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spk01: Welcome to the quarterly earnings conference call. Today's call is being recorded. If you have any objections, you may disconnect at this time. All participants are in a listen-only mode until the question and answer portion of today's call. I would now like to turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan.
spk14: Thank you, Jordan. And as I always do before we begin, 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 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, which may cause actual results to differ materially from those anticipated and described in such forward-looking statements. Let me start by saying that in these turbulent and volatile times, it seems to me that every public company owes its investors a clear explanation of its strategy and its financial philosophy. In these days, platitudes and unsubstantiated hockey stick growth projections don't play well. To my way of thinking, despite the pronouncements of celebrities, fortune may not favor the brave so much as it favors the cash. The ability to produce sizable amounts of cash from operations should be viewed as a real positive in picking investments, but I believe that generating cash is only part of the story. The rest is dependent on how that cash is utilized. At Kendra Morgan, we consistently produce solid and growing cash flow, and we demonstrated that once again this quarter. At the board and the management level, we spend a lot of time and effort deciding how to deploy that cash. As I've said ad nauseum, our goals are to maintain a strong investment-grade balance sheet, fund expansion and acquisition opportunities, pay a handsome and growing dividend, and further reward our shareholders by repurchasing our shares on an opportunistic basis. As Steve and the team will explain in detail, we used our funds for all those purposes in the second quarter. To further clarify our way of thinking, we approve new capital projects only when we are assured that these projects will yield a return well in excess of our weighted cost of capital. Obviously, in the case of new pipeline projects, most of the return is normally based on long-term throughput contracts which we were able to negotiate prior to the start of construction. But we also look at the long-term horizon, and we're pretty conservative in assumptions on renewal contracts after expiration of the base term and on the terminal value of the investment. That said, we are finding good opportunities to grow our pipeline network, as demonstrated by our recent announcement of the expansion of our permanent highway pipeline, which will enable additional natural gas to be transported out of the Permian Basin. So if we're generating lots of cash and using it in productive ways, why isn't that reflected in a higher price for KMI stock? Or to use that old phrase, if you're so smart, why aren't you rich? In my judgment, market pricing has disconnected from the fundamentals of the midstream energy business, resulting in a KMI dividend yield approaching 7%, which seems ludicrous for a company with the stable assets of Kinder Morgan and the robust coverage of our dividend. I don't have an answer for this disconnect, and you know it's easy to blame factors over which we have no control, like the mistaken belief that energy companies have no future or the volatility of crude prices, which in fact have a relatively small impact on our financial performance. Specifically to KMI, some of you may prefer that we adopt a swing for the fences philosophy rather than our balanced approach, while others may think we should be even more conservative than we are. To paraphrase Abe Lincoln, I know we can't please all of you all the time, but I can assure you that this board and management team are firmly committed to return value to our shareholders and that we will be as transparent as possible in explaining our story to you and to all of our constituents.
spk06: Steve? We're having a good year. We're projecting to be nicely above plan for the year. and substantially better year-over-year Q2 to Q2, as Kim and David will tell you. Some of the outperformance is commodity price tailwinds, but we're also up on commercial and operational performance. And here are some highlights. Our capacity sales and renewals in our gas business are strong. Gathering and processing is also strong, up versus planned and up year-over-year. Existing capacity is growing in value. I'll give you an example. After years of talking about the impact of contract roll-offs, we're now seeing value growth in many places across our network. One recent example, on our Mid-Continent Express pipeline, we recently completed an open season where we awarded a substantial chunk of capacity at maximum rates. Those rates are above our original project rate. While not super material to our overall results, I think it's a stark and good illustration of the broader trend of rate and term improvements on many of our renewals in the natural gas business unit. Second, in CO2, SACROC production is well above plan, and of course, we are benefiting from higher commodity prices in this segment. The product segment is ahead of plan and terminals is right on plan. We're facing some cost headwinds, mostly because of added work this year. While costs are up, we're actually doing very well in holding back the impacts of inflation. It's hard to measure precisely, but based on our analysis, we are well below the headline PPI numbers you're seeing, and actually we appear to be experiencing less than half of those increases. That's due to much good work by our procurement and operations teams, and much of this good performance is attributable to our culture. We are frugal with our investors' money. A few comments on capital allocation. The order of operations remains the same. as it has been for years. First, a strong balance sheet. We expect to end this year a bit better than our 4.5x debt to EBITDA target, giving us capacity to take advantage of opportunities and protect us from risk. As we noted at our investor day this year, having that capacity is valuable to our equity owners. Second, we invest in attractive opportunities to add to the value of the firm. We have found some incremental opportunities and expect to invest about $1.5 billion this year in expansion capital, and notably, we added an expansion of our Permian Highway pipeline. We picked up MAS Energy, that's M-A-S, a renewable natural gas company, and we're close on a couple of more nice additions to our renewable natural gas business. We are finding these opportunities and others all at attractive returns well above our cost of capital. Finally, we return the excess cash to our investors in the form of a growing, well-covered dividend and share repurchases. So far this year, we have purchased about 16.1 billion shares while raising the dividend 3% year-over-year. As we look ahead, we have a $2.1 billion backlog, 75% of which is in low-carbon energy services. That's natural gas, RNG as well as renewable diesel and associated seed stocks in our products and terminal segments. Again, all of these are attractive returns, and I want to emphasize, as we've said I think many times now, our investments in the energy transition businesses we have done without sacrificing our return criteria, a nice accomplishment. In natural gas in particular, we are focused on continuing to be the provider of choice for the growing LNG market. where we expect to maintain and even expand on, potentially, our 50 percent share, and in natural gas storage, which is highly cost-effective energy storage in a market that will continue to need more flexibility. Again, we are having a very good year. We are further strengthening our balance sheet, finding excellent investment opportunities, and returning value to shareholders. And we are setting ourselves up well for the future.
