UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission file number: 001-35081
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices)(zip code)
Registrant’s telephone number, including area code: 713 -369-9000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of April 18, 2024, the registrant had 2,219,384,484 shares of Class P common stock outstanding.
KINDER MORGAN, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
| Page Number | |||||||||||
1
KINDER MORGAN, INC. AND SUBSIDIARIES
GLOSSARY
Company Abbreviations
| EPNG | = | El Paso Natural Gas Company, L.L.C. | Ruby | = | Ruby Pipeline Holding Company, L.L.C. | ||||||||||||
| KMBT | = | Kinder Morgan Bulk Terminals, Inc. | SFPP | = | SFPP, L.P. | ||||||||||||
| KMI | = | Kinder Morgan, Inc. and its majority-owned and/or controlled subsidiaries | SNG | = | Southern Natural Gas Company, L.L.C. | ||||||||||||
| TGP | = | Tennessee Gas Pipeline Company, L.L.C. | |||||||||||||||
| KMLT | = | Kinder Morgan Liquid Terminals, LLC | |||||||||||||||
| Unless the context otherwise requires, references to “we,” “us,” “our,” or “the Company” are intended to mean Kinder Morgan, Inc. and its majority-owned and/or controlled subsidiaries. | |||||||||||||||||
| Common Industry and Other Terms | |||||||||||||||||
| /d | = | per day | LLC | = | limited liability company | ||||||||||||
| Bbl | = | barrels | MBbl | = | thousand barrels | ||||||||||||
| BBtu | = | billion British Thermal Units | MMBbl | = | million barrels | ||||||||||||
| Bcf | = | billion cubic feet | MMtons | = | million tons | ||||||||||||
| CERCLA | = | Comprehensive Environmental Response, Compensation and Liability Act | NGL | = | natural gas liquids | ||||||||||||
| NYMEX | = | New York Mercantile Exchange | |||||||||||||||
CO2 | = | carbon dioxide or our CO2 business segment | OTC | = | over-the-counter | ||||||||||||
| DD&A | = | depreciation, depletion and amortization | RNG | = | Renewable natural gas | ||||||||||||
| EPA | = | U.S. Environmental Protection Agency | ROU | = | Right-of-Use | ||||||||||||
| FASB | = | Financial Accounting Standards Board | U.S. | = | United States of America | ||||||||||||
| GAAP | = | U.S. Generally Accepted Accounting Principles | WTI | = | West Texas Intermediate | ||||||||||||
2
Information Regarding Forward-Looking Statements
This report includes forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “outlook,” “continue,” “estimate,” “expect,” “may,” “will,” “shall,” or the negative of those terms or other variations of them or comparable terminology. In particular, expressed or implied statements concerning future actions, conditions or events, future operating results or the ability to generate sales, income or cash flow, service debt or pay dividends, are forward-looking statements. Forward-looking statements in this report include, among others, express or implied statements pertaining to: long-term demand for our assets and services, expected financial results, dividends, sustaining and discretionary/expansion capital expenditures, our cash requirements and our financing and capital allocation strategy, anticipated impacts of litigation and legal or regulatory developments, and our capital projects, including expected completion timing and benefits of those projects.
Important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements in this report include: the timing and extent of changes in the supply of and demand for the products we transport and handle; commodity prices; the outcomes of challenges to new regulations; our ability to mitigate the impacts of and recover expenditures made in respect of new regulations; and the other risks and uncertainties described in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part I, Item 3. “Quantitative and Qualitative Disclosures About Market Risk” in this report, as well as “Information Regarding Forward-Looking Statements,” Part I, Item 1A. “Risk Factors” and Part I, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in our Annual Report on Form 10-K for the year ended December 31, 2023 (except to the extent such information is modified or superseded by information in subsequent reports).
You should keep these risk factors in mind when considering forward-looking statements. These risk factors could cause our actual results to differ materially from those contained in any forward-looking statement. Because of these risks and uncertainties, you should not place undue reliance on any forward-looking statement. We disclaim any obligation, other than as required by applicable law, to publicly update or revise any of our forward-looking statements to reflect future events or developments.
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts, unaudited)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenues | |||||||||||
| Services | $ | $ | |||||||||
| Commodity sales | |||||||||||
| Other | |||||||||||
Total Revenues | |||||||||||
| Operating Costs, Expenses and Other | |||||||||||
| Costs of sales (exclusive of items shown separately below) | |||||||||||
| Operations and maintenance | |||||||||||
| Depreciation, depletion and amortization | |||||||||||
| General and administrative | |||||||||||
| Taxes, other than income taxes | |||||||||||
| Gain on divestitures, net | ( | ||||||||||
| Other income, net | ( | ( | |||||||||
Total Operating Costs, Expenses and Other | |||||||||||
| Operating Income | |||||||||||
| Other Income (Expense) | |||||||||||
| Earnings from equity investments | |||||||||||
| Amortization of excess cost of equity investments | ( | ( | |||||||||
| Interest, net | ( | ( | |||||||||
| Other, net | |||||||||||
Total Other Expense | ( | ( | |||||||||
| Income Before Income Taxes | |||||||||||
| Income Tax Expense | ( | ( | |||||||||
| Net Income | |||||||||||
| Net Income Attributable to Noncontrolling Interests | ( | ( | |||||||||
| Net Income Attributable to Kinder Morgan, Inc. | $ | $ | |||||||||
| Class P Common Stock | |||||||||||
| Basic and Diluted Earnings Per Share | $ | $ | |||||||||
| Basic and Diluted Weighted Average Shares Outstanding | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions, unaudited)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive (loss) income, net of tax | |||||||||||
Net unrealized (loss) gain from derivative instruments (net of taxes of $ | ( | ||||||||||
Reclassification into earnings of net derivative instruments (gain) to net income (net of taxes of $ | ( | ( | |||||||||
Benefit plan adjustments (net of taxes of $( | |||||||||||
| Total other comprehensive (loss) income | ( | ||||||||||
| Comprehensive income | |||||||||||
| Comprehensive income attributable to noncontrolling interests | ( | ( | |||||||||
| Comprehensive income attributable to KMI | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts, unaudited)
| March 31, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted deposits | |||||||||||
| Accounts receivable | |||||||||||
| Fair value of derivative contracts | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Investments | |||||||||||
| Goodwill | |||||||||||
| Other intangibles, net | |||||||||||
| Deferred charges and other assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Current portion of debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued interest | |||||||||||
| Accrued taxes | |||||||||||
| Fair value of derivative contracts | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities and deferred credits | |||||||||||
| Long-term debt | |||||||||||
Outstanding | |||||||||||
Debt fair value adjustments | |||||||||||
| Total long-term debt | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term liabilities and deferred credits | |||||||||||
| Total long-term liabilities and deferred credits | |||||||||||
| Total Liabilities | |||||||||||
| Commitments and contingencies (Notes 4 and 10) | |||||||||||
| Stockholders’ Equity | |||||||||||
Class P Common Stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total Kinder Morgan, Inc.’s stockholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total Stockholders’ Equity | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
| KINDER MORGAN, INC. AND SUBSIDIARIES | |||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| (In millions, unaudited) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash Flows From Operating Activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
| Depreciation, depletion and amortization | |||||||||||
| Deferred income taxes | |||||||||||
| Amortization of excess cost of equity investments | |||||||||||
| Change in fair value of derivative contracts | ( | ||||||||||
| Gain on divestitures, net | ( | ||||||||||
| Earnings from equity investments | ( | ( | |||||||||
Distributions of equity investment earnings | |||||||||||
| Changes in components of working capital | |||||||||||
| Accounts receivable | |||||||||||
| Inventories | ( | ||||||||||
| Other current assets | |||||||||||
| Accounts payable | ( | ( | |||||||||
| Accrued interest, net of interest rate swaps | ( | ( | |||||||||
| Accrued taxes | ( | ( | |||||||||
| Other current liabilities | ( | ( | |||||||||
| Other, net | ( | ( | |||||||||
| Net Cash Provided by Operating Activities | |||||||||||
| Cash Flows From Investing Activities | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Contributions to investments | ( | ( | |||||||||
| Distributions from equity investments in excess of cumulative earnings | |||||||||||
| Other, net | ( | ||||||||||
| Net Cash Used in Investing Activities | ( | ( | |||||||||
| Cash Flows From Financing Activities | |||||||||||
| Issuances of debt | |||||||||||
| Payments of debt | ( | ( | |||||||||
| Debt issue costs | ( | ( | |||||||||
| Dividends | ( | ( | |||||||||
| Repurchases of shares | ( | ( | |||||||||
| Distributions to noncontrolling interests | ( | ( | |||||||||
| Other, net | ( | ( | |||||||||
| Net Cash Used in Financing Activities | ( | ( | |||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Deposits | ( | ||||||||||
| Cash, Cash Equivalents and Restricted Deposits, beginning of period | |||||||||||
| Cash, Cash Equivalents and Restricted Deposits, end of period | $ | $ | |||||||||
7
| KINDER MORGAN, INC. AND SUBSIDIARIES (Continued) | |||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| (In millions, unaudited) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash and Cash Equivalents, beginning of period | $ | $ | |||||||||
| Restricted Deposits, beginning of period | |||||||||||
| Cash, Cash Equivalents and Restricted Deposits, beginning of period | |||||||||||
| Cash and Cash Equivalents, end of period | |||||||||||
| Restricted Deposits, end of period | |||||||||||
| Cash, Cash Equivalents and Restricted Deposits, end of period | |||||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Deposits | $ | $ | ( | ||||||||
| Non-cash Investing and Financing Activities | |||||||||||
| ROU assets and operating lease obligations recognized including adjustments | $ | $ | |||||||||
| Assets contributed to equity investment | |||||||||||
| Net increase in property, plant and equipment from both accruals and contractor retainage | |||||||||||
| Supplemental Disclosures of Cash Flow Information | |||||||||||
| Cash paid during the period for interest (net of capitalized interest) | |||||||||||
| Cash (refund) paid during the period for income taxes, net | ( | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, unaudited)
| Common stock | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive loss | Stockholders’ equity attributable to KMI | Non- controlling interests | Total | |||||||||||||||||||||||||||||||||||||||||
| Issued shares | Par value | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Repurchases of shares | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
Restricted shares | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Distributions | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Acquisition adjustment (Note 2) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Other | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Common stock | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive loss | Stockholders’ equity attributable to KMI | Non- controlling interests | Total | |||||||||||||||||||||||||||||||||||||||||
| Issued shares | Par value | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Repurchases of shares | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Restricted shares | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
9
KINDER MORGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
Organization
We are one of the largest energy infrastructure companies in North America. We own an interest in or operate approximately 79,000 miles of pipelines, 139 terminals, 702 Bcf of working natural gas storage capacity and have RNG generation capacity of approximately 6.1 Bcf per year of gross production. Our pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2, renewable fuels and other products, and our terminals store and handle various commodities including gasoline, diesel fuel, jet fuel, chemicals, metals, petroleum coke, and ethanol and other renewable fuels and feedstocks.
Basis of Presentation
General
Our accompanying unaudited consolidated financial statements have been prepared under the rules and regulations of the U.S. Securities and Exchange Commission (SEC). These rules and regulations conform to the accounting principles contained in the FASB’s Accounting Standards Codification (ASC), the single source of GAAP. In compliance with such rules and regulations, all significant intercompany items have been eliminated in consolidation.
In our opinion, all adjustments, which are of a normal and recurring nature, considered necessary for a fair statement of our financial position and operating results for the interim periods have been included in the accompanying consolidated financial statements, and certain amounts from prior periods have been reclassified to conform to the current presentation. Interim results are not necessarily indicative of results for a full year; accordingly, you should read these consolidated financial statements in conjunction with our consolidated financial statements and related notes included in our 2023 Form 10-K.
The accompanying unaudited consolidated financial statements include our accounts and the accounts of our subsidiaries over which we have control or are the primary beneficiary. We evaluate our financial interests in business enterprises to determine if they represent variable interest entities where we are the primary beneficiary. If such criteria are met, we consolidate the financial statements of such businesses with those of our own.
Earnings per Share
We calculate earnings per share using the two-class method. Earnings were allocated to Class P common stock and participating securities based on the amount of dividends paid in the current period plus an allocation of the undistributed earnings or excess distributions over earnings to the extent that each security participates in undistributed earnings or excess distributions over earnings. Our unvested restricted stock awards, which may be restricted stock or restricted stock units issued to employees and non-employee directors and include dividend equivalent payments, do not participate in excess distributions over earnings.
10
The following table sets forth the allocation of net income available to shareholders of Class P common stock and participating securities:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions, except per share amounts) | |||||||||||
| Net Income Available to Stockholders | $ | $ | |||||||||
| Participating securities: | |||||||||||
| Less: Net Income Allocated to Restricted Stock Awards(a) | ( | ( | |||||||||
| Net Income Allocated to Common Stockholders | $ | $ | |||||||||
| Basic Weighted Average Shares Outstanding | |||||||||||
| Basic Earnings Per Share | $ | $ | |||||||||
(a)As of March 31, 2024, there were 13 million restricted stock awards outstanding.
The following table presents the maximum number of potential common stock equivalents which are antidilutive and, accordingly, are excluded from the determination of diluted earnings per share. As we have no other common stock equivalents, our diluted earnings per share are the same as our basic earnings per share for all periods presented.
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions on a weighted average basis) | |||||||||||
| Unvested restricted stock awards | |||||||||||
| Convertible trust preferred securities | |||||||||||
2. Acquisition
South Texas Midstream Pipeline System (STX Midstream) Acquisition
On December 28, 2023, we completed the acquisition of STX Midstream from NextEra Energy Partners for a purchase price of $1,831 million, including preliminary purchase price adjustments for working capital. During the quarter ended March 31, 2024, the Company identified an adjustment of $38 million to the calculation of noncontrolling interest in addition to measurement period adjustments of $11 million, resulting in a net $27 million decrease to goodwill. Our allocation of the purchase price is summarized below:
| Assignment of Purchase Price | |||||||||||||||||||||||||||||||||||||||||
| Acquisition | Purchase price | Current assets | Property, plant & equipment | Other long-term assets | Current liabilities | Non-controlling interest | Resulting goodwill | ||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||
| STX Midstream(a) | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
(a)The purchase price allocation for the STX Midstream acquisition is preliminary.
Pro Forma Information
Pro forma consolidated income statement information that gives effect to the above acquisition as if it had occurred as of January 1, 2023 is not presented because it would not be materially different from the information presented in our accompanying consolidated statements of income.
