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spk08: Welcome to the quarterly earnings conference call. At this time, all participants are in a listen-only mode. During the Q&A session, if you'd like to ask a question, please press star 1 on your phone. Today's call is being recorded. If you have any objections, please disconnect at this time. I'll now turn the call over to Rich Kinder, Executive Chairman of Kinder Morgan.
spk01: Thank you, Ted. And before we begin, as we 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 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 disclosures on forward-looking statements and use of non-GAAP financial measures that are 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. An analyst recently described Kinder Morgan as a capital-efficient business model leveraged to natural gas infrastructure growth. I largely agree with that assessment, although it omits our significant steps in our energy transition efforts, including renewable natural gas, renewable and potentially carbon capture and sequestration. I spent the last several quarters on this call describing that capital efficient business model, and today I want to spend a bit of time discussing natural gas infrastructure and the value of our existing infrastructure in today's environment. As we all know, it's become increasingly difficult to build new greenfield pipeline projects, particularly in the Northeast and other areas outside the U.S. Gulf Coast. While this situation is, in my opinion, unfortunate and poor public policy, it does make existing infrastructure even more valuable. I don't think that value is fully recognized by the equity markets. The difficulty in building new pipeline and ancillary facilities widens the moat, to use Warren Buffett's phrase, around existing assets at a company like KMI. That's an obvious source of additional value. But beyond that, having such an extensive network already in place affords great opportunity for a company like ours to extend and expand our assets on an incremental basis without the Herculean task of permitting and building a new greenfield project. Those step-out projects can provide great service to our customers and yield a very good return for our shareholders. We're fortunate at KMI that a large portion of our network is in Texas and Louisiana, states that understand and appreciate the need for new energy infrastructure and where so much of the demand for additional throughput, particularly natural gas, is located. Let me be more specific. The demand for natural gas in those states is projected to grow enormously over the rest of this decade. That growth is driven by a number of end uses, but let me just focus on LNG export facilities. Year-to-date in 2022, LNG is consuming over 11 BCF a day, and that number incorporates the absence of roughly 2 BCF a day of demand from the Freeport facility, which has been shut down since June. According to the S&P Global LNG forecast, that number is predicted to grow to 22 BCF a day by 2027 as new facilities come online. That's virtually doubling the current demand. which has already grown by 400% in the last five years. We project that after 27, LNG demand will continue to grow and expected to be 28 VCF a day by 2030. Given the situation in Europe today, which will result in more long-term contracts and the continuing usage in Asia, this hyper growth scenario actually seems pretty reasonable to me. That's a huge increase and most of it will occur in Texas and Louisiana where so much of our asset base is located. That is what we in the pipeline business call a demand pull, which in many respects is more valuable than a supply push. As you know, we currently move about 50% of all the gas consumed by LNG facilities, and we expect to maintain or expand that share in the future. To serve our customers, both producers and end users, we are continuously expanding our system on an incremental basis to accommodate the growth we expect. Just a couple of examples of that effort include the expansion of our PHP system that connects the Permian Basin to the Gulf Coast and the building of the Evangeline Pass system to serve the venture capital LNG facility in Plaquemine Parish, Louisiana. And we expect to announce additional projects in the coming months. When you add the increasing need for natural gas for industrial uses, electric generation, and exports to Mexico to that massive LNG demand, The result is an enormous opportunity to grow our system in a capital-efficient manner, which in turn will grow the value of our company.
