$3B South System Expansion 4 Project and GCX system expansion in Texas. Backlog increased to $5.1B from $3.8B last year. Added ~$450M of projects to backlog during the quarter.
• Financials: Q3 EPS unchanged, EBITDA up 2% YoY. Full-year EBITDA expected to grow 5%, EPS 9% vs 2023. Dividend increased 2% to $1.15 annualized. Gross margin increased 7% YoY, net income attributable to KMI $625M, EPS $0.28 (17% higher YoY).

Segment Performance

• Natural Gas Business Unit: Transport volumes increased 2% in the quarter vs Q3 2023. Natural gas gathering volumes were up 5% YoY, driven by Haynesville and Eagle Ford volumes (up 10% and 9% respectively). For the year, gathering volumes are expected to be 8% below 2024 plan but 5% over 2023.
• Products Pipeline Segment: Refined Products volumes were up 1% in the quarter vs Q3 2023, while Crude and Condensate volumes were down 4%. The SFPP pipeline closed a binding open season to add 2,400 barrels per day of refined petroleum products capacity, expected to be in service Q3 2025.
• Terminals Business Segment: Liquids lease capacity remained high at 95%. Jones Act tankers are 100% leased through 2024 and 97% leased in 2025 (assuming options exercised).
• CO2 Segment: Oil volumes were down 6% in the quarter vs Q3 2023, NGL volumes down 3%, and CO2 volumes up 3%. The Board approved $145 million for CO2 flood projects at SACROC and Diamond M, expected to result in peak oil production over 5,000 barrels per day.

Guidance

• Full-year EBITDA expected to grow 5% vs 2023, EPS 9% vs 2023, though slightly below budget due to lower commodity prices and slow RNG startup.
• Expect to fund ~$2.5B per year in CapEx from cash flow, with balance sheet capacity available for additional projects. Backlog has grown from $3.8B to $5.1B, with ongoing opportunities in power, industrial, and export sectors. CapEx is roughly $2B per year, with potential to increase if strong returns are expected.

Risks

• Court Challenges: Projects like Cumberland face court challenges from anti-fossil fuel opponents, which could delay construction. However, previous court challenges have been successfully defended, and agencies are expected to vigorously defend permits.
• Commodity Volatility: Lower commodity prices and slow RNG startup have impacted budget expectations. Volatility in commodity prices could continue to affect financial performance.

Question and Answer

Q: John Mackay asks about the size of the shadow backlog relative to last year and about Mississippi Crossing and Trident.

A: Kim Dang states the opportunity set has increased vs last year, backlog grew from $3.8B to $5.1B. Sital Mody discusses Mississippi Crossing and Trident open seasons, noting they aim to get molecules to needed markets.

Q: Michael Blum inquires about CapEx trend and expected returns.

A: Kim Dang says CapEx is roughly $2B per year, with potential to increase, and returns on projects are consistent with historical targets.

Q: Theresa Chen asks about Mississippi Crossing commercial drivers and separating the products business.

A: Sital Mody talks about commercial drivers related to LNG growth and access to molecules. Kim Dang explains reasons against separating the products business due to synergies and potential dis-synergies.

Q: Zack Van Everen asks about the Cumberland project courts and GCX expansion timeline.

A: Kim Dang discusses court challenges and defense of permits. Sital Mody mentions GCX expansion timeline is conservatively 22 months with a mid-'26 in-service date.

Q: Jean Ann Salisbury asks about GCX expansion risk and storage market tailwind.

A: Sital Mody and Kim Dang discuss GCX expansion risk and the storage market tailwind, with storage rates continuing to strengthen.

Q: Neal Dingmann asks about backlog and CO2 portfolio.

A: Kim Dang and Anthony Ashley discuss backlog potential and CO2 portfolio spend, with $145M approved for CO2 flood projects.

Q: Jeremy Tonet asks about operating leverage and power demand upstream.

A: Kim Dang discusses operating leverage in gathering and transmission and potential behind-the-meter gas solutions for power demand.

Q: Keith Stanley asks about CapEx funding and court review risks.

A: Kim Dang and Rich Kinder discuss CapEx funding flexibility and strategies to address court review risks, emphasizing ability to fund good return projects.