Kinder Morgan Inc - Class P (KMI) — Q4 2022 Earnings Call Transcript

Thank you, Ted. And as usual, before we begin, I’d like to remind you that KMI’s earnings release today and this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934 as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosures on forward-looking statements and use of non-GAAP financial measures set forth at the end of our earnings release as well as review our latest filings with the SEC for important material assumptions, expectations, and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. As we begin 2023, it seems to be an appropriate time to look both backward and forward. Through the rearview mirror of today’s earnings release, we see that 2022 was a very good year for Kinder Morgan. We again produced strong cash flow well in excess of our budget and used that cash flow to pay our investors a healthy and growing dividend, fund our expansion CapEx, maintain a strong balance sheet, and buy back shares on an opportunistic basis. In short, we are continuing to follow the financial philosophy that we have stressed for years. Looking forward, we released in December our preliminary budget for 2023, which shows another year of living within our means, even in light of increased interest costs and an expanded set of expansion CapEx opportunities, which should drive nice growth in 2024 and beyond. We also announced today our plan for management succession. Our CEO, Steve Kean, will transition out of his role effective on August 1st of this year. Let me just say that Steve has been a superb CEO for the last eight years, and we thank him for the dedication, hard work, confidence, and honesty he’s brought to this job. On a personal note, he’s been a real pleasure to work with during all his years at the Company. While we will be sorry to lose him as CEO, we are delighted that we have him in his present role until August and that thereafter, he will continue to be a director, and I know he will contribute in that role to the future success of the Company. The Board and I have great faith in Kim Dang, who will transition from her present role as President into the CEO slot, and then Tom Martin, who will succeed her as President. Both have been with Kinder Morgan for approximately 20 years, have made extraordinary contributions to our results and culture, and we expect great things from them in the future. To sum it up, we expect a smooth transition later this year.

Thank you, Rich. I’ll give you a brief look back at what we did in 2022 and how well we have set ourselves up for the future. Kim and David will cover the substance and the details of our performance, and then we’ll take your questions. Next week, we have our comprehensive annual investor conference. So, as is usual on this call, we’ll defer to next week the more detailed questions on the 2023 budget and the outlook and business unit performance. As Rich said, we had a very strong year in 2022 and wrapped it up with a great fourth quarter. Late in the fourth quarter, for example, we saw some volatility in the gas market, and that creates opportunity for large transmission and storage operators like us and for our customers who procure transportation and storage services from us. We performed well operationally for our customers and financially for our company. Thanks, as always, to the tireless preparation and execution of our commercial, logistics, and operations teams. We saw that come through, especially during the holiday weekend, when our teams worked seamlessly across organizational lines to prepare, respond, and recover and deal with the upsets along the way. That requires a committed workforce and a strong culture, and we’ve got that at Kinder Morgan. Our work in 2022 also set us up well for the future. We added to the strength of our balance sheet, finishing the year at 4.1 times debt to EBITDA better than our 4.3x budget for the year and well inside our long-term target of approximately 4.5 times. We originated new business, which has grown our backlog to $3.3 billion made up of high probability projects at an extremely attractive EBITDA multiple of about 3.4 times. These investments are weighted toward our lower carbon future in natural gas, renewable liquid feedstocks and fuels in our products and terminals businesses, and investments in our Energy Transition Ventures business. And these lower carbon investments are all expected to yield very attractive returns well above our cost of capital. That’s how we told our investors we would approach these opportunities, and that’s exactly what we are doing. There are no loss leaders here. We also returned value to shareholders in the form of a well-covered modestly growing dividend and additional share repurchases. For 2022 alone, we’ve returned nearly $2.9 billion to shareholders in declared dividends and share repurchases. On the share repurchases, we have used a little under $1 billion of the Board authorized amount, and the Board has now upsized the total authorization from $2 billion to $3 billion. As always, those will be opportunistic repurchases when we use that capacity. Also, as we talked about throughout the year, we’re starting to see nice uplift on our base business, on renewals in our natural gas business and built-in escalators in some of our products and terminals, tariffs and contracts. We are putting behind us the contract roll-off headwinds in our gas group. Bottom line for investors, what we do today will be needed for decades to come. And as we are demonstrating in our products and terminals businesses, the assets we have today can accommodate the energy forms of the future. We are making the gradual pivot that the gradual energy evolution dictates, and we’re doing it at attractive returns for our investors. With the cash our businesses generate, we’re maintaining that strong balance sheet, we are investing in projects with good returns, which adds to the value of the Company, and we are returning the excess to our shareholders in the form of dividends and opportunistic share repurchases. We all appreciate Rich’s comments at the beginning, and I’m grateful to Rich and the Board for their support and confidence in us. I’m grateful to my 10,000 colleagues here who have been proud to come to work every day. And I’m grateful to you on the call who I have interacted with over the years, I learned from you and benefited from your questions and perhaps your occasional criticisms and your ideas. Thank you. As you’ll hear more about next week, we have our balance sheet in strong shape. We have a bright future with rich opportunities before us. And most importantly, we have a great experienced leadership team around this table who are always ready to step up and all of our investors benefit from that. We look forward to seeing you in person at the conference next week.

