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Kinder Morgan gets big first-quarter lift from gas price volatility due to Texas freeze

Highlights

Greater margins outweigh overall volume decline

Asset reliability spurs new commercial interest: CEO

Houston — Kinder Morgan swung to a sizable profit in the first quarter versus a year-ago loss despite lower overall natural gas transportation volumes as it benefitted from greater margins on its Texas intrastate system amid substantial spot market price volatility caused by the February freeze.

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The financial results released April 21 come as the North American midstream sector continues to recover a year after the first impacts to demand from the coronavirus pandemic began to occur.

While weather negatively affected operations in the most recent quarter for some operators of pipelines, processing facilities and LNG export terminals, those that were able to keep infrastructure online during the coldest temperatures in decades to hit the US Gulf Coast region saw a boost in the latest quarter. In Kinder Morgan's case, its storage assets, along with gas it purchased before and during the storm, allowed it to deliver significant volumes of gas at contractual or prevailing prices, in some cases to customers that normally get their gas elsewhere.

"We were prepared, and that preparation served us well," CEO Steve Kean said during an investor conference call. "We were on maximum withdrawals for days at several of our fields."

Looking ahead, while seasonal maintenance is expected to be a factor heading into the summer for midstream companies, fundamentals are relatively strong. With vaccines rolling out, the economic recovery driving gas pipeline volumes should continue.

Kinder Morgan said it was raising its full-year financial outlook. For 2021, it now expects net income attributable to Kinder Morgan in a range of $2.7 billion-$2.9 billion. That represents a significant upward revision from the estimate it released in January of full-year earnings of $2.1 billion.

The company will use the extra cash to reduce debt and pay dividends, Kean said. While Kinder Morgan "may see some incremental investment opportunities as a result of the storm," that spending won't be significant in 2021 as the company maintains its cautious approach to using growth capital, Kean said.

For the three months ended March 31, Kinder Morgan reported net income attributable to the company of $1.41 billion, or 62 cents a share, compared with a loss of $306 million, or 14 cents a share, in the same period a year ago. Revenue jumped 68% to $5.21 billion from $3.11 billion in the January-March quarter of 2020. Net income for the first quarter of 2020 was negatively affected by $971 million of impairment charges taken in the period.

Segment figures

Total natural gas transport volumes were down 3% in the first quarter compared with the same period a year ago, with notable volume declines on Colorado Interstate Gas Pipeline due to production declines in the Rockies basin; on El Paso Natural Gas due to lower Permian supplies and power generation shifting to coal due to higher natural gas prices; and on Fayetteville Express Pipeline due to contract expirations, Kinder Morgan said.

Those declines were partially offset by increased volumes on Tennessee Gas Pipeline due primarily to weather-related increased usage across the system and increased deliveries to LNG and Mexico customers; on the Permian Highway Pipeline going into service; and, on Elba Express due to increased deliveries to Kinder Morgan's Elba Liquefaction facility in Georgia. Natural gas gathering volumes were down 25% from the first quarter of 2020 across nearly all of the company's systems, most notably on the KinderHawk and Eagle Ford systems.

The company reported lower earnings contributions from its products pipeline and terminals segments in the latest quarter, while earnings were up year over year in the CO2 segment, which curtailed oil production during the storm, allowing power it would have used to be delivered to the Texas grid during the winter storm.

Besides the overall benefit to Kinder Morgan's latest results, the winter storm in Texas also has spurred "substantial interest" in new commercial activity tied to the company's gas pipeline and storage businesses, Kean said. That could lead to new contracts from end-users looking to enhance reliability to prevent supply shortages during future severe weather events, he said.

"We would hope that any changes in the marketplace would adequately incent parties to do so," Kean said.