Kinder Morgan : Third Quarter 2021 Earnings Results
10/20/2021 | 05:34pm EST
KINDER MORGAN ANNOUNCES $0.27 PER SHARE DIVIDEND
AND RESULTS FOR THIRD QUARTER OF 2021
HOUSTON, October 20, 2021 - Kinder Morgan, Inc.'s (NYSE: KMI) board of directors today approved a cash dividend of $0.27 per share for the third quarter ($1.08 annualized), payable on November 15, 2021, to stockholders of record as of the close of business on November 1, 2021. This dividend represents a 3% increase over the third quarter of 2020.
KMI is reporting third quarter net income attributable to KMI of $495 million, compared to $455 million in the third quarter of 2020; and distributable cash flow (DCF) of $1,013 million, compared to $1,085 million in the third quarter of 2020. Adjusted Earnings were $505 million for the quarter, versus $485 million in the third quarter of 2020.
"Our company once again generated substantial Adjusted Earnings and robust coverage of this quarter's dividend. Our stable cash flows and guiding philosophy create a compelling investment opportunity, as we remain committed to funding our expansion capital opportunities internally, maintaining a healthy balance sheet, and returning excess cash to our shareholders through dividend increases and/or share repurchases," said KMI Executive Chairman Richard D. Kinder.
"Our business model, predominantly take-or-pay and fee-basedlong-term contracts with creditworthy customers, in conjunction with our valuable network of transportation and storage infrastructure, continues to generate strong financial performance" said KMI Chief Executive Officer Steve Kean. "We continue to allocate capital conservatively, leaving ourselves a margin of safety on the self-funded investments we make. We are maintaining that discipline as we look at opportunities in the low-carbon energy transition. That includes last quarter's Kinetrex acquisition and the partnership we announced last month with Neste to use one of our Louisiana terminal facilities to create a storage and logistics hub for the raw material used in renewable diesel and sustainable aviation fuel, polymers and chemicals. Arrangements such as the one we have with Neste demonstrate the flexibility and durability of our assets even as energy sources evolve over time.
"In our base natural gas business, we continue to benefit from growing global natural gas demand. Our assets are well positioned to serve growing domestic markets and export locations for LNG and Mexico. Our status as a low methane emitter within our sector also positions us well to capitalize on increasing demand for responsibly-sourced or certified natural gas. And with 700 billion cubic feet of high deliverability natural gas storage capacity, we are also very well-positioned to move gas domestically when and where it's needed most, whether during extreme weather events or more routinely to support intermittent renewable power generation.
Overall, we are looking forward to continued strong performance and exciting new opportunities in our current businesses and through the evolution of energy markets," Kean concluded.
"Our financial performance during the quarter was strong, as we generated third quarter earnings per share of $0.22, a 10% increase over the $0.20 earnings per share achieved in the third quarter of 2020," said KMI President Kim Dang. "At $0.44 per share, DCF per share was down $0.04 from the third quarter of 2020, primarily due to higher sustaining capital expenditures in the third quarter of 2021 versus the third quarter of 2020. During the quarter, we generated $397 million of excess DCF above our declared dividend.
"In August, we closed on the acquisition of Kinetrex Energy announced last quarter, and saw progress on the construction of its three new landfill-based renewable natural gas (RNG) facilities. We expect all three to be operational by the end of next year," continued Dang. "With North American RNG demand projected to triple during the next two decades, we see a great deal of potential growth here that dovetails nicely with our interconnected network of assets and strong customer relationships. Based on our experience so far, we currently forecast both Kinetrex and the Stagecoach acquisition that we also announced last quarter to slightly outperform our acquisition models for the year."
For the first nine months of 2021, KMI reported net income attributable to KMI of $1,147 million, compared to a net loss attributable to KMI of $488 million for the first nine months of 2020; and DCF of $4,367 million, up 30% from $3,347 million for the comparable period in 2020. The increases compared to the prior period are primarily related to KMI's strong performance during the February winter storm and are therefore largely nonrecurring.
For 2021, KMI expects to generate net income attributable to KMI of $1.7 billion and declare dividends of $1.08 per share, a 3% increase from the 2020 declared dividends. Consistent with our guidance in the second quarter earnings call, we currently anticipate generating 2021 DCF of $5.4 billion and Adjusted EBITDA of $7.9 billion. KMI also expects to end 2021 with a Net Debt-to-Adjusted EBITDA ratio of 4.0.