spk18: Steve? Yes, thanks, Rich. We are having a good year. We are projected to be nicely above plan for the year and substantially better year over year, Q3 to Q3, as Kim and David will show you. Some of the outperformance is commodity price tailwinds, but we're also up on commercial and operational performance. Just a couple of highlights. Our capacity sales and renewals in our gas business are strong. Gathering and processing is also up versus plan and up year over year. Existing capacity is growing in value on our natural gas network, and we're seeing it across our network on our major interstate systems and on our Texas intrastate system. And we are seeing it in both storage and transportation service offerings. And we're even seeing it on a previously challenged system, the Mid-Continent Express pipeline. In CO2, SACROC production is well above plan. Of course, we are benefiting from higher commodity prices in this segment, though prices are not as elevated as they were when we talked after Q2. We are facing cost headwinds, mostly because of added work this year. But 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 of what we can reliably track, we are well below the headline PPI numbers that you're seeing. Actually, we appear to be experiencing about half of that increase. 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. Looking ahead, we are seeing good opportunities across our network, and in gas in particular, Rich emphasized LNG, and that is clearly the biggest long-term opportunity, and our network is especially well-positioned. I'll give you an illustration of that. We currently have 5.7 BCF a day under long-term contracts serving existing LNG facilities. The associated investment for that 5.7 BCF was $1.3 billion. That is very capital-efficient expansion of our network. There are other opportunities as well. We have identified and talked to customers on our Texas intrastate system about over a BCF a day each of power plant, industrial, and utility expansions. Of course, not all that's going to happen, but it shows the level of economic activity in one of our biggest natural gas markets. We now have a backlog of $2.7 billion of projects. That's up $600 billion on a net basis since last quarter, meaning taking into account the projects have rolled into service over the quarter. And almost 80% of that backlog is in low carbon investments, natural gas, energy transition ventures, and renewable diesel and renewable feedstocks projects in our products and terminals businesses. On energy transition ventures, we expect with what we have already acquired and with the projects under construction or development right now to invest about $1.2 billion at an EBITDA multiple of a little over five times when everything is up and running. I'll add that while we have experienced some delay and modest cost increases in this business, the returns are very good and the EBITDA multiple is strong. We also closed on the sale of an interest in our ELBA liquefaction facility during the quarter. The implied enterprise value to EBITDA multiple of the sale was approximately 13 times. And so to think about in terms of use of proceeds, that compares very favorably to our expansion project multiple of 5.5 times in aggregate over the last three years, as well as to our share price multiple. Again, we're having a very good year, and we are setting our business up well for the future. Our balance sheet is strong. We are seeing good value, particularly in natural gas and renewables. We are finding and executing on projects with attractive returns, and we are returning value to shareholders. and I'll turn it over to Kim. Okay.
spk12: Thanks, Steve. Starting with natural gas as a segment, transport volumes were roughly flat for the quarter versus the second quarter of 21, and we saw increased volumes from power demand, and that was offset by reduced volumes to Mexico as a result of third-party pipeline capacity added to the market, the pipeline outage on EPNG, the Freeport LNG outage, and continued decline in Rockies production. If you adjusted our volumes for the EP&G and Freeport outages, which are temporary in nature, we estimate volumes would have been up about 4%. Deliveries to LNG facilities off our pipe averaged about 5.2 million decatherms per day. That's about 1% higher than the third quarter of 21, but it's lower than the second quarter of this year. Again, that's due to the Freeport LNG outage. Deliveries to power plant were robust in the quarter. They were up about 11 percent, driven by record summer power demand. That's 880 million decatherms per day of incremental gas moving to power plants. It's pretty incredible. Our natural gas gathering volumes were up about 13 percent in the quarter compared to the third quarter of 21, and that was driven by the Hainesville volumes, which were up about 70 percent. Sequentially, volumes are up 6 percent. with big increases in the Bakken up 14%, Hainesville 8%, and Eagleford up 7%. Overall, our natural gas gathering volumes were budgeted to increase about 10% for the full year, and we're currently on track for about 13%. Overall demand for natural gas is very strong, as both Rich and Steve mentioned, driving the demand for our transport and storage services, and we expect that demand to continue to grow. To add on to what Rich and Steve said, our fundamentals group estimates natural gas demand to grow from roughly 100 BCF a day market currently to approaching 130 BCF market by 2031. The world needs a reliable supplier of natural gas and the United States is positioned to be that supplier. According to the EIA, we have 80 plus years of recoverable reserves. And from an environmental perspective, the US is one of the lowest emission producers in the world. On the product segment, refined product volumes were down about 2% in the quarter versus the third quarter of 21, slightly outperforming EIA, which was down 3%. Gasoline and diesel were down 3% and 5% respectively, but we did see an 11% increase in jet fuel demand. For October, we started the month a little bit stronger than the Q3 results. On crude and condensate, volumes were down about 5% in the quarter. Sequentially, they were down 2%, with a reduction in the Eagle for more than offsetting an increase in the Bakken. On the terminals business segment, our liquids leased percentage remains high at 91%. You exclude tanks out of service for required inspections, so that leased percentage is roughly 95%. Liquid throughput, which