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    Kinder Morgan Inc (KMI)

    Business Description

    KMI is one of the largest energy infrastructure companies in North America, operating approximately 82,000 miles of pipelines and 139 terminals as of December 31, 2023. The company is primarily involved in the transportation and storage of energy products, including natural gas, petroleum products, and CO2, contributing to enhanced oil recovery . KMI's business is divided into several segments, with the Natural Gas Pipelines segment being the largest contributor, followed by Products Pipelines, Terminals, and CO2 .

    1. Natural Gas Pipelines - Operates major interstate and intrastate pipelines, storage systems, and LNG facilities, providing transportation and storage services that significantly contribute to the company's revenue .
    2. Products Pipelines - Transports refined petroleum products, crude oil, and condensate, making KMI the largest independent transporter of petroleum products in the U.S. .
    3. Terminals - Handles various commodities, including gasoline, diesel, and chemicals, under long-term contracts, contributing to a stable revenue stream .
    4. CO2 - Involved in CO2 production and transportation for enhanced oil recovery, contributing to the company's business .

    Q3 2024 Summary

    Initial Price$19.98July 1, 2024
    Final Price$22.59October 1, 2024
    Price Change$2.61
    % Change+13.06%

    What went well

    • Kinder Morgan's project backlog has increased by 34% from $3.8 billion to $5.1 billion, indicating significant growth opportunities driven by LNG exports, power, and industrial demand growth.
    • The company can fund approximately $2.5 billion per year in growth capital expenditures from cash flow, with additional balance sheet capacity, while maintaining a strong debt-to-EBITDA ratio around 4x, showcasing financial flexibility and prudent management.
    • Kinder Morgan is pursuing significant new projects like the Mississippi Crossing and Trident pipelines, aiming to capitalize on the growing need for natural gas in the Southeast and Gulf Coast regions, positioning the company for continued growth.

    What went wrong

    • Uncertainty in Project Realization: Kinder Morgan acknowledges that not all projects in their potential pipeline may come to fruition, especially the larger ones which "can take longer to develop" . This uncertainty might impact the company's future growth projections.
    • Potential Increase in Capital Expenditures and Debt: The company indicates that capital expenditures could increase beyond the current guidance of $2 billion per year, potentially to "$2 billion, $3 billion or something like that" . They also mention the possibility of using balance sheet capacity, which implies taking on additional debt, to fund these projects .
    • Reluctance to Unlock Shareholder Value through Asset Separation: Despite a competitor's success in spinning out their liquids business, Kinder Morgan does not see significant benefits in separating their products business from their natural gas assets. They mention "there's not a big incentive to incur transaction costs, dis-synergies... that would make sense right now" , potentially missing opportunities to reflect better value in each segment.

    Q&A Summary

    1. Backlog Growth and CapEx
      Q: How will growth projects affect CapEx plans?
      A: Our backlog has increased 34% from $3.8 billion to $5.1 billion over the past year [0]. We expect annual CapEx to remain at approximately $2 billion, but it could exceed that if needed [2]. We can fund up to $2.5 billion per year from cash flow and have balance sheet capacity for more [2][14].

    2. Cumberland Project Court Decision
      Q: How does the court ruling affect the Cumberland project?
      A: The Sixth Circuit stayed our Army Corps and Tennessee permits, preventing us from starting construction [6]. We believe the decision is wrong and are working with agencies to vigorously defend the permits [6]. We've overcome similar challenges successfully in the past [6].

    3. Mississippi Crossing and Trident Projects
      Q: What's the outlook for Mississippi Crossing and Trident?
      A: These projects address the need for more gas moving from west to east [0]. Mississippi Crossing can be scaled up to 2 Bcf to serve Southeast markets [0][4]. We're excited about these projects and are working closely with customers [0].

    4. Demand Risk at Agua Dulce
      Q: Is there a risk of oversupply at Agua Dulce in 2026?
      A: If LNG projects are delayed, there could be pricing exposure [8]. However, we have long-term contracts with shippers [8]. Additionally, we can buy cheap gas during such times, which presents an opportunity [8].

