Kinder Morgan Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
January 18, 2023

There are 15 speakers on the call.

Operator

Welcome to

Speaker 1

the Quarterly Earnings Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. I'll now turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan.

Speaker 1

Sir, you may begin.

Speaker 2

Thank you, Ted. And as usual, before we begin, I'd like to remind you that KMI's earnings release today and this call as well as certain non GAAP financial measures. Before making any investment decisions, we strongly encourage you To read our full disclosures 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. As we begin 2023, it seems to be an appropriate time to look both backward and forward. Through the rearview mirror of today's earnings release, we see that 2022 was a very good year for Kinder Morgan.

Speaker 2

We again produced strong cash flow well in excess of our budget and use that cash flow to pay our investors a healthy and growing dividend, fund our expansion CapEx, Maintain a strong balance sheet and buy back shares on an opportunistic basis. In short, we are continuing to follow the financial philosophy That we have stressed for years. Looking forward, we released in December our preliminary budget for 2023 And it shows another year of living within our means even in the light of increased interest costs and an expanded set of expansion CapEx opportunities, We also announced today our plan for management succession. Our CEO, Steve King, will transition out of his role effective on August 1 this year. Let me just say that Steve has been a superb CEO for the last 8 years and we thank him for the dedication, the hard work, confidence and honesty he's brought to this job.

Speaker 2

On a personal note, he's been a real pleasure to work with during all his years at the company. While we will be sorry to lose him as CEO, we are delighted that we have him in Present role until August and thereafter, he will continue to be a Director and I know he will contribute in that role to the future success of the company. The Board and I have great faith in Kim Dang, who will transition from her present role as President into the CEO slot and then Tom Morton, who will succeed her as President. Both have been with Kinder Morgan for approximately 20 years, Have made extraordinary contributions to our results and culture and we expect great things from them in the future. To sum it up, we expect a smooth transition later this year.

Speaker 2

Steve? Thank you, Rich.

Speaker 3

I'll give you A brief look back at what we did in 2022 and how well we have set ourselves up for the future. Kim and David will cover the substance and the Next week, we have our comprehensive annual investor conference. So as usually is the case on this call, We'll defer to next week the more detailed questions on the 2023 budget and the outlook and business unit performance. As Rich said, we had a very strong year in 2022 and wrapped it up with a great 4th quarter. Late in the 4th Quarter for example, we saw some volatility in the gas market and that creates opportunity for large transmission and storage operators like us And for our customers who procure transportation and storage services from us.

Speaker 3

We performed well operationally for our customers, Financially for our company, thanks as always to the tireless preparation and execution of our commercial, logistics and operations teams. We saw that come through especially during the holiday weekend when our teams worked seamlessly across organizational lines to prepare, respond and recover And deal with the upsets along the way. That requires a committed workforce and a strong culture, and we've got that at Kinder Morgan. Our work in 2022 also set us up well for the future. We added to the strength of our balance sheet finishing the year At 4.1 times debt to EBITDA, better than our 4.3x budget for the year and well inside our long term target of approximately 4.5 times.

Speaker 3

We originated new business, which has grown our backlog to 3,300,000,000 Made up of high probability projects at an extremely attractive EBITDA multiple of about 3.4 times. These investments are weighted toward our lower carbon future in natural gas, renewable liquid feedstocks and fuels in our products and terminals businesses and investments in our Energy Transition Ventures business. And these lower carbon investments are all expected to yield Very attractive returns, well above our cost of capital. That's how we told our investors we would approach these opportunities And that's exactly what we are doing. There are no loss leaders here.

Speaker 3

We also returned value to shareholders in the form of a well covered modestly growing dividend and additional share repurchases. For 2022 alone, we've returned nearly $2,900,000,000 to shareholders in declared dividends and share repurchases. On the share repurchases, We have used a little under $1,000,000,000 of the board authorized amount and the board has now upsized the total authorization From $2,000,000,000 to $3,000,000,000 As always, those will be opportunistic repurchases when we use that capacity. Also as we talked about throughout the year, we're starting to see nice uplift on our base business on renewals in our natural gas business and built in escalators And some of our products and terminals, tariffs and contracts. We are putting behind us the contract roll off headwinds in our gas group.

