Kinder Morgan, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Kinder Morgan operates North American energy infrastructure, including approximately 83,000 miles of pipelines, 141 terminals, and natural gas storage assets.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $5.177 billion | $3.824 billion | $14.621 billion | $12.185 billion |
| Operating income | $931 million | $844 million | $2.961 billion | $1.966 billion |
| Net income attributable to KMI | $576 million | $495 million | $1.878 billion | $1.147 billion |
| Basic and diluted EPS | $0.25 | $0.22 | $0.83 | $0.50 |
| DCF (non-GAAP) | $1.122 billion | $1.013 billion | $3.753 billion | $4.367 billion |
| DCF per share | $0.49 | $0.44 | $1.65 | $1.92 |
Q3 operating margin was approximately 18.0% (21.1% in Q3 2021); nine-month operating margin was approximately 20.2% (16.1% in 2021). Higher commodity prices and sales volumes contributed to revenue growth; commodity sales also increased costs of sales.
Nine-month operating cash flow was $3.563 billion, down from $4.440 billion. Investing activities used $1.545 billion; financing activities used $2.442 billion. Cash and cash equivalents were $483 million, with another $240 million in restricted deposits. Capital expenditures were $1.144 billion in the period.
Total debt was $31.634 billion at September 30, versus $32.418 billion at year-end 2021, excluding debt fair-value adjustments. The company had no credit-facility or commercial-paper borrowings, $81 million of letters of credit, and approximately $3.9 billion of available credit capacity. Working capital was negative $2.329 billion.
Changes versus prior periods
- Q3 net income attributable to KMI increased 16%; nine-month net income increased 64%. The year-to-date comparison benefited substantially from a $1.6 billion impairment charge recorded in 2021.
- Adjusted nine-month earnings were $1.928 billion, down from $2.395 billion, and DCF declined to $3.753 billion from $4.367 billion. Prior-year winter-storm-related earnings were a major factor in the decline.
- Q3 Segment EBDA rose 7% to $1.847 billion. For the nine months, Segment EBDA rose 21% to $5.658 billion, while adjusted Segment EBDA fell to $5.789 billion from $6.386 billion.
- Debt declined overall. The company issued $1.5 billion of senior notes in August and used part of the proceeds to repay short-term borrowings; it also repaid notes that matured during the first half.
Outlook, management commentary, risks and unusual items
- Management expected 2022 dividends of $1.11 per share, 3% above 2021, and approximately $1.8 billion of expansion projects, acquisitions, joint-venture contributions and other discretionary capital investment. The board declared a Q3 dividend of $0.2775 per share, payable November 15, 2022.
- Two landfill-asset acquisitions totaled $490 million. The company planned approximately $145 million of additional investment to convert three assets to renewable natural gas facilities, expected in service by mid-2024.
- Sale of a 25.5% interest in Elba Liquefaction Company generated $557 million of net proceeds used to reduce short-term borrowings. KMI retained control and continues consolidating the business.
- Ruby Pipeline filed for Chapter 11 in March 2022 after it could not repay $475 million of notes at maturity. KMI reported no remaining carrying value for its Ruby investments.
- Notable matters include an EPNG FERC rate proceeding, a Freeport LNG lawsuit seeking approximately $104 million, and claims and remediation involving pipeline incidents and environmental sites. The company stated it did not expect the ultimate resolution of disclosed matters to materially adversely affect its business, while noting that some exposures could not yet be reasonably estimated.
- Commodity, interest-rate and foreign-exchange exposures are managed partly with derivatives. KMI reported $223 million of cash margin posted with counterparties; it estimated a two-notch credit downgrade could require another $100 million of collateral.
- Management said controls and procedures were effective and reported no material change in internal control over financial reporting during the quarter. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether operating cash flow and DCF sustain the planned dividend and capital investment, particularly given the year-to-date DCF decline.
- Debt maturities, refinancing costs, interest-rate exposure and continued access to the $3.9 billion of available credit.
- Progress and economics of the renewable natural gas projects and expected timing of their contribution.
- Developments in the EPNG FERC proceeding, Freeport litigation, Arizona pipeline rupture claims, and environmental remediation obligations.
- How much of reported revenue and earnings growth reflects commodity prices and marketing activity versus durable fee-based or contracted performance.