    5. Expected Returns on Projects
      Q: Are returns improving on new projects?
      A: Returns are consistent with what we've achieved historically and what we've targeted [3]. While multiples may vary, overall returns meet our objectives [3].

    6. Operating Leverage and Capacity
      Q: How does increased gas demand impact capacity?
      A: We have capacity on some gathering systems, especially in the Eagle Ford [12]. Our transmission pipelines are running nearly full; upside comes as contracts roll and from providing ancillary services during volatility [12].

    7. CO2 Project Expansion
      Q: What's happening with the CO2 portfolio?
      A: Our Board approved $150 million in new CO2 floods, which will add an incremental 5,000 barrels per day at peak production [11].

    8. Strength of Storage Market
      Q: Is the storage market still a tailwind?
      A: Yes, about 25% of our storage is at market-based rates [9]. We recently signed a three-year deal at a high watermark [9]. Contracts roll over approximately every three years, offering ongoing opportunities [9].

    9. Impact of Commodity Prices on Guidance
      Q: How are commodity prices affecting results?
      A: Lower commodity prices have impacted gathering volumes [1]. However, strong performance in our transmission assets has offset some of the downside [1].

    10. Business Separation Consideration
      Q: Any thoughts on splitting the products and gas businesses?
      A: We believe owning these businesses together is strategic due to shared benefits [5]. There would be dis-synergies and no significant incentive to break up the company now [5].

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Natural Gas Pipelines2,4661,9912,2732,4389,1682,3361,9932,173
    Products Pipelines6687358628013,066728776711
    Terminals4614784844941,917496509496
    CO22973022973131,209288298319
    Kinder Morgan Canada--------
    Corporate and Eliminations-4-5-9-8-26-6-4-5
    Firm Services1,1631,107--4,5371,2611,1831,219
    Fee-based Services584602--2,502639657654
    Natural Gas Sales817495--2,724644490602
    Product Sales881896--3,884866883813
    Leasing Services3303463463461,368342348351
    Derivatives Adjustments8628-5691789-2523
    Other27272958141813637
    Total Revenue3,8883,5013,9074,03815,3343,8423,5723,699
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    United States----15,255---
    Canada--------
    Mexico--------
    Mexico and other foreign----79---
    Total Revenue3,8883,501--15,3343,842-3,699
    KPIs - Metric (Unit)FY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    SACROC Oil Production (MBbl/d)18.9021.8119.5919.42-19.1118.9119.02
    Yates Oil Production (MBbl/d)6.746.556.666.58-6.256.095.90
    NGL Sales Volumes, Net (MBbl/d)8.169.248.989.11-8.877.978.69
    CO2 Sales Volumes, Net (Bcf/d)0.360.3420.3110.328-0.3350.3160.319
    RNG Sales Volumes (BBtu/d)796-----
    Transport Volumes (BBtu/d)40,40039,17340,20141,461-41,43242,12244,824
    Sales Volumes (BBtu/d)2,1172,2202,5742,466-2,5632,4572,656
    Gathering Volumes (BBtu/d)3,3253,5183,4743,973-3,5844,0133,825
    NGLs (MBbl/d)35343535-374234
    Liquids Leasable Capacity (MMBbl)78.378.678.778.7-78.678.678.6
    Liquids Utilization (%)93949593.6-93.894.394.9
    Bulk Transload Tonnage (MMtons)13.413.712.613.5-13.514.113.4