does not drive current results, but is an indicator of our ability to renew contracts in the future, was up about 7%, driven by gasoline, diesel, and renewable volumes, which comprise over 85% of our liquid volume. We continue to experience some weakness in the New York Harbor, and our tanker's business was hurt in the quarter by lower average rates, but that business has continued to improve We currently have all 16 vessels sailing under firm contracts with average remaining terms of over five years. For 23, we have approximately 90% of the vessel days under firm charter. And if you look at the shipper contractual options likely to be exercised, it's 100% at average rates that are higher than 2022. We've also seen interest in chartering vessels several years out. On the bulk side, overall volumes were flat. Petcoke and coal were up nicely, but that was offset by lower steel. But from a margin perspective, the higher petcoke and coal substantially offset the lower steel. CO2 segment net oil production in the quarter was up 7% versus our budget. For the full year, we're expecting oil production to be about 4% above our budget, CO2 volumes to be about 8% our budget, and price to exceed our budget. These positives are partially offset by higher operating expenses, and that's due to a combination of higher activity levels plus production and inflation. For Q3 versus Q3 21, crude production was down about 3%. CO2 sales volumes were down 11%, and that was driven by the expiration of a carried interest in a project. NGL volumes were up 1%. and prices were higher across the board. Overall, we had a very good quarter. DCF per share was up 7% versus our plan and up 8% year to date. We currently project that we will exceed our full year guidance on DCF, DCF per share, and EBITDA by 4 to 5%. Timing on sustaining CapEx into the fourth quarter out of the second and third is the primary driver of the DCF difference between the year-to-date performance and the expected full-year performance. As we progress through the year, we're seeing more high return expansion opportunities. In the quarter, as Steve said, our backlog increased about $600 million. And as a result, going forward, we'd expect to be in the middle of our $1 to $2 billion range or maybe to the higher end. And with that, I'll turn it over to David Michaels.
spk07: So for the third quarter of 2022, we are declaring a dividend of $0.2775 per share, which is $1.11 annualized and 3% up from our 2021 dividend. One highlight before I start on the financial performance, we continue to take advantage of our low stock price by repurchasing shares this past quarter. We added over $90 million of repurchases to what we reported last quarter. So year-to-date, we have now repurchased approximately 21.7 million shares at an average price of $16.94 per share. We believe those share repurchases are going to generate an attractive return for our shareholders. Our savings from the current dividend alone, without regard to the terminal value or dividend growth, is 6.6%. For the financial performance for the quarter, we generated revenue of $5.2 billion, up $1.35 billion from the third quarter of 2021. The associated cost of sales also increased by $1.16 billion. So combining those two, our gross margin was $195 million higher. Our net income was $576 million, up 16% from $495 million in the third quarter of last year. items was up 14% compared to the third quarter of last year. On a distributable cash flow basis, our performance was also very strong. The natural gas segment was up $69 million with greater volumes on our Kinderhawk system in Amesville, higher re-contracting rates on MEP, NGPL, and FNG. Greater contributions from our Texas intrastate systems and favorable commodity prices impacting Altamont and Copeno, South Texas. Our product segment was down $23 million, driven by a decline in commodity prices impacting our inventory values, lower crude volumes on our double H system, as well as higher integrity costs, partially offset by rate escalations year over year. Our terminal segment was up $7 million with, as Kim mentioned, greater coal and pet coke volumes, partially offset by lower contributions from our New York Harbor and Houston Ship Channel liquids terminals versus the third quarter of last year. Our CO2 segment was up $41 million, driven mostly by favorable commodity prices. So our EBITDA of $1.773 billion was up 7% from last year, and our DCF was $1.122 billion. Our DCF per share was $0.49, both 11% above last year. For the full year, as Kim mentioned, we expect to be 4% to 5% above our budget. And for the quarter, DCF was ahead of budget by 6.5%. Some of that is due to a shift of sustaining capital into the fourth quarter. And as a reminder, at our investor day presentation in January, we said about 22% of our DCF would come in the third quarter of this year. If you apply that 22% to our budgeted DCF increased by 5%, which is what we guided you to last quarter, you would see that we exceeded that expectation this quarter. So a helpful reminder that we provide useful information on quarterly shaping at our investor day. Moving on to the balance sheet, we ended the third quarter with $31.2 billion of net debt and a net debt to adjusted EBITDA ratio of 4.2 times. That's up from 3.9 times at the year end as the non-recurring EBITDA contribution from the winter storm URI in February 2021 was captured in that year end ratio. The year end ratio was 4.6 times excluding URI EBITDA contribution. So we ended this quarter nicely favorable to the year end metric excluding URI. Our net debt has decreased $10 million year-to-date, so I'll go through a high-level reconciliation of that. We've generated year-to-date DCF of $3.75 billion. We've paid dividends of $1.83 billion. We've paid growth capital and contributed to joint ventures $700 million. We've had $225 million of increased restricted deposit to our hedging activity. We've repurchased $331 million of stock through the third quarter end. We've had about $500 million of acquisitions for the two renewable natural gas companies. We received approximately $560 million from the sale of our interest in Elbow Liquifaction Company, and we've had about $750 million of working capital use, which primarily interest expense payments and some other legal and race elements. And that gets you close to the reconciliation for a year-to-date change in net debt. So that completes the financial overview, and I'll turn it back to Steve. All right.