11
Goodwill
Changes in the amounts of our goodwill for the three months ended March 31, 2024 are summarized by reporting unit as follows:
| Natural Gas Pipelines Regulated | Natural Gas Pipelines Non-Regulated | CO2 | Products Pipelines | Products Pipelines Terminals | Terminals | Energy Transition Ventures | Total | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill as of December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Acquisition(a) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Goodwill as of March 31, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
(a)Reflects adjustment to purchase price allocation related to the December 2023 STX Midstream acquisition.
3. Losses on Impairments
Impairments
During the first quarter of 2023, we recognized an impairment of $67 million related to our investment in Double Eagle Pipeline LLC (Double Eagle). The impairment was driven by lower expected renewal rates on contracts that expired in the second half of 2023. The impairment is recognized on our accompanying consolidated statement of income for the three months ended March 31, 2023 within “Earnings from equity investments.” Our investment in Double Eagle and associated earnings is included within our Products Pipelines business segment.
Ruby Chapter 11 Bankruptcy
On January 13, 2023, the bankruptcy court confirmed a plan of reorganization satisfactory to all interested parties regarding Ruby, which involved payment of Ruby’s outstanding senior notes with the proceeds from the sale of Ruby to Tallgrass Energy LP, a settlement by KMI and Pembina Pipeline Corporation of certain potential causes of action relating to the bankruptcy, and cash on hand. Our payment to the bankruptcy estate, net of payments received in respect of a long-term subordinated note receivable from Ruby, was approximately $28.5 million which was accrued for as of December 31, 2022. Consummation of the settlement and the sale of Ruby to Tallgrass occurred on January 13, 2023. We fully impaired our equity investment in Ruby in the fourth quarter of 2019 and fully impaired our investment in Ruby’s subordinated notes in the first quarter of 2021.
12
4. Debt
The following table provides information on the principal amount of our outstanding debt balances:
| March 31, 2024 | December 31, 2023 | |||||||||||||
| (In millions, unless otherwise stated) | ||||||||||||||
| Current portion of debt | ||||||||||||||
$ | $ | $ | ||||||||||||
| Commercial paper notes(a) | ||||||||||||||
| Current portion of senior notes | ||||||||||||||
Trust I preferred securities, | ||||||||||||||
| Current portion of other debt | ||||||||||||||
| Total current portion of debt | ||||||||||||||
| Long-term debt (excluding current portion) | ||||||||||||||
| Senior notes | ||||||||||||||
EPC Building, LLC, promissory note, | ||||||||||||||
Trust I preferred securities, | ||||||||||||||
| Other | ||||||||||||||
| Total long-term debt | ||||||||||||||
| Total debt(c) | $ | $ | ||||||||||||
(a)Weighted average interest rate on borrowings at March 31, 2024 and December 31, 2023 was 5.50 % and 5.68 %, respectively.
(b)Reflects the portion of cash consideration payable if all the outstanding securities as of the end of the reporting period were converted by the holders.
(c)Excludes our “Debt fair value adjustments” which, as of March 31, 2024 and December 31, 2023, increased our total debt balances by $100 million and $187 million, respectively.
We and substantially all of our wholly owned domestic subsidiaries are parties to a cross guarantee agreement whereby each party to the agreement unconditionally guarantees, jointly and severally, the payment of specified indebtedness of each other party to the agreement.
On February 1, 2024, we issued in a registered offering, two series of senior notes consisting of $1,250 million aggregate principal amount of 5.00 % senior notes due 2029 and $1,000 million aggregate principal amount of 5.40 % senior notes due 2034 and received combined net proceeds of $2,230
Credit Facilities and Restrictive Covenants
As of March 31, 2024, we had no borrowings outstanding under our credit facility, $525 million borrowings outstanding under our commercial paper program and $81 2.9 billion. For the period ended March 31, 2024, we were in compliance with all required covenants.
Fair Value of Financial Instruments
The carrying value and estimated fair value of our outstanding debt balances are disclosed below:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying value | Estimated fair value(a) | Carrying value | Estimated fair value(a) | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Total debt | $ | $ | $ | $ | |||||||||||||||||||
(a)Included in the estimated fair value are amounts for our Trust I Preferred Securities of $209 million and $207 million as of March 31, 2024 and December 31, 2023, respectively.
13
We used Level 2 input values to measure the estimated fair value of our outstanding debt balance as of both March 31, 2024 and December 31, 2023.
5. Stockholders’ Equity
Class P Common Stock
We have a board-approved share buy-back program that authorizes share repurchase of up to $3 billion. During the three months ended March 31, 2024, we repurchased less than 1 million of our shares for $7 million at an average price of $16.50 per share.
Dividends
The following table provides information about our per share dividends:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Per share cash dividend declared for the period | $ | $ | |||||||||
| Per share cash dividend paid in the period | |||||||||||
On April 17, 2024, our board of directors declared a cash dividend of $0.2875 per share for the quarterly period ended March 31, 2024, which is payable on May 15, 2024 to shareholders of record as of the close of business on April 30, 2024.
Accumulated Other Comprehensive Loss
Changes in the components of our “Accumulated other comprehensive loss” not including noncontrolling interests are summarized as follows:
| Net unrealized gains/(losses) on cash flow hedge derivatives | Pension and other postretirement liability adjustments | Total accumulated other comprehensive loss | |||||||||||||||
| (In millions) | |||||||||||||||||
Balance as of December 31, 2023 | $ | ( | $ | ( | $ | ( | |||||||||||
Other comprehensive (loss) gain before reclassifications | ( | ( | |||||||||||||||
| Gain reclassified from accumulated other comprehensive loss | ( | ( | |||||||||||||||
| Net current-period change in accumulated other comprehensive loss | ( | ( | |||||||||||||||
| Balance as of March 31, 2024 | $ | ( | $ | ( | $ | ( | |||||||||||
| Net unrealized gains/(losses) on cash flow hedge derivatives | Pension and other postretirement liability adjustments | Total accumulated other comprehensive loss | |||||||||||||||
| (In millions) | |||||||||||||||||
| Balance as of December 31, 2022 | $ | ( | $ | ( | $ | ( | |||||||||||
Other comprehensive gain before reclassifications | |||||||||||||||||
Gain reclassified from accumulated other comprehensive loss | ( | ( | |||||||||||||||
| Net current-period change in accumulated other comprehensive loss | |||||||||||||||||
| Balance as of March 31, 2023 | $ | ( | $ | ( | $ | ( | |||||||||||
14
6. Risk Management
Certain of our business activities expose us to risks associated with unfavorable changes in the market price of natural gas, NGL and crude oil. We also have exposure to interest rate and foreign currency risk as a result of the issuance of our debt obligations. Pursuant to our management’s approved risk management policy, we use derivative contracts to hedge or reduce our exposure to some of these risks.
Energy Commodity Price Risk Management
As of March 31, 2024, we had the following outstanding commodity forward contracts to hedge our forecasted energy commodity purchases and sales:
| Net open position long/(short) | |||||||||||
| Derivatives designated as hedging contracts | |||||||||||
| Crude oil fixed price | ( | MMBbl | |||||||||
| Natural gas fixed price | ( | Bcf | |||||||||
| Natural gas basis | ( | Bcf | |||||||||
| Derivatives not designated as hedging contracts | |||||||||||
| Crude oil fixed price | ( | MMBbl | |||||||||
| Crude oil basis | ( | MMBbl | |||||||||
| Natural gas fixed price | ( | Bcf | |||||||||
| Natural gas basis | ( | Bcf | |||||||||
| NGL fixed price | ( | MMBbl | |||||||||
As of March 31, 2024, the maximum length of time over which we have hedged, for accounting purposes, our exposure to the variability in future cash flows associated with energy commodity price risk is through December 2028.
Interest Rate Risk Management
We utilize interest rate derivatives to hedge our exposure to both changes in the fair value of our fixed rate debt instruments and variability in expected future cash flows attributable to variable interest rate payments. The following table summarizes our outstanding interest rate contracts as of March 31, 2024:
| Notional amount | Accounting treatment | Maximum term | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Derivatives designated as hedging instruments | ||||||||||||||||||||
Fixed-to-variable interest rate contracts(a) | $ | Fair value hedge | March 2035 | |||||||||||||||||
(a)The principal amount of hedged senior notes consisted of $1,200 million included in “Current portion of debt” and $4,750 million included in “Long-term debt” on our accompanying consolidated balance sheets.
Foreign Currency Risk Management
We utilize foreign currency derivatives to hedge our exposure to variability in foreign exchange rates. The following table summarizes our outstanding foreign currency contracts as of March 31, 2024:
| Notional amount | Accounting treatment | Maximum term | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Derivatives designated as hedging instruments | ||||||||||||||||||||
| EUR-to-USD cross currency swap contracts(a) | $ | Cash flow hedge | March 2027 | |||||||||||||||||
(a)These swaps eliminate the foreign currency risk associated with our Euro-denominated debt.
15
Impact of Derivative Contracts on Our Consolidated Financial Statements
The following table summarizes the fair values of our derivative contracts included on our accompanying consolidated balance sheets:
| Fair Value of Derivative Contracts | |||||||||||||||||||||||||||||
| Location | Derivatives Asset | Derivatives Liability | |||||||||||||||||||||||||||
| March 31, 2024 | December 31, 2023 | March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||||||||||||||
| Energy commodity derivative contracts | |||||||||||||||||||||||||||||
| Fair value of derivative contracts/(Fair value of derivative contracts) | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | ( | ( | |||||||||||||||||||||||||||
| Subtotal | ( | ( | |||||||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||||||||
| Fair value of derivative contracts/(Fair value of derivative contracts) | ( | ( | |||||||||||||||||||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | ( | ( | |||||||||||||||||||||||||||
| Subtotal | ( | ( | |||||||||||||||||||||||||||
| Foreign currency contracts | |||||||||||||||||||||||||||||
| Fair value of derivative contracts/(Fair value of derivative contracts) | ( | ( | |||||||||||||||||||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | ( | ( | |||||||||||||||||||||||||||
| Subtotal | ( | ( | |||||||||||||||||||||||||||
| Total | ( | ( | |||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||||||||||||||
| Energy commodity derivative contracts | |||||||||||||||||||||||||||||
| Fair value of derivative contracts/(Fair value of derivative contracts) | ( | ( | |||||||||||||||||||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | ( | ( | |||||||||||||||||||||||||||
| Total | ( | ( | |||||||||||||||||||||||||||
Total derivatives | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||
16
The following two tables summarize the fair value measurements of our derivative contracts based on the three levels established by the ASC. The tables also identify the impact of derivative contracts which we have elected to present on our accompanying consolidated balance sheets on a gross basis that are eligible for netting under master netting agreements.
| Balance sheet asset fair value measurements by level | Contracts available for netting | Cash collateral held(a) | |||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Gross amount | Net amount | |||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||
| As of March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Energy commodity derivative contracts(b) | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||||||||||||||||||||
| As of December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Energy commodity derivative contracts(b) | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||||||||||||||||||||
| Balance sheet liability fair value measurements by level | Contracts available for netting | Cash collateral posted(a) | |||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Gross amount | Net amount | |||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||
| As of March 31, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Energy commodity derivative contracts(b) | $ | ( | $ | ( | $ | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||
| Interest rate contracts | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Foreign currency contracts | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| As of December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Energy commodity derivative contracts(b) | $ | ( | $ | ( | $ | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||
| Interest rate contracts | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Foreign currency contracts | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
(a)Any cash collateral paid or received is reflected in this table, but only to the extent that it represents variation margins. Any amount associated with derivative prepayments or initial margins that are not influenced by the derivative asset or liability amounts or those that are determined solely on their volumetric notional amounts are excluded from this table.
(b)Level 1 consists primarily of NYMEX natural gas futures. Level 2 consists primarily of OTC WTI swaps, NGL swaps and crude oil basis swaps.
The following tables summarize the pre-tax impact of our derivative contracts on our accompanying consolidated statements of income and comprehensive income:
| Derivatives in fair value hedging relationships | Location | Gain/(loss) recognized in income on derivative and related hedged item | ||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||
Interest rate contracts | Interest, net | $ | $ | |||||||||||||||||
Hedged fixed rate debt(a) | Interest, net | $ | $ | |||||||||||||||||
(a)As of March 31, 2024, the cumulative amount of fair value hedging adjustments to our hedged fixed rate debt was a decrease of $292 million included in “Debt fair value adjustments” on our accompanying consolidated balance sheet.
17
Derivatives in cash flow hedging relationships | Gain/(loss) recognized in OCI on derivative(a) | Location | Gain/(loss) reclassified from Accumulated OCI into income | |||||||||||||||||||||||||||||
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||
Energy commodity derivative contracts | $ | ( | $ | Revenues—Commodity sales | $ | $ | ||||||||||||||||||||||||||
Costs of sales | ( | ( | ||||||||||||||||||||||||||||||
Interest rate contracts | Interest, net | |||||||||||||||||||||||||||||||
Foreign currency contracts | ( | Other, net | ( | |||||||||||||||||||||||||||||
| Total | $ | ( | $ | Total | $ | $ | ||||||||||||||||||||||||||
(a)We expect to reclassify approximately $96 million of loss associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balance as of March 31, 2024 into earnings during the next twelve months (when the associated forecasted transactions are also expected to impact earnings); however, actual amounts reclassified into earnings could vary materially as a result of changes in market prices.
| Derivatives not designated as accounting hedges | Location | Gain/(loss) recognized in income on derivatives | ||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||
Energy commodity derivative contracts | Revenues—Commodity sales | $ | ( | $ | ||||||||||||||||
Costs of sales | ( | |||||||||||||||||||
| Earnings from equity investments | ||||||||||||||||||||
| Interest rate contracts | Interest, net | ( | ||||||||||||||||||
| Total(a) | $ | ( | $ | |||||||||||||||||
(a)The three months ended March 31, 2024 and 2023 amounts include approximate gains of $24 million and $28 million, respectively, associated with natural gas, crude and NGL derivative contract settlements.
Credit Risks
In conjunction with certain derivative contracts, we are required to provide collateral to our counterparties, which may include posting letters of credit or placing cash in margin accounts. As of March 31, 2024 and December 31, 2023, we had no 7 million posted by us with our counterparties as collateral and reported within “Restricted deposits” on our accompanying consolidated balance sheet. As of December 31, 2023, we had cash margins of $63 million posted by our counterparties with us as collateral and reported within “Other current liabilities” on our accompanying consolidated balance sheet. The cash margin balance at March 31, 2024 represents our initial margin requirements of $28 million and variation margin requirements of $21 million posted by our counterparties. We also use industry standard commercial agreements that allow for the netting of exposures associated with transactions executed under a single commercial agreement. Additionally, we generally utilize master netting agreements to offset credit exposure across multiple commercial agreements with a single counterparty.