Thanks, Steve. Okay. I’m going to start with our Natural Gas business unit. Transport volumes on our Natural Gas Pipelines increased by about 4% for the quarter versus the fourth quarter of '21. We saw increased volumes from power demand and LDCs as a result of weather and coal retirements, and that was somewhat offset by reduced LNG volumes due to the Freeport outage and exports to Mexico as a result of third-party pipeline capacity added to the market. Physical deliveries to LNG facilities off of our pipes averaged approximately 5.4 million dekatherms per day. That’s down about 450,000 dekatherms per day versus Q4 of '21, and that’s due to the Freeport outage and somewhat offset by increased deliveries to Sabine Pass. If we adjusted for the Freeport outage, LNG volumes would have increased approximately 5%. Deliveries to power plants and LDCs were robust in the quarter, up approximately 7% and 13%, respectively, driven by the weather. Our natural gas gathering volumes were up 6% in the quarter, driven by Haynesville volumes, which were up 44%. Sequentially, volumes were flat. In our Products segment, refined products volumes were down a little under 1% for the quarter, slightly outperforming the EIA, which was down 2%. Road fuels were down 3%, but we saw a 10% increase in jet fuel demand. Crude and condensate volumes were down 6% in the quarter due to lower Bakken volumes. Sequential volumes were down about 3%, and that was driven by lower HH volumes. In our Terminals business segment, our liquids utilization percentage, think about that as a percentage of our tank capacity contracted, remained high at 93%. Excluding tanks out of service for required inspection, utilization is approximately 96%. Rates on liquids tanks renewals in Houston and New York Harbor were slightly lower in the quarter. Our tankers business was up nicely in the quarter as we benefited from both higher rates and higher utilization. On the bulk side, overall volumes were down 2%. We saw increases in pet coke and coal volumes, but that was more than offset by lower steel volume. In our CO2 segment, prices were up across the board. On the volume side, oil production was flat, but it’s up 8% versus our budget. CO2 volumes were up 12%. NGL volumes, which are much less impactful to results were down 4%. Overall, both Steve and Rich have said, we had a fantastic quarter and year. For the quarter, DCF per share was up 13% and for the full year, it was up 14% when you exclude the impact of Winter Storm Uri. We exceeded our full year planned DCF and EBITDA by 5% and DCF per share by 6% coming in at or slightly above the numbers we have given you in the interim quarters. This is an amazing year for a stable fee-based cash flow company like Kinder Morgan. For sure, we benefited from higher commodity prices but our underlying business of specialty natural gas performed incredibly and the fundamentals look strong for the future, which we will cover with you next week at the investor conference. With that, I’ll turn it over to David.