spk18: Ted, let's go ahead and open up the channel for questions here. And just to remind everybody, limit yourself to one question and a follow-up. And if you've got more, get back in the queue, and we will get to you and get your questions answered. And also, we have... A good chunk of our management team sitting around the table here today, and I'll make sure that you hear from them on questions about their businesses. All right, Ted, with that, let's take the first question.
spk08: All right, the phone lines are now open for questions. If you would like to ask a question over the phone, please press star 1 and record your name. If you'd like to withdraw your question, press star 2. First question in the queue is from Chase Moldyhill, Bank of America. Your line is now open.
spk09: Hey, good afternoon, everybody. I guess the first thing I wanted to hit on is just kind of permanent residue gas egress. And you've got EPNG outage today. And I guess maybe could you talk about the timing and how much incremental throughput you would see out of line 2000 or basically EPNG system once line 2000 is back up and running?
spk18: OK, Tom Martin.
spk10: Yes. Well, uh, given the nature of that outage, we can't say too much in detail, but just in general, you know, we see somewhere between, uh, you know, five and 700,000 a day of incremental volumes flowing west, uh, when that line is back in, in service.
spk09: Okay. Perfect. Um, and unrelated follow up, uh, I know it's, it's a little early to talk 2023. I know you're not going to give us exact numbers or anything, but maybe just some puts and takes as you see the overall business as we kind of look out to 2023.
spk18: Yeah, it is too early. We're just in the middle of our annual budget process. And so we'll, as we always do, we'll give you an update when we've got that information complete. But I mean, I think it's the things that we've talked about here today, it's We've got some nice tailwinds. Who knows what commodity prices are going to look like next year, but we have some nice tailwinds in our natural gas business and a good backlog of projects and good project opportunities, and so those are the pluses. On the minuses, we don't know what's going to happen with interest rates, but we do have about $7.5 billion of floating rate debt, and we have some renewals on or some refinancings on about $3.2 billion, which is actually our highest year next year. We don't see another year above $2.1 billion after that. And so those are some of the big puts and takes.
spk09: Okay, perfect. I'll turn it back over. Thanks, Steve.
spk08: Next question is from Jeremy Tenet with JPMorgan. Your line is now open.
spk14: Hi, good afternoon. Good afternoon. Capital allocation is a big debate point in the market or focus, if you will. And just wondering if you could update us as how you see your capital allocation philosophy these days. On the one hand, there's a case to be made for repurchases. Saw some in the quarter. But how do you weigh, I guess, maybe ramping up the pace of buybacks there relative to the other opportunities you have, especially with regards to RNG consolidation or other energy transition growth cutbacks opportunities as you wait out there?
spk18: Yeah, you know, we look at all of those things. And of course, we're kind of a broken record on this. But the first in the order of operations, making sure we've got a strong balance sheet, we do. And our metrics are proving to be stronger than the long term, approximately four and a half X. And so we're in good shape there. You know, having, as David said, at the beginning of the year, the investor conference, having a little Extra capacity is a good thing, including for equity investors, because it positions you well for the pluses and also against the minuses. Then from there, we want to invest in attractive returning high NPV projects well above our cost of capital that we're confident we can execute on well. And so that goes to what you see has happened in our backlog and the opportunities that Kim alluded to. And then from there, it's returning value to shareholders, and that's a combination of a growing but well-covered dividend. So we're up 3% of the dividend year over year, as David mentioned. And then opportunistic share repurchases, which we've done a significant amount of this year. And so that's kind of the order of operations for how we think about capital allocation and all of it, keeping in mind, bringing value to our investors.
spk14: Got it. Thank you for that. Very helpful. And just want to circle up with Elba real quick. Just wondering, could Elba be expanded, and might you look to monetize more of that or some more assets in the future?
spk10: So, yes, it can be expanded, and we are going through the evaluation process now, very early days, looking at potentially a little over $5 million MTPA, 5 MTPA opportunity there. But, again, very early days to know whether that will work, but we do have the space for it. and that would be synergistic with the existing tankage and dock usage there. As far as selling incremental interest there, that would be on the existing cash flows, really. Any expansion opportunity would be separate and apart from that.