We also have agreements with certain counterparties to our derivative contracts that contain provisions requiring the posting of additional collateral upon a decrease in our credit rating. As of March 31, 2024, based on our current mark-to-market positions and posted collateral, we estimate that if our credit rating were downgraded one notch, we would not be required to post additional collateral. If we were downgraded two notches, we estimate that we would be required to post $118 million of additional collateral.
18
7. Revenue Recognition
Disaggregation of Revenues
The following tables present our revenues disaggregated by segment, revenue source and type of revenue for each revenue source:
| Three Months Ended March 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Natural Gas Pipelines | Products Pipelines | Terminals | CO2 | Corporate and Eliminations | Total | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||
| Revenues from contracts with customers(a) | ||||||||||||||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||||||||
| Firm services(b) | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
| Fee-based services | ( | |||||||||||||||||||||||||||||||||||||
| Total services | ( | |||||||||||||||||||||||||||||||||||||
| Commodity sales | ||||||||||||||||||||||||||||||||||||||
| Natural gas sales | ( | |||||||||||||||||||||||||||||||||||||
| Product sales | ( | |||||||||||||||||||||||||||||||||||||
| Total commodity sales | ( | |||||||||||||||||||||||||||||||||||||
| Total revenues from contracts with customers | ( | |||||||||||||||||||||||||||||||||||||
| Other revenues(c) | ||||||||||||||||||||||||||||||||||||||
| Leasing services(d) | ||||||||||||||||||||||||||||||||||||||
| Derivatives adjustments on commodity sales | ( | ( | ||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Total other revenues | ( | |||||||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| Natural Gas Pipelines | Products Pipelines | Terminals | CO2 | Corporate and Eliminations | Total | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||
| Revenues from contracts with customers(a) | ||||||||||||||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||||||||
| Firm services(b) | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
| Fee-based services | ||||||||||||||||||||||||||||||||||||||
| Total services | ( | |||||||||||||||||||||||||||||||||||||
| Commodity sales | ||||||||||||||||||||||||||||||||||||||
| Natural gas sales | ( | |||||||||||||||||||||||||||||||||||||
| Product sales | ( | |||||||||||||||||||||||||||||||||||||
| Total commodity sales | ( | |||||||||||||||||||||||||||||||||||||
| Total revenues from contracts with customers | ( | |||||||||||||||||||||||||||||||||||||
| Other revenues(c) | ||||||||||||||||||||||||||||||||||||||
| Leasing services(d) | ||||||||||||||||||||||||||||||||||||||
| Derivatives adjustments on commodity sales | ( | ( | ||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Total other revenues | ( | |||||||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
19
(a)Differences between the revenue classifications presented on the consolidated statements of income and the categories for the disaggregated revenues by type of revenue above are primarily attributable to revenues reflected in the “Other revenues” category above (see note (c)).
(b)Includes non-cancellable firm service customer contracts with take-or-pay or minimum volume commitment elements, including those contracts where both the price and quantity amount are fixed. Excludes service contracts with index-based pricing, which along with revenues from other customer service contracts are reported as “Fee-based services.”
(c)Amounts recognized as revenue under guidance prescribed in Topics of the ASC other than in Topic 606 were primarily from leases and derivative contracts. See Note 6 for additional information related to our derivative contracts.
(d)Our revenues from leasing services are predominantly comprised of specific assets that we lease to customers under operating leases where one customer obtains substantially all of the economic benefit from the asset and has the right to direct the use of that asset. These leases primarily consist of specific tanks, treating facilities, marine vessels and gas equipment and pipelines with separate control locations. We do not lease assets that qualify as sales-type or finance leases.
Contract Balances
As of March 31, 2024 and December 31, 2023, our contract asset balances were $26 million and $34 million, respectively. Of the contract asset balance at December 31, 2023, $19 million was transferred to accounts receivable during the three months ended March 31, 2024. As of March 31, 2024 and December 31, 2023, our contract liability balances were $417 million and $415 million, respectively. Of the contract liability balance at December 31, 2023, $43 million was recognized as revenue during the three months ended March 31, 2024.
In addition to our contract balances above, we also had lease contract liabilities associated with prepaid fixed reservation charges under long-term transportation and terminaling contracts totaling $629 million and $643 million as of March 31, 2024 and December 31, 2023, respectively.
Revenue Allocated to Remaining Performance Obligations
The following table presents our estimated revenue allocated to remaining performance obligations for contracted revenue that has not yet been recognized, representing our “contractually committed” revenue as of March 31, 2024 that we will invoice or transfer from contract liabilities and recognize in future periods:
| Year | Estimated Revenue | |||||||
| (In millions) | ||||||||
| Nine months ended December 31, 2024 | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
Our contractually committed revenue, for purposes of the tabular presentation above, is generally limited to service or commodity sale customer contracts which have fixed pricing and fixed volume terms and conditions, generally including contracts with take-or-pay or minimum volume commitment payment obligations. Our contractually committed revenue amounts, based on the practical expedient that we elected to apply, generally exclude remaining performance obligations for contracts with index-based pricing or variable volume attributes in which such variable consideration is allocated entirely to a wholly unsatisfied performance obligation.
20
8. Reportable Segments
Financial information by segment follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Revenues | |||||||||||
| Natural Gas Pipelines | |||||||||||
| Revenues from external customers | $ | $ | |||||||||
| Intersegment revenues | |||||||||||
| Products Pipelines | |||||||||||
| Terminals | |||||||||||
| Revenues from external customers | |||||||||||
| Intersegment revenues | |||||||||||
CO2 | |||||||||||
| Revenues from external customers | |||||||||||
| Intersegment revenues | |||||||||||
| Corporate and intersegment eliminations | ( | ( | |||||||||
| Total consolidated revenues | $ | $ | |||||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
Segment EBDA(a) | |||||||||||
| Natural Gas Pipelines | $ | $ | |||||||||
| Products Pipelines | |||||||||||
| Terminals | |||||||||||
CO2 | |||||||||||
| Total Segment EBDA | |||||||||||
| DD&A | ( | ( | |||||||||
| Amortization of excess cost of equity investments | ( | ( | |||||||||
| General and administrative and corporate charges | ( | ( | |||||||||
| Interest, net | ( | ( | |||||||||
| Income tax expense | ( | ( | |||||||||
| Total consolidated net income | $ | $ | |||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| (In millions) | |||||||||||
| Assets | |||||||||||
| Natural Gas Pipelines | $ | $ | |||||||||
| Products Pipelines | |||||||||||
| Terminals | |||||||||||
CO2 | |||||||||||
| Corporate assets(b) | |||||||||||
| Total consolidated assets | $ | $ | |||||||||
(a)Includes revenues, earnings from equity investments, operating expenses, gain on divestitures, net, other income, net, and other, net. Operating expenses include costs of sales, operations and maintenance expenses, and taxes, other than income taxes.
21
(b)Includes cash and cash equivalents, restricted deposits, certain prepaid assets and deferred charges, risk management assets related to derivative contracts, corporate headquarters in Houston, Texas and miscellaneous corporate assets (such as information technology, telecommunications equipment and legacy activity) not allocated to our reportable segments.
9. Income Taxes
Income tax expense included on our accompanying consolidated statements of income is as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions, except percentages) | |||||||||||
| Income tax expense | $ | $ | |||||||||
| Effective tax rate | % | % | |||||||||
The effective tax rate for the three months ended March 31, 2024 is higher than the statutory federal rate of 21 % primarily due to state income taxes, partially offset by dividend-received deductions from our investments in Florida Gas Pipeline (Citrus), NGPL Holdings and Products (SE) Pipe Line Company (PPL) and an adjustment to our deferred tax liability as a result of a reduction in the state tax rate.
10. Litigation and Environmental
We and our subsidiaries are parties to various legal, regulatory and other matters arising from the day-to-day operations of our businesses or certain predecessor operations that may result in claims against the Company. Although no assurance can be given, we believe, based on our experiences to date and taking into account established reserves and insurance, that the ultimate resolution of such items will not have a material adverse impact to our business. We believe we have numerous and substantial defenses to the matters to which we are a party and intend to vigorously defend the Company. When we determine a loss is probable of occurring and is reasonably estimable, we accrue an undiscounted liability for such contingencies based on our best estimate using information available at that time. If the estimated loss is a range of potential outcomes and there is no better estimate within the range, we accrue the amount at the low end of the range. We disclose the following contingencies where an adverse outcome may be material or, in the judgment of management, we conclude the matter should otherwise be disclosed.
Gulf LNG Facility Disputes
Gulf LNG Energy, LLC and Gulf LNG Pipeline, LLC (GLNG) filed a lawsuit in 2018 against Eni S.p.A. in the Supreme Court of the State of New York to enforce a Guarantee Agreement (Guarantee) entered into by Eni S.p.A. in 2007 in connection with a contemporaneous terminal use agreement entered into by its affiliate, Eni USA Gas Marketing LLC (Eni USA). GLNG filed suit to enforce the Guarantee against Eni S.p.A. after an arbitration tribunal delivered an award which called for the termination of the terminal use agreement and payment of compensation by Eni USA to GLNG. In response to GLNG’s lawsuit, Eni S.p.A. filed counterclaims and other claims based on the terminal use agreement and a parent direct agreement with Gulf LNG Energy (Port), LLC. The foregoing counterclaims and other claims asserted by Eni S.p.A sought unspecified damages based on the same substantive allegations which were dismissed with prejudice in previous separate arbitrations with Eni USA described above and with GLNG’s remaining customer Angola LNG Supply Services LLC, a consortium of international oil companies including Eni S.p.A. In early 2022, the trial court granted Eni S.p.A’s motion for summary judgment on GLNG’s claims to enforce the Guarantee. The Appellate Division denied GLNG’s appeal and its motion for rehearing in 2023. GLNG elected not to pursue further recourse to the state Court of Appeals, which is the state’s highest appellate court, thereby concluding GLNG’s efforts to enforce the Guarantee. With respect to the counterclaims and other claims asserted by Eni S.p.A., the trial court granted GLNG’s motion for summary judgment and entered judgment dismissing all of Eni S.p.A.’s claims with prejudice on September 15, 2023. Eni S.p.A. filed a notice of appeal to the state Appellate Division, which heard oral argument on April 2, 2024. We intend to vigorously oppose Eni S.p.A’s appeal, which remains pending.
22
Freeport LNG Winter Storm Litigation
On September 13, 2021, Freeport LNG Marketing, LLC (Freeport) filed a lawsuit against Kinder Morgan Texas Pipeline LLC and Kinder Morgan Tejas Pipeline LLC in the 133rd District Court of Harris County, Texas (Case No. 2021-58787) alleging that defendants breached the parties’ base contract for sale and purchase of natural gas by failing to repurchase natural gas nominated by Freeport between February 10-22, 2021 during Winter Storm Uri. We deny that we were obligated to repurchase natural gas from Freeport given our declaration of force majeure during the storm and our compliance with emergency orders issued by the Railroad Commission of Texas providing heightened priority for the delivery of gas to human needs customers. Freeport alleges that it is owed approximately $104 million, plus attorney fees and interest. On October 24, 2022, the trial court granted our motion for summary judgment on all of Freeport’s claims. On November 21, 2022, Freeport filed a notice of appeal to the 14th Court of Appeals, where the matter remains pending. We believe our declaration of force majeure was proper and intend to continue to vigorously defend this case.
Pension Plan Litigation
On February 22, 2021, Kinder Morgan Retirement Plan A participants Curtis Pedersen and Beverly Leutloff filed a purported class action lawsuit under the Employee Retirement Income Security Act of 1974 (ERISA). The named plaintiffs were hired initially by the ANR Pipeline Company (ANR) in the late 1970s. Following a series of corporate acquisitions, plaintiffs became participants in pension plans sponsored by the Coastal Corporation (Coastal), El Paso Corporation (El Paso) and our company by virtue of our acquisition of El Paso in 2012 and our assumption of certain of El Paso’s pension plan obligations. The complaint, which was transferred to the U.S. District Court for the Southern District of Texas (Civil Action No. 4:21-3590) and later amended to include the Kinder Morgan Retirement Plan B, alleges that the series of foregoing transactions resulted in changes to plaintiffs’ retirement benefits which are now contested on a class-wide basis in the lawsuit. The complaint asserts six claims that fall within three primary theories of liability. Claims I, II, and III all challenge plan provisions which are alleged to constitute impermissible “backloading” or “cutback” of benefits, and seek the same plan modification as to how the plans calculate benefits for former participants in the Coastal plan. Claims IV and V allege that former participants in the ANR plans should be eligible for unreduced benefits at younger ages than the plans currently provide. Claim VI asserts that actuarial assumptions used to calculate reduced early retirement benefits for current or former ANR employees are outdated and therefore unreasonable. On February 8, 2024, the Court certified a class defined as any and all persons who participated in the Kinder Morgan Retirement Plan A or B who are current or former employees of ANR or Coastal, and participated in the El Paso pension plan after El Paso acquired Coastal in 2001, and are members of at least one of three subclasses of individuals who are allegedly due benefits under one or more of the six claims asserted in the complaint. Plaintiffs seek to recover early retirement benefits as well as declaratory and injunctive relief, but have not pleaded, disclosed or otherwise specified a calculation of alleged damages. The extent of potential plan liabilities for past or future benefits, if any, remains to be determined in connection with pending cross motions for summary judgment on the question of liability or a bench trial scheduled to begin on August 5, 2024 with respect to any claims not resolved on summary judgment. We believe we have numerous and substantial defenses and intend to vigorously defend this case. To the extent an adverse judgment or order results in an increase in plan liabilities, we may elect, as the sponsor of the plans, to address them in accordance with applicable ERISA provisions, including provisions which allow for contributions to the plans over several years. Accordingly, we do not anticipate that the resolution of this matter will have a material impact to our business.
Pipeline Integrity and Releases
From time to time, despite our best efforts, our pipelines experience leaks and ruptures. These leaks and ruptures may cause explosions, fire, and damage to the environment, damage to property and/or personal injury or death. In connection with these incidents, we may be sued for damages caused by an alleged failure to properly mark the locations of our pipelines and/or to properly maintain our pipelines. Depending upon the facts and circumstances of a particular incident, state and federal regulatory authorities may seek civil and/or criminal fines and penalties.