Speaker 3

Bottom line for investors, what we do today will be needed for decades to come. And as we are demonstrating in our products and terminals businesses, The assets we have today can accommodate the energy forms of the future. We are making the gradual pivot That the gradual energy evolution dictates and we're doing it at attractive returns for our investors. With the cash our businesses generate, we're maintaining that strong balance sheet. We are investing in projects at good returns, which adds to the value of the company And we are returning the access to our shareholders in the form of dividends and opportunistic share repurchases.

Speaker 3

We all appreciate Rich's comments at the beginning. And I'm grateful to Rich and the Board for their support and confidence in us. I'm grateful to my 10,000 colleagues here who have been proud to come to work with every day. And I'm grateful to you on the call I've interacted with over the years. I learned from you and benefited from your questions and perhaps your occasional criticisms and your ideas.

Speaker 3

Thank you. As you'll hear more about next week, we have our balance sheet in strong shape. We have a bright future with rich opportunities before us. And most importantly, we have a great experienced leadership team around this table who are always ready to step up and all of our investors benefit from that. We look forward to seeing you in person at the conference next week.

Speaker 3

Kim?

Speaker 4

Thanks, Steve. Okay. I'm going

Speaker 5

to start with our natural gas business unit. Transport volumes on our natural gas pipelines increased by about 4% for the quarter versus the Q4 of 2021. We saw increased volumes from power demand and LDCs as a result of weather and coal retirements And that was somewhat offset by reduced LNG volumes due to the Freeport outage and exports to Mexico as a result of third party pipeline capacity Added to the market. Physical delivery to LNG facilities off of our pipes averaged approximately 5,400,000 dekatherms per day. That's down about 450,000 dekatherms per day versus Q4 of 2021 and that's due to the Freeport outage And somewhat offset by increased deliveries to Sabine Pass.

Speaker 5

If we adjusted for the Freeport outage, LNG volumes would have increased approximately 5%. Deliveries to power plants and LDCs were robust in the quarter, up Approximately 7% 13% respectively driven by the weather. Our natural gas gathering volumes were up 6% in the quarter Driven by Haynesville volumes, which were up 44%. Sequentially, volumes were flat. In our Products segment, Refined Products Volumes were down a little under 1% for the quarter, slightly outperforming the EIA, which was down 2%.

Speaker 5

Road fuels were down 3%, but we saw a 10% increase in jet fuel demand. Crude and condensate volumes were down 6% in the quarter Due to lower Bakken volumes, sequential volumes were down about 3% and that was driven by lower HH volumes, That's a pipe coming out of the Bakken due to unattractive locational pricing differentials. In our Terminals business segment, Our liquids utilization percentage, think about that as a percentage of our tank capacity contracted, remains high at 93%. Excluding tanks out of service for required inspection, utilization is approximately 96%. Rates on liquids Tanks renewals in Houston and New York Harbor were slightly lower in the quarter.

Speaker 5

Our tankers business was up nicely in the quarter as we benefited from both higher rates And higher utilization. On the bulk side, overall volumes were down 2%. We saw increases in pet coke and coal volumes, But that was more than offset by lower steel volume. In our CO2 segment, prices were up across the board. On the volume side, oil production was flat, but it's up 8% versus our budget.

Speaker 5

CO2 volumes were up 12%. NGL volumes, which are much less impactful to results were down 4%. Overall, as both Steve and Rich have said we had a fantastic quarter year. For the quarter DCF per share was up 13% And for the full year, it was up 14% when you exclude the impact of winter storm Yuri. We exceeded our full year plan DCF and EBITDA by 5% and DCF per share by 6% coming in at or slightly above the numbers we have given you in the interim quarters.

Speaker 5

This is an amazing year for a stable fee based cash flow company like Kinder Morgan. For sure, we benefited from higher commodity prices, but our underlying business, especially natural gas performed incredibly And the fundamentals look strong for the future, which we will cover with you next week at the Investor Conference. With that, I'll turn it over to David.

Speaker 6

All right. Thanks, Kim. So for the Q4 of 2022, we're declaring a dividend of $0.2775 per share, which is $1.11 per share annualized and up 3% from our 'twenty one dividend. I'll start with a few highlights on leverage, liquidity, growth and shareholder value. There's some repetition here with earlier comments, but it's worth it.