spk16: Thanks, Steve. Starting with the natural gas business segment unit for the quarter, transport volumes were down about 2%. That's approximately 0.6 million decatherms per day versus the second quarter of 2021. That was driven primarily by reduced volumes to Mexico as a result of third-party pipeline capacity added to the market, pipeline outage on EPNG, and continued decline in the Rockies production. These declines were partially offset by higher LNG deliveries and higher power demand. Deliveries to LNG facilities off of our pipelines averaged approximately 5.8 million decatherms per day, about 16% higher than the second quarter of 21, but lower than the first quarter of this year due to the Freeport LNG outage. Our current market share of deliveries to LNG facilities remains around 50%. We currently have about seven BCF a day of LNG feed gas contracted on our pipes, and we've got another 2.6 BCF a day of highly likely contracts where projects have been FID'd but not yet built, or where we expect them to FID in the near term. We're also working on a significant amount of other potential projects, and given the proximity of our assets to the planned LNG expansions, We expect to maintain or grow that market share as we pursue those opportunities. Deliveries to power plants in the quarter were robust, up about 7% versus the second quarter of 21. The overall demand for natural gas is very strong, and as Steve said, that drives a nice demand for our transport and storage services. For the future, we continue to anticipate growth in LNG exports, power, industrial, and exports to Mexico. For LNG demand, our internal and Wood Mac numbers project between 11 and 15 BCF a day of LNG demand growth by 2028. Our natural gas gathering volumes in the quarter were up 12% compared to the second quarter of 21. Sequentially, volumes were up 6%, with a big increase in the Hainesville volumes up 15%, and Eagleford volumes up 10%. These increases were somewhat offset by lower volumes in the Bakken. Overall, our gathering volumes in the natural gas segment were budgeted to increase by 10% for the full year, and we're currently on track to exceed that number. In our product pipeline segment, refined product volumes were down 2% for the quarter versus the second quarter of 2021. Gasoline and diesel were down 3% and 11% respectively. but we did see a 19% increase in jet fuel demand. For July, we started the month down versus 2021 on refined products, but we have seen gasoline prices decrease nicely over the last month or so. Crude and condensate volumes were down 6% in the quarter versus the first quarter of 21. Sequential volumes were down 2% with a reduction in the Bakken volumes more than offsetting an increase in the Eagleford. In our terminal business segment, our liquids utilization percentage remains high at 91%, excluding tanks out of service for required inspections. Utilization is approximately 94%. And liquids throughput during the quarter was up 4%, driven by gasoline, diesel, and renewables. We have seen some weakness on renewals, contract renewals, in our hub terminal. impacted by the backwardation in the market, just like we saw some marginal benefit when the curve was in a contango position a couple of years ago. Although we were hurt in the quarter by lower average rates on our marine tankers, all 16 vessels are currently sailing under firm contracts, and rates are now at pre-COVID levels. On the bulk side, overall volumes increased by 1%. driven by pet coke and coal, and that was somewhat offset by lower steel volume. In the CO2 segment, crude, NGL, and CO2 volumes were down compared to Q2 of 21, but that was more than offset by higher commodity prices. Versus our budget, crude, NGL, and CO2 volumes, as well as price on all of these commodities, are all expected to exceed our expectations. Overall, we had a very nice first half of the year. We currently project that we will exceed our full year 2020 plan DCF and EBITDA by 5%. And we've approved a number of nice new projects, including the PHP expansion and Evangelion Path phase one. With that, I'll turn it over to David Michaels.