General
As of March 31, 2024 and December 31, 2023, our total reserve for legal matters was $32 million and $23 million, respectively.
Environmental Matters
We and our subsidiaries are subject to environmental cleanup and enforcement actions from time to time. In particular, CERCLA generally imposes joint and several liability for cleanup and enforcement costs on current and predecessor owners and operators of a site, among others, without regard to fault or the legality of the original conduct, subject to the right of a
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liable party to establish a “reasonable basis” for apportionment of costs. Our operations are also subject to local, state and federal laws and regulations relating to protection of the environment. Although we believe our operations are in substantial compliance with applicable environmental laws and regulations, risks of additional costs and liabilities are inherent in pipeline, terminal, CO2 field and oil field, and our other operations, and there can be no assurance that we will not incur significant costs and liabilities. Moreover, it is possible that other developments could result in substantial costs and liabilities to us, such as increasingly stringent environmental laws, regulations and enforcement policies under the terms of authority of those laws, and claims for damages to property or persons resulting from our operations.
We are currently involved in several governmental proceedings involving alleged violations of local, state and federal environmental and safety regulations. As we receive notices of non-compliance, we attempt to negotiate and settle such matters where appropriate. These alleged violations may result in fines and penalties, but except as disclosed herein we do not believe any such fines and penalties will be material to our business, individually or in the aggregate. We are also currently involved in several governmental proceedings involving groundwater and soil remediation efforts under state or federal administrative orders or related remediation programs. We have established a reserve to address the costs associated with the remediation efforts.
In addition, we are involved with and have been identified as a potentially responsible party (PRP) in several federal and state Superfund sites. Environmental reserves have been established for those sites where our contribution is probable and reasonably estimable. In addition, we are from time to time involved in civil proceedings relating to damages alleged to have occurred as a result of accidental leaks or spills of refined petroleum products, crude oil, NGL, natural gas or CO2, including natural resource damage (NRD) claims.
Portland Harbor Superfund Site, Willamette River, Portland, Oregon
On January 6, 2017, the EPA issued a Record of Decision (ROD) that established a final remedy and cleanup plan for an industrialized area on the lower reach of the Willamette River commonly referred to as the Portland Harbor Superfund Site (PHSS). The cost for the final remedy is estimated to be more than $2.8 billion and active cleanup is expected to take more than 10 years to complete. KMLT, KMBT, and some 90 other PRPs identified by the EPA are involved in a non-judicial allocation process to determine each party’s respective share of the cleanup costs related to the final remedy set forth by the ROD. We are participating in the allocation process on behalf of KMLT (in connection with its ownership or operation of two facilities) and KMBT (in connection with its ownership or operation of two facilities). Effective January 31, 2020, KMLT entered into separate Administrative Settlement Agreements and Orders on Consent (ASAOC) to complete remedial design for two distinct areas within the PHSS associated with KMLT’s facilities. The ASAOC obligates KMLT to pay a share of the remedial design costs for cleanup activities related to these two areas as required by the ROD. Our share of responsibility for the PHSS costs will not be determined until the ongoing non-judicial allocation process is concluded or a lawsuit is filed that results in a judicial decision allocating responsibility. At this time we anticipate the non-judicial allocation process will be complete in or around June 2025. Until the allocation process is completed, we are unable to reasonably estimate the extent of our liability for the costs related to the design of the proposed remedy and cleanup of the PHSS. Because costs associated with any remedial plan are expected to be spread over at least several years, we do not anticipate that our share of the costs of the remediation will have a material adverse impact to our business.
In addition to CERCLA cleanup costs, we are reviewing and will attempt to settle, if possible, NRD claims in the amount of approximately $5 million asserted by state and federal trustees following their natural resource assessment of the PHSS.
Lower Passaic River Study Area of the Diamond Alkali Superfund Site, New Jersey
EPEC Polymers, Inc. and EPEC Oil Company Liquidating Trust (collectively EPEC) are identified as PRPs in an administrative action under CERCLA known as the Lower Passaic River Study Area (Site) concerning the lower 17-mile stretch of the Passaic River in New Jersey. On March 4, 2016, the EPA issued a ROD for the lower eight miles of the Site. At that time the cleanup plan in the ROD was estimated to cost $1.7 billion. The cleanup is expected to take at least six years to complete once it begins. In addition, the EPA and numerous PRPs, including EPEC, engaged in an allocation process for the implementation of the remedy for the lower eight miles of the Site. That process was completed December 28, 2020 and certain PRPs, including EPEC, engaged in discussions with the EPA as a result thereof. On October 4, 2021, the EPA issued a ROD for the upper nine miles of the Site. At that time, the cleanup plan in the ROD was estimated to cost $440 million. No timeline for the cleanup has been established. On December 16, 2022, the United States Department of Justice (DOJ) and the EPA announced a settlement and proposed consent decree with 85 PRPs, including EPEC, to resolve their collective liability at the Site. The total amount of the settlement is $150 million. Also on December 16, 2022, the DOJ on behalf of the EPA filed a Complaint against the 85 PRPs, including EPEC, a Notice of Lodging of Consent Decree, and a Consent Decree in the U.S. District Court for the District of New Jersey. On January 17, 2024, the DOJ on behalf of the EPA voluntarily dismissed its
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Complaint against 3 PRPs, filed an Amended Complaint against 82 PRPs, including EPEC, and a modified Consent Decree in the U.S. District Court. On January 31, 2024, the DOJ on behalf of the EPA filed a motion to Enter Consent Decree in the U.S. District Court. We believe our share of the costs to resolve this matter, including our share of the settlement with the EPA and the costs to remediate the Site, if any, will not have a material adverse impact to our business.
Louisiana Governmental Coastal Zone Erosion Litigation
Beginning in 2013, several parishes in Louisiana and the City of New Orleans filed separate lawsuits in state district courts in Louisiana against a number of oil and gas companies, including TGP and SNG. In these cases, the parishes and New Orleans, as Plaintiffs, allege that certain of the defendants’ oil and gas exploration, production and transportation operations were conducted in violation of the State and Local Coastal Resources Management Act of 1978, as amended (SLCRMA) and that those operations caused substantial damage to the coastal waters of Louisiana and nearby lands. The Plaintiffs seek, among other relief, unspecified money damages, attorneys’ fees, interest, and payment of costs necessary to restore the affected areas. There are more than 40 of these cases pending in Louisiana against oil and gas companies, one of which is against TGP and one of which is against SNG, both described further below.
On November 8, 2013, the Parish of Plaquemines, Louisiana and others filed a petition for damages in the state district court for Plaquemines Parish, Louisiana against TGP and 17 other energy companies, alleging that the defendants’ operations in Plaquemines Parish violated SLCRMA and Louisiana law, and caused substantial damage to the coastal waters and nearby lands. Plaquemines Parish seeks, among other relief, unspecified money damages, attorney fees, interest, and payment of costs necessary to restore the allegedly affected areas. In May 2018, the case was removed to the U.S. District Court for the Eastern District of Louisiana. The case has been effectively stayed pending the resolution of jurisdictional issues in separate, consolidated cases to which TGP is not a party; The Parish of Plaquemines, et al. vs. Chevron USA, Inc. et al. consolidated with The Parish of Cameron, et al. v. BP America Production Company, et al. Those cases were removed to federal court and subsequently remanded to the state district courts for Plaquemines and Cameron Parishes, respectively. On September 27, 2023, the U.S. District Court ordered the case be stayed and administratively closed pending the resolution of jurisdictional issues. At this time, we are not able to reasonably estimate the extent of our potential liability, if any. We intend to vigorously defend this case.
On March 29, 2019, the City of New Orleans (Orleans) filed a petition for damages in the state district court for Orleans Parish, Louisiana against SNG and 10 other energy companies alleging that the defendants’ operations in Orleans Parish violated the SLCRMA and Louisiana law, and caused substantial damage to the coastal waters and nearby lands. Orleans seeks, among other relief, unspecified money damages, attorney fees, interest, and payment of costs necessary to restore the allegedly affected areas. In April 2019, the case was removed to the U.S. District Court for the Eastern District of Louisiana. In January 2020, the U.S. District Court ordered the case to be stayed and administratively closed pending the resolution of issues in a separate case to which SNG is not a party. On May 3, 2023, the U.S. District Court re-opened the case. On February 28, 2024, the Court entered partial Final Judgment dismissing a co-defendant from the case and stayed the case pending appeal of that Judgment. At this time, we are not able to reasonably estimate the extent of our potential liability, if any. We intend to vigorously defend this case.
Hurricane Harvey Emission Event
In August 2017, KMLT discovered that three tanks at its Pasadena, Texas Terminal failed during Hurricane Harvey. The tank failures resulted in emissions of products being stored in the tanks. The emissions were properly reported to the Texas Commission on Environmental Quality. On November 15, 2019, the State of Texas filed a petition against KMLT in a state district court in Harris County, Texas alleging that violations of maintenance standards contributed to cause both the tank failures in August 2017, and a subsequent tank failure in 2018. The State was seeking monetary penalties and corrective actions by KMLT. The State amended its petition in May 2023; the amended petition also sought penalties and corrective actions. On March 26, 2024, we reached an agreement with the State to settle this case. The cost to settle this case will not have a material impact to our business.
General
Although it is not possible to predict the ultimate outcomes, we believe that the resolution of the environmental matters set forth in this note, and other matters to which we and our subsidiaries are a party, will not have a material adverse effect on our business. As of both March 31, 2024 and December 31, 2023, we have accrued a total reserve for environmental liabilities in the amount of $199 10 million and $11 million, respectively, recorded for expected cost recoveries that have been deemed probable.
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Challenge to Federal “Good Neighbor Plan”
On July 14, 2023, we filed a Petition for Review against the EPA and others in the U.S. Court of Appeals for the District of Columbia Circuit seeking review of the EPA’s final action promulgating the EPA’s final rule known as the “Good Neighbor Plan” (the Plan). The Plan was published in the Federal Register as a final rule on June 5, 2023. The Plan is a federal implementation plan to address certain interstate transport requirements of the Clean Air Act for the 2015 8-hour Ozone National Ambient Air Quality Standards (NAAQS). We believe that the Plan is deeply flawed and that numerous and substantial bases for challenging the Plan exist. If the Plan were fully implemented, its emission standards would require installation of more stringent air pollution controls on hundreds of existing internal combustion engines used by our Natural Gas Pipelines business segment. On July 27, 2023, we filed a Motion to Stay the Plan Pending Review, and on September 25, 2023, the U.S. Court of Appeals denied the Motion. On October 13, 2023, we filed an Emergency Application for Stay of Final Agency Action in the United States Supreme Court. On December 20, 2023, the Supreme Court issued an order deferring consideration of the Emergency Application for Stay pending oral argument which took place February 21, 2024.
On July 31, 2023 and September 29, 2023, the EPA published interim final rules entitled, respectively, “Federal ‘Good Neighbor Plan’ for the 2015 Ozone NAAQS; Response to Judicial Stays of SIP Disapproval Action for Certain States” and “Federal ‘Good Neighbor Plan’ for the 2015 Ozone NAAQS; Response to Additional Judicial Stays of SIP Disapproval Action for Certain States.” We filed petitions for review against the EPA and others in the U.S. Court of Appeals for the District of Columbia seeking review of the interim final rule and the second interim final rule on September 29, 2023 and November 17, 2023, respectively. On February 1, 2024, the U.S. Court of Appeals ordered these cases be held in abeyance pending further order of the Court.
If the Plan were to remain in effect in its current form (including full compliance by its compliance deadline, and assuming failure of all pending challenges to state implementation plan disapprovals and no successful challenge to the Plan), we anticipate that it would have a material impact on us. However, impacts of the Plan are difficult to predict, given the extensive pending litigation. We would seek to mitigate the impacts, and to recover expenditures through adjustments to our rates on our regulated assets where available.
11. Recent Accounting Pronouncements
Accounting Standards Updates (ASU)
ASU No. 2023-07
On November 27, 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU amends reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption of the ASU is permitted. Management is currently evaluating this ASU to determine its impact on the Company’s annual and interim disclosures.
ASU No. 2023-09
On December 14, 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU is intended to improve the transparency of income tax disclosures by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii) income taxes paid disaggregated by jurisdiction. This ASU will be effective for annual periods beginning after December 15, 2024, and early adoption is permitted. Management is currently evaluating this ASU to determine its impact on the Company’s annual disclosures.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General and Basis of Presentation
The following discussion and analysis should be read in conjunction with our accompanying interim consolidated financial statements and related notes included elsewhere in this report, and in conjunction with (i) our consolidated financial statements and related notes in our 2023 Form 10-K; (ii) our management’s discussion and analysis of financial condition and results of operations included in our 2023 Form 10-K; (iii) “Information Regarding Forward-Looking Statements” at the beginning of this report and in our 2023 Form 10-K; and (iv) “Risk Factors” in Part I, Item 1 in our 2023 Form 10-K.
2024 Dividends and Discretionary Capital
We expect to declare dividends of $1.15 per share for 2024, a 2% increase from the 2023 declared dividends of $1.13 per share. We now expect to invest $2.15 billion in expansion projects, acquisitions, and contributions to joint ventures during 2024.
The expectations for 2024 discussed above involve risks, uncertainties and assumptions, and are not guarantees of performance. Many of the factors that will determine these expectations are beyond our ability to control or predict, and because of these uncertainties, it is advisable not to put undue reliance on any forward-looking statement.
Results of Operations
Overview
As described in further detail below, our management evaluates our performance primarily using Net income attributable to Kinder Morgan, Inc. and Segment earnings before DD&A expenses, including amortization of excess cost of equity investments, (EBDA) (as presented in Note 8 “Reportable Segments”). Management also considers the non-GAAP financial measures of Adjusted Net Income Attributable to Common Stock, and distributable cash flow (DCF), both in the aggregate and per share for each, Adjusted Segment EBDA, Adjusted Net Income Attributable to Kinder Morgan, Inc., Adjusted earnings before interest, income taxes, DD&A expenses, including amortization of excess cost of equity investments, (EBITDA) and Net Debt.
GAAP Financial Measures
The Consolidated Earnings Results for the three months ended March 31, 2024 and 2023 present Net income attributable to Kinder Morgan, Inc., as prepared and presented in accordance with GAAP, and Segment EBDA, which is disclosed in Note 8 “Reportable Segments” pursuant to FASB ASC 280. The composition of Segment EBDA is not addressed nor prescribed by generally accepted accounting principles. Segment EBDA is a useful measure of our operating performance because it measures the operating results of our segments before DD&A and certain expenses that are generally not controllable by our business segment operating managers, such as general and administrative expenses and corporate charges, interest expense, net, and income taxes. Our general and administrative expenses and corporate charges include such items as unallocated employee benefits, insurance, rentals, unallocated litigation and environmental expenses, and shared corporate services including accounting, information technology, human resources and legal services.