Speaker 6

On leverage, we ended 2022 with the lowest year end net debt level since our 2014 consolidation transaction And we have plenty of cushion under our leverage target of around 4.5 times. For liquidity, we ended 2022 with $745,000,000 of cash on our balance sheet in addition to our undrawn $4,000,000,000 worth of revolver capacity. Growth for full year 2022 versus 2021, excluding the impacts from winter storm Yuri, as Kim mentioned, we grew nicely. On net income basis, we were up almost 3 times, 2021. That's partially due to an impairment taken in 2021.

Speaker 6

And on EBITDA, we were up 10% and on DCF per share, we're up 14% year over year, very nice growth. For shareholder value for full year 2022, we repurchased 21,700,000 shares At an average price of $16.94 per share and our Board just authorized us to do more We're seeing healthy growth across our business. Our balance sheet and liquidity are strong As they ever have been, and we're creating shareholder value across the company in multiple ways. So moving on to our quarterly performance. In the Q4, we generated revenue of $4,600,000,000 up $154,000,000 from the Q4 of 2021.

Speaker 6

Our net income was up was $670,000,000 up 5% from the Q4 of last year And our adjusted earnings, which excludes certain items, was up 16% compared to the Q4 of 2021. Our distributable cash flow performance was also very strong. Our natural gas segment was up 11% For $138,000,000 with growth coming from multiple assets, higher contributions from our Texas interest state systems, MEP and EPMG increased volumes on our KinderHawk system and favorable pricing on our Altamont system. Those were partially offset by lower contributions from our South Texas gathering assets. The product segment was down $29,000,000 driven by higher operating expenses as well as lower contributions from our crude and condensate business and those are partially offset by increased rates across multiple assets as well as strong volumes on our splitter system.

Speaker 6

The terminal segment was flat to the Q4 of 2022 2021 with slightly lower New York Harbor and Houston Ship Channel Liquids refined product renewal rates, unfavorable impacts from the 2022 winter weather And unfavorable property taxes offset by Greater contributions from our Jones Act Tanker business, non recurring impacts from Hurricane Ida in 2021 And contributions from expansion projects placed in service as well as other rate escalations that the segment experienced. Our CO2 segment was up $36,000,000 from the Q4 of 2021, driven mostly by favorable commodity prices. Our EBITDA was $1,957,000,000 up 8% from last year and DCF was 1 point 217,000,000,000 up 11% from last year. Our DCF per share of $0.54 was up 13% from last year. Moving on to the balance sheet, we ended the 4th quarter with $30,900,000,000 of net debt And a net debt to adjusted EBITDA ratio of 4.1 times.

Speaker 6

That's up from 3.9 times from year end 2021, But that's due to the non recurring EBITDA contribution from Winter Storm Yuri we experienced in 2021. Excluding that winter The winter storm Yuri EBITDA contribution at year end 2021 ratio was 4.6 times. So we ended the quarter and the year nicely favorable to the Excluding Yuri excluding the Yuri contribution. We're also nicely below our long term leverage target of around 4.5 times. Our net debt change for the full year of $278,000,000 was driven by a number of things.

Speaker 6

So here's a High level reconciliation of that. Our DCF generated $4,970,000,000 We paid out $2,460,000,000 in dividends. We spent $1,100,000,000 on growth capital and JV contributions. We repurchased Stock in the amount of $368,000,000 We made 2 renewable natural gas acquisitions for around $500,000,000 And we received $560,000,000 approximately from the sale of a partial interest in our Belva liquefaction company. Finally, we had working capital use of around $825,000,000 from several items and that gets you close

Speaker 5

Okay. Before we start on the questions, I am very excited about the opportunity ahead. A large part of my job is going to be about continuity. This is a great company and great business with a great future. As Steve said, our traditional business will be around for a long time to come.

