Kinder Morgan, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2022. Kinder Morgan operates North American energy infrastructure, including approximately 83,000 miles of pipelines, 141 terminals and 700 Bcf of natural gas storage capacity. Results are unaudited; interim results are not necessarily indicative of full-year performance.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $4.293 billion | $5.211 billion | Down 18% |
| Operating income | $1.024 billion | $1.886 billion | Down 46% |
| Net income attributable to KMI | $667 million | $1.409 billion | Down 53% |
| GAAP diluted EPS | $0.29 | $0.62 | Down $0.33 |
| Operating cash flow | $1.084 billion | $1.873 billion | Down $789 million |
| DCF | $1.455 billion | $2.329 billion | Down 38% |
| Adjusted EBITDA | $1.967 billion | $2.814 billion | Down 30% |
Operating margin was approximately 23.9%, compared with 36.2% a year earlier; net income attributable to KMI was approximately 15.5% of revenue, versus 27.0%. These margins are calculated from reported figures. Adjusted earnings were $732 million, or $0.32 per share, compared with $1.374 billion, or $0.60 per share. DCF per share was $0.64 versus $1.02; DCF and other adjusted measures are non-GAAP and should be considered alongside GAAP results.
Segments and drivers
- Natural Gas Pipelines adjusted Segment EBDA was $1.297 billion, down $797 million. The largest factor was lower Midstream earnings, primarily reflecting the prior-year benefit from Winter Storm Uri and resulting commodity-price and margin effects. East Region earnings increased, partly reflecting the Stagecoach acquisition and new contracts.
- Products Pipelines adjusted Segment EBDA rose $36 million to $299 million, supported by higher volumes and a land-sale gain. Terminals increased $11 million to $238 million; CO2 decreased $83 million to $208 million, as higher operating costs outweighed improved realized oil and NGL prices.
Balance sheet, liquidity and capital allocation
- At March 31, cash and cash equivalents were $84 million, down from $1.140 billion at year-end; restricted deposits were $264 million. Current liabilities exceeded current assets by $3.417 billion. Management cited cash flows, cash and available credit as sufficient for expected requirements.
- Total debt principal was $31.499 billion, down from $32.418 billion at December 31, 2021. The balance sheet reported $32.083 billion of debt including fair-value adjustments. KMI had $290 million of commercial paper outstanding, no credit-facility borrowings and approximately $3.6 billion of available credit; it reported compliance with required covenants.
- Financing cash outflow was $1.512 billion, including $616 million of dividends. Investing cash outflow was $371 million, including $407 million of capital expenditures. The company repaid notes that matured during the quarter and EPNG issued $300 million of 3.50% notes due 2032.
- Management expected 2022 dividends of $1.11 per share, 3% above 2021 declared dividends, and approximately $1.5 billion of expansion projects, joint-venture contributions and other discretionary capital spending. Q1 declared dividend was $0.2775 per share; the board declared that amount payable May 16, 2022.
Material changes, outlook and risks
- The prior-year comparison was unusually strong: Q1 2021 included approximately $1.077 billion of largely nonrecurring earnings related to Winter Storm Uri. The prior period also included a $206 million gain on sale of an NGPL Holdings interest and a $117 million write-down of a Ruby subordinated note. This makes the year-over-year decline an important comparability consideration.
- Ruby Pipeline filed for Chapter 11 on March 31, 2022 after lacking liquidity to repay $475 million of notes due April 1. KMI said its Ruby equity and subordinated-note investments had already been fully impaired and carried no balance at quarter-end.
- Derivative positions expose the company to commodity, interest-rate and currency movements. KMI had posted $254 million of cash margin at quarter-end; it estimated a two-notch credit downgrade could require $377 million of additional collateral. Derivative fair values and hedges affected reported results and other comprehensive income.
- After quarter-end, EPNG was notified of a FERC rate proceeding to determine whether its current rates remain just and reasonable. Management did not expect a material adverse business impact. Other disclosed matters include a CLR lawsuit seeking more than $276 million, a Freeport LNG claim of approximately $104 million, environmental proceedings and pipeline-integrity risks. The company reported $164 million in legal reserves and $240 million in environmental reserves at March 31, 2022; certain potential liabilities remain difficult to estimate.
- Management’s dividend and capital-spending expectations are forward-looking and subject to business, liquidity, regulatory and other risks. The filing reported no material changes to the risk factors in the 2021 Form 10-K and no material change in market-risk disclosures.
Important facts for investors to verify
- How much of the earnings and cash-flow decline reflects the exceptional Q1 2021 storm comparison versus ongoing operating trends, particularly in Natural Gas Pipelines and CO2.
- Whether operating cash flow and available borrowing capacity support planned capital spending, debt maturities and the $1.11-per-share 2022 dividend expectation.
- Debt maturity, refinancing and interest-rate exposure, alongside the low reported cash balance and significant working-capital deficit.
- Potential financial effects of the Ruby bankruptcy, EPNG’s FERC rate proceeding and material litigation or environmental matters, including exposures not yet reasonably estimable.
- How commodity-hedge settlements, mark-to-market movements and collateral requirements may affect reported earnings, cash flows and liquidity.