    Executive Team

    NamePositionStart DateShort Bio
    Richard D. KinderDirector and Executive Chairman1999Richard D. Kinder has been a Director and the Executive Chairman of KMI since 1999. He served as CEO until 2015, providing unmatched familiarity with the company's strategy, operations, and finances .
    Kimberly A. DangDirector and Chief Executive OfficerAugust 1, 2023Kimberly A. Dang has been a director since 2017 and became CEO on August 1, 2023. She was President from 2018 to August 2023 and has held various roles since 2001 .
    Thomas A. MartinPresidentAugust 2023Thomas A. Martin became President in August 2023 after serving as Executive Vice President. He has been with Kinder Morgan since 2003 in various roles .
    Anthony B. AshleyVice President (President, CO2 and Energy Transition Ventures)June 2022Anthony B. Ashley was elected Vice President in June 2022. He previously served as Vice President, Energy Transition Ventures from February 2021 .
    Kevin GrahmannVice President, Corporate DevelopmentJuly 2020Kevin Grahmann was elected Vice President in July 2020. He joined Kinder Morgan's Corporate Development group in 2012 and was named a Vice President in July 2017 .
    James E. HollandVice President and Chief Operating OfficerJuly 2020James E. Holland was elected Vice President and COO in July 2020. He has been with Kinder Morgan for over 25 years, holding various operations and engineering positions .
    Catherine C. JamesVice President and General CounselFebruary 2019Catherine C. James was elected Vice President and General Counsel in February 2019. She previously served as Executive Vice President and General Counsel of Dynegy, Inc. .
    David P. MichelsVice President and Chief Financial OfficerApril 2018David P. Michels has served as Vice President and CFO since April 2018. He previously worked at Barclays and Lehman Brothers in energy investment banking .
    Sital K. ModyVice President (President, Natural Gas Pipelines)February 2023Sital K. Mody was elected Vice President in February 2023. He served as President of KMI's Midstream Group from August 2018 to February 2023 .
    Michael J. PittaVice President and Chief Administrative OfficerFebruary 26, 2024Michael J. Pitta will be Vice President and Chief Administrative Officer effective February 26, 2024. He has held various leadership roles over his 19-year career with KMI .
    Dax A. SandersVice President (President, Products Pipelines)July 2020Dax A. Sanders was elected Vice President in July 2020. He joined Kinder Morgan in 2000 and has served in various finance and business development roles .
    John W. SchlosserVice President (President, Terminals)December 2014John W. Schlosser was elected Vice President in December 2014. He joined Kinder Morgan in 2001 and has over 39 years of experience in commodity transportation and logistics .

    Questions to Ask Management

    1. Given the significant increase in your capital backlog to $5.1 billion , and the expectation of additional large projects, how do you plan to manage higher capital expenditures while maintaining your target debt-to-EBITDA ratio, especially if annual CapEx exceeds the $2.5 billion you can fund from cash flow? ,

    2. Considering the ongoing legal challenges to infrastructure projects, such as the issues encountered with the Cumberland project , how are you adapting your permitting strategy and risk management to mitigate the impact of potential court delays and ensure timely project completion?

    3. With the reported weakness in gathering and processing volumes due to lower commodity prices , and uncertainty about G&P volumes into 2025 , what measures are you taking to address this softness and what is your outlook for this segment?

    4. As you engage in discussions with power plants across multiple states and see significant opportunities in power demand , but currently have no concrete plans to provide power directly , how do you intend to capture the full value of this power demand growth, and would you consider expanding into power generation or behind-the-meter solutions in the future? ,

    5. Given that only about 25% of your storage capacity is at market-based rates and some contracts are yet to roll over , how much incremental revenue do you expect from rolling these contracts to higher market rates, and over what timeframe will this tailwind materialize?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateN/A
    End Date/DurationN/A
    Total additional amount$3 billion
    Remaining authorization amount$1.5 billion
    DetailsThe program is part of the company's strategy to enhance and return value to its stockholders. It aims to reduce the number of outstanding shares to increase the value of remaining shares and improve financial metrics such as earnings per share.