Speaker 5

Energy is a $5,000,000,000,000 global industry that is ingrained into every aspect of our lives. We'll continue to invest wisely in it As we position the company to turn slowly over time with the transition in a profitable manner. I'm also excited to work more directly with Tom. We work well together and have complementary skills, which will help the company into the future. We have an experienced cohesive senior management team with Dax And John and Anthony and Cetal and David and Kevin and others sitting around this table, and we expect to make this a seamless transition.

Speaker 3

All right. Okay. Ted, let's open it up for questions. And as usual, we have a good chunk of our senior management The team around the table will make sure that you get a chance to hear from them as you have questions about their businesses specifically.

Speaker 1

The first question in the queue is from Jeremy Tonet with JPMorgan. Your line is now open.

Speaker 7

Hi, good afternoon. Just want to say congratulations to everyone and Steve best of luck going forward. And maybe just starting off, I guess, with capital allocation, wondering if you could touch on any updated thoughts there. It seems like The dividend uptick might have been a little bit less than we expected and then at the same time the share authorization levels were When it wasn't fully utilized before, so just wondering is this signaling any kind of shift in capital allocation or any other thoughts there on return to capital?

Speaker 3

Yes. I'll start. I mean, it doesn't apply any shift or change in approach at all. We look to maintain the strong balance sheet, as All 4 of us have said. And we look to fund projects at attractive returns.

Speaker 3

And as mentioned, We have some very good ones, dollars 3,300,000,000 at a 3.4x EBITDA multiple. Those add to the value of the firm. Those are attractive returns to us. But then we have we produce cash beyond that and that cash takes the form gets returned to shareholders in the form of a modestly growing and well covered dividend And share repurchases, the capacity the reason for upsizing the capacity is not a change in terms of how we're thinking about it, Opportunistic as we've all said and we've been saying for a long time. But we've used about $900,000,000 since the original authorization, a little over 900,000,000 And so, we'll be ready to take advantage of opportunities.

Speaker 3

We upsized the the Board upsized the authorization. And so we're in position To take advantage of opportunities as they arise. But overall, bottom line, we haven't changed our capital allocation philosophy. It's worked. It's been the same for quite a while and it adds value for our shareholders.

Speaker 5

Yes. And on the dividend, what I would say is that it's important we believe it's important to increase the dividend When the company is growing and but we do we are one of the top 10 dividend yields in the S and P 500. And so we already have an attractive yield on the stock. And so it's a small increase so that we continue to increase in terms of being a good dividend paying stock, But also recognizing where the yield on the stock is.

Speaker 7

Got it. Makes sense. That's helpful there. And then Just want to shift to the weather impact during the quarter, if maybe you could unpack that a little bit more as far as Pros and cons, were there any marketing uplift during the quarter? Just trying to see, I guess, what was the impact from the storm in the quarter?

Speaker 3

Yes. So look, we had uplift primarily in our natural gas assets and that's attributable to what I said at the beginning, which is that When you have storage and transport capacity, particularly in this case storage where, Kim, I think the peak was 160 Bcf And we had some supply degradation. This is a nationwide look down to a little over 80 Bcf. The difference had to be made up with storage and people who have those assets and have the capability were able to do well in those. The net though, we did have some operational, upsets, some repairs we had to make, etcetera.

Speaker 3

And so we netted those out. And it's not The storm itself is not a huge incremental contributor, but it's on the order of $20,000,000 or so when you net everything. But I think just overall experiencing the winter weather and the volatility that occurred in pricing both before and after that winter event, if you have storage and transport, You're able to take advantage of that and we did.

Speaker 7

Got it. That's helpful and congrats everyone again.

Speaker 1

Next question in the queue is from John MacArthur with Goldman Sachs. Your line is open.

Speaker 8

Hey, everyone. Thank you for the time. I appreciate it. I wanted to talk maybe just

Speaker 5

a little more on Some of

Speaker 8

the regional gas movements on the gathering side, can you just touch again on, I think, Kim, you mentioned Haynesville volumes were flat quarter over quarter, just wondering if you could comment on, if that's producer driven or takeaway issues? And then anything else you can share maybe on what you're seeing across the Rockies In terms of production?