Non-GAAP Financial Measures
Our non-GAAP financial measures described below should not be considered alternatives to GAAP Net income attributable to Kinder Morgan, Inc. or other GAAP measures and have important limitations as analytical tools. Our computations of these non-GAAP financial measures may differ from similarly titled measures used by others. You should not consider these non-GAAP financial measures in isolation or as substitutes for an analysis of our results as reported under GAAP. Management compensates for the limitations of our consolidated non-GAAP financial measures by reviewing our comparable GAAP measures identified in the descriptions of consolidated non-GAAP measures below, understanding the differences between the measures and taking this information into account in its analysis and its decision-making processes.
Certain Items
Certain Items, as adjustments used to calculate our non-GAAP financial measures, are items that are required by GAAP to be reflected in Net income attributable to Kinder Morgan, Inc., but typically either (i) do not have a cash impact (for example, unsettled commodity hedges and asset impairments), or (ii) by their nature are separately identifiable from our normal business
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operations and in most cases are likely to occur only sporadically (for example, certain legal settlements, enactment of new tax legislation and casualty losses). (See the tables included in “—Non-GAAP Financial Measures—Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to Adjusted Net Income Attributable to Kinder Morgan, Inc.,” “—Non-GAAP Financial Measures—Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to DCF” and “—Non-GAAP Financial Measures—Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to Adjusted EBITDA” below). We also include adjustments related to joint ventures (see “—Amounts from Joint Ventures” below). The following table summarizes our Certain Items for the three months ended March 31, 2024 and 2023, which are also described in more detail in the footnotes to tables included in “—Segment Earnings Results” below.
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Certain Items | |||||||||||
| Fair value amortization | $ | — | $ | (4) | |||||||
| Change in fair value of derivative contracts(a) | 50 | (68) | |||||||||
| (Gain) loss on divestitures and impairment, net | (29) | 67 | |||||||||
| Income tax Certain Items(b) | (9) | 1 | |||||||||
| Total Certain Items(c)(d) | $ | 12 | $ | (4) | |||||||
(a)Gains or losses are reflected when realized.
(b)Represents the income tax provision on Certain Items plus discrete income tax items. Includes the impact of KMI’s income tax provision on Certain Items affecting earnings from equity investments and is separate from the related tax provision recognized at the investees by the joint ventures which are also taxable entities.
(c)2023 amount includes the following amounts reported within “Earnings from equity investments” on the accompanying consolidated statements of income: (i) $(2) million included within “Change in fair value of derivative contracts” and (ii) $67 million included within “(Gain) loss on divestitures and impairment, net” for a non-cash impairment related to our investment in Double Eagle Pipeline LLC in our Products Pipelines business segment (see Note 3 “Losses on Impairments—Impairments”).
(d)2024 and 2023 amounts include, in the aggregate, $2 million and $(8) million, respectively, included within “Interest, net” on the accompanying consolidated statements of income which consist of (i) $(4) million for the 2023 period only of “Fair value amortization” and (ii) $2 million and $(4) million, respectively, of “Change in fair value of derivative contracts.”
Adjusted Net Income Attributable to Kinder Morgan, Inc.
Adjusted Net Income Attributable to Kinder Morgan, Inc. is calculated by adjusting Net income attributable to Kinder Morgan, Inc. for Certain Items. Adjusted Net Income Attributable to Kinder Morgan, Inc. is used by us, investors and other external users of our financial statements as a supplemental measure that provides decision-useful information regarding our period-over-period performance and ability to generate earnings that are core to our ongoing operations. We believe the GAAP measure most directly comparable to Adjusted Net Income Attributable to Kinder Morgan, Inc. is Net income attributable to Kinder Morgan, Inc. See “—Non-GAAP Financial Measures—Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to Adjusted Net Income Attributable to Kinder Morgan, Inc.” below.
Adjusted Net Income Attributable to Common Stock and Adjusted EPS
Adjusted Net Income Attributable to Common Stock is calculated by adjusting Net income attributable to Kinder Morgan, Inc., the most comparable GAAP measure, for Certain Items, and further for net income allocated to participating securities and adjusted net income in excess of distributions for participating securities. We believe Adjusted Net Income Attributable to Common Stock allows for calculation of adjusted earnings per share (Adjusted EPS) on the most comparable basis with earnings per share, the most comparable GAAP measure to Adjusted EPS. Adjusted EPS is calculated as Adjusted Net Income Attributable to Common Stock divided by our weighted average shares outstanding. Adjusted EPS applies the same two-class method used in arriving at basic earnings per share. Adjusted EPS is used by us, investors and other external users of our financial statements as a per-share supplemental measure that provides decision-useful information regarding our period-over-period performance and ability to generate earnings that are core to our ongoing operations. See “—Non-GAAP Financial Measures—Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to Adjusted Net Income Attributable to Common Stock” below.
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DCF
DCF is calculated by adjusting Net income attributable to Kinder Morgan, Inc. for Certain Items, and further for DD&A and amortization of excess cost of equity investments, income tax expense, cash taxes, sustaining capital expenditures and other items. We also adjust amounts from joint ventures for income taxes, DD&A, cash taxes and sustaining capital expenditures (see “—Amounts from Joint Ventures” below). DCF is a significant performance measure used by us, investors and other external users of our financial statements to evaluate our performance and to measure and estimate the ability of our assets to generate economic earnings after paying interest expense, paying cash taxes and expending sustaining capital. DCF provides additional insight into the specific costs associated with our assets in the current period and facilitates period-to-period comparisons of our performance from ongoing business activities. DCF is also used by us, investors, and other external users to compare the performance of companies across our industry. DCF per share serves as the primary financial performance target for purposes of annual bonuses under our annual incentive compensation program and for performance-based vesting of equity compensation grants under our long-term incentive compensation program. DCF should not be used as an alternative to net cash provided by operating activities computed under GAAP. We believe the GAAP measure most directly comparable to DCF is Net income attributable to Kinder Morgan, Inc. DCF per share is DCF divided by average outstanding shares, including restricted stock awards that participate in dividends. See “—Non-GAAP Financial Measures—Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to DCF” below.
Adjusted Segment EBDA
Adjusted Segment EBDA is calculated by adjusting segment earnings before DD&A and amortization of excess cost of equity investments, general and administrative expenses and corporate charges, interest expense, and income taxes (Segment EBDA) for Certain Items attributable to the segment. Adjusted Segment EBDA is used by management in its analysis of segment performance and management of our business. We believe Adjusted Segment EBDA is a useful performance metric because it provides management, investors and other external users of our financial statements additional insight into performance trends across our business segments, our segments’ relative contributions to our consolidated performance and the ability of our segments to generate earnings on an ongoing basis. Adjusted Segment EBDA is also used as a factor in determining compensation under our annual incentive compensation program for our business segment presidents and other business segment employees. We believe it is useful to investors because it is a measure that management uses to allocate resources to our segments and assess each segment’s performance. See “—Non-GAAP Financial Measures—Reconciliation of Segment EBDA to Adjusted Segment EBDA” below.
Adjusted EBITDA
Adjusted EBITDA is calculated by adjusting Net income attributable to Kinder Morgan, Inc. for Certain Items and further for DD&A and amortization of excess cost of equity investments, income tax expense and interest. We also include amounts from joint ventures for income taxes and DD&A (see “—Amounts from Joint Ventures” below). Adjusted EBITDA is used by management, investors and other external users, in conjunction with our Net Debt (as described further below), to evaluate our leverage. Management and external users also use Adjusted EBITDA as an important metric to compare the valuations of companies across our industry. Our ratio of Net Debt-to-Adjusted EBITDA is used as a supplemental performance target for purposes of our annual incentive compensation program. We believe the GAAP measure most directly comparable to Adjusted EBITDA is Net income attributable to Kinder Morgan, Inc. See “—Non-GAAP Financial Measures—Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to Adjusted EBITDA” below.
Amounts from Joint Ventures
Certain Items, DCF and Adjusted EBITDA reflect amounts from unconsolidated joint ventures and consolidated joint ventures utilizing the same recognition and measurement methods used to record “Earnings from equity investments” and “Noncontrolling interests,” respectively. The calculations of DCF and Adjusted EBITDA related to our unconsolidated and consolidated joint ventures include the same items (DD&A and income tax expense, and for DCF only, also cash taxes and sustaining capital expenditures) with respect to the joint ventures as those included in the calculations of DCF and Adjusted EBITDA for our wholly-owned consolidated subsidiaries; further, we remove the portion of these adjustments attributable to non-controlling interests. (See “—Non-GAAP Financial Measures—Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to DCF” and “—Non-GAAP Financial Measures—Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to Adjusted EBITDA” below.) Although these amounts related to our unconsolidated joint ventures are included in the calculations of DCF and Adjusted EBITDA, such inclusion should not be understood to imply that we have control over the operations and resulting revenues, expenses or cash flows of such unconsolidated joint ventures.
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Net Debt
Net Debt is calculated, based on amounts as of March 31, 2024, by subtracting the following amounts from our debt balance of $32,146 million: (i) cash and cash equivalents of $119 million; (ii) debt fair value adjustments of $100 million; and (iii) the foreign exchange impact on Euro-denominated bonds of $(4) million for which we have entered into currency swaps to convert that debt to U.S. dollars. Net Debt, on its own and in conjunction with our Adjusted EBITDA as part of a ratio of Net Debt-to-Adjusted EBITDA, is a non-GAAP financial measure that is used by management, investors and other external users of our financial information to evaluate our leverage. Our ratio of Net Debt-to-Adjusted EBITDA is also used as a supplemental performance target for purposes of our annual incentive compensation program. We believe the most comparable measure to Net Debt is total debt.
Consolidated Earnings Results
The following tables summarize the key components of our consolidated earnings results.
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | Earnings increase/(decrease) | |||||||||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||||||
| Revenues | $ | 3,842 | $ | 3,888 | $ | (46) | (1) | % | |||||||||||||||
| Operating Costs, Expenses and Other | |||||||||||||||||||||||
| Costs of sales (exclusive of items shown separately below) | (1,107) | (1,215) | 108 | 9 | % | ||||||||||||||||||
| Operations and maintenance | (680) | (639) | (41) | (6) | % | ||||||||||||||||||
| DD&A | (587) | (565) | (22) | (4) | % | ||||||||||||||||||
| General and administrative | (175) | (166) | (9) | (5) | % | ||||||||||||||||||
| Taxes, other than income taxes | (111) | (110) | (1) | (1) | % | ||||||||||||||||||
| Gain on divestitures, net | 32 | — | 32 | — | % | ||||||||||||||||||
| Other income, net | 9 | 1 | 8 | 800 | % | ||||||||||||||||||
| Total Operating Costs, Expenses and Other | (2,619) | (2,694) | 75 | 3 | % | ||||||||||||||||||
| Operating Income | 1,223 | 1,194 | 29 | 2 | % | ||||||||||||||||||
| Other Income (Expense) | |||||||||||||||||||||||
| Earnings from equity investments | 243 | 165 | 78 | 47 | % | ||||||||||||||||||
| Amortization of excess cost of equity investments | (12) | (17) | 5 | 29 | % | ||||||||||||||||||
| Interest, net | (472) | (445) | (27) | (6) | % | ||||||||||||||||||
| Other, net | — | 2 | (2) | (100) | % | ||||||||||||||||||
| Total Other Expense | (241) | (295) | 54 | 18 | % | ||||||||||||||||||
| Income Before Income Taxes | 982 | 899 | 83 | 9 | % | ||||||||||||||||||
| Income Tax Expense | (209) | (196) | (13) | (7) | % | ||||||||||||||||||
| Net Income | 773 | 703 | 70 | 10 | % | ||||||||||||||||||
| Net Income Attributable to Noncontrolling Interests | (27) | (24) | (3) | (13) | % | ||||||||||||||||||
| Net Income Attributable to Kinder Morgan, Inc. | $ | 746 | $ | 679 | $ | 67 | 10 | % | |||||||||||||||
| Basic and diluted earnings per share | $ | 0.33 | $ | 0.30 | $ | 0.03 | 10 | % | |||||||||||||||
| Basic and diluted weighted average shares outstanding | 2,220 | 2,247 | (27) | (1) | % | ||||||||||||||||||
| Declared dividends per share | $ | 0.2875 | $ | 0.2825 | $ | 0.005 | 2 | % | |||||||||||||||
Our consolidated revenues primarily consist of services and sales revenue. Our services revenues include fees for transportation and other midstream services that we perform. Fluctuations in our consolidated services revenue largely reflect changes in volumes and/or in the rates we charge. Our consolidated costs of sales and sales revenues also include purchases and sales of natural gas and products (which means, collectively, NGL, crude oil, CO2 and transmix) and related derivative activity. Our consolidated sales revenue will fluctuate with commodity prices and volumes, and the associated costs of sales
30
will usually have a commensurate and offsetting impact, except for the CO2 segment, which produces, instead of purchases, the crude oil and CO2 it sells. Additionally, fluctuations in revenues and costs of sales may be further impacted by gains or losses from derivative contracts that we use to manage our commodity price risk.
Below is a discussion of significant changes in our Consolidated Earnings Results for the comparable three-month periods ended March 31, 2024 and 2023:
Revenues
Revenues decreased $46 million in 2024 compared to 2023. The decrease was primarily due to lower natural gas sales of $173 million and lower product sales of $15 million driven primarily by lower commodity prices partially offset by higher volumes. Revenues were further reduced by $77 million for the impacts of derivative contracts used to hedge commodity sales which includes both realized and unrealized gains and losses from derivatives. The decrease in revenues was partially offset by an increase in services revenues of $153 million driven by our acquisition of the STX Midstream assets, expansion projects, rate escalations and higher volumes, The decrease in sales revenues was offset by a corresponding decrease in our costs of sales as described below under “Operating Costs, Expenses and Other—Costs of sales.”
Operating Costs, Expenses and Other
Costs of sales
Costs of sales decreased $108 million in 2024 compared to 2023. The decrease was primarily due to lower costs of sales for natural gas of $168 million and for products of $11 million, which were driven primarily by lower commodity prices partially offset by higher volumes, and unfavorably impacted by an increase to costs of sales of $83 million for the impacts of derivative contracts used to hedge commodity purchases which includes both realized and unrealized gains and losses from derivatives.