spk08: Thank you, Kim. For the second quarter of 2022, we're declaring a dividend of $0.2775 per share, which is $1.11 per share annualized, up 3% from our 2021 dividend. And one highlight before we begin the financial performance review, as Steve mentioned, we took advantage of a low stock price by tapping our board approved share repurchase program. Year to date, we've repurchased 16.1 million shares for $17.09 per share. We believe those repurchases will generate an attractive return for our shareholders. Our savings from the current dividends alone, without regard to terminal value assumptions or dividend growth in the future, is 6.5%. A nice return to our shareholders. Moving on to the second quarter financial performance, we generated revenues of $5.15 billion, up $2 billion from the second quarter of 2021. Our associated cost of sales also increased by $1.7 billion. Combining those two items, our gross margin was $254 million higher this quarter versus a year ago. Our net income was $635 million, up from a net loss of $757 million in the second quarter of last year, but that includes a non-cash impairment item for 2021. Our adjusted earnings, which excludes certain items, including that non-cash impairment, was $621 million this quarter, up 20% from the adjusted earnings in the second quarter of 2021. As for our DCF performance, each of our business units generated higher EBDA than the second quarter of last year. Natural gas, the natural gas segment was up $69 million with greater contributions from Stagecoach, which we acquired in July of last year. greater volumes through our Kinderhawk system, favorable commodity price impacts on our Altamont and Copenoe South Texas systems, and those are partially offset by lower contributions from CIG. The product segment was up $6 million driven by favorable price impacts, partially offset by lower crude volumes on Highland and Double H, as well as higher integrity costs. Our terminals segment was up $7 million with greater contributions from expansion projects placed in service, a gain on a sale of an idled facility, and greater coal and petco volumes. Those are partially offset by lower contributions from our New York Harbor terminals and our Jones Act tanker business versus the second quarter of last year. Our CO2 segment was up $60 million, driven by favorable commodity prices, more than offsetting lower year-over-year oil and CO2 volumes, as well as some higher operating costs. Also adding to that segment were contributions from our energy transition ventures, renewable natural gas business, Connetrix, which we acquired in August of last year. The DCF in total was $1.176 billion, 15% over the second quarter of 2021, and our DCF per share was 52 cents, up 16% from last year. It's a very nice performance. Onto our balance sheet, we ended the second quarter with $31 billion of net debt and a net debt to adjusted EBITDA ratio of 4.3 times. That's up from year end at 3.9 times, although that 3.9 times includes the non-recurring EBITDA contributions from the Winter Storm URI event in February of 2021. The ratio at year end would have been 4.6 times, excluding the URI EBITDA contributions. So we ended the quarter favorable to our year end recurring metric. Our net debt has decreased $185 million year to date, and I will reconcile that change to the end of the second quarter. We've generated year to date DCF of $2.631 billion. We've paid out dividends of $1.2 billion. We've spent $500 million on growth capital and contributions to our joint ventures. We've posted about $300 million of margin related to hedging activity. Through the second quarter, we had $170 million of stock repurchases, and we've had approximately $300 million of working capital uses year-to-date. And that explains the majority of the year-to-date net debt change. And with that, I'll turn it back to Steve.
spk06: All right. Thank you. So we'll open up to the Q&A part of the session. And as a reminder, as we've been doing, we ask you to limit your your question to one question, one follow-up. And then if you've got more, get back in the queue and we will get to you. And here in the room, we have a good portion of our management team. And as you ask your questions, I'll let you hear directly from them on your questions about questions about their businesses. So Jordan, you would open up the Q&A.
spk01: Thank you. We will now begin the question and answer session. If you would like to ask a question over the phone lines, please press star then one and promptly record your name and company when prompted. Withdraw your question, press start 2. Our first question comes from Jeremy Tonette from JP Morgan. Your line is open.
spk19: Hi, good afternoon. Good afternoon. So I guess Bitcoin shouldn't be high on the list for organic growth projects anytime soon, I'm taking it. But moving on to the Permian, just wanted to see, as far as takeaway is concerned, what's your latest look there as far as when tightness could materialized and at the same time with GCX just wondering if what it takes to reach FID there if the basin is tight then could this be a near-term event?
spk18: Tom? Yeah, so I think, you know, with the projects including ours that have been FID and are proceeding in the construction mode that, you know, there may be a near-term tightness, but once those projects go under service, we feel like the market's pretty well served until the latter part of the decade. So I think the next projects will likely come in. So need to be FIT sometime in 24, maybe 25. And there still may be opportunities in the near term for GCX. We are in several discussions with a lot of additional customers there for pockets of capacity, especially to serve LNG. But I think for now, I think the market's, at least on a near-term to intermediate term, pretty well served.
spk06: And GCX is fast to market as a compression expansion. The FIDs in the middle part of the decade are 27 to 30 months to complete, roughly. Correct.
spk19: Got it. So just want to confirm there, back half a decade, next pipe you said there, as far as beyond what's currently out there?
spk18: That's right.
spk19: Got it. And real quick, just on the renewable natural gas, just wanted to see if you could provide more details on the acquisition here from us, Ken M. As far as the economics, what type of renewable credits were kind of baked in there, expectations? And should we expect kind of more acquisitions of this nature going forward? Is this an area that's ripe for consolidation for Kinder to go after? Just wondering broader thoughts there.
spk09: Anthony. Yeah, so the acquisition, we're excited about it. It's three landfill gas assets, one RNG facility in Arlington, and that's the bulk of the value here, $355 million. We have two medium BTU facilities in Shreveport and Victoria as well. It is a little bit different from the Connectrix deal because it's an operating asset. It's largely de-risked. Arlington has favorable royalty arrangements in place, a long-term contract into the transportation market, so there's RIN exposed here, and the long-term EBITDA multiple here is around eight times. Okay, and the prospects are additional? Yeah, and so I think Steve mentioned we have a line of sight for some additional growth. There are some opportunities on an M&A side, but I think largely we'll be looking to grow organically in the future.