spk18: To be clear, we like our position in Elba, but we got a very, very nice ... We made several very good deals at attractive multiples and actually have pulled in more proceeds than we've invested in the facility, and we still own 25% of it. And the expansion opportunity that Tom is referring to is outside of the JV. And so if we are able to, and it's not in our backlog, we're not projecting that for you today, but we are examining the opportunity to do an expansion, which would be to our account.
spk14: Got it. Thank you very much.
spk08: The next question is from Mark Solisito with Barclays. Your line is now open.
spk16: Hi, good afternoon. So maybe just to start on the guidance language, you referenced trending 4% to 5% above budget for EBITDA. You obviously announced the elder transaction. The strip has come down a bit. But I wonder if you could talk about any other drivers around the subtle change in the language from last quarter?
spk12: Yeah. Since the last quarter, we've seen significant outperformance in the gas group. We've got lower sustaining capex. On the other hand, as you know, commodity prices have decreased. We've seen lower volumes in the Bakken, primarily because it took longer for them to recover from an April storm than we anticipated. Lower refined products volumes and higher interest.
spk16: Got it. That's helpful. And then, in the event of a potential product export ban, I wonder if you could just talk about how your assets would be positioned in that scenario, particularly thinking about storage, product types, and the Jones Act tankers business?
spk18: Yes, but we'll start with terminals and S product checks, and Mr. Wann, too. John?
spk06: From a terminaling standpoint, we think it'll be neutral for us. And on the negative side, we'll see a decrease at our export docks. And we handle about 50 vessels a month there. at about $43,000. So, it's roughly $2 million each month we'll see degradation on. But on the positive side, you'll see an increase in Jones Act volumes. You'll see an increase in volumes of the Colonial and Explorer pipelines, which were the largest origin point. And you'll see a spike, in my opinion, in the price of storage, both in there and in New York Harbor.
spk05: Yeah, for us, it's probably neutral to positive. I think the West Coast is probably reasonably neutral, but if you look at the Southeast, you've got products that back up in Pad 3, and you've got to clear that out of there. We certainly have capacity on product Southeast pipeline, and I would expect that the products would move on that, particularly if Colonial moves in or continues to stay in allocation. We clearly have storage position in the southeast that I think, to John's point, would benefit as well. And then, you know, probably a little bit less important, but on CFPL, I think that some of the imports that you're seeing coming into Port Canaveral that get trucked into central Florida would probably get backed off, and we could see some benefit on CFPL as well.
spk18: And, Mark, just to comment on probability here, I mean, I think that, and some of you have written about this, it won't have the desired effect. It's not going to improve things at the pump for U.S. consumers. This is a global and integrated market, and as a consequence, we think that as it's thought through more, it becomes less and less likely to happen. Got it.
spk16: That's very helpful. Appreciate the time.
spk08: Next question is from Neil Dink with Truist Securities. Your line is not open.
spk17: Good afternoon, guys. You mentioned on CCS, and I'm just wondering, maybe a broad stroke, you talk about what type of opportunities you may be seeing near term or the magnitude of that. Obviously, I think you guys have a lot of things going on. I'm just wondering what you can talk about maybe in any detail.
spk18: I'll start and ask Anthony, Ashley, who runs that group, to weigh in, but I think, look, Out of the IRA, the Inflation Reduction Act, there was an increase in the 45Q credit, which is a refundable credit. And that increase in the credit has made more sources of CO2 economic for capture. So picking up things like ammonia plants. So we started with kind of processing plants and ethanol plants. Now it's picking up things like ammonia plants, cement plants. some coal plants and some natural gas plants. And so, you know, we had active discussions going on that kind of paused while we were seeing how that worked out, and then those discussions started picking up. Anthony?
spk19: Yeah, as Steve mentioned, definitely seen increased activity since the IRA passed, I would say. Our focus areas have been around our existing footprint, and West Texas has been near-term opportunities we have in the space. But we are having much larger conversations, you know, around the U.S., you know, especially around the bigger emissions areas. But those will take a little bit longer to develop and to be able to discuss with you guys.
spk17: Got it, guys. Great details. And then just one follow-up. I don't know if you could say anything. Just what do you think currently with the – you mentioned the downtime of the volumes. associated around Freeport, and I just didn't know if there's any update you could say on what's going on there.
spk18: We don't have anything other than what you can find out in reading in public and from the company itself.
spk17: Got it. Okay. Thank you all.
spk08: Next question is from Keith Stanley with Wolf Research. Your line is open.