Operations and Maintenance
Operations and maintenance increased $41 million in 2024 compared to 2023. The increase was primarily driven by higher labor and other expenses, including integrity costs and services and fuel costs, related to greater activity levels and inflation.
Other Income (Expense)
Interest, net
In the table above, we report our interest expense as “net,” meaning that we have subtracted interest income and capitalized interest from our total interest expense to arrive at one interest amount. Our interest expense, net increased $27 million in 2024 compared to 2023. The increase was primarily due to higher average short-term debt balances and higher interest rates associated with our fixed-to-floating interest rate swaps and long-term debt partially offset by lower average long-term debt and fixed-to-floating hedged debt balances.
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Non-GAAP Financial Measures
Reconciliations from Net Income Attributable to Kinder Morgan, Inc.
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions, except per share amounts) | |||||||||||
Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to Adjusted Net Income Attributable to Kinder Morgan, Inc. | |||||||||||
| Net income attributable to Kinder Morgan, Inc. | $ | 746 | $ | 679 | |||||||
| Certain Items(a) | |||||||||||
| Fair value amortization | — | (4) | |||||||||
| Change in fair value of derivative contracts | 50 | (68) | |||||||||
| (Gain) loss on divestitures and impairment, net | (29) | 67 | |||||||||
| Income tax Certain Items | (9) | 1 | |||||||||
| Total Certain Items | 12 | (4) | |||||||||
| Adjusted Net Income Attributable to Kinder Morgan, Inc. | $ | 758 | $ | 675 | |||||||
| Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to Adjusted Net Income Attributable to Common Stock | |||||||||||
| Net income attributable to Kinder Morgan, Inc. | $ | 746 | $ | 679 | |||||||
| Total Certain Items(b) | 12 | (4) | |||||||||
| Net income allocated to participating securities(c) | (4) | (4) | |||||||||
| Adjusted Net Income Attributable to Common Stock | $ | 754 | $ | 671 | |||||||
| Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to DCF | |||||||||||
| Net income attributable to Kinder Morgan, Inc. | $ | 746 | $ | 679 | |||||||
| Total Certain Items(b) | 12 | (4) | |||||||||
| DD&A | 587 | 565 | |||||||||
| Amortization of excess cost of equity investments | 12 | 17 | |||||||||
| Income tax expense(d) | 218 | 195 | |||||||||
| Cash taxes | 2 | (1) | |||||||||
| Sustaining capital expenditures | (169) | (156) | |||||||||
| Amounts from joint ventures | |||||||||||
| Unconsolidated joint venture DD&A | 86 | 81 | |||||||||
| Remove consolidated joint venture partners’ DD&A | (16) | (16) | |||||||||
| Unconsolidated joint venture income tax expense(e)(f) | 22 | 26 | |||||||||
| Unconsolidated joint venture cash taxes(e) | (57) | — | |||||||||
| Unconsolidated joint venture sustaining capital expenditures | (34) | (29) | |||||||||
| Remove consolidated joint venture partners’ sustaining capital expenditures | 3 | 2 | |||||||||
| Other items(g) | 10 | 15 | |||||||||
| DCF | $ | 1,422 | $ | 1,374 | |||||||
Basic weighted average shares outstanding | 2,220 | 2,247 | |||||||||
| Adjusted EPS | $ | 0.34 | $ | 0.30 | |||||||
| Weighted average shares outstanding for dividends(h) | 2,233 | 2,260 | |||||||||
| DCF per share | $ | 0.64 | $ | 0.61 | |||||||
| Declared dividends per share | $ | 0.2875 | $ | 0.2825 | |||||||
(a)See table included in “—Overview—Non-GAAP Financial Measures—Certain Items” above.
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(b)See “—Non-GAAP Financial Measures—Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to Adjusted Net Income Attributable to Kinder Morgan, Inc.” for a detailed listing.
(c)Net income allocated to common stock and participating securities is based on the amount of dividends paid in the current period plus an allocation of the undistributed earnings or excess distributions over earnings to the extent that each security participates in earnings or excess distributions over earnings, as applicable.
(d)To avoid duplication, adjustments for income tax expense for 2024 and 2023 exclude $(9) million and $1 million, respectively, which amounts are already included within “Certain Items.” See table included in “—Overview—Non-GAAP Financial Measures—Certain Items” above.
(e)Associated with our Citrus, NGPL Holdings and Products (SE) Pipe Line equity investments.
(f)Includes the tax provision on Certain Items recognized by the investees that are taxable entities. The impact of KMI’s income tax provision on Certain Items affecting earnings from equity investments is included within “Certain Items.” See table included in “—Overview—Non-GAAP Financial Measures—Certain Items” above.
(g)Includes non-cash pension expense, non-cash compensation associated with our restricted stock program and pension contributions.
(h)Includes restricted stock awards that participate in dividends.
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Reconciliation of Net Income Attributable to Kinder Morgan, Inc. to Adjusted EBITDA | |||||||||||
| Net income attributable to Kinder Morgan, Inc. | $ | 746 | $ | 679 | |||||||
| Certain Items(a) | |||||||||||
| Fair value amortization | — | (4) | |||||||||
| Change in fair value of derivative contracts | 50 | (68) | |||||||||
| (Gain) loss on divestitures and impairment, net | (29) | 67 | |||||||||
| Income tax Certain Items | (9) | 1 | |||||||||
| Total Certain Items | 12 | (4) | |||||||||
| DD&A | 587 | 565 | |||||||||
| Amortization of excess cost of equity investments | 12 | 17 | |||||||||
| Income tax expense(b) | 218 | 195 | |||||||||
| Interest, net(c) | 470 | 453 | |||||||||
| Amounts from joint ventures | |||||||||||
| Unconsolidated joint venture DD&A | 86 | 81 | |||||||||
| Remove consolidated joint venture partners’ DD&A | (16) | (16) | |||||||||
| Unconsolidated joint venture income tax expense(d) | 22 | 26 | |||||||||
| Adjusted EBITDA | $ | 2,137 | $ | 1,996 | |||||||
(a)See table included in “—Overview—Non-GAAP Financial Measures—Certain Items” above.
(b)To avoid duplication, adjustments for income tax expense for 2024 and 2023 exclude $(9) million and $1 million, respectively, which amounts are already included within “Certain Items.” See table included in “—Overview—Non-GAAP Financial Measures—Certain Items” above.
(c)To avoid duplication, adjustments for interest, net for 2024 and 2023 exclude $2 million and $(8) million, respectively, which amounts are already included within “Certain Items.” See table included in “—Overview—Non-GAAP Financial Measures—Certain Items,” above.
(d)Includes that tax provision on Certain Items recognized by the investees that are taxable entities associated with our Citrus, NGPL Holdings and Products (SE) Pipe Line equity investments. The impact of KMI’s income tax provision on Certain Items affecting earnings from equity investments is included within “Certain Items” above.
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Below is a discussion of significant changes in our Adjusted Net Income Attributable to Kinder Morgan, Inc., DCF and Adjusted EBITDA:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Adjusted Net Income Attributable to Kinder Morgan, Inc. | $ | 758 | $ | 675 | |||||||
| DCF | 1,422 | 1,374 | |||||||||
| Adjusted EBITDA | 2,137 | 1,996 | |||||||||
| Change from prior period | Increase/(Decrease) | ||||||||||
| Adjusted Net Income Attributable to Kinder Morgan, Inc. | $ | 83 | |||||||||
| DCF | $ | 48 | |||||||||
| Adjusted EBITDA | $ | 141 | |||||||||
Adjusted Net Income Attributable to Kinder Morgan, Inc. increased $83 million in 2024 compared to 2023. The increase was primarily driven by favorable margins from our Natural Gas Pipelines, Products Pipelines and Terminals business segments, all of which were also primary drivers of the $48 million and $141 increases in 2024 compared to 2023 in DCF and Adjusted EBITDA, respectively. The increase in DCF was also unfavorably impacted by an increase in tax payments associated with taxable joint ventures and sustaining capital expenditures.
General and Administrative and Corporate Charges
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| General and administrative | $ | (175) | $ | (166) | |||||||
| Corporate charges | (5) | (13) | |||||||||
| General and administrative and corporate charges | $ | (180) | $ | (179) | |||||||
| Change from prior period | Earnings increase/(decrease) | ||||||||||
| General and administrative | $ | (9) | |||||||||
| Corporate charges | 8 | ||||||||||
Total | $ | (1) | |||||||||
Compared to 2023, 2024 general and administrative expenses increased $9 million primarily due to higher labor and benefit-related costs and 2024 corporate charges decreased $8 million primarily due to lower pension costs.
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Reconciliation of Segment EBDA to Adjusted Segment EBDA
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions) | |||||||||||
| Segment EBDA(a) | |||||||||||
| Natural Gas Pipelines Segment EBDA | $ | 1,514 | $ | 1,495 | |||||||
| Certain Items(b) | |||||||||||
| Change in fair value of derivative contracts | 39 | (65) | |||||||||
| Gain on divestiture | (29) | — | |||||||||
| Natural Gas Pipelines Adjusted Segment EBDA | $ | 1,524 | $ | 1,430 | |||||||
| Products Pipelines Segment EBDA | $ | 292 | $ | 184 | |||||||
| Certain Items(b) | |||||||||||
| Change in fair value of derivative contracts | 1 | — | |||||||||
| Loss on impairment | — | 67 | |||||||||
| Products Pipelines Adjusted Segment EBDA | $ | 293 | $ | 251 | |||||||
| Terminals Segment EBDA | $ | 269 | $ | 254 | |||||||
CO2 Segment EBDA | $ | 158 | $ | 172 | |||||||
| Certain Items(b) | |||||||||||
| Change in fair value of derivative contracts | 8 | 1 | |||||||||
CO2 Adjusted Segment EBDA | $ | 166 | $ | 173 | |||||||
(a)Includes revenues, earnings from equity investments, operating expenses, gain on divestitures, net, other income, net, and other, net. Operating expenses include costs of sales, operations and maintenance expenses, and taxes, other than income taxes. See “—Overview—GAAP Financial Measures” above.
(b)See “—Overview—Non-GAAP Financial Measures—Certain Items” above.
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Segment Earnings Results
Natural Gas Pipelines
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions, except operating statistics) | |||||||||||
| Revenues | $ | 2,336 | $ | 2,466 | |||||||
| Costs of sales | (731) | (865) | |||||||||
| Other operating expenses | (344) | (312) | |||||||||
| Gain on divestitures, net | 29 | — | |||||||||
| Other income | 9 | 1 | |||||||||
| Earnings from equity investments | 215 | 200 | |||||||||
| Other, net | — | 5 | |||||||||
| Segment EBDA | 1,514 | 1,495 | |||||||||
| Certain Items: | |||||||||||
| Change in fair value of derivative contracts | 39 | (65) | |||||||||
| Gain on divestiture | (29) | — | |||||||||
| Certain Items(a) | 10 | (65) | |||||||||
| Adjusted Segment EBDA | $ | 1,524 | $ | 1,430 | |||||||
| Change from prior period | Increase/(Decrease) | ||||||||||
| Segment EBDA | $ | 19 | |||||||||
| Adjusted Segment EBDA | $ | 94 | |||||||||
| Volumetric data(b) | |||||||||||
| Transport volumes (BBtu/d) | 41,432 | 40,429 | |||||||||
| Sales volumes (BBtu/d) | 2,563 | 2,117 | |||||||||
| Gathering volumes (BBtu/d) | 3,584 | 3,069 | |||||||||
| NGLs (MBbl/d) | 37 | 33 | |||||||||
(a)See table included in “—Overview—Non-GAAP Financial Measures—Certain Items” above. 2024 and 2023 Certain Items of (i) $10 million and $(63) million, respectively, are associated with our Midstream business and (ii) none and $(2) million, respectively, are associated with our East business. For more detail of significant Certain Items, see the discussion of changes in Segment EBDA below.
(b)Joint venture throughput is reported at our ownership share. Volumes for acquired assets are included for all periods presented, except for volumes associated with NET Mexico, Eagle Ford Transmission, Dos Caminos and Mission Natural Gas which are excluded from both periods. However, EBDA contributions from acquisitions are included only for the periods subsequent to their acquisition. Volumes for assets sold are excluded for all periods presented.
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Below are the changes in Segment EBDA:
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | increase/ (decrease) | |||||||||||||||
| (In millions) | |||||||||||||||||
| East | $ | 745 | $ | 696 | $ | 49 | |||||||||||
| West | 265 | 259 | 6 | ||||||||||||||
| Midstream | 504 | 540 | (36) | ||||||||||||||
| Total Natural Gas Pipelines | $ | 1,514 | $ | 1,495 | $ | 19 | |||||||||||
The changes in Natural Gas Pipelines Segment EBDA in the comparable three-month periods ended March 31, 2024 and 2023 are explained by the following discussion:
•The $49 million (7%) increase in East was primarily due to (i) higher revenues on our Stagecoach assets as a result of increased demand for its services and favorable pricing and (ii) higher revenues on TGP due to an expansion project that went into service in November 2023 and favorable pricing on services reduced by higher pipeline maintenance costs, partially offset by lower equity earnings from Midcontinent Express Pipeline LLC that were driven by customer contracts negotiated at lower rates.
•The $6 million (2%) increase in West was primarily due to increased earnings from Wyoming Interstate Company, L.L.C., Cheyenne Plains Gas Pipeline Company, L.L.C. and Colorado Interstate Gas Company, L.L.C. driven by increased transportation revenues due in part to favorable services pricing and an insurance settlement received by EPNG in the 2024 period, all of which were partially offset by overall decreased earnings on EPNG resulting from lower gas sales margin.
•The $36 million (7%) decrease in Midstream resulted from the impacts of non-cash mark-to-market derivative contracts used to hedge forecasted commodity sales and purchases, which increased costs of sales and, to a lesser extent, decreased revenues, and partially offset by a gain on sale of assets in the 2024 period, all of which we treated as Certain Items.
In addition, Midstream was favorably impacted by our December 2023 acquisition of the STX Midstream assets and higher earnings on our KinderHawk assets driven by increased volumes partially offset by lower sales margins on our Texas intrastate natural gas pipeline operations largely driven by lower commodity prices that were partly reduced by higher services revenues due to increased volumes.
Overall, Midstream’s revenue changes are partially offset by corresponding changes in costs of sales.