Speaker 9

Thanks. So, yes, the Kinderhook volumes were Basically flat from quarter to quarter, but we do expect a nice uplift as we move into 2023 and that is it is largely capacity constraints both on our gathering system. We're spending some capital in 2023 to create some additional capability there and then also as downstream capacity comes online as well. So we see some really nice opportunities Continue to grow on Kinderhook and in the Haynesville play overall, and that's not limited to just Our gathering and processing opportunities, but we also see some nice interstate rate increase and utilization opportunities As we go forward, so yes, a nice story. Haynesville is a nice growth story for us.

Speaker 3

And then as far as

Speaker 9

the Rockies, I mean, yes, there's We're not seeing a whole lot of growth there. There's

Speaker 5

a

Speaker 9

few pockets of green shoots in the DJ, but overall, We're not seeing a great deal of growth there, although on our Ultima gathering system, we certainly the Uinta, we're seeing some nice growth there And expect that to grow as we go into 2023 as well.

Speaker 8

Great. Thanks for that. Maybe Just shifting gears to the Red Cedar announcement. Curious on how much else could be out there in terms of Shifting away from, I guess, what we call natural CO2 sources to kind of recovered CO2, I mean, how much of the mix of your overall CO2 To kind of EOR business, either your own or selling to 3rd parties, could these recoveries end up making up over time?

Operator

Anthony? Yes. So the Red Cedar deal that we're talking about, that's up to 20 a day. Put it into context, we're currently moving over 900 a day down our Cortez pipeline to West Texas. And so there's a ways to go before effectively that those natural resources get replaced.

Operator

Really when you're talking about opportunities around kind of the Permian and the infrastructure there, That's largely cash processing assets,

Speaker 5

which are

Operator

going to be lower. And so With regards to, I guess, replacement of our existing source capacity, it would be a very long time before that would be replaced.

Speaker 8

We'll save the good ones for next week. Thanks for the time and congrats everyone on the new roles.

Speaker 1

Next question is from Jean Ann Salisbury with Bernstein. Your line is now open. Hi.

Speaker 4

Can you remind us where Kinder Morgan is on rate case settlements? Which ones have been settled and are incorporated into 2023 guidance? And which pipes, if any, could still see rate cases this year or next?

Speaker 9

Really, we're past The big ones for now, I mean, we've got NGPL, EP and G, those are the big ones on all the Rockies pipes. And I'm Saying this over the context of the last year, those are the big ones that have been addressed. And so We're pretty clear now for 2023, and that's all been baked into our budget for 2023.

Speaker 4

Okay. Thank you. And then what's the latest on El Paso restart? I think you had a release that noted some positive progress last week?

Speaker 3

Yes. And so, our information on this is going to be consistent with And stick closely with what we post on the EP and G electronic bulletin board. And so we did post an update there. And What it says is that we anticipate completing the physical work on Line 2000 Before the end of January and then we will submit a request to PHMSA on behalf of VPMG to lift the pressure restriction and return to normal commercial service. So, Pimsa will need time to review the information that we provide, but our work we expect to be completed by month end.

Speaker 4

Great. That's all for me. And congrats to you, Kim, and thank you, Steve, for all the time and thoughtful answers over

Speaker 5

the years. Best of luck.

Speaker 3

Thank you.

Speaker 1

Next question is from Spiro Dounis with Citi. Your line is now open.

Speaker 10

Thanks, operator. Good afternoon, everybody. Congrats all around. And Steve, I can't believe you're willing to walk away from the dollar a year salary.

Speaker 3

It was a hard choice.

Speaker 10

Congrats. 2 part question on my first one here, just along The Permian pipeline, first part just between GCX and Permian Pass, curious if one of those is kind of in the front of the queue and Maybe it would make more sense to kind of bring Permian Pass back up to the front. In 2nd quarter, I believe last quarter sorry, last quarter you mentioned the possibility of maybe phasing the Permian Highway expansion in over time. I think you needed to do more engineering work to figure out if that was feasible. Just curious if there's an update you can share on that.

Speaker 9

Yes. So I think you mean Permian Pass, right, not Permian Highway. So the Permian Highway expansion is under construction and expect that expansion to go into service in November. We're really Working on 2 other opportunities as you noted. 1 is GCX expansion that hasn't been very active, although with lower gas prices now there may be Some opportunities there.

