Kinder Morgan, Inc. — Q1 2024 Form 10-Q
Business context and reporting period. Kinder Morgan is a North American energy infrastructure company operating or holding interests in approximately 79,000 miles of pipelines and 139 terminals. This unaudited filing covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless noted.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $3.842 billion | $3.888 billion | Down $46 million (1%) |
| Operating income | $1.223 billion | $1.194 billion | Up $29 million (2%) |
| Net income attributable to KMI | $746 million | $679 million | Up $67 million (10%) |
| Diluted EPS | $0.33 | $0.30 | Up $0.03 |
| Segment EBDA | $2.233 billion | $2.105 billion | Up $128 million |
| Adjusted EBITDA (non-GAAP) | $2.137 billion | $1.996 billion | Up $141 million |
| Distributable cash flow, or DCF (non-GAAP) | $1.422 billion | $1.374 billion | Up $48 million |
| DCF per share (non-GAAP) | $0.64 | $0.61 | Up $0.03 |
| Operating cash flow | $1.189 billion | $1.333 billion | Down $144 million |
Revenue services increased $153 million, supported by the STX Midstream acquisition, expansion projects, rate escalations and higher volumes. Lower commodity prices reduced natural gas and product sales; derivative impacts also reduced revenue. Lower commodity-related costs largely offset the lower sales revenue. Net income growth also reflected higher equity investment earnings, including the prior-year comparison benefit from a $67 million Double Eagle investment impairment in Q1 2023. Q1 2024 included a $32 million net gain on divestitures.
By segment, EBDA rose to $1.514 billion in Natural Gas Pipelines from $1.495 billion; to $292 million in Products Pipelines from $184 million; and to $269 million in Terminals from $254 million. CO2 EBDA declined to $158 million from $172 million. Products Pipelines’ comparison benefited materially from the prior-year impairment; adjusted segment EBDA was $293 million versus $251 million. Adjusted figures and DCF are non-GAAP measures and should be considered alongside GAAP results.
Cash, debt and liquidity
- Cash and cash equivalents were $119 million at March 31, 2024, up from $83 million at year-end. Working capital remained negative at $2.268 billion, improved from a $4.679 billion deficit.
- Total debt was $32.046 billion, compared with $31.929 billion at December 31, 2023. The balance sheet showed $1.975 billion current debt and $30.171 billion long-term debt, including fair-value adjustments. Net interest expense was $472 million, up $27 million year over year.
- KMI issued $2.25 billion of senior notes in February: $1.25 billion at 5.00% due 2029 and $1.00 billion at 5.40% due 2034. Net proceeds were $2.23 billion. It repaid $650 million of 4.15% notes at maturity during the quarter.
- At quarter-end, commercial paper borrowings were $525 million, there were no credit-facility borrowings, and approximately $2.9 billion of the $3.5 billion facility remained available. KMI reported compliance with required debt covenants.
- Investing cash outflow was $572 million, including $619 million of capital expenditures. Financing cash outflow was $570 million, including $631 million of dividends. Operating cash flow was lower year over year, mainly due to less favorable working-capital movements and hedge settlements compared with Q1 2023.
Outlook, risks and unusual items
- Management expects 2024 dividends of $1.15 per share, 2% above the $1.13 declared for 2023. The board declared a Q1 dividend of $0.2875 per share, payable May 15, 2024.
- KMI now expects to invest $2.15 billion in 2024 expansion projects, acquisitions and joint-venture contributions. Its capital plan also estimates 2024 sustaining capital investments of $1.169 billion and expansion capital investments of $2.151 billion, including specified joint-venture amounts.
- Management said operating cash flow, cash and available credit should cover day-to-day needs and anticipated obligations. Dividend and investment expectations are not guarantees and depend on results, liquidity, capital needs and other factors.
- Key uncertainties include commodity supply, demand and prices; regulation; and execution and funding of capital projects. KMI says full implementation of the EPA’s Good Neighbor Plan could materially affect it, including requiring more stringent controls on hundreds of pipeline-business engines. Litigation remains pending; management says it would seek to mitigate costs and recover expenditures through regulated rates where available.
- Disclosed matters include the Freeport LNG dispute, with approximately $104 million claimed and KMI’s summary-judgment victory on appeal; a certified pension-plan class action with damages not specified; and environmental proceedings. KMI says the ultimate share of Portland Harbor cleanup costs cannot yet be reasonably estimated. The company reported $32 million in legal reserves and $199 million in environmental reserves at quarter-end. It reached a settlement with Texas concerning the Hurricane Harvey tank-emissions matter and expects no material business impact.
- Commodity, interest-rate and foreign-currency derivatives expose results and cash collateral requirements to market movements. KMI estimated that a two-notch credit-rating downgrade would require $118 million of additional collateral; a one-notch downgrade was not expected to require additional collateral.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no material changes to the risk factors in the 2023 Form 10-K.
Important facts for investors to verify
- Whether the expected $1.15 annual dividend and $2.15 billion discretionary investment plan remain supported by operating cash generation, debt costs and liquidity.
- How much of the debt balance will need refinancing, and the effect of new note coupons and variable-rate exposure on future interest expense.
- Whether reported earnings and cash-flow growth persist after accounting for commodity prices, hedge accounting effects, prior-year impairment comparisons and working-capital timing.
- Developments in the Good Neighbor Plan litigation, pension class action, Freeport appeal and environmental matters, including any change in potential costs or reserves.
- Execution, cost and expected returns of expansion projects, including the contribution from the STX Midstream assets acquired in December 2023.