All right. Thanks, Kim. So for the fourth quarter of 2022, we’re declaring a dividend of $0.2775 per share, which is $1.11 per share annualized and up 3% from our '21 dividend. I’ll start with a few highlights on leverage, liquidity, growth, and shareholder value. There’s some repetition here with earlier comments, but it’s worth it. On leverage, we ended 2022 with the lowest year-end net debt level since our 2014 consolidation transaction, and we have plenty of cushion under our leverage target of around 4.5 times. For liquidity, we ended 2022 with $745 million of cash on our balance sheet in addition to our undrawn $4 billion worth of revolver capacity. Growth for full year 2022 versus '21 excluding the impacts from Winter Storm Uri, as Kim mentioned, we grew nicely. On a net income basis, we were up almost 3 times 2021. That’s partially due to an impairment taken in 2021. And on EBITDA, we were up 10%, and on DCF per share we were up 14% year-over-year, very nice growth. For shareholder value for full year 2022, we repurchased 21.7 million shares at an average price of $16.94 per share, and our Board just authorized us to do more of that, should the opportunity present itself. We’re seeing healthy growth across our business. Our balance sheet and liquidity are as strong as they ever have been, and we’re creating shareholder value across the Company in multiple ways. So moving on to our quarterly performance. In the fourth quarter, we generated revenue of $4.6 billion, up $154 million from the fourth quarter of 2021. Our net income was $670 million, up 5% from the fourth quarter of last year. And our adjusted earnings, which excludes certain items was up 16% compared to the fourth quarter of '21. Our distributable cash flow performance was also very strong. Our Natural Gas segment was up 11% or $138 million, with growth coming from multiple assets, higher contributions from our Texas Intrastate systems, MEP and EPNG, increased volumes on our KinderHawk system, and favorable pricing on our Altamont system. Those were partially offset by lower contributions from our South Texas gathering assets. The Products segment was down $29 million, driven by higher operating expenses as well as lower contributions from our crude and condensate business, and those were partially offset by increased rates across multiple assets as well as strong volumes on our splitter system. The Terminal segment was flat to the fourth quarter of '21 with slightly lower New York Harbor and Houston Ship Channel liquids refined product renewal rates, unfavorable impacts from the 2022 winter weather and unfavorable property taxes, offset by greater contributions from our Jones Act tanker business, nonrecurring impacts from Hurricane Ida in 2021, and contributions from expansion projects placed in service as well as other rate escalations that the segment experienced. Our CO2 segment was up $36 million from the fourth quarter of '21, driven mostly by favorable commodity prices. Our EBITDA was $1.957 billion, up 8% from last year, and DCF was $1.217 billion, up 11% from last year. Our DCF per share of $0.54 was up 13% from last year. Moving on to the balance sheet. We ended the fourth quarter with $30.9 billion of net debt and a net debt to adjusted EBITDA ratio of 4.1 times. That’s up from 3.9 times from year-end '21, but that’s due to the nonrecurring EBITDA contribution from Winter Storm Uri we experienced in 2021. Excluding that Winter Storm Uri, EBITDA contribution that year-end 2021 ratio was 4.6 times. So we ended the quarter and the year nicely favorable to the metric excluding Uri contribution. We’re also nicely below our long-term leverage target of around 4.5 times. Our net debt change for the full year of $278 million was driven by a number of things. So, here’s a high-level reconciliation of that. Our DCF generated $4.97 billion. We paid out $2.46 billion in dividends. We spent $1.1 billion on growth capital and JV contributions. We repurchased stock in the amount of $368 million. We made two renewable natural gas acquisitions for around $500 million. And we received approximately $560 million from the sale of a partial interest in our Elba Liquefaction company. Finally, we had a working capital use of around $825 million from several items, and that gets you close to the $278 million reduction in net debt year-to-date.