Speaker 9

As you recall, fuel cost was a bit of a headwind for us on that expansion project. So again, as gas prices are lower, that may bring that one more into an actionable opportunity. But As far as Permian Pass, really I think what we are hearing from our customers is that the next Need for incremental capacity out of the basin is sometime in late 2026, maybe early 'twenty seven. And so as we work with our producer customers and also align them with their desired customer, which I think largely is We're going to be LNG related along the Gulf Coast. It helps we need to figure out exactly where and when those volumes need to be there.

Speaker 9

So I think That's still out there. The overall market still needs that capacity, but nothing really new to announce as far as anything that we're going to Accelerate at this time.

Speaker 3

I think the PHP, there was some discussion last time about when we put our compression in, Once we get pretty close to the end, is there any chance? Yes. A little bit of capacity that's available before the November in service date. And so I assume that There's late

Speaker 9

in the going. Still exploring that, and I think that is a potential opportunity as we move through 2023.

Speaker 10

Okay. Got it. Perfect. Thanks for the color on that. Second question, maybe for David.

Speaker 10

Just maybe an update on how you're thinking about maturities and the overall interest rate exposure for 2023 beyond. Just kind of curious what options are available to you to have perhaps maybe exceed the DCF budget by outperforming on interest expense?

Speaker 6

We'll continue to evaluate different alternatives. We'll talk more about this next week, but We've locked in some of our floating rate exposure for 2023 in order to reduce some of the downside risk for the year. But with regard to the overall maturities, we do expect to access the debt capital markets during the year 2023 in order to refinance The large amount of maturities that are coming due this year, the $745,000,000 of cash on the balance sheet coming into the year certainly helps with that. And we've got our $4,000,000,000 worth of revolver capacity. So as I said last quarter and this is still the case, We will wait for favorable market conditions before we access the market and we have the luxury of being patient.

Speaker 1

Next question in the queue is from Michael Blum with Wells Fargo. Your line is open.

Speaker 11

Thank you. Congratulations everyone. Steve, we will Miss you and I'm glad you came to our conference this year. So thank you for that. I wanted to ask back on The Red Cedar CCS project,

Speaker 1

just wanted to if you

Speaker 11

could talk about what type of return you expect generate on a project like that and just to confirm that this will be entirely fee based from your perspective?

Operator

Yes. I mean, the return we're not going to talk specifics on returns, but I would say they were very comparable with our traditional businesses. We're doing the right things from a returning standpoint. And I'm sorry, this is Marty. What are

Speaker 5

the exposure on it?

Operator

Yes. So and this is primarily on the ETV side of things and maybe Tom wants to talk about The Red Cedar JV part of it, the ETV will have minimum volume commitments in place on that transaction. And on the Red Cedar

Speaker 9

side, I mean, it's G and P volume. So there is a variable component to that, but Your volumes

Operator

have been growing and expect them to continue to grow. So

Speaker 3

Got it. So this is a good For us, CCUS is going to have to be part of the solution over the long term and we have the capability to transport it and Put it in the ground and keep it in the ground. And so there's a good longer term opportunity there and this is a highlight that you can do these things and you can do them economically. And so We're happy about this transaction. It's the first we hope of many, but there are a number of things that have to be worked out.

Speaker 3

I think the biggest is Getting Title VI permitting for the sequestration through the EPA, or having that authority delegated in Texas and Louisiana and other places, so that We can speed up the permitting process. Anthony and the team have found a way to use a different kind of permit in a different kind of well situation To enable us to do this and there may be more of those to do as well, but this is a sign of things to come we hope and believe, but it is dependent upon an accelerated permitting process from the EPA.

Speaker 11

Got it. I appreciate all that.

Speaker 1

Second question I just wanted

Speaker 11

to ask was on the lower gasoline and diesel volumes Year over year. Can you just maybe just talk to what you're seeing there? I know your overall volumes, I think, were a little better than overall Industry averages, but just kind of what's driving that? And do you think this is sort of a recurring pattern that we're going to see throughout the year? Thanks.

Speaker 5

Yes. I'd say a couple of things.