spk06: Got it. That's helpful. Thank you. And you're right, Jeremy. Bitcoin's not even in the shadow backlog.
spk19: Didn't think so. Thank you.
spk01: Our next question comes from Jean Ann Salisbury with Bernstein. Your line is open.
spk12: Hi. Have your operations had to adjust for the Freeport outage? Can you talk about if you're seeing more flows into Louisiana or Mexico or getting absorbed by Texas weather? Or are you just kind of not getting paid from some of it if they did force majeure?
spk18: Yeah, so I would say fairly immaterial financial impact to us. But as far as an impact to the market, We're certainly seeing the basis market in the Katy Ship Channel area weakened with the additional volumes that are hitting the Texas market. I think it helps support storage, Gulf Coast storage more broadly, but certainly has been at least partially offset by the extreme power demand that we've been seeing here in Texas and along the Gulf Coast. And I would say just with the connectivity with interstate pipeline grid between, you know, intros and interstates, you know, those volumes are getting pretty well dispersed.
spk12: Great. Thank you. And then my second question is very long term. I'm getting asked about this from generalists and want to make sure I'm getting it right. Just kind of want to understand refined product pipes. This is a common concern that I'm hearing. If we play out an energy transition scenario where flow in them in 15 years is much lower than today, let's say, Can you talk about what would happen to the pipe revenue for refined product pipes? Is it mostly cost of service based or negotiated or some of those?
spk07: Yeah, Dax. Yeah, I guess I would say, first of all, it depends on where it happens. I mean, I think from an economic protection perspective, we have the ability to, you know, we've got rate making protection on the pipes to be able to take into account decreased volumes, the increased rates to be able to, you know, to protect us. And so, you know, I think the place that's probably been most, you know, progressive on this has been California with the, you know, the conversation about potentially banning the internal combustion engine. But if you look at that, really what that gets to is, road fuels consumed in the state of California. And we obviously transport a lot of products out of there to other states. And we did an analysis on that. And that came to about 11% of products EBDA on a 2019 basis. So if you look at the place that's probably the most progressive on it, That's really kind of what you're looking at from our segment's perspective. And that's before you put in place, you know, tariff protection. So, that's the way we look at it.
spk06: Yeah. So, Gene, there's a bit of a contrast here between how things work on the products pipeline and, for example, how things work on the natural gas pipelines. We do tend to do a lot of negotiated rate transactions on the natural gas pipeline grid. in the regulated interstate, well, even intrastate refined products pipelines. Those are typically, those are, they are cost of service regulated common carrier pipelines. We just recently settled a significant rate case, a long running rate case on our SFPP system. We have an ongoing one on the intrastate in the CPUC business. But if you think about these pipes economically, they really are the cheapest and best way to move the product from point A to point B. And so there is good strength in their market position. And so, yes, if there was a decrease in volume, you would go in and you'd say, I have lower volume units, I'm spreading the same cost of service over a lower number of barrels, and I want a rate increase. That's not how we run the railroad, and it's not something that we've had to do with the one exception of the California interstate market. But it is a bit of a different dynamic between refined products pipelines and the natural gas pipelines.
spk16: We can move renewable diesel through our pipes. So to the extent that that gets replaced, renewable diesel can go through. And also, sustainable aviation fuel could be moved through our pipes as well. So, those were replacement products.
spk12: Great. That was very helpful. Thank you for the thorough answer. That's all for me.
spk01: Our next question comes from Colton Bean with Tudor Pickering Holton Co. Your line is open.
spk13: afternoon so on the guidance increase looks like an ebitda step up of 350 million or better i guess first are there any offsets at the cash flow level that result in dcf also being five percent or is that just a function of rounding and then second i think you all flagged about 750 million of discretionary cash on the original budget should we assume the guidance increase is additive to that total including the 100 million bump in capex last quarter yeah the the uh the offsets are the
spk08: Items that are unfavorable between EBITDA and DCF for us are interest expense and sustaining capital. Interest expense versus our budget is just up because short-term rates are meaningfully above what we had budgeted, and the longer-term rates are also up a little bit. And then the sustaining capital, we have some incremental class change costs that we didn't budget for and a little bit of inflation costs increasing our sustaining capital. In terms of the available capacity that we talked about at the beginning of the year, the $750 million was based on available capacity given our budgeted EBITDA and assumed spend for the year. Our EBITDA is up nicely, so that's increased the available balance sheet capacity that we have, but we're also increasing our spend a little bit more than what we had budgeted given the MAS transaction. We have a couple of additional projects in our discretionary spend that Steve talked about, and we've repurchased some shares that weren't in our budget. So overall, our available capacity is still higher than what we had budgeted, but we've also spent a fair amount more than what we had budgeted as well.
spk13: David, maybe just sticking on the financing side of things, I think you all noted that you had locked in roughly $5 billion of your floating rate exposure through the end of this year. Any updates or shifts in how you're thinking about managing that heading into 2023?