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Products Pipelines
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions, except operating statistics) | |||||||||||
| Revenues | $ | 728 | $ | 668 | |||||||
| Costs of sales | (349) | (327) | |||||||||
| Other operating expenses | (104) | (113) | |||||||||
| Earnings from equity investments | 17 | (44) | |||||||||
| Segment EBDA | 292 | 184 | |||||||||
| Certain Items: | |||||||||||
| Change in fair value of derivative contracts | 1 | — | |||||||||
| Loss on impairment | — | 67 | |||||||||
| Certain Items(a) | 1 | 67 | |||||||||
| Adjusted Segment EBDA | $ | 293 | $ | 251 | |||||||
| Change from prior period | Increase/(Decrease) | ||||||||||
| Segment EBDA | $ | 108 | |||||||||
| Adjusted Segment EBDA | $ | 42 | |||||||||
| Volumetric data(b) | |||||||||||
| Gasoline(c) | 924 | 948 | |||||||||
| Diesel fuel | 335 | 328 | |||||||||
| Jet fuel | 274 | 271 | |||||||||
| Total refined product volumes | 1,533 | 1,547 | |||||||||
| Crude and condensate | 456 | 460 | |||||||||
| Total delivery volumes (MBbl/d) | 1,989 | 2,007 | |||||||||
(a)See table included in “—Overview—Non-GAAP Financial Measures—Certain Items” above. 2024 and 2023 Certain Items of (i) $1 million and none, respectively, are associated with our Southeast Refined Products business and (ii) none and $67 million, respectively, are associated with our Crude and Condensate business. For more detail of significant Certain Items, see the discussion of changes in Segment EBDA below.
(b)Joint venture throughput is reported at our ownership share.
(c)Volumes include ethanol pipeline volumes.
38
Below are the changes in Products Pipelines Segment EBDA:
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | increase/ (decrease) | |||||||||||||||
| (In millions) | |||||||||||||||||
| Crude and Condensate | $ | 75 | $ | 5 | $ | 70 | |||||||||||
| West Coast Refined Products | 140 | 108 | 32 | ||||||||||||||
| Southeast Refined Products | 77 | 71 | 6 | ||||||||||||||
| Total Products Pipelines | $ | 292 | $ | 184 | $ | 108 | |||||||||||
The changes in Products Pipelines Segment EBDA in the comparable three-month periods ended March 31, 2024 and 2023 are explained by the following discussion:
•The $70 million (1,400%) increase in Crude and Condensate resulted from a $67 million non-cash impairment related to our investment in Double Eagle Pipeline LLC, which decreased equity earnings in the 2023 period, and which we treated as a Certain Item.
In addition, Crude and Condensate was favorably impacted by higher earnings from our KM Condensate Processing facility driven by increased revenues from rate escalations and higher volumes, and lower pipeline maintenance costs offset by a decrease in equity earnings, excluding the impairment discussed above, from Double Eagle Pipeline LLC due to recontracting at lower volumes. Our Crude and Condensate business also had higher revenues with a corresponding increase in costs of sales, resulting primarily from increased volumes.
•The $32 million (30%) increase in West Coast Refined Products was impacted by increased earnings from our Pacific operations as a result of higher renewable diesel revenues, higher transportation rates, and lower operating costs driven by favorable net changes in product gains and losses.
•The $6 million (8%) increase in Southeast Refined Products was driven by (i) higher earnings at our Transmix processing operations primarily due to favorable product pricing and (ii) an increase in equity earnings from Products (SE) Pipe Line that primarily benefited from higher rates.
39
Terminals
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions, except operating statistics) | |||||||||||
| Revenues | $ | 496 | $ | 461 | |||||||
| Costs of sales | (10) | (5) | |||||||||
| Other operating expenses | (221) | (205) | |||||||||
| Gain on divestitures, net | 2 | — | |||||||||
| Earnings from equity investments | 2 | 2 | |||||||||
| Other, net | — | 1 | |||||||||
| Segment EBDA | $ | 269 | $ | 254 | |||||||
| Change from prior period | Increase/(Decrease) | ||||||||||
| Segment EBDA | $ | 15 | |||||||||
| Volumetric data(a) | |||||||||||
| Liquids leasable capacity (MMBbl) | 78.6 | 78.5 | |||||||||
| Liquids utilization %(b) | 93.8 | % | 92.8 | % | |||||||
| Bulk transload tonnage (MMtons) | 13.5 | 13.4 | |||||||||
(a)Volumes for facilities divested, idled and/or held for sale are excluded for all periods presented.
(b)The ratio of our tankage capacity in service to liquids leasable capacity.
For purposes of the following tables and related discussions, the results of operations of our terminals held for sale or divested, including any associated gain or loss on sale, are reclassified for all periods presented from the historical business grouping and included within the Other group.
Below are the changes in Terminals Segment EBDA:
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | increase/ (decrease) | |||||||||||||||
| (In millions) | |||||||||||||||||
| Liquids | $ | 161 | $ | 149 | $ | 12 | |||||||||||
| Jones Act tankers | 45 | 41 | 4 | ||||||||||||||
| Bulk | 61 | 64 | (3) | ||||||||||||||
| Other | 2 | — | 2 | ||||||||||||||
| Total Terminals | $ | 269 | $ | 254 | $ | 15 | |||||||||||
The changes in Terminals Segment EBDA in the comparable three-month periods ended March 31, 2024 and 2023 are explained by the following discussion:
•The $12 million (8%) increase in Liquids was primarily due to increased revenues associated with contributions from expansion projects, contractual rate escalations, re-contracting at higher rates and increased utilization partially offset by higher maintenance and labor expense.
•The $4 million (10%) increase in Jones Act tankers was primarily due to higher average charter rates and lower maintenance expense.
•The $3 million (5%) decrease in Bulk was primarily due to costs incurred related to heavy inbound barge traffic at our
40
International Marine Terminal, higher labor and maintenance expense and lower revenues from petcoke handling activities resulting from refinery turnarounds and unplanned outages partially offset by an increase in revenues driven by increased handling activities and related ancillaries for coal and soda ash.
CO2
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In millions, except operating statistics) | |||||||||||
| Revenues | $ | 288 | $ | 297 | |||||||
| Costs of sales | (21) | (21) | |||||||||
| Other operating expenses | (119) | (111) | |||||||||
| Gain on divestitures, net | 1 | — | |||||||||
| Earnings from equity investments | 9 | 7 | |||||||||
| Segment EBDA | 158 | 172 | |||||||||
| Certain Items: | |||||||||||
| Change in fair value of derivative contracts | 8 | 1 | |||||||||
| Certain Items(a) | 8 | 1 | |||||||||
| Adjusted Segment EBDA | $ | 166 | $ | 173 | |||||||
| Change from prior period | Increase/(Decrease) | ||||||||||
| Segment EBDA | $ | (14) | |||||||||
| Adjusted Segment EBDA | $ | (7) | |||||||||
Volumetric data(b) | |||||||||||
SACROC oil production | 19.11 | 19.26 | |||||||||
| Yates oil production | 6.25 | 6.74 | |||||||||
| Other | 2.05 | 2.61 | |||||||||
Total oil production, net (MBbl/d)(c) | 27.41 | 28.61 | |||||||||
NGL sales volumes, net (MBbl/d)(c) | 8.87 | 8.16 | |||||||||
CO2 sales volumes, net (Bcf/d) | 0.335 | 0.362 | |||||||||
| RNG sales volumes (BBtu/d) | 7 | 5 | |||||||||
| Realized weighted average oil price ($ per Bbl) | $ | 68.70 | $ | 67.15 | |||||||
| Realized weighted average NGL price ($ per Bbl) | $ | 28.23 | $ | 34.06 | |||||||
(a)See table included in “—Overview—Non-GAAP Financial Measures—Certain Items” above. 2024 and 2023 Certain Items are associated with our Oil and Gas Producing activities. For more detail of significant Certain Items, see the discussion of changes in Segment EBDA below.
(b)Volumes for acquired assets are included for all periods presented, however, EBDA contributions from acquisitions are included only for the periods subsequent to their acquisition.
(c)Net of royalties and outside working interests.
41
Below are the changes in CO2 Segment EBDA:
| Three Months Ended March 31, | |||||||||||||||||
| 2024 | 2023 | increase/ (decrease) | |||||||||||||||
| (In millions) | |||||||||||||||||
| Oil and Gas Producing activities | $ | 107 | $ | 118 | $ | (11) | |||||||||||
| Source and Transportation activities | 48 | 49 | (1) | ||||||||||||||
| Subtotal | 155 | 167 | (12) | ||||||||||||||
| Energy Transition Ventures | 3 | 5 | (2) | ||||||||||||||
Total CO2 | $ | 158 | $ | 172 | $ | (14) | |||||||||||
The changes in CO2 Segment EBDA in the comparable three-month periods ended March 31, 2024 and 2023 are explained by the following discussion:
•The $11 million (9%) decrease in Oil and Gas Producing activities resulted from non-cash mark-to-market derivative hedge contracts which decreased revenues, and which we treated as Certain Items.
In addition, Oil and Gas Producing activities was impacted by higher power costs.
•The $1 million (2%) decrease in Source and Transportation activities was primarily due to lower revenues related to lower CO2 sales volumes.
•The $2 million (40%) decrease in Energy Transition Ventures was primarily due to higher operating expenses.
We believe that our existing hedge contracts in place within our CO2 business segment substantially mitigate commodity price sensitivities in the near-term and to a lesser extent over the following few years from price exposure. Below is a summary of our CO2 business segment hedges outstanding as of March 31, 2024:
| Remaining 2024 | 2025 | 2026 | 2027 | 2028 | |||||||||||||||||||||||||
| Crude Oil(a) | |||||||||||||||||||||||||||||
| Price ($ per Bbl) | $ | 66.16 | $ | 64.52 | $ | 65.35 | $ | 64.67 | $ | 63.18 | |||||||||||||||||||
| Volume (MBbl/d) | 22.73 | 14.05 | 9.20 | 4.70 | 0.30 | ||||||||||||||||||||||||
| NGLs | |||||||||||||||||||||||||||||
| Price ($ per Bbl) | $ | 47.77 | $ | 34.26 | |||||||||||||||||||||||||
| Volume (MBbl/d) | 3.84 | 0.08 | |||||||||||||||||||||||||||
(a)Includes WTI hedges.
Liquidity and Capital Resources
General
As of March 31, 2024, we had $119 million of “Cash and cash equivalents,” an increase of $36 million from December 31, 2023. Additionally, as of March 31, 2024, we had borrowing capacity of approximately $2.9 billion under our credit facility (discussed below in “—Short-term Liquidity”). As discussed further below, we believe our cash flows from operating activities, cash position and remaining borrowing capacity on our credit facility is more than adequate to allow us to manage our day-to-day cash requirements and anticipated obligations.
We have consistently generated substantial cash flows from operations, providing a source of funds of $1,189 million and $1,333 million in the first three months of 2024 and 2023, respectively. The period-to-period decrease is discussed below in “—Cash Flows—Operating Activities.” We primarily rely on cash flow provided by operations to fund our operations as well as our debt service, sustaining capital expenditures, dividend payments and our expansion capital expenditures; however, we may access the debt capital markets from time to time to refinance our maturing long-term debt and finance incremental
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investments, if any. From time to time, our short-term debt borrowings are used to finance our expansion capital expenditures, which we may periodically replace with long-term financing and/or pay down using retained cash from operations.
We use interest rate swap agreements to convert a portion of the underlying cash flows related to our long-term fixed rate debt securities (senior notes) into variable rate debt in order to achieve our desired mix of fixed and variable rate debt. As of March 31, 2024 and December 31, 2023, approximately $6,539 million (20%) and $8,253 million (26%), respectively, of the principal amount of our debt balances were subject to variable interest rates—either as short-term or long-term variable-rate debt obligations or as fixed-rate debt converted to variable rates through the use of interest rate swaps. The amounts at March 31, 2024 and December 31, 2023 include $525 million and $1,989 million of commercial paper notes, respectively. For more information on our interest rate swaps, see Note 6 “Risk Management—Interest Rate Risk Management” to our consolidated financial statements.
Our board of directors declared a quarterly dividend of $0.2875 per share for the first quarter of 2024, a 2% increase over the dividend declared for the first quarter of 2023.
On February 1, 2024, we issued in a registered offering, two series of senior notes consisting of $1,250 million aggregate principal amount of 5.00% senior notes due 2029 and $1,000 million aggregate principal amount of 5.40% senior notes due 2034 for combined net proceeds of $2,230 million, which were used to repay short-term borrowings, fund maturing debt and for general corporate purposes.
During the three months ended March 31, 2024, upon maturity, we repaid our 4.15% senior notes.
Short-term Liquidity
As of March 31, 2024, our principal sources of short-term liquidity are (i) cash from operations; and (ii) our $3.5 billion credit facility with an available capacity of approximately $2.9 billion and an associated $3.5 billion commercial paper program. The loan commitments under our credit facility can be used for working capital and other general corporate purposes and as a backup to our commercial paper program. Commercial paper borrowings and letters of credit reduce borrowings allowed under our $3.5 billion credit facility. We provide for liquidity by maintaining a sizable amount of excess borrowing capacity under our credit facility and, as previously discussed, have consistently generated strong cash flows from operations.
As of March 31, 2024, our $1,975 million of short-term debt consisted primarily of senior notes that mature in the next twelve months and outstanding commercial paper borrowings. We intend to fund our debt as it becomes due, primarily through credit facility borrowings, commercial paper borrowings, cash flows from operations and/or issuing new long-term debt. Our short-term debt as of December 31, 2023 was $4,049 million.
We had working capital (defined as current assets less current liabilities) deficits of $2,268 million and $4,679 million as of March 31, 2024 and December 31, 2023, respectively. The overall $2,411 million favorable change from year-end 2023 was primarily due to (i) a $1,464 million decrease in commercial paper borrowings resulting from refinancing of a portion of our short-term borrowings into long-term debt with the issuance of senior notes in 2024; (ii) a $650 million decrease in senior notes that mature in the next twelve months; (iii) a $148 million decrease in accrued interest; (iv) a $121 million decrease in other current liabilities, primarily related to reductions in bonus accruals and cash margins; and (v) a $108 million net favorable change in our accounts receivables and payables, partially offset by unfavorable net short-term fair value adjustments of $136 million on derivative contract assets and liabilities in 2024. Generally, our working capital varies due to factors such as the timing of scheduled debt payments, timing differences in the collection and payment of receivables and payables, the change in fair value of our derivative contracts and changes in our cash and cash equivalents as a result of excess cash from operations after payments for investing and financing activities.