Speaker 12

So first of all, we had one operational issue in December that as Ken mentioned, we were down 0.7% compared to the prior year. We had one of our major lines in California, the one that serves San Diego down for 12 days. And if that hadn't been down, we would be back up to close to flat sort of quarter over quarter. And so looking at 2023 and where we stand right now and we're getting into the budget more next week, we're budgeting an increase of about 3.4% in aggregate. For gasoline, we're looking at something below that.

Speaker 12

But for Jet fuel and diesel together, we're looking at something above that, close to 6.5%. But if you look at Starting with kind of jet fuel recall, we've been slower to recover in jet fuel than EIA given our weighting towards international flights. YIA for the quarter was down about 14% to 2019, whereas I'm sorry, Yes, it was down 10% to 2019, whereas we were down 14%. So we still got a better recovery on the jet fuel front to close With the rest of the country as we see international, particularly Asian flights come back, we think that will help us. And recall, we've got our renewable diesel projects coming online on the West Coast at the end of the first quarter.

Speaker 12

And those have take or pay contracts for north of 30,000 barrels a day. So we think that will help with the diesel picture. So And looking at what we're seeing right now midway through January, we seem to be from a refined products perspective on top of budget.

Speaker 11

Perfect. Thank you so much.

Speaker 1

Next question is from Brian Reynolds with GBS. Your line is open.

Speaker 13

Good afternoon, everyone, and congrats to you both, Steve and Kim. Maybe to start off on the Kinder based business, which performed pretty well in the quarter. And just wanted to talk a little bit about future growth opportunities there. Over the past few years, we've just seen a lot of competitors come into the market looking to erode that market share on LNG supply from the Permian and Louisiana. I was just curious if you could talk broadly about how Kinder has a competitive advantage there and whether You guys see yourselves well positioned for new LNG supply projects going forward or whether effectively the competition has Made returns not attractive at this point.

Speaker 13

Thanks.

Speaker 9

Yes. So I mean, I think, as we've said all along, the proximity of our network Along Texas, Louisiana, including our storage capabilities there, I think give us a great advantage, whether we're Directly building into new LNG export facilities or serving other lines that are doing Those connections, just when you have access to as many basins as we do and the mix of both Reservoir storage and salt storage that we have across our footprint, I think we're still in a great position to And the LNG export story. We've talked about 50% as being our market share. That's where we are today. We definitely believe our volumes are going to continue to grow, but it's hard to call balls with traction whether we're going to meet or exceed 50% going forward, but I feel really good about our position

Speaker 3

Yes. And you'll see a little bit more of this, Brian. But What you're seeing when we have a backlog that's $3,300,000,000 and we're executing it at 3.4x EBITDA multiples Is that our network is well positioned and we're able to make relatively modest capital efficient investments in our grid To expand, to serve the supply and demand growth that we're seeing across the network. And so that's In the past, we had big long haul projects that might have been done at a slightly higher multiple still attractive returns. But I think This shows you the fact that we have dozens of projects that we're doing and a relatively modest capital expenditures each, But with really nice returns that we are finding that our network is extremely well positioned for the growth along end.

Speaker 13

Great. Appreciate the color. And as my one follow-up, just wanted to get a little bit of an update on just the RNG projects and the CapEx that are progressing through 2023. How are those projects progressing? And just as the RNG market starts to mature in the middle of the decade or end of the decade, curious if you continue to see new opportunities within that Connectrix business and if you see continued CapEx for the next few years.

Speaker 13

Thanks.

Operator

Yes. So we have 3 of our original RNG projects that came through the Connectrix acquisition that will be in service this year, 2 of them really in the first half of this year. Those are done on the EPC contract. So that capital is fully baked into our 2023 budget. And then with regards to future opportunities, We've obviously, we've made 3 acquisitions to date.

Operator

I think we're looking to grow fairly organically at this point in time. I think there are opportunities out there to grow and we'll be looking at those on an individual basis. The EPA did come out with a new proposal recently, which opens up a new demand market for us. And so there may be some We're looking at right now in that space. We're excited about growth.

Speaker 13

Great. I'll leave it there. I appreciate all the color and enjoy the rest of your evening. Thanks.

Speaker 1

Next question is from Keith Stanley with Wolfe Research. Your line is open.

