Kinder Morgan, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Kinder Morgan operates North American energy infrastructure, including approximately 82,000 miles of pipelines, 140 terminals and natural gas storage and renewable natural gas assets. Unless stated otherwise, amounts are in U.S. dollars.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3.907B | $5.177B | $11.296B | $14.621B |
| Operating income | $938M | $931M | $3.162B | $2.961B |
| Net income attributable to KMI | $532M | $576M | $1.797B | $1.878B |
| EPS, basic and diluted | $0.24 | $0.25 | $0.80 | $0.83 |
| DCF, non-GAAP | $1.094B | $1.122B | $3.544B | $3.753B |
| Adjusted EBITDA, non-GAAP | $1.835B | $1.773B | $5.636B | $5.559B |
Cash flow: Operating cash flow for the first nine months was $4.169B, versus $3.563B a year earlier. Investing activities used $1.733B and financing activities used $3.133B. Capital expenditures were $1.689B; total capital investments, including joint-venture investments and sustaining investment, were $2.109B.
Debt and liquidity: Debt was approximately $31.0B at September 30, including fair-value adjustments; cash was $80M. Working capital deficit was $3.818B. The company reported approximately $3.6B available under credit facilities, $320M of commercial paper outstanding, and compliance with required debt covenants. It said cash flows, cash and borrowing capacity were adequate for expected needs.
Shareholder returns: KMI paid $1.898B in dividends and repurchased $390M of shares in the first nine months. The Q3 declared dividend was $0.2825 per share.
Changes versus the prior comparable period
- Revenue fell 25% in Q3 and 23% year to date, mainly because lower commodity prices reduced natural gas and product sales. The corresponding costs of sales also declined, so reported revenue contraction did not translate into a comparable decline in operating income.
- Q3 net income attributable to KMI declined 8%; nine-month net income declined 4%. Higher net interest expense was a key pressure, increasing $58M in Q3 and $258M year to date, primarily due to higher realized SOFR associated with interest-rate swaps.
- Nine-month Adjusted EBITDA increased $77M, while DCF decreased $209M. Management cited stronger Natural Gas Pipelines results for EBITDA; higher interest expense and sustaining capital expenditures weighed on DCF.
- Natural Gas Pipelines segment EBDA increased to $3.929B from $3.453B for nine months. Terminals EBDA rose to $774M from $731M. Products Pipelines EBDA declined to $780M from $855M, and CO₂ EBDA fell to $510M from $619M.
Outlook, risks and unusual items
- Company outlook: KMI expected to declare $1.13 per share of dividends for 2023, a 2% increase from 2022, and expected $1.9B of 2023 expansion projects, acquisitions and joint-venture contributions. These are forward-looking estimates, not guarantees.
- Good Neighbor Plan: If fully implemented as assumed, KMI estimated compliance costs of $1.5B–$1.8B, including its share of costs for operated joint ventures, and warned of possible equipment shortages and operational disruption. For states without stays of relevant EPA disapprovals, the estimated costs were $200M–$300M. KMI challenged the rule; its motion for a stay was denied, and it filed an emergency stay application with the U.S. Supreme Court on October 13, 2023. The company said it would seek mitigation and recovery through regulated rates where available.
- Subsequent event: After quarter-end, KMI agreed to receive an anticipated $843M customer prepayment in Q4 2023 for fixed reservation charges under long-term contracts expiring from 2035 to 2040.
- Impairment: KMI recorded a $67M non-cash impairment in the first quarter on its Double Eagle Pipeline investment, attributed to lower expected contract renewal rates.
- Legal and environmental matters: The Freeport LNG Winter Storm Uri case remained on appeal; the plaintiff claims approximately $104M plus fees and interest, while KMI says it will vigorously defend itself. A purported ERISA class action involving pension benefits remains in discovery, with damages not specified. The Portland Harbor cleanup allocation remained unresolved; KMI said it could not yet reasonably estimate its liability. Legal reserves were $21M and environmental reserves $208M at quarter-end.
- Other: KMI reported that the Arizona pipeline rupture line returned to service in February 2023 and resident claims were resolved without material adverse impact. The filing states that interim financial results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Progress and final cost exposure under the Good Neighbor Plan, including court decisions, compliance deadlines and potential rate recovery.
- Whether the anticipated $843M customer prepayment was received and its implications for future contract revenues and cash flow.
- Debt maturities, interest expense and refinancing needs, alongside liquidity and the working capital deficit.
- Execution and returns on planned 2023 capital investments, and whether DCF supports the dividend outlook.
- Developments in the Freeport litigation, pension class action, environmental claims and Portland Harbor cost allocation.
- Underlying operating trends by segment; revenue comparisons are substantially affected by commodity prices and associated cost-of-sales pass-throughs.
DCF, Adjusted EBITDA and segment EBDA are non-GAAP measures; KMI cautions that they should be considered alongside, not as substitutes for, GAAP results.