spk08: Yeah, we haven't had a similar opportunity to lock in favorable rates for 2023. So we're very pleased that we locked it in for this year. It's been almost a $70 million benefit to us this year. And we'll continue to look at ways that we can potentially mitigate that going into 2023, but so far we haven't found any favorable opportunities to do that because we've just continued to see, as we go through the year, more pressure on short-term rates going into next year. With some of the recessionary pressures that we've seen in the market, I think that's starting to loosen up a little bit, so we'll continue to take a look at it, but nothing yet.
spk07: Great. Thank you.
spk01: Our next question comes from Chase Mulvihill with Bank of America. Your line is open.
spk03: Hey, good afternoon. I guess I wanted to come back and kind of hit on guidance a little bit. You know, I guess I just specifically on gathering volumes. I think you got it up originally 10%. And I think you noted here that you're going to be above that. And you kind of mentioned that last quarter's conference call as well. And you've obviously given us the sensitivity here that we can use towards, you know, your guidance. So how much do you think that gathering volumes will be up now, and I guess maybe what's included in the updated guidance?
spk16: So we think, you know, it's going to be up, I think it's around 13% versus the 10, and it is included in our updated guidance.
spk03: okay great um and can i ask kind of maybe it's a little more technical question uh but around kind of brownfield permeant egress expansions um you know how should we think about the timing and how this incremental capacity will pull through uh incremental volumes basically what i'm asking is is will you be able to pull through more volumes gradually as you add each incremental compression station or were you ultimately all start the incremental production at once at the end when you have all the compression stations added?
spk18: No, I think it's more of a light switch experience as we push November, December 23. Now, there will be certainly test volumes, additional volumes that we do test along the way, but I think to get to the ultimate delivery point where the customers want to go, that will all happen November, December 23.
spk03: Okay, perfect. I'll turn it back over. Thanks.
spk01: Our next question comes from Michael Bloom with Wells Fargo. Your line is open.
spk17: Thanks. Good afternoon, everyone. I wanted to maybe just start with the opening comments about the stock price. I'm just wondering if you could expand a little more there and I guess specifically, are there any specific actions that you're contemplating to impact the stock price here?
spk14: Well, I've learned a long time ago that the ability of a management team to influence the stock price is pretty remote. But let me just say, and the point of what I was trying to do is I think there is not just Kendra Morgan. I think there's a tremendous disconnect between the way the market is valuing midstream energy companies. For instance, there's much more of a correlation with crude oil prices in our stock than there ought to be, as we tell everybody at the beginning of the year exactly how much the impact is per dollar of change in crude and natural gas prices. And, of course, that's a relatively small number of lessons as you get further into the year. That's just one example of, I think, kind of a knee-jerk reaction in the market. I think the best thing we can do as a management and board is to stress again and again the strength of our cash flow and the fact that we're using it wisely. And I think we demonstrated that in this quarter in the way we've deployed our cash. So that's our game plan. Pretty simple and not very imaginative, really. But I think in the long run, maybe we're the tortoise versus the hare. But in the long run, I think we get rewarded for the kind of performance we have produced now quarter after quarter after quarter.
spk17: All right, great. Thank you for those comments. I guess my second question, well, first of all, Anthony, congratulations on the expanded responsibilities. And, you know, maybe I'm reading into this, but my question is really, you know, with the promotion to run both energy transition and CO2, can I read anything into that about maybe enhanced prospects for carbon capture, kind of bringing these two things under the same roof?
spk06: Look, I think we feel like there are some synergies there, and I'll ask Anthony to expand on that. But, I mean, we'll use the same geologists for carbon capture and sequestration as we do for CO2. I mean, we've been sequestering CO2 for decades, and we use it in connection with the enhanced oil recovery operations, obviously, but it's the same technology, if you will. And so we think there is synergy there, and there are a few others, but I'll turn it over to Anthony to answer the rest.
spk09: Yeah, I mean, obviously Jesse had a great opportunity, and we wish him well. And it's a great opportunity for me, and I've inherited a really great team, so I appreciate that. I don't think you're going to see anything materially different from the way we kind of run things moving forward. As Steve mentioned, I think as we have been moving forward with ETV, You know, it's become more and more apparent that there's a lot of overlap, especially with the CO2 groups, a lot of technical experience there that we've been using. And we'll be further integrating those groups and taking advantage of that. And I think that will provide some nice commercial synergies down the road. But, you know, we don't have anything, you know, special to announce, and I don't think you're going to see –
spk06: um the way we run the co2 business or etv to be materially different from from the way jesse was doing yeah and i think the further integration benefits that we have the same operations organizations so some of these were it was a small company we acquired and we have other acquisitions that we're integrating and so having a common operations platform i think will be very helpful we also have a common project management platform which is also helpful. And of course, we've always had a centralized procurement organization and bringing the power of that procurement organization to bear on these development opportunities. I think all that will pay dividends. But this is not leaning into the CCUS. We think there are opportunities there. We think they're coming, but coming slowly. And there's some resolution of 45Q tax credit levels and things like that that still needs to unfold. But anyway, this business fits together, so it stays together.