Okay. Before we start with questions, I am very excited about the opportunity ahead. A large part of my job is going to be about continuity. This is a great company and great business with a great future. As Steve said, our traditional business will be around for a long time to come. Energy is a $5 trillion global industry that is ingrained in every aspect of our lives. We will continue to invest wisely as we position the Company to turn slowly over time with the transition in a profitable manner. I’m also excited to work more directly with Tom. We work well together and have complementary skills, which will help the Company into the future. We have an experienced cohesive senior management team with Dax, John, Anthony, Sital, David, and Kevin and others sitting around this table, and we expect to make this a seamless transition.

All right. Okay. Ted, let’s open it up for questions. And as usual, we have a good chunk of our senior management team around the table. We’ll make sure that you get a chance to hear from them as you have questions about their businesses specifically. So Ted, if you would open it up to questions.

Just want to say congratulations to everyone, and Steve, best of luck going forward. And maybe just starting off, I guess, with capital allocation, wondering if you could touch on any updated thoughts there. It seems like the dividend uptick might have been a little bit less than expected. And then, at the same time, the share authorization levels were increased when it wasn’t fully utilized before. So just wondering, is it signaling any kind of shift in capital allocation or any other thoughts there on return on capital?

Yes, I'll begin. There is no indication of any shift or change in our approach. We aim to maintain a strong balance sheet, as all four of us have mentioned, and we intend to fund projects that deliver attractive returns. As stated, we have some very good projects, totaling $3.3 billion at a 3.4x EBITDA multiple, which adds value to the firm and represents attractive returns for us. Additionally, we have generated cash beyond that, which will be returned to shareholders through a modestly growing and well-covered dividend and share repurchases. The decision to increase capacity does not reflect a change in our perspective; rather, it is opportunistic, as we've emphasized for a long time. We have used just over $900 million since the initial authorization. The Board has upsized the authorization, so we are positioned to seize opportunities as they arise. Overall, we have not altered our capital allocation philosophy; it has been consistent for quite some time, and it continues to create value for our shareholders.

Yes. Regarding the dividend, we think it’s essential to increase it when the company is experiencing growth. We are proud to rank among the top 10 dividend yields in the S&P 500, which indicates that we already offer an attractive yield on our stock. Therefore, the increase is modest but enables us to maintain our status as a solid dividend-paying stock while being mindful of the current yield.

Got it. Makes sense. That’s helpful there. And then just wanted to shift to the weather impact during the quarter, if maybe you could unpack that a little bit more as far as pros and cons. Were there any marketing uplift during the quarter? Just trying to see, I guess, what was the impact from the storm in the quarter.

We saw an increase mainly in our Natural Gas assets. This was due to having storage and transport capacity, particularly in storage, where the peak was 160 Bcf. We experienced some supply degradation, leading to a national figure just above 80 Bcf. The shortfall was compensated by those with storage assets who managed to perform well. However, we did encounter some operational issues and repairs that we accounted for. Overall, the storm did not significantly contribute, roughly around $20 million when everything was netted. But in summary, the winter weather and resulting price volatility before and after the storm allowed us to capitalize on our storage and transport capabilities, which we successfully did.

Got it. That’s helpful. And congrats, everyone, again.

I wanted to talk maybe just a little more on some of the regional gas movements on the gathering side. Can you just touch again on, I think Kim, you mentioned Haynesville volumes were flat quarter-over-quarter. Just wondering if that’s producer-driven or takeaway issues? And then, anything else you can share maybe on what you’re seeing across the Rockies in terms of production. Thanks.

The KinderHawk volumes were essentially unchanged from quarter to quarter, but we anticipate a positive increase as we head into 2023. This situation is primarily due to capacity constraints on our gathering system. We are investing some capital in 2023 to enhance our capacity, and we will also see additional downstream capacity come online. Therefore, we believe there are significant opportunities for growth with KinderHawk and in the Haynesville area overall. This growth extends beyond our gathering and processing opportunities, as we are also looking at interstate rate increases and utilization prospects moving forward. In summary, Haynesville presents a promising scenario for us. Regarding the Rockies, we are not witnessing much growth overall, although there are some encouraging signs in certain areas of the DJ Basin. However, on our Altamont gathering system, particularly in the Uinta, we are observing encouraging growth and expect it to increase as we move into 2023.

