Kinder Morgan, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This annual filing reports full-year results; it does not provide a standalone fourth-quarter income statement. Kinder Morgan owns or operates approximately 83,000 miles of pipelines and 143 terminals across North America.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $16.61 billion | $11.70 billion |
| Operating income | $2.92 billion | $1.56 billion |
| Net income attributable to KMI | $1.78 billion | $119 million |
| Diluted EPS | $0.78 | $0.05 |
| Cash from operating activities | $5.71 billion | $4.55 billion |
| Distributable cash flow (non-GAAP) | $5.46 billion | $4.60 billion |
| Adjusted EBITDA (non-GAAP) | $7.95 billion | $6.96 billion |
| Declared dividends per share | $1.08 | $1.05 |
Revenue rose 42%, driven largely by higher commodity sales and prices; revenue growth should be considered alongside the corresponding increase in cost of sales. Operating income was approximately 17.6% of revenue, compared with 13.3% in 2020. Net income and EPS increased sharply from a pandemic-affected, impairment-heavy 2020. Adjusted earnings were $3.00 billion, or $1.32 per share, versus $2.01 billion, or $0.88 per share.
Operating cash flow increased $1.16 billion. The company used $2.31 billion in investing activities and $3.47 billion in financing activities; cash and cash equivalents ended the year at $1.14 billion, down $44 million year over year. Sustaining capital expenditures were $864 million and discretionary capital investments were $2.28 billion, including acquisitions.
At year-end, debt principal was $32.42 billion, including $2.65 billion current and $29.77 billion long-term; balance-sheet long-term debt also included $902 million of fair-value adjustments. Net debt, as defined by KMI, was approximately $31.2 billion. Working capital was negative $1.99 billion. KMI reported about $3.9 billion of available credit capacity and no credit-facility or commercial-paper borrowings; it was in compliance with required covenants.
Material changes and operating segments
- Natural Gas Pipelines: Adjusted Segment EBDA increased 22% to $5.46 billion, chiefly from higher Midstream commodity margins during February’s winter storm and contributions from PHP and Stagecoach. Reported results included a $1.60 billion non-cash impairment of South Texas gathering and processing assets.
- Products Pipelines: Adjusted Segment EBDA rose 9% to $1.12 billion as refined-product volumes recovered from COVID-19 effects; total delivery volumes increased to 2.10 million barrels per day.
- Terminals: Adjusted Segment EBDA declined 4% to $950 million, mainly due to lower marine fleet utilization and charter rates. Liquids utilization was 93.0%, versus 95.3%.
- CO2: Adjusted Segment EBDA increased 16% to $754 million. Higher NGL prices and winter-storm-related effects contributed; oil production volumes declined to 29.7 thousand barrels per day from 32.9 thousand.
Key transactions included the $1.26 billion Stagecoach acquisition, the $318 million Kinetrex acquisition (LNG and renewable natural gas), and the sale of a partial NGPL interest for $412 million in net proceeds and a $206 million pre-tax gain. KMI and Brookfield each retained a 37.5% NGPL interest.
Outlook, risks and unusual items
- KMI expected 2022 dividends of $1.11 per share, a 3% increase, and approximately $1.3 billion of discretionary capital investment. Management said it expected to fund dividends and discretionary spending from cash generation without capital-market funding, with potential flexibility for share repurchases. These are estimates, not guarantees.
- 2021 earnings included an estimated $1.09 billion of winter-storm-related earnings, described as largely nonrecurring. Reported results also included the $1.60 billion South Texas impairment and a $117 million write-down of a Ruby note receivable. The 2020 comparison included $1.60 billion of goodwill impairments.
- Leverage is a significant risk: KMI reported approximately $32.4 billion of debt and cross-guarantees among the parent and substantially all wholly owned domestic subsidiaries. Approximately $2.1 billion of debt was variable-rate or effectively variable as of early January 2022; swaps covering an additional $5.1 billion were due to take effect in 2022.
- Other principal risks include commodity-supply and demand shifts, customer creditworthiness, competition, pipeline safety and integrity spending, construction and permitting delays, cyber threats, severe weather, and environmental and climate regulation. KMI had a $243 million environmental reserve and a $231 million legal reserve at year-end.
- Notable contingencies include a Freeport LNG claim alleging approximately $104 million of damages related to Winter Storm Uri, which KMI disputes, and a Continental Resources claim seeking more than $276 million, which KMI is defending. The filing also describes unresolved environmental and regulatory matters; management stated it did not expect the matters discussed to have a material adverse effect, while noting estimates and outcomes remain uncertain.
Most important facts for investors to verify
- How much of the 2021 earnings and cash-flow improvement is repeatable after excluding winter-storm effects, impairments, divestiture gains and other adjustments.
- Whether South Texas gathering and processing contracts renew at volumes and rates that support asset values, and whether further impairments arise.
- Debt maturities, refinancing costs, variable-rate exposure and the company’s ability to sustain its dividend while funding planned capital investment.
- Developments in the Freeport LNG and Continental Resources disputes, SFPP rate matters, and environmental remediation obligations.
- Progress, cost and timing for Kinetrex’s RNG projects and other announced expansions, including required permits and long-term contracted demand.
Assurance: PricewaterhouseCoopers LLP issued an unqualified audit opinion on the consolidated financial statements and internal control over financial reporting as of December 31, 2021. Management also concluded disclosure controls and internal controls were effective.