spk17: Great. Thank you very much.
spk01: Our next question comes from Keith Stanley with Wolf Research. Your line is open.
spk02: Hi, good afternoon. First wanted to ask just on the next wave of LNG projects. So you have this $600 million project you're announcing on TGP and SNG tied to Plaquemines. Can you talk to which specific LNG projects we should track more closely that you see more opportunity to potentially provide gas services to and Is there any way to frame the potential investment opportunity in dollars around new LNG projects the next five years? So should we expect other 600 million type investment opportunities tied to the next wave of projects?
spk18: Yeah, I mean, so, you know, I don't want to call winners and losers in here. But, I mean, I think, you know, the way you would think about this is those that have been successful to this point already, I think, have a good chance of success. being more successful over time by virtue of expansions of their existing footprints. There's certainly some new entrants that we're very excited to be partnering with to grow along the Texas-Louisiana Gulf Coast. Again, I think given the proximity of our footprint, we're talking to all of these developers and working with all of them and looking for ways to expand our footprint and even build some greenfields projects to support their growth. So, we feel very bullish about this opportunity and, you know, we think there's significant, you know, investment opportunity here over the next, you know, three to five years.
spk16: Yeah. And so, as a result, some of the opportunities, you know, we'll be able to utilize capacity on our existing system or add compression and they'll be very, very efficient. And then some of the opportunities will, you know, require greenfields some level of greenfield development. And so it will be a combination of both.
spk14: And I think the macro opportunity here is incredible. I'll come back to what Kim said. Depending on which expert you listen to, the projections are that between now and the next five years or so, you're going to have 11 to 13 or 14 BCF a day in growth in LNG. We fully expect to be able to maintain our 50% share, which we have now. That's an incredible increase in throughput, a lot of which is attributable to the present system that we have in place along the Texas and Louisiana Gulf Coast. It's an incredible green shoot for Kendra Morgan.
spk02: Thank you all for that. And a separate question, I guess, kind of revisiting Michael's question from earlier. So the company hasn't really done material stock buybacks since, really kind of 2018 and it looks like you did 270 million. Um, the average price implies that was kind of done over the past month for the most part. So I know you've talked to being bullish on the stock price, but just any other color on what changed in the market or just the decision process. Cause it's, it's a pretty material step up in buybacks in a brief period and how you're thinking about that, I guess, over the balance of the year, since you still have available capacity.
spk06: I'll start, and David, you can fill in. We kind of planned to look at how the year was unfolding over the first quarter and to get a lot of confidence around it. We live in uncertain times, right? So we have good, strong cash flows that are secured by contracts and all of that. We've got a lot of stability in our business, but kind of wanted to see how the year was unfolding. And so that was then. Things looked good. We talked about it looking good in Q1. Thought we were going to be up on guidance, but didn't quantify it for you. And so that was a good opportunity we had to use some capacity. And we stuck to our opportunistic approach to share repurchases. And that's exactly what we expect to continue to do. And we would expect, you know, you can't call it for sure, but we would expect to have opportunities to do more through the course of the year.
spk08: One thing, I think Steve covered it, we would balance some of the additional spend that we've already incurred with the additional available capacity that we've generated because of our EBITDA outperformance. So we'll look at a balance of those items along with the opportunistic shared purchases for the rest of the year.
spk02: Thank you.
spk01: Our next question comes from Mark Salicito with Barclays. Your line is open.
spk04: Hi, good afternoon. With inflation tracking where it is, That should be a nice tailwind for your products business. Just wondering if you can maybe comment on how that interplays with, you know, the broader macro and any competitive dynamics across your footprint and your ability to fully pass that through.
spk07: Yeah, no, based on where PPI, you know, we follow the PERC methodology on our PERC policy active 92 pipes, which right now is PPI FG minus 0.21%. And, you know, we implemented the, you know, rate increase on July 1st of 8.7% across our assets. And based on where it's tracking right now, I think the, you know, the assuming we would, PPI continues where it is and that we would, you know, implement the full thing, which is what we would expect. It's, you know, somewhere in the neighborhood of 15% next year.
spk04: Great. Appreciate the color there. And then on your CapEx budget, the $1.5 billion for this year, should we think the bulk of CapEx spend on PHP will come in 2023, or is that any context into what the CapEx cost component of these expansions could be? And then on Evangeline Pass, could we see CapEx move higher this year subject to definitive commercial agreements, or would that spend mostly come in later years?
spk06: They're going to be later, partly because we've got a regulatory process to go through, but on... PHP, it's going to be mostly in 23.
spk16: And the 22 is incorporated in the billion five.
spk04: Got it. Appreciate the time.
spk01: Our next question comes from Michael Lapides for Goldman Sachs. Your line is open.