spk03: Hi. Thank you. I wanted to start on RNG. Just curious if you have any takeaways from the BP-Archaea deal and I guess how you're thinking about the competitive landscape over the long run. Relatedly, are you open to a larger platform deal like this or is it pretty clear you're going to focus more on organic development there?
spk18: BP is best to speak on the deal and the places where they're getting synergies and other sources of value. but just on a bare kind of EBITDA multiple basis without taking into account those other things that they bring to the table. It's a very attractive valuation and well above that $1.2 billion that identified earlier that based on our investments, our acquisitions, and the things that we're doing. I would say that the focus here is less on M&A. At this point, we have a nice platform. there, but we continue to have active discussions that are more organic growth.
spk03: Thank you. Second question, just on interest rates. So the higher rates, if they're sustained over time, does that make you rethink the leverage target at all, or is it more kind of what you alluded to of maybe keeping a little financial cushion? And then I guess related to that, I believe in the past you've hedged some of your variable rate exposure heading into the current year. Have you done any of that to date? I think you had done that for this year for a fair amount of it.
spk12: Yes. Heading into this year, we hedged about $7.5 billion of the 5.1 of the seven of the swaps. That is going to roll off in 23, so we'll have $7.5 billion of floating in 23, and we have not hedged any going into next year, and right now we don't think that's a good opportunity to be able to hedge that. In terms of our policy on floating, the reason that we have the policy on floating is because we've looked over long periods of time, and it looks like that the forward curve over predicts where floating rate debt is going to trade. And so we want to take advantage of that. And so, you know, that means that some years we're not going to, you know, we're going to pay more and some years we're going to pay less and we're going to pay less for more dollars, right? So it ends up being a net present value positive trade for us. And so I don't think That's not our policy is not going to change because in one year we have to pay higher higher interest rates.
spk18: And as you know, Keith, it's worked very well for us over the years. So over the long term, the approach has been proven. Value creative.
spk03: Yeah, it has just on the leverage target to like your there's no. I mean, it seems like. This is going to fluctuate in the leverage target. You're still very comfortable with the four and a half where things are today.
spk18: Yes. Yes, we are. Now, as we said, as David said, at the beginning of the year, we're targeting to be better than that, and we do think that there is value in having that capacity to take advantage of share repurchases, potential for projects, potential for asset acquisitions, that sort of thing. And so we have trended a little lower.
spk03: Thank you very much. We're lower right now, yeah. Thank you. Thank you.
spk08: Next question is from Gina in Salisbury with Bernstein. Your line is now open.
spk11: Hi. Two more questions about Permian gas takeaway. So late 2023 is the target start date for the Permian highway expansion. Given that there might be demand for that earlier than that, I was wondering if that's like the kind of project that could be brought on gradually, like you add a compressor and it adds 100, for example, and you just sort of gradually do that earlier than late 2023?
spk10: And we will just have to see how we get into the year that's possible to do. Certainly see the same need in the marketplace that you do, and we will look to do that if we can. But nothing that we can really speak to for certainty today.
spk11: Okay. That's helpful. Thanks. And then relatedly, I was just wondering if there's any update on the GCX expansion open season or if we should sort of consider that maybe not in this upcoming round.
spk10: Yeah, nothing really new to report there, continuing to market it as we've talked about in the past. You know, the fuel is sort of the issue in the marketplace at these higher gas prices, but as prices come down, you know, there could be some opportunities there, but nothing really new to speak to right now.
spk11: Okay, great. That's all for me. Thanks.
spk08: Next question is from Brian Reynolds with UBS. Your line is open.
spk02: Thanks for taking my question, everyone. Maybe just a quick follow-up on the capital allocation question. You know, there are significant debt maturities coming due in 23. So, I was just curious, you know, as you think about the leverage target and just rising rates and the ability to, you know, perhaps refinance at lower rates. in the future. I'm kind of curious if you can talk about how you're thinking about refinancing that debt and perhaps using some of the liquidity over the near term and some of the free cash flow, you know, to refinance that over the near term in the hope of better rates in the back of 23. Thanks.
spk07: Yeah, Brian, we'll have a lot more information at the investor day. Having just, having completed our budget, we've just really just begun our budgeting process, so we don't have a lot of detail to provide to you, but I guess just generally speaking, interest rates are much higher now than they have been in the recent past and have been for many years. So I think we're going to take a patient approach towards locking in rates at these levels. We have the $4 billion of revolver capacity right now that's available to us. We're sitting on a healthy amount of cash in addition. So we have flexibility and we'll be patient.