Overview of Business Segments
"The Natural Gas Pipelines segment's financial performance was essentially flat in the third quarter of 2021 relative to the third quarter of 2020," said Dang. "The segment provided higher contributions from the Texas intrastate systems and from the full year in-service of the Permian Highway Pipeline, as well as contributions from our new Stagecoach assets and from increased volumes and favorable pricing on our Altamont and Hiland Midstream systems. These were offset by lower contributions from Fayetteville Express Pipeline (FEP), El Paso Natural Gas (EPNG), and Wyoming Interstate Pipeline."
Natural gas transport volumes were up 3% compared to the third quarter of 2020, with volumes on the Texas intrastate systems up due to increased Gulf Coast demand from industrial and LNG customers; from the Permian Highway Pipeline going into service; and from increased volumes
on Tennessee Gas Pipeline (TGP) due primarily to increased deliveries to LNG customers. These increases were partially offset by declines on Colorado Interstate Gas Pipeline due to continued declining production in the Rockies basins; on EPNG due to pipeline outages; and on FEP due to contract expirations. Natural gas gathering volumes were down 4% from the third quarter of 2020 as higher volumes on our Hiland Midstream systems were offset by declines on several others, most notably on our KinderHawk and Eagle Ford assets.
"Contributions from the Products Pipelines segment were up compared to the third quarter of 2020 as demand recovery continued," Dang said. "Total refined products volumes were up 12%, while crude and condensate pipeline volumes were down 7% compared to the third quarter of 2020. Gasoline volumes were above the comparable period last year by 9% and diesel volumes were up by 2%. Jet fuel volumes continue their strong rebound, up 56% versus the third quarter of 2020. Compared to pre-pandemic levels, using the third quarter of 2019 as a reference point, road fuels (gasoline and diesel) were down by 3% in the third quarter of 2021, while jet fuel was about 21% lower. While the emergence of the Delta variant during third quarter 2021 had a negative effect on volumes, we would expect that effect to diminish in the fourth quarter.
"Terminals segment earnings were down compared to the third quarter of 2020. Volumes across most of our truck rack terminals serving primarily domestic consumers exceeded pre-pandemic levels. At our refined products hub facilities along the Houston Ship Channel and New York Harbor, which are more exposed to international trade and blending dynamics, volumes remained below 2019 levels. However, earnings across those assets have remained largely insulated from such volume fluctuations owing to our predominantly fixed, take-or-pay contracting profile. The negative earnings variance during the quarter compared to the prior year period was largely attributable to weakness in our Jones Act business, which continued to experience lower fleet utilization and lower average charter rates, although we have seen renewed customer interest in recent weeks," said Dang. "Our bulk business continued to benefit from strong commodity pricing and experienced gains in steel, petroleum coke, and export coal volumes compared to the third quarter of 2020.
"CO2 segment earnings were flat compared to the third quarter of 2020 due to lower CO2 sales and crude volumes and prices, partially offset by higher realized NGL prices and volumes. Due to hedges entered into in prior periods at then-prevailing prices, our realized weighted average crude oil price for the quarter was down 3% at $53.03 per barrel compared to $54.83 per barrel for the third quarter of 2020. NGL volumes were up 7% versus the third quarter of 2020 and our weighted average NGL price for the quarter was $28.01 per barrel, up 59% from the third quarter of 2020," said Dang. "Third quarter 2021 combined oil production across all of our fields was down 6% compared to the same period in 2020 on a net to KMI basis. CO2 sales volumes were also down 5% on a net to KMI basis. However CO2 sales volumes and oil production volumes, as well as realized crude and NGL prices, are nicely above plan. Better oil production volumes are driven primarily by SACROC production, which is expected to exceed plan for the year because of reduced base decline rates and improved performance on recent projects."
On August 20, 2021, KMI entered into a new $3.5 billion revolving credit facility, with a maturity date of August 2026, which may be used for working capital and other general corporate purposes. This new facility can be increased by up to $1.0 billion if certain conditions, including the receipt of additional lender commitments, are met. On the same day, KMI also amended its existing revolving credit facility, maturing November 2023, to reduce the capacity to $500 million.
Natural Gas Pipelines
On September 21, 2021, TGP announced the initiation of a responsibly-sourced natural gas (RSG) strategic agreement with Southwestern Energy Company (SWN). The goal of the agreement is to further reduce methane emissions across the natural gas value chain. As part of the agreement, SWN will produce and TGP will transport the RSG on its existing pipeline infrastructure to serve a large market in the Northeast.