Great. Thanks for that. Maybe just shifting gears to the Red Cedar announcement. Curious on how much else could be out there in terms of shifting away from, I guess, what we call natural CO2 sources to kind of recovered CO2. I mean, how much of the mix of your overall CO2 kind of EOR business, either your own or selling to third parties could be the recoveries end up making up over time?

Anthony?

Yes. So, the Red Cedar deal that we’re talking about that’s up to 20 a day, put it into context, we’re currently moving over 900 a day down our Cortez pipeline to West Texas. And so, there’s a ways to go before effectively that those natural resources get replaced. Really, when you’re talking about opportunities around kind of the Permian and the infrastructure there, that’s largely gas processing assets, which are going to be lower. And so with regards to, I guess, replacement of our existing source capacity be a very long time before that would be replaced.

All right. We’ll save the big ones for next week. Thanks for the time. And congrats, everyone, on the new roles.

Hi. Can you remind us where Kinder Morgan is on rate case settlements? Which ones have been settled and are incorporated into 2023 guidance? And which pipes, if any, could still see rate case this year or next?

Really, we’re past the big ones for now. I mean, we’ve got the NGPL, EPNG; those are the big ones, and all the Rockies pipes, and I’m saying this over the context of the last year. Those are the big ones that have been addressed. And so, we’re pretty clear now for 2023. And that’s all been baked into our budget for 2023.

Okay. Thank you. And then what’s the latest on El Paso restart? I think you had a release that noted some positive progress last week.

Yes. And so, our information on this is going to be consistent with and stick closely with what we post on the EPNG electronic bulletin board. And so, we did post an update there. And what it says is that we anticipate completing the physical work on Line 2000 before the end of January. And then we will submit a request to PHMSA on behalf of EPNG to lift the pressure restriction and return to normal commercial service. So as PHMSA will need time to review the information that we provide, but our work we expect to be completed by month-end.

Great. That’s all for me, and congrats to you, Kim, and thank you, Steve, for all the time and thoughtful answers over the years. Best of luck.

Congrats all around. And Steve, I can’t believe you’re willing to walk away from the dollar-a-year salary...

It was a hard choice.

Congratulations. I have a two-part question. First, regarding the Permian pipeline, can you clarify whether GCX or Permian Pass is prioritized, and if it would make more sense to move Permian Pass to the forefront? Secondly, in the last quarter, you mentioned the potential for phasing the Permian Highway expansion over time and that further engineering work was needed to determine its feasibility. Is there any update on that?

Yes, I believe you meant the Permian Pass, not the Permian Highway. The expansion of the Permian Highway is currently under construction and is expected to be operational in November. We are also exploring two additional opportunities. One is the GCX expansion, which hasn't seen much activity, but with the recent drop in gas prices, there may be potential there. You may remember that fuel costs were somewhat challenging for that project, so the lower gas prices could make it a more viable option. Regarding Permian Pass, our customers indicate that the next demand for additional capacity from the basin is anticipated in late 2026 or possibly early 2027. As we collaborate with our producer customers and align with their end customers, primarily in the LNG sector along the Gulf Coast, we need to determine the specific timing and location for those volumes. The overall market still requires that capacity, but we do not have any new announcements regarding speeding up the process at this point.

I think the PHP, there was some discussion last time about when we put our compression in, once we get pretty close to the end, is there any channel. A little bit of capacity that’s available before the November in-service date. And so, I assume that it’s late in the going.

Still exploring that. And I think that is a potential opportunity as we move through 2023.

Got it. Perfect. Thanks for the color on that. Second question, maybe for David. Just maybe an update on how you’re thinking about maturities and the overall interest rate exposure for 2023 and beyond. Just kind of curious what options are available to you to perhaps maybe exceed the DCF budget by outperforming on interest expense?

We’ll continue to evaluate different alternatives. We’ll talk more about this next week, but we’ve