Kinder Morgan, Inc.

Welcome to the quarterly earnings conference call. At this time, all participants are in a listen-only mode until the question and answer session of today's conference. At that time, you may press star 1 on your phone to ask a question. I would like to inform all parties that today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan. Thank you. You may begin.

Thank you, Sheila. Before we begin, as I always do, I'd like to remind you that KMI's earnings release today and this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934, as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosure on forward-looking statements and use of non-GAAP financial measures set forth at the end of our earnings release, as well as review our latest filings with the SEC for important material assumptions, expectations, and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. Let me begin by saying that over the last several quarters, I've started these calls with a review of our financial philosophy and strategy at Kinder Morgan. I went back and looked at what I've said over the last few quarters, and the message has been very consistent, and it is this. We generate significant amounts of cash, and we'll use that cash to fund our expansion CapEx needs, pay our dividends, and to keep our balance sheet strong and occasionally on an opportunistic basis to repurchase shares. We will use a disciplined approach to approving any new projects. And that's exactly what we're doing, even in this challenging year of 2020, which I believe shows the resilience and strength of our collection of midstream assets. Now, as we look beyond this year, we can't predict with any accuracy what the future will bring in terms of a return to normalcy for our economy and our lifestyle. But we are confident that KMI will continue to generate strong cash well in excess of our expansion CapEx needs and the funding of our current dividend. That will allow us to maintain a strong balance sheet and return significant additional cash to our shareholders through increased dividends and our share repurchases. So if the results and outlook are that positive, why is that not reflected in our stock price? Well, I'm certainly no expert on that subject, but it appears that many investors are not committing any funds to the energy business without any consideration of the unique characteristics of our midstream sector. Now, we are not climate change deniers and we recognize the growing momentum of renewables in America's energy mix. That said, there is a long runway for the products we handle, particularly natural gas. For a clear-eyed examination of the role of fossil fuels in the energy transition, I recommend everyone read the excellent new book, The New Map, by Pulitzer Prize winner Daniel Yergin. In it, he details in specific terms the need for oil and particularly natural gas in the coming decades and indicates the importance of existing energy infrastructure like ours. Now, beyond the present use of our assets, our extensive pipeline infrastructure can play an important role in facilitating many of the changes being advocated to lessen global emissions. To name just three examples, if green hydrogen becomes a reality, we can move some amount of it through our pipes. If refiners produce renewable diesel, we can transport that through our product pipelines. And if CCUS advances, we have more experience in moving CO2 and injecting it underground than virtually any other company in America. In short, to paraphrase Mark Twain, The rumors of our death are greatly exaggerated. And with that, I'll turn it over to Steve.