Speaker 14

Hi, thank you. Congrats to Kim and Steve as well. Wanted to start, Steve, you said the backlog is at $3,300,000,000 now. So that's up another $600,000,000 or $700,000,000 since last quarter, which Presumably that's why the growth CapEx of $2,100,000,000 for this year was higher than what you kind of Pointed to initially. Can you talk to any of the specific projects you've added since last quarter because that is a decent amount?

Speaker 3

Yes. So, we have some most of it is going to be in gas and in RNG On a percentage basis, I think I can give you that. 64% Is in gas and in RNG related, maybe a little bit more than that maybe. And so this is It's a mix of power demand, LDC demand, LNG transport and G and P and well connects. And as I said, It's a collection of a lot of smaller projects and mostly build offs of the existing network, which again makes them capital efficient.

Speaker 3

It reduces the execution risk on them and it tends to give us We get as best return as we can that's available for the market. We tend to end up with better returns on the capital we deploy when that's the composition of the project. So Yes, dollars 3,300,000,000 and again at 3.4x and kind of concentrated in our low carbon including natural gas.

Speaker 5

Yes. And a number of the projects that got added to the backlog are in the other news like part of the The Angelina Pass project, the TVA project, the terminal renewable diesel project. So Those are some of the projects that got added to the backlog in the quarter.

Speaker 14

Got it. Thanks. Separate question, just on the buybacks And how you're thinking about it for this year. So it's a little bit more of a growth year in terms of spending in 2023. So Your DCF is only a little bit above, I think, your CapEx and your dividends.

Speaker 14

So when you think about buybacks and obviously you're opportunistic, but would you Be willing to increase debt or issue debt, or short term borrowings in order to buy back stock if the opportunity was there since you're Well under your leverage target for this year?

Speaker 6

Yes, we would. We think about our capacity for Buybacks or other opportunistic opportunities as being our balance sheet capacity as well as the It's cash that we generate in the current year. And so we would be willing to increase our leverage a little bit. We'll be real cautious around it, we'll measure it and make sure that we're being we're using that capacity in an appropriate manner, but that is the way that we think about our available capacity.

Speaker 10

Thank you.

Speaker 1

The next question is from Neal Dingmann with Truist Securities. Your line is now open.

Speaker 3

Afternoon. You all hit on mostly, I'm just my question is around first on the renewable diesel specifically, just what future opportunities you See there beyond the Carson terminal of the committed projects and you touched around this as well, maybe the second question just hit this now as well, just Same thing on opportunities you

Speaker 13

see around the CCS.

Speaker 3

Yes. So Dax, if you'll comment on the RD part of it and John, if you'll talk about the upstream, the feedstock part of it as well.

Speaker 12

Yes. So just to comment, I mean, as we've said before, right now, every drop of renewable diesel The United States wants to go to California. I think we expect that as additional state governments later on a third level of the tax Credit, similar to the one that California has and other states have them, Oregon, Washington, British Columbia, That there will be more enthusiasm for projects there. We've got terminals there. We are having conversations with people.

Speaker 12

And so I think that's probably other areas in the West Coast are probably next places to potentially develop. And then certainly with the 2 hubs that we're In both Northern and Southern California, I think there are additional opportunities to potentially expand those. So That's the majority of it from the refined products perspective. Okay.

Speaker 3

And feedstocks. Sure. I mean, what we said last year when we announced the Nest idea that we felt that all Boats would rise and there is credit a number of opportunities to high grade our assets, high grade our customers at Harvey, Bring additional products in there, raise rates, but it has also attracted other customers and this is what we hope is the second of many projects We'll be looking at great opportunity to connect with a neighboring facility that's involved in an expansion project, where we'll be handling all the feedstocks into the facility under a long term 10 year take or pay. The other area it's actually helped us too is on our Jones Act vessels. We've seen a lot of movement as it relates to renewable diesel from the Gulf Coast to the West Coast and interest in that, Which we think will further tighten in already tight Jones Act market.

Speaker 3

Great answers. Thanks for the time guys.

Speaker 1

And I'm showing no further questions at this time.

Speaker 2

Okay. Thank you very much. Everybody have a good evening. Thank you.

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Earnings Conference Call
Kinder Morgan Q4 2022
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