On September 24, 2021, the FERC staff issued a Final Environmental Impact Statement (FEIS) for TGP's approximately $246 million East 300 Upgrade project. TGP has entered into a long-term, binding agreement with Consolidated Edison Company of New York, Inc. to provide 115,000 dekatherms per day (Dth/d) of capacity to their distribution system. The expansion project involves upgrading and adding compression facilities on TGP's system. Pending the receipt of all required permits, the project has an expected in-service date of November 1, 2022.
Kinder Morgan Louisiana Pipeline's approximately $145 million Acadiana expansion project began partial service on October 1, 2021, with full in-service expected in the fourth quarter of 2021, ahead of schedule. The project provides 945,000 Dth/d of capacity to serve Train 6 at Cheniere's Sabine Pass Liquefaction facility in Cameron Parish, Louisiana.
On October 8, 2021, TGP placed in service the compression component of its $72 million Line 261 Upgrade project located in Agawam, Massachusetts, ahead of the previously announced November 2021 in-service date.
In the third quarter, KMI made significant progress on creating premier renewable diesel hubs in Northern and Southern California. In Northern California, we received the customer commitments necessary to proceed with constructing a renewable diesel rail hub at our Bradshaw Terminal. KMI has begun permitting activities for the $36 million project and anticipates that it will be in service in the first quarter of 2023. Upon completion, the facility will accommodate up to 15,000 barrels per day of blended diesel throughput at the truck rack. KMI continues to develop with customers a Southern California renewable diesel hub at a new renewable diesel terminal at Colton. This project will connect marine renewable diesel
supplies in the Los Angeles harbor hub to nearby growth areas via KMI's SFPP pipeline. Once completed, this would be the first movement of pure renewable diesel by pipeline in the country. These hubs will allow customers to deliver renewable diesel for blending with regular diesel and biodiesel for multiple concentrations of renewable fuel at our truck racks. KMI has also started the permitting for a project to connect marine supplies of renewable diesel coming into its Los Angeles harbor hub to its Carson Terminal truck rack for delivery of unblended renewable diesel to the local markets.
On September 13, 2021, KMI announced a partnership with Neste, one of the leading providers of renewable and circular solutions, to create a premier domestic raw material storage and logistics hub in the United States, supporting increased production of renewable diesel, sustainable aviation fuel and renewable feedstock for polymers and chemicals. Upon completion of the project, KMI's Harvey, Louisiana facility will serve as the primary hub where Neste will store a variety of raw materials such as used cooking oil. The approximately $65 million project, which is supported by a long-term commercial commitment from Neste, is expected to commence operations in the first quarter of 2023.
The KMI board of directors has approved a project that will significantly reduce the emissions profile of KMI's refined products terminal hub along the Houston Ship Channel. The approximately $64 million investment will address emissions related to product handling
activities at KMI's Galena Park and Pasadena terminals, and is expected to reduce CO2 equivalent emissions across the combined facilities by approximately 17,500 tons per year or 72%. The project is expected to be placed in service in the third quarter of 2023.
Energy Transition Ventures
In August, KMI closed on its $310 million acquisition of Kinetrex Energy, thereby adding renewable natural gas (RNG) and additional liquefied natural gas (LNG) capabilities to its suite of services. In September, Kinetrex announced that construction activities have begun on three new landfill-based RNG facilities in Indiana. The approximately $146 million projects are expected to be operational by the end of next year. Upon completion of the projects, total annual RNG production from the four sites is estimated to be more than 4 billion cubic feet.
Kinder Morgan, Inc. (NYSE: KMI) is one of the largest energy infrastructure companies in North America. Access to reliable, affordable energy is a critical component for improving lives around the world. We are committed to providing energy transportation and storage services in a safe, efficient and environmentally responsible manner for the benefit of the people, communities and businesses we serve. We own an interest in or operate approximately 83,000 miles of pipelines, 144 terminals, and 700 billion cubic feet of working natural gas storage capacity. Our pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2 and other products, and our terminals store and handle various commodities including gasoline, diesel fuel, chemicals, ethanol, metals and petroleum coke. For more information, please visit www.kindermorgan.com.
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Kinder Morgan Inc. published this content on 20 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 October 2021 21:33:07 UTC.