spk15: Hey, guys. Congrats on a good quarter, and congrats to Tom, to Anthony, for the movement around and the greater opportunities. One kind of near-term question, refined product pipeline volume or throughput during the quarter, a little bit weak on gasoline, a little bit weak on diesel. Can you just kind of talk about whether that's geographic specific to you, whether that's more just general demand destruction due to price, especially on the diesel side?
spk07: Yeah, you know, we are seeing a little bit of demand destruction. across the system, I would say, on road fuels. Jet fuel, as you would expect, as you see nationally, a pretty strong increase. I mean, I think the EIA numbers on jet are about 18. As Kim said, we're about 19. On diesel, you saw a larger decrease. On our assets, EIA was just right around 3%. We were closer to 11%. But I will remind you on diesel, we are still within 2% of where we were in 2019. We saw a big jump last year on diesel volume. So while we've seen a come off compared to Q2 of last year, it's still pretty robust. But we have seen a little bit of demand destruction. But I think you've seen gasoline prices across the country come off for, I want to say, 35 days straight. So we've seen... We've seen customer response. We've also seen price response.
spk15: Got it. And maybe a follow-up for Anthony, just thinking about the landfill gas deal that you announced today, and I think you made a comment that kind of build multiple, call it roughly eight times. Is that kind of a year one in that, therefore, as we think about it over time, that build multiple actually gets better over time as production there ramps? Or is that what you think kind of a steady state would be? And how do you compare that to the EBITDA and returns on capital that you get out of the natural gas, you know, kind of the core gas pipeline business?
spk09: Yeah, I mean, it ramps up to aid and gets better from there. So there is growth at this landfill, which is really primarily driven by the Arlington asset. We have perpetual gas rights there, and there is a potential expansion that we have down the road on that asset. And so the EBITDA multiple gets better over time. I'd say that eight times is more of an average over the medium term there. With regards to how we think about... I think we'd look at it on different types of opportunities. This is a very different type of investment, so I'm not sure it's necessarily comparing apples to apples. But I think in terms of the opportunity here, as we think about our RNG portfolio, these are assets which are largely de-risked. They're in operations today. There are, as I said, long-term gas rights here with Arlington. There's an expansion and growth opportunity. And so I think it's an attractive acquisition in terms of how we think about that in this space.
spk06: And this is a general comment, Michael, but as we said at the beginning, we have not had to sacrifice our return criteria and have not had to sacrifice the average cost of capital to be able to invest in these things. We've been very selective about how we've entered this sector.
spk15: Got it. Thank you, guys. Much appreciated. I'll follow up with the team offline.
spk01: Our next question comes from Brian Reynolds with UBS. Your line is open.
spk10: Hi. Good afternoon, everyone. Curious just on Ruby Pipeline, if there's any updates on the bankruptcy proceedings and if there are any initial thoughts on, you know, a near-term resolution as it relates to NatGas service and if there's any, you know, commentary on potential, you know, long-term CO2 transport given a regional peer looking to do the same. Thanks.
spk06: Yeah, we'll ask Kevin Grauman, our head of corporate development.
spk20: Yeah, so in terms of the bankruptcy proceeding, you know, Ruby has in place an independent set of managers who have been managing a lot of the day-to-day on the proceedings. There has been some recent court activity around a timeline proceeding forward around a potential 363 sale and just getting to a resolution of the case along a certain timeline. So that's where it stands. I can't comment on any specific negotiations or discussions with parties involved. I will, you know, point to, you know, our prior comments on this, which is anything that KMI does around Ruby is going to be in the interest of KMI shareholders. I think as it relates to your question around potential conversion of CO2 service on the pipe, I think first, you know, the pipe does continue to serve a need for the California markets, and so it is a pipe that, you know, has a good service, natural gas service today. But, you know, across our network, we are looking at repurposing opportunities. But, you know, I think our general view at this point is those are longer-dated opportunities.
spk10: Great. I appreciate the color. And then a quick follow-up on the guidance raise, just given some of the acquisitions during the year. I'm curious if you could just kind of break out organic raise versus the contribution from some of the acquisitions year-to-date. Thanks.
spk06: Yeah, I mean, I would say it's, I mean, we do have a little bit of benefit from commodity prices, but we also have the benefit from, you know, our underlying base business. And a lot of that has come from, you know, we're seeing some attractive renewals in the natural gas business. And that's really in multiple places. It's on our Texas intrastate business. It's on NGPL. It's growth in our gathering business. It's So it's really, I think a lot of that is organic strength in those contracts as we roll off. There's some contribution from expansion capital during the, but a lot of that ends up getting budgeted for the year based on what we know going in. And a lot of what we do that we sanctioned in the year ends up benefiting subsequent years. So I think you can attribute it to commodity price tailwind and just organic growth in the base existing footprint.
spk16: Because things, you know, like Stagecoach, we budgeted. You know, expansions that we knew about before the year started, we budgeted. And, you know, most expansions that we found, you know, that we're doing this year don't come on until 2023 or 2024 and beyond.
spk10: Great. That's super helpful. And just for our clarification, just for the original guide on the landfill acquisitions, was that included before or is that included in this kind of 5% raise?