Capital Expenditures
We account for our capital expenditures in accordance with GAAP. Additionally, we distinguish between capital expenditures as follows:
| Type of Expenditure | Physical Determination of Expenditure | |||||||
| Sustaining capital expenditures | •Investments to maintain the operational integrity and extend the useful life of our assets | |||||||
| Expansion capital expenditures (discretionary capital expenditures) | •Investments to expand throughput or capacity from that which existed immediately prior to the making or acquisition of additions or improvements | |||||||
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Budgeting of maintenance capital expenditures, which we refer to as sustaining capital expenditures, is done annually on a bottom-up basis. For each of our assets, we budget for and make those sustaining capital expenditures that are necessary to maintain safe and efficient operations, meet customer needs and comply with our operating policies and applicable law. We may budget for and make additional sustaining capital expenditures that we expect to produce economic benefits such as increasing efficiency and/or lowering future expenses. Budgeting and approval of expansion capital expenditures generally occurs periodically throughout the year on a project-by-project basis in response to specific investment opportunities identified by our business segments from which we generally expect to receive sufficient returns to justify the expenditures. Assets comprising expansion capital projects could result in additional sustaining capital expenditures over time. The need for sustaining capital expenditures in respect of newly constructed assets tends to be minimal but tends to increase over time as such assets age and experience wear and tear. Regardless of whether assets result from sustaining or expansion capital expenditures, once completed, the addition of such assets to our depreciable asset base will impact our calculation of depreciation, depletion and amortization over the remaining useful lives of the impacted or resulting assets.
Generally, the determination of whether a capital expenditure is classified as sustaining or as expansion capital expenditures is made on a project level. The classification of our capital expenditures as expansion capital expenditures or as sustaining capital expenditures is made consistent with our accounting policies and is generally a straightforward process, but in certain circumstances can be a matter of management judgment and discretion. The classification has an impact on DCF because capital expenditures that are classified as expansion capital expenditures are not deducted in calculating DCF, while those classified as sustaining capital expenditures are.
Our capital expenditures for the three months ended March 31, 2024, and the amount we expect to spend for the remainder of 2024 to sustain our assets and expand our business are as follows:
Three Months Ended March 31, 2024 | 2024 Remaining | Total 2024 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Capital expenditures: | |||||||||||||||||
| Sustaining capital expenditures | $ | 169 | $ | 814 | $ | 983 | |||||||||||
| Expansion capital expenditures | 358 | 1,657 | 2,015 | ||||||||||||||
| Accrued capital expenditures, contractor retainage and other | 92 | — | — | ||||||||||||||
| Capital expenditures | $ | 619 | $ | 2,471 | $ | 2,998 | |||||||||||
| Add: | |||||||||||||||||
| Sustaining capital expenditures of unconsolidated joint ventures(a) | $ | 34 | $ | 164 | $ | 198 | |||||||||||
| Investments in unconsolidated joint ventures(b) | 21 | 139 | 160 | ||||||||||||||
| Less: Consolidated joint venture partners’ sustaining capital expenditures | (3) | (9) | (12) | ||||||||||||||
| Less: Consolidated joint venture partners’ expansion capital expenditures | (5) | (19) | (24) | ||||||||||||||
| Accrued capital expenditures, contractor retainage and other | (92) | — | — | ||||||||||||||
| Total capital investments | $ | 574 | $ | 2,746 | $ | 3,320 | |||||||||||
(a)Sustaining capital expenditures by our joint ventures generally do not require cash outlays by us.
(b)Reflects cash contributions to unconsolidated joint ventures. Also includes contributions to an unconsolidated joint venture that are netted within the amount the joint venture declares as a distribution to us.
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Our capital investments consist of the following:
Three Months Ended March 31, 2024 | 2024 Remaining | Total 2024 | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Sustaining capital investments | ||||||||||||||||||||
| Capital expenditures for property, plant and equipment | $ | 169 | $ | 814 | $ | 983 | ||||||||||||||
| Sustaining capital expenditures of unconsolidated joint ventures(a) | 34 | 164 | 198 | |||||||||||||||||
| Less: Consolidated joint venture partners’ sustaining capital expenditures | (3) | (9) | (12) | |||||||||||||||||
| Total sustaining capital investments | 200 | 969 | 1,169 | |||||||||||||||||
| Expansion capital investments | ||||||||||||||||||||
| Capital expenditures for property, plant and equipment | 358 | 1,657 | 2,015 | |||||||||||||||||
| Investments in unconsolidated joint ventures(b) | 21 | 139 | 160 | |||||||||||||||||
| Less: Consolidated joint venture partners’ expansion capital expenditures | (5) | (19) | (24) | |||||||||||||||||
| Total expansion capital investments | 374 | 1,777 | 2,151 | |||||||||||||||||
| Total capital investments | $ | 574 | $ | 2,746 | $ | 3,320 | ||||||||||||||
(a)Sustaining capital expenditures by our joint ventures generally do not require cash outlays by us.
(b)Reflects cash contributions to unconsolidated joint ventures. Also includes contributions to an unconsolidated joint venture that are netted within the amount the joint venture declares as a distribution to us.
Off Balance Sheet Arrangements
There have been no material changes in our obligations with respect to other entities that are not consolidated in our financial statements that would affect the disclosures presented as of December 31, 2023 in our 2023 Form 10-K.
Commitments for the purchase of property, plant and equipment as of March 31, 2024 and December 31, 2023 were $525 million and $469 million, respectively. The increase of $56 million was primarily driven by capital commitments related to our Terminals, Natural Gas Pipelines and CO2 business segments.
Cash Flows
The following table summarizes our net cash flows provided by (used in) operating, investing and financing activities between 2024 and 2023.
| Three Months Ended March 31, | ||||||||||||||||||||
| 2024 | 2023 | Changes | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Net Cash Provided by (Used in) | ||||||||||||||||||||
| Operating activities | $ | 1,189 | $ | 1,333 | $ | (144) | ||||||||||||||
| Investing activities | (572) | (508) | (64) | |||||||||||||||||
| Financing activities | (570) | (1,181) | 611 | |||||||||||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Deposits | $ | 47 | $ | (356) | $ | 403 | ||||||||||||||
Operating Activities
$144 million less cash provided by operating activities in the comparable three-month periods ended March 31, 2024 and 2023 is explained by the following discussion:
•a $245 million decrease in cash associated with net changes in working capital items and other non-current assets and liabilities. The decrease was primarily driven by (i) net unfavorable changes related to the timing of accounts
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receivable collections and trade payable payments, largely in our Natural Gas Pipelines business segment; and (ii) settlements associated with commodity hedges in the 2023 period related to gas in underground storage.
Investing Activities
$64 million more cash used in investing activities in the comparable three-month periods ended March 31, 2024 and 2023 is explained by the following discussion:
•a $112 million increase in capital expenditures primarily driven by expansion projects in our Natural Gas Pipelines business segment; partially offset by
•a $47 million increase in cash in Other, net, primarily driven by net proceeds received from a sale of assets in our Natural Gas Pipelines business segment in the 2024 period.
Financing Activities
$611 million less cash used in financing activities in the comparable three-month periods ended March 31, 2024 and 2023 is explained by the following discussion:
•a $507 million decrease in cash used related to debt activity as a result of net issuances in the 2024 period compared to net payments in the 2023 period; and
•a $106 million decrease in cash used for share repurchases under our share buy-back program.
Dividends
We expect to declare dividends of $1.15 per share on our stock for 2024. The table below reflects our 2024 dividends declared:
| Three months ended | Total quarterly dividend per share for the period | Date of declaration | Date of record | Date of dividend | ||||||||||||||||||||||
| March 31, 2024 | $ | 0.2875 | April 17, 2024 | April 30, 2024 | May 15, 2024 | |||||||||||||||||||||
The actual amount of dividends to be paid on our capital stock will depend on many factors, including our financial condition and results of operations, liquidity requirements, business prospects, capital requirements, legal, regulatory and contractual constraints, tax laws, Delaware laws and other factors. See Item 1A. “Risk Factors—Risks Related to Ownership of Our Capital Stock—The guidance we provide for our anticipated dividends is based on estimates. Circumstances may arise that lead to conflicts between using funds to pay anticipated dividends or to invest in our business.” of our 2023 Form 10-K. All of these matters will be taken into consideration by our board of directors when declaring dividends.
Our dividends are not cumulative. Consequently, if dividends on our stock are not paid at the intended levels, our stockholders are not entitled to receive those payments in the future. Our dividends generally will be paid on or about the 15th day of each February, May, August and November.
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Summarized Combined Financial Information for Guarantee of Securities of Subsidiaries
KMI and certain subsidiaries (Subsidiary Issuers) are issuers of certain debt securities. KMI and substantially all of KMI’s wholly owned domestic subsidiaries (Subsidiary Guarantors), are parties to a cross guarantee agreement whereby each party to the agreement unconditionally guarantees, jointly and severally, the payment of specified indebtedness of each other party to the agreement. Accordingly, with the exception of certain subsidiaries identified as subsidiary non-guarantors (Subsidiary Non-Guarantors), the parent issuer, Subsidiary Issuers and Subsidiary Guarantors (the “Obligated Group”) are all guarantors of each series of our guaranteed debt (Guaranteed Notes). As a result of the cross guarantee agreement, a holder of any of the Guaranteed Notes issued by KMI or a Subsidiary Issuer is in the same position with respect to the net assets, and income of KMI and the Subsidiary Issuers and Guarantors. The only amounts that are not available to the holders of each of the Guaranteed Notes to satisfy the repayment of such securities are the net assets, and income of the Subsidiary Non-Guarantors.
In lieu of providing separate financial statements for the Obligated Group, we have presented the accompanying supplemental summarized combined income statement and balance sheet information for the Obligated Group based on Rule 13-01 of the SEC’s Regulation S-X. Also, see Exhibit 10.1 to this Report “Cross Guarantee Agreement, dated as of November 26, 2014, among KMI and certain of its subsidiaries, with schedules updated as of March 31, 2024.”
All significant intercompany items among the Obligated Group have been eliminated in the supplemental summarized combined financial information. The Obligated Group’s investment balances in Subsidiary Non-Guarantors have been excluded from the supplemental summarized combined financial information. Significant intercompany balances and activity for the Obligated Group with other related parties, including Subsidiary Non-Guarantors, (referred to as “affiliates”) are presented separately in the accompanying supplemental summarized combined financial information.
Excluding fair value adjustments, as of March 31, 2024 and December 31, 2023, the Obligated Group had $31,291 million and $31,167 million, respectively, of Guaranteed Notes outstanding.
Summarized combined balance sheet and income statement information for the Obligated Group follows:
| Summarized Combined Balance Sheet Information | March 31, 2024 | December 31, 2023 | |||||||||
| (In millions) | |||||||||||
| Current assets | $ | 2,004 | $ | 2,246 | |||||||
| Current assets - affiliates | 799 | 760 | |||||||||
| Noncurrent assets | 62,764 | 62,877 | |||||||||
| Noncurrent assets - affiliates | 848 | 903 | |||||||||
| Total Assets | $ | 66,415 | $ | 66,786 | |||||||
| Current liabilities | $ | 4,227 | 6,907 | ||||||||
| Current liabilities - affiliates | 834 | 734 | |||||||||
| Noncurrent liabilities | 34,044 | 31,681 | |||||||||
| Noncurrent liabilities - affiliates | 1,366 | 1,306 | |||||||||
| Total Liabilities | 40,471 | 40,628 | |||||||||
| Kinder Morgan, Inc.’s stockholders’ equity | 25,944 | 26,158 | |||||||||
| Total Liabilities and Stockholders’ Equity | $ | 66,415 | $ | 66,786 | |||||||
| Summarized Combined Income Statement Information | Three Months Ended March 31, 2024 | ||||
| (In millions) | |||||
| Revenues | $ | 3,500 | |||
| Operating income | 1,087 | ||||
| Net income | 630 | ||||
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in market risk exposures that would affect the quantitative and qualitative disclosures presented as of December 31, 2023, in Part II, Item 7A in our 2023 Form 10-K. For more information on our risk management activities, refer to Item 1, Note 6 “Risk Management” to our consolidated financial statements.
Item 4. Controls and Procedures.
As of March 31, 2024, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of the evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There has been no change in our internal control over financial reporting during the quarter ended March 31, 2024 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See Part I, Item 1, Note 10 to our consolidated financial statements entitled “Litigation and Environmental” which is incorporated in this item by reference.
Item 1A. Risk Factors.
There have been no material changes in the risk factors disclosed in Part I, Item 1A in our 2023 Form 10-K. For more information on our risk management activities, refer to Part I, Item 1, Note 6 “Risk Management” to our consolidated financial statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Our Purchases of Our Class P Stock
(During the quarter ended March 31, 2024)
| Settlement Period | Total number of securities purchased(a) | Average price paid per security(b) | Total number of securities purchased as part of publicly announced plans(a) | Approximate dollar value of securities that may yet be purchased under the plans or programs(a) | ||||||||||||||||||||||
| January 1 to January 31, 2024 | — | $ | — | — | $ | 1,535,434,677 | ||||||||||||||||||||
| February 1 to February 29, 2024 | 438,529 | 16.50 | 438,529 | 1,528,199,877 | ||||||||||||||||||||||
| March 1 to March 31, 2024 | — | — | — | 1,528,199,877 | ||||||||||||||||||||||
| Total | 438,529 | $ | 16.50 | 438,529 | $ | 1,528,199,877 | ||||||||||||||||||||
(a)On January 18, 2023, we announced that our board of directors had approved a $1 billion increase in our share repurchase program, that was previously announced on July 19, 2017, for an aggregate share repurchase authorization of $3 billion.
(b)Amount includes any commission or other costs to repurchase shares.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Except for one terminal facility that is in temporary idle status with the Mine Safety and Health Administration, we do not own or operate mines for which reporting requirements apply under the mine safety disclosure requirements of the Dodd-Frank Act. We have not received any specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events requiring disclosure pursuant to the mine safety disclosure requirements of Dodd-Frank Act for the quarter ended March 31, 2024.
Item 5. Other Information.
During the quarter ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted terminated
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Item 6. Exhibits.
| Exhibit Number | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 4.1 | ||||||||
| 10.1 | ||||||||
| 22.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101 | Interactive data files (formatted as Inline XBRL). | |||||||
| 104 | Cover page interactive data file (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| KINDER MORGAN, INC. | ||||||||
| Registrant | ||||||||
| Date: | April 19, 2024 | By: | /s/ David P. Michels | ||||||||||||||
| David P. Michels Vice President and Chief Financial Officer (principal financial and accounting officer) | |||||||||||||||||
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