Kinder Morgan, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Financial amounts are in U.S. dollars; dollar figures are generally in millions unless noted.
Business context
Kinder Morgan operates North American energy infrastructure, including approximately 82,000 miles of pipelines, 139 terminals and 702 Bcf of working natural gas storage capacity. Its four segments are Natural Gas Pipelines, Products Pipelines, Terminals and CO2. The company emphasizes fee-based transportation and storage, utilization of existing assets, disciplined investment and shareholder returns.
Financial performance and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $15,334 | $19,200 | (20%) |
| Operating income | $4,263 | $4,065 | 5% |
| Net income attributable to KMI | $2,391 | $2,548 | (6%) |
| Basic and diluted EPS | $1.06 | $1.12 | (5%) |
| Adjusted EBITDA | $7,561 | $7,516 | 1% |
| Distributable cash flow (DCF) | $4,715 | $4,970 | (5%) |
| Cash from operating activities | $6,491 | $4,967 | 31% |
Operating margin was approximately 27.8% versus 21.2% in 2022; the improvement should be viewed alongside the substantial reduction in commodity sales and related cost of sales. Net income margin was approximately 15.6% versus 13.3%. DCF per share declined to $2.10 from $2.19. Management attributed the DCF decline primarily to higher interest expense and sustaining capital expenditures.
Revenue fell mainly because lower commodity prices reduced natural gas sales by $3,616 and product sales by $1,029; associated cost of sales also fell substantially. Net interest expense increased $284, primarily reflecting higher rates on fixed-to-floating swaps. Operating cash flow benefited from an $843 customer prepayment for fixed reservation charges and favorable working-capital movements, so the year-over-year increase does not solely represent recurring earnings growth.
Segment EBDA was $8,073, up from $7,702. Natural Gas Pipelines increased to $5,282 from $4,801; Products Pipelines decreased to $1,062 from $1,107; Terminals rose to $1,040 from $975; and CO2 declined to $689 from $819. Terminals benefited from higher tanker charter rates, contractual escalations and utilization. CO2 was pressured by lower NGL prices and lower CO2 sales prices and volumes.
At year-end, total debt principal was $31,929 and debt including fair-value adjustments was $32,116; cash was $83. Management’s stated Net Debt calculation was approximately $31.8 billion. About $8.3 billion, or 26% of debt, was subject to variable rates. Short-term debt was $4,049, working capital deficit was $4,679, and available credit-facility capacity was approximately $1.4 billion. The company reported compliance with debt covenants and stable outlooks from its listed rating agencies.
Material changes and significant activity
- Acquired the STX Midstream pipeline system in December for $1,831, expanding Eagle Ford, Mexico and Gulf Coast natural gas connections; approximately 75% of the business is supported by take-or-pay contracts. The acquisition’s purchase-price allocation remains preliminary.
- Placed several natural gas pipeline expansions and three landfill-based RNG facilities into service during 2023. The company repurchased approximately 32 million shares for $522 at an average $16.56 per share; approximately $1.5 billion remained authorized.
- Goodwill was $20.1 billion. The annual impairment test found reporting-unit fair values above carrying values, but Terminals’ fair value exceeded carrying value by less than 10%. A $67 non-cash impairment was recorded on the Double Eagle Pipeline investment due to lower expected contract renewal rates.
- Declared 2023 dividends of $1.13 per share, up 2% from 2022. The company issued $1.5 billion of 5.20% notes in 2023 and issued a further $2.25 billion of notes in February 2024 to repay short-term borrowings, fund maturities and for general purposes.
Outlook, risks and contingencies
Management expects 2024 dividends of $1.15 per share, a 2% increase, and approximately $2.3 billion of discretionary capital expenditures. The broader 2024 capital-investment estimate is $3,447, including sustaining investment and joint-venture items; these measures have different scopes. The company also has projects under development, including LNG-related pipeline capacity, with timing dependent on permits and other approvals.
The principal highlighted regulatory uncertainty is the EPA’s Good Neighbor Plan. If fully implemented as currently described, KMI estimates compliance costs of $1.5–$1.8 billion, including joint ventures, with possible equipment shortages and operational disruption. Estimated costs for states without stays were $200–$300 million. Litigation and state stays could materially change the exposure; cost estimates are preliminary.
Other material risks include high leverage and refinancing costs, interest-rate exposure, commodity-price and volume changes, customer or counterparty financial distress, contract renewals, pipeline safety and integrity spending, environmental liabilities, extreme weather, cyber incidents, construction delays and evolving emissions regulation. The company reported $199 million of environmental reserves and $23 million of legal reserves at year-end. Notable pending matters include the Freeport LNG appeal, pension-plan class litigation and environmental proceedings; certain potential liabilities, including Louisiana coastal litigation and the Portland Harbor allocation, could not be reasonably estimated. KMI stated it believes resolution of disclosed matters will not materially adversely affect the business, but outcomes remain uncertain.
Cash from operations and available credit are management’s stated primary liquidity sources. The company received the $843 customer prepayment in the fourth quarter for contracts running through 2035–2040; associated amounts remained recorded as lease and contract liabilities at year-end. This boosts current-period cash but relates to future service obligations.
The auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective. STX Midstream was excluded from the internal-control assessment and audit because it was acquired near year-end and represented less than 3% of relevant consolidated amounts.
Most important facts for investors to verify
- How much of the 2023 operating-cash-flow increase reflects the customer prepayment and working-capital timing, and how much is repeatable.
- Debt repayment and refinancing needs, liquidity headroom, variable-rate exposure and leverage relative to adjusted EBITDA.
- Current court and regulatory status of the Good Neighbor Plan, resulting compliance obligations, timing and potential rate recovery.
- Progress integrating STX Midstream, the final purchase-price allocation and the acquired system’s contribution to earnings and cash flow.
- Contract renewal rates and utilization across pipeline and terminal assets, including the Double Eagle impairment and Terminals goodwill headroom.
- Whether the 2024 dividend and capital plans remain supportable after sustaining investment, debt service and regulatory or environmental costs.