spk16: Kinetrics was included in the budget. And Nanner would be incremental. I mean, Moss would be incremental to the budget. Okay.
spk10: Appreciate it. Have a great rest of your evening, everyone.
spk01: Our next question comes from Michael Cusimano from Pickering Energy Partners. Your line is open.
spk11: Hi, good afternoon, everyone. Two questions for me. First, is it fair to assume that the clients on Highline and Double H were weather-related? Can you talk through how that's recovered and maybe how the volume growth outlook has changed, if any, going forward?
spk06: Do you have an answer on the volume?
spk07: Yeah, definitely. On Highland, I would say the overwhelming majority of it is. I mean, just to give you some of the numbers, and that was the unexpected storm that came through in April. We were doing roughly north of 200,000 barrels a day. Prior to that, in April, we ended up doing 163. And then we averaged about 188 for the quarter, but we're back in June doing roughly 207. So it was a big chunk of it. For double H, less. That has a lot more to do with the spreads out of the Bakken, but it was absolutely the issue for Highland crude.
spk18: And the gas lines have recovered back to sort of pre-outage levels.
spk11: Okay. That's helpful. And then looking at the terminal business, so you mentioned utilization and rates are down a little bit because of the backwardation. And then, you know, Jones Act sounds like it's kind of troughed at this point. So, you know, am I wrong in thinking that we've reached maybe like a new base level for that segment, or are there other puts and takes that I need to think about?
spk05: No, you're correct. I mean, the rates Degradation that we've seen is specifically just in New York Harbor. We've seen rates actually return to the levels we saw last year in the Houston area, and we're back to 100% utilization there. As it relates to APT, we saw a trough last year rates descending into the mid 50s per day, and they are back into the mid 60s now. We're 100% utilized. All of the vessels are moving. And we're actually seeing an increase in term where we were around two-year term last year. We're now looking at 6.2 years with likely renewals. So does that answer your question? Yes.
spk11: Okay. And was the gain of sale that you all mentioned, that was excluded from the EBDA that you reported?
spk06: What was the gain of sale? Gain on sale was, oh, gain on sale, was that excluded from the design?
spk16: No, it's in, it was, so, you know, we have a, we have a level, you know, a certain level, 15, 15 million that, you know, anything that's below 15 million that's, you know, like a gain on sale or something like that, it stays in the DCF. Anything that is above that would, we take out. That's the non-recurring in nature. we take out of DCF. You know, we had a lower threshold for a long time. It created a lot of noise in our numbers and made things confusing for people. And so we've raised that threshold, which I think it makes it, you know, simpler for our investors and also is better at excluding really the one-time items because, you know, from time to time we do have some land sales and that, you know, And so I think the higher threshold just makes a lot of sense.
spk06: So the smaller non-recurring pluses and minuses now get reflected.
spk11: Okay, gotcha. And is that something that you would quantify in the Q or materials going forward?
spk08: The amount of smaller non-recurring items that are impacting our EBITDA and DCF? No, we won't. We'll just let that flow through. We'll explain it like we are today, like on this land sale. We'll explain the gains and losses if they're large enough to explain.
spk06: We'll continue to explain the ones that are larger, non-recurring items. Those will continue to be carved out, but there'll be less noise with this. Again, the smaller positives and negatives we'll flow through.
spk11: Got it. All right, that's all for me. Thank you all for the clarifications.
spk01: Our final question comes from Harry Mateer with Barclays. Your line is open.
spk21: Hi, good afternoon. Just two for me. I think the first, now that we're at the midway point of the year, would like to get an update on how you're navigating your refinancing plans. You've got some maturities coming due early next year. I think you could probably call them out late this year. So how you're thinking about navigating that. And then secondly, there was a line in the press release about expecting to meet or improve on the debt metric goal and I just want to confirm that that's referring to the 4.3 times budget rather than like a formal change to the Approximately four and a half times goal you guys have had for a couple years.
spk08: Thanks Yeah, no that is referring to our Ending the year better than our better than our budgeted level. That's what we currently expect and But with regard to kind of how we are navigating issuances and how we're going to handle some of the maturities coming due, as I'm sure you're aware, Harry, we're through our maturities for 2022. We do have about a little bit more than $900 million in CP currently. But that's why we have a $4 billion credit facility to handle short-term needs like this from time to time. And since we have 3 billion plus capacity available, we don't have any rush to turn that out. So we can be patient there. We'll look to potentially turn that out at some time in the near term. But we'll be patient. We'll wait for favorable conditions. And then next year, it is a $3.2 billion maturity year. So it's relatively large, but we've got the full year to do it. And we have the revolving capacity to manage timing that out, waiting for favorable market conditions.
spk21: Okay, got it. But the company's formal leverage target is still four and a half turns. Is that right, David?
spk08: Approximately around four and a half turns. That's right.
spk21: Got it. Okay, thank you.
spk01: We have no more callers in the queue.
spk14: Okay, well, thank you very much, Jordan, and thanks to everybody for listening in. Have a good day.
spk01: Thank you for your participation in today's conference. You may disconnect at this time.
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