spk02: Great. Appreciate that. And thanks for the color on the expected NAGAS demand growth for both local and LNG exports and the prepared remarks. I was just curious if you could talk about Kinder's positioning, you know, to support that 16Bs of NAGAS demand growth over the next seven years. You know, that type of growth implies a lot of CapEx spend along the NAGAS value chain. And just given, you know, your previous remarks around trying to maintain that 50% market share for LNG, I was kind of curious if you could talk about, you know, areas of opportunity for future growth around the Permian, Hainesville, and Northeast to supply that, you know, 16 days of growth over the next, let's call it seven years. Thanks.
spk10: Yes, Tom. Yes, I mean, clearly, as discussed in the earlier remarks, our proximity to the Texas, Louisiana Gulf Coast from many of our assets, whether it be the Texas Intrastates, Tennessee Gas Pipeline, NGPL, and others in Morgan, Louisiana. We're in a really great position to expand and extend our network in support of LNG growth and also grow with the Hainesville and the Permian as those volumes grow as well. And I think the Eagleford is another nice, Lane Eagleford is another nice opportunity for us to support Texas, Louisiana markets as well. You mentioned the Marcellus Utica, a great resource base, a lot harder to get incremental volumes to the Gulf Coast there. I think what the market will see is Hainesville growing really concurrently with, if not sooner than incremental Permian and the Eagleford largely supplying you know, the next wave of projects across Texas, Louisiana. And we think we're in a great position to, you know, maintain our 50% or even exceed that as we go forward.
spk18: And, look, I think, you know, I tried to illustrate the proximity of our network to these outlets, right, to the liquefaction facilities and the capital-efficient nature of the expansions we can do of that network. by talking about the 5.7 BCF that's under a long-term contract. There's more than that that's flowing on our system. It's really more like seven. But that 5.7 that's under contract, the capacity was created with about $1.3 billion of investment. And as we look ahead, look, there could absolutely be chunkier projects, right? Bigger builds as you get to the 28 BCF that Rich mentioned. There could be some bigger ones, but there's also a fair number of you know, $150 to $300 million projects, to call it roughly, that are not ready for prime time. But as we look at people who have not yet FID'd but may, and we look at where they are sitting on our network, we think we can reach them with expanded quantities with relatively capital-efficient investments.
spk02: Great. That's super helpful. Enjoy the rest of your evening, everyone.
spk08: Next question is from Michael Lapidus with Goldman Sachs. Your line is open.
spk13: Hey, guys. Thank you for taking my question. I actually had two of them. First of all, given the volatility in Southern California gas prices, is there any future opportunity to expand EPMG once the outage is done? That's the first question. The second question is probably one for David. Working capital has been a negative cash drag this year, a little over $500 million. Should we assume that that's just kind of temporary and it reverses, or is this something left over from kind of the nuttiness from the first quarter of 2021? Just curious for thoughts on the cash flow impact there.
spk10: Start with EPNG. So EPNG, certainly we continue to look at those opportunities. I think the challenge is getting the proper term on incremental projects that it would take to support capital out there. You know, we have been looking at storage opportunities in Arizona, continue to look at that. I think really the volatility largely revolves around, you know, supporting power demand, which I think high deliverability storage is a better solution there. But we're looking at all of that. Again, I think it's about, you know, can we get contracts for the right term to support that kind of capital?
spk07: David? And on the working capital use, we have had a high amount of working capital use of our cash year to date. Some of that is going to turn around. The interest expense payments are generally heavier in the first and the third quarters. So the second and fourth, you see that turn around a little bit. So for the full year, I'd expect that piece to turn around a bit. We've also had a legal settlement and a rate settlement this year, which were unique to 2022. So I wouldn't see those as recurring items. Finally, we had some cash margin, which I called out in my reconciliation earlier in the call. Margin calls on our hedging activity, and that's driven by commodity price fluctuations. So that could turn around, but it depends on commodity prices.
spk13: Got it. Thank you, David. Thanks, guys. Much appreciated.
spk08: Next question is from Michael Cusimano with Pickering Energy Partners. Your line is now open.
spk15: Hi. Good afternoon, everyone. To quickly follow on to, I think it was Keith's question earlier on RNG, could you maybe speculate on the value attributed to KMI versus what the RK evaluation was and how you feel about the option you mentioned earlier about maybe like a separate public vehicle down the road?
spk18: Yeah. So, I mean, look, as I tried to... I'm not commenting on BP's economics. They have a lot that they bring to the table across their portfolio. They're a user of RINs. There's a whole bunch of things going on there. My comment earlier was about really just focusing on the EBITDA and what that multiple looks like in call it middle decade. If you apply that multiple to ours, it's a couple of times at least what we are up and running. That's probably appropriate. It's a growing business and a growing opportunity. It's why we're in it and we think we'll do well with it. Is there an opportunity to monetize at some point in the future when you reach critical mass? Yes, but we also like the business. We'd have to compare those alternatives when we get there.