All right. Thank you, Rich. So I'll give you an overview of our business and then turn it over to our president, Kim Diney, to cover the outlook and segment updates. Our CFO, David Michaels, will take you through the financials, and then we'll take your questions. Our financial principles remain the same, maintaining a strong balance sheet, maintaining our capital discipline through our return criteria, a good track record of execution, and by self-funding our investments. And on that front, we evaluated all of our 2020 expansion capital projects and reduced CapEx by about $680 million from our 2020 budget for almost 30%. That was in response to the changing conditions in our markets. We still have over $1.7 billion of expansion capital in 2020 on good returning project investments. We're also maintaining cost discipline. We now stand at about $188 million of expense and sustaining capital cost savings for 2020, including deferrals. About $118 million of that is permanent savings, we believe. The result of this work on our capital budget and our costs is that our projected DCF less discretionary capital spend is actually improved versus our plan by about $135 million to our 2020 plan and about $600 million versus our 2019 actuals. All that notwithstanding the pandemic. We more than offset the degradation to our DCF forecast with spending and capital investment cuts in 2020. Finally, we are returning value to shareholders with a 5% year-over-year dividend increase to $1.05 annualized, providing an increased but well-covered dividend. It's a strong balance sheet capital and cost discipline and returning value to our shareholders. You'll note that we omitted the reference to getting to $1.25 dividend that we projected back in 2017. Omitting $1.25 is not backing away from further dividend increases. We remain committed to paying a healthy, well-covered dividend. It's simply wise, we believe, to preserve flexibility to return value to shareholders in the best way possible for shareholders, especially in light of a share price that shows an 8-plus percent yield on a well-covered dividend. We will review dividend policy with the Board following completion of our 2021 budget process. We have accomplished some important work so far during 2020, which I believe will lead to long-term distinction for our company. First, as Kim will cover, we've been successful in advancing our Permian Highway Pipeline project under very difficult circumstances, including local opposition, legal and permit challenges, and by the way, a global pandemic too. We're distinguishing ourselves and demonstrating to our customers and partners our ability to get projects done in difficult conditions. Second, we are already an efficient operator, but we are getting more efficient and more cost effective. We believe that is one of the keys to success in our business for the long term. As I mentioned last quarter, our management team is in the midst of an effort to examine how we are organized and how we operate. We are centralizing certain functions in order to be more efficient and effective, and we are making appropriate changes to how we manage and how we are staffed, and I believe that we will achieve substantial savings. Additionally, as always, we'll be evaluating costs and revenues as part of our annual budget process, which we're also in the midst of right now. We'll bring those two efforts to a close in the coming weeks and incorporate the results into our 2021 guidance. It's essential to be cost-effective while also maintaining our commitment to safe and compliant operations. That's embedded in our values, our culture, and in how we put our budget together. The management team is committed to these objectives, too, and that commitment is also critical to our long-term success. Third, we'll soon be publishing our ESG report. We have incorporated ESG reporting and risk management into our existing management processes. The report will explain how. In the meantime, Sustainalytics has ranked us number one in our sector for how we manage ESG risk. These things are all important to our long-term success, and we have advanced the ball significantly on all three in 2020. So what have we been doing during the pandemic? We're completing a major, new, fully contracted natural gas pipeline in the face of opposition. We're expanding our gas network in Texas and have expanded our terminal capabilities in the Houston Ship Channel. We've reduced costs and capital expenditures, actually increasing our cash flow after CapEx for the year. We continue to advance the ball on ESG, and we're also completing organizational restructuring at the same time. All this while keeping all of our assets running safely, reliably, and efficiently and continuing to originate new business. I'm grateful for the quality of our people and the strength of our culture, two things we probably don't emphasize enough. One more thing. There's a lot of discussion around our sector right now about ongoing energy transition, and I'd like to make a few points about how we participate. First, we and many objective experts, as Rich mentioned, believe that natural gas is essential to meeting the world's energy needs and meeting climate objectives, as it has here in the U.S., U.S. natural gas will play a significant role, and our assets are well positioned to benefit from that opportunity. More important to us is the value of what we specifically do, which is less about providing the commodity itself and more about providing the transportation and storage capacity or deliverability. The value of that increases for the power sector as more intermittent resources are relied on for power generation. Natural gas is clean, affordable, reliable, and pipelines deliver that commodity by the safest, most efficient, most environmentally sound means. We'll continue to look for additional ways to benefit from the long-term energy transition, including the role of our infrastructure in firming intermittent renewable resources, which is what I just mentioned, our marketing of our low methane emissions performance as responsibly produced and transported natural gas. That's a good synergy between our ESG performance that's lowering our methane emissions overall and our commercial opportunities. We're distinguishing ourselves as an environmentally responsible provider, and increasingly that matters to our customers. Further down the road, there may be hydrogen blending opportunities in our natural gas pipelines, and if the incentives are adequate, captured manmade CO2 to be transported on our CO2 pipelines and used for EOR. We'll also continue to evaluate other opportunities in the renewable sector that, as always, will be very disciplined. The G in ESG is critically important, and we won't forget about that. We believe the winners in our sector will have strong balance sheets, low-cost operations that are safe and environmentally sound, and the ability to get things done in difficult circumstances. as always, will evolve to meet the challenges and opportunities we face. And with that, I'll turn it over to Kim.