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024 and looking ahead into FY 2025
    • Guidance:
      1. Natural Gas Gathering Volumes: Expected to average 8% below their 2024 plan but 5% over 2023 levels .
      2. Refined Products Volumes: Expected to be slightly below their plan to 2% over 2023 levels for the full year .
      3. Oil Volumes: Expected to be roughly flat to budget for the full year .
      4. EBITDA Growth: Expected to grow by 5% for the year compared to 2023 .
      5. Earnings Per Share (EPS) Growth: Expected to grow by 9% for the year compared to 2023 .
      6. Adjusted EBITDA: Expected to be 5% higher than 2023 for the full year .
      7. Adjusted EPS: Expected to be 9% higher than 2023 for the full year .
      8. Debt to EBITDA Ratio: Expected to end the year around 4x .
      9. Sustaining Capital: Expected to be in line with the budget for the full year .
      10. Cash Taxes: Expected to increase slightly but not be overly significant .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Dividend: Declared a dividend of $0.2875 per share, which is $1.15 per share annualized, up 2% from the 2023 dividend .
      2. Natural Gas Gathering Volumes: Expected to average about 6% below the 2024 plan but still 8% over 2023 .
      3. Refined Product Volumes: Expected to be slightly below the plan by about 1% but 2% over 2023 .
      4. Oil Volumes in CO2 Segment: Expected to be 2% below budget and 10% below 2023 for the full year .
      5. Sustaining Capital Expenditures: Expected to be in line with the budget for the full year .
      6. Cash Taxes: Expected to be favorable for the full year .
      7. Debt-to-EBITDA Ratio: Ended the quarter at 4.1x, consistent with the budget .
      8. Capital Expenditures: Expected to be around $2 billion annually, with potential variations .
      9. Backlog: Increased by $1.9 billion to $5.2 billion during the quarter .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Dividend: Declared a dividend of $0.2875 per share, which is $1.15 per share annualized, up 2% from 2023 .
      2. Adjusted EPS Growth: Financial outlook includes a 14% growth in adjusted EPS for the year .
      3. Debt to EBITDA Ratio: Ended the quarter at 4.1x debt to EBITDA and adjusted their long-term leverage target to a range of 3.5 to 4.5x .
      4. Cash Taxes and Sustaining CapEx: First quarter DCF was impacted by higher cash taxes and sustaining CapEx, but they expect cash taxes to be favorable for the full year and sustaining capital to be in line with their budget for the full year .
      5. Natural Gas Demand: Anticipated significant growth in natural gas demand, with expectations of more than doubling LNG exports and a 50% increase in exports to Mexico by 2030. Additionally, there is an expected substantial increase in gas demand from power associated with AI and data centers .
      6. Backlog of Projects: Increased by about $300 million during the quarter due to new natural gas projects added .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Earnings Per Share (EPS): Projected to grow by 15% compared to 2023 .
      2. Distributable Cash Flow (DCF) per Share: Expected to grow by 8% over 2023 .
      3. EBITDA Growth: Projected growth of 8% .
      4. Leverage Ratio: Expected to improve to 3.9x by the end of 2024 .
      5. Commodity Price Assumptions: Assumed WTI price of $82 per barrel and Henry Hub natural gas price of $3.50 .
      6. Capital Expenditures: Expected to be at the high end of the $1 billion to $2 billion per year discretionary CapEx range .
      7. Natural Gas Market Growth: Anticipated 20% growth in the natural gas market by 2030, driven by LNG exports, exports to Mexico, and industrial demand .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Suppliers with ownership interest in McElmo Dome, Bravo Dome, and Sheep Mountain CO2 resources
    • Other CO2 pipelines competing with Kinder Morgan's ownership interests in the Central Basin, Cortez, and Bravo pipelines
    • Other interest owners in the McElmo Dome unit and the Bravo Dome unit for transportation of CO2 to the Denver City, Texas market area
    • Interstate and intrastate pipelines for connections to new markets and supplies and for transportation, processing, storage, and treating services
    • Proprietary pipelines and terminals owned and operated by major oil companies, other independent products pipelines and terminals, trucking, and marine transportation firms
    • Refineries owned by major oil companies and independent transmix facilities