Kinder Morgan, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; figures are unaudited and in U.S. dollars. Kinder Morgan owns interests in or operates approximately 83,000 miles of pipelines and 144 terminals.
Financial results and position
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $5.211 billion | $3.106 billion |
| Operating income | $1.886 billion | $43 million |
| Net income (loss) attributable to KMI | $1.409 billion | $(306) million |
| EPS, basic and diluted | $0.62 | $(0.14) |
| Cash from operating activities | $1.873 billion | $893 million |
| DCF, a non-GAAP measure | $2.329 billion | $1.261 billion |
| Adjusted EBITDA, a non-GAAP measure | $2.814 billion | $1.848 billion |
Revenue growth was concentrated in commodity sales, which rose to $3.229 billion from $1.067 billion. Results included significant effects from February’s Texas winter storm and commodity-price movements; revenue therefore should not be read as a comparable increase in recurring fee-based activity. Q1 operating cash flow exceeded reported net income, while cash dividends paid were $597 million. Capital expenditures were $267 million in the cash flow statement; management separately reported $107 million of sustaining capital expenditures.
At March 31, 2021, cash and cash equivalents were $1.377 billion. Total debt was $32.180 billion on a principal basis, excluding debt fair-value adjustments; the balance-sheet debt carrying amount was $33.234 billion. The company had no credit-facility or commercial-paper borrowings and reported $3.919 billion of availability under its $4.0 billion facility. Working capital was negative $884 million. Management said cash, operating cash flow and facility capacity were adequate for expected requirements, including debt maturities through 2021.
Changes versus the prior-year quarter
- Net income attributable to KMI increased by $1.715 billion year over year, from a loss to profit. The comparison is heavily affected by $950 million of CO2-segment impairment charges in Q1 2020, along with winter-storm impacts in 2021.
- Natural Gas Pipelines segment EBDA increased to $2.103 billion from $1.196 billion, substantially reflecting storm-related commodity margins and other storm effects. CO2 segment EBDA was $286 million versus a loss of $755 million, including the prior-year impairments.
- Products Pipelines and Terminals segment EBDA declined to $248 million from $269 million and to $227 million from $257 million, respectively. Management cited lower volumes, COVID-19-related demand weakness, storm disruptions and other operating factors.
- Interest expense, net decreased to $377 million from $436 million. The company reported total debt principal of $32.180 billion, down from $33.396 billion at year-end 2020.
- Operating cash flow increased by $980 million year over year. Cash provided by investing activities was $130 million versus $335 million; financing activities used $1.789 billion versus $487 million, principally reflecting higher net debt repayments.
Outlook, unusual items and risks
- Management expected 2021 dividends of $1.08 per share, a 3% increase from 2020 declared dividends, and approximately $0.8 billion of expansion investment and joint-venture contributions. The board declared a $0.27-per-share Q1 dividend, payable May 17, 2021.
- Management characterized much of the February 2021 winter-storm earnings impact as largely nonrecurring. Some storm transactions remained exposed to counterparty credit issues, disputed purchases and sales, and potential legislative, regulatory or litigation responses.
- The March sale of a partial NGPL Holdings interest generated $413 million of net proceeds and a $206 million pre-tax gain. KMI also recorded a $117 million charge for writing down a subordinated note receivable from Ruby, amid contract-expiration uncertainty and uncertainty around a proposed LNG export facility.
- Litigation and environmental matters include ongoing SFPP rate proceedings, LNG-related disputes, a claim seeking more than $225 million against Hiland Partners, pipeline integrity exposure and environmental remediation. The company reported legal reserves of $130 million and environmental reserves of $256 million at quarter-end; certain potential liabilities, including Portland Harbor and Louisiana coastal claims, could not be reasonably estimated.
- Other material risks identified include COVID-19 and the pace of recovery, product supply and demand, commodity prices, counterparty creditworthiness, and the possibility of pipeline leaks or ruptures. The filing reported no material changes to the risk factors in the 2020 Form 10-K and no material changes in market-risk exposures.
Important facts for investors to verify
- How much of Q1’s earnings and cash generation reflects recurring contracted operations versus winter-storm gains, commodity-price effects and other unusual items.
- Whether the planned $1.08-per-share 2021 dividend and approximately $0.8 billion of expansion investment remain supportable by cash generation, debt maturities and liquidity.
- Debt principal, upcoming maturities, facility availability and covenant compliance; the company reported compliance with required covenants at March 31, 2021.
- Developments affecting Ruby’s note receivable, NGPL Holdings and the unresolved litigation and environmental exposures.
- Non-GAAP measures such as DCF and Adjusted EBITDA alongside GAAP earnings and operating cash flow; the company cautions that these measures have limitations and are not substitutes for GAAP results.