spk15: Got it. That's helpful. Then on the product segment, Can you give a little extra detail on the lower crude volumes, maybe where it stands today, if those have fully recovered from the weather outage? And then, also, if you can talk a little bit about how, like, lower refined product prices affected margins? Trying to think of, like, what's structural and what's, you know, variable to this quarter.
spk05: Yeah, so the biggest driver in crude for the quarter was on double H, volumes on double H. you know, roughly 26% year over year. And the biggest driver on that is, you know, some of the Canadian upgraders are down, which has had, I think, Pad 2 refiners paying a pretty good premium for Bakken barrels, which has decreased the basis differential to both Guernsey and Cushing, which has had an impact on that. And so hopefully we'll see that. As the upgraders come back, we'll start to see a little bit of that basis come back and some additional barrels come on double H. Highland crude, to your point, or to Steve's point, has come back from the winter storms in April. We're reasonably close to flat for the prior year, a little bit less than what we had hoped in our budget. You know, we budget for 186 wells. Right now we're forecasting about 154, but a good chunk of those are coming in in the fourth quarter. And, you know, we're seeing some improvements on Highland crude in the fourth quarter, and we're looking at, you know, hopefully somewhere in the neighborhood of going from kind of call it flat the prior year to call it 7% above for Highland crude. So we're hoping to right now we're seeing some improvements in the fourth quarter.
spk15: Okay, great. And then any comment on the refined product pricing, maybe impacting margin and how to think about that going forward? I guess it's mostly on like the transmix business.
spk12: Are you asking about retail prices impacting demand on a fine product? Or are you asking about, what are you asking? We don't understand.
spk15: No, specifically about any variability in your margin that you receive from maybe transmix volumes that fluctuate with refined product commodity prices?
spk05: Yeah, well, what I'd say is we had, to David's point, we took a low-com adjustment for closing price as of September, you know, the way that works. Clearly, with a low-com adjustment, we can't write it back up, but as we cycle inventory at higher prices, we can move it through, and it works through margin. Right now, where prices are, they're higher than where we mark from a low-com perspective. I don't have a specific number on that, but generally speaking, they're high, and you would expect as that inventory cycles through that that would be a positive.
spk15: Got it. All right, that's all from me. That was helpful. Appreciate it.
spk08: JP Morgan, your line is open.
spk14: Hi, thanks for squeezing me back in here real quick. Just wanted to see, after Matterhorn, what your thoughts are on Cadian's Permian gas production and the need for incremental infrastructure. What year do you think that might materialize at that point?
spk10: Again, Permian? Incremental Permian takeaway? Yeah. So, you know, it's very fluid. I mean, I think the fundamentals would say you know, later in the decade. But I think some of our customers, based on their destination desires, may say sooner than that. So, you know, I think sometime between 25, 26 at the earliest. But, you know, I think the fundamentals may say potentially even a little bit later.
spk14: So a range of like 25 to 28, is that what you're thinking about, kind of bookending it, just to make sure I understand it correct?
spk10: Yep, got it.
spk18: That's for a big new long haul.
spk10: Yeah. I mean, I think expansions can still be supported along the way. But for a big greenfield project, I think that's kind of the timeline.
spk14: Got it. And just the last one real quick. Elba, great price tag there. Do you see other bids like that in the marketplace right now? Just wondering how you see the market interest rates moving up. We thought it might depress some interest from private equity, but Obviously, you've got quite a nice price tag there. So just trying to get a feeling on the market and your desire to transact.
spk04: Yeah, look, I think we had a unique and interesting opportunity around Elba that we were able to capitalize on, and we were happy with the price, not just from the price for the base assets, but also the ability to maintain the upside there. Look, I think interest rates historically have helped drive some of the valuations around infrastructure investors and assets. And so those are rising and probably eating a little bit into their returns. But we continue to see interest across the midstream space for our assets from infrastructure investors, particularly as people think about the terminal value opportunities longer term for the space.
spk14: That's very helpful. I'll leave it there. Thank you.
spk08: And I'm showing no further questions at this time.
spk01: Okay, well, thank you very much. And for you baseball fans, it's only a couple hours until the American League Championship Series. For all you people from New York, good luck.
spk08: This concludes today's call. Thank you for your participation. You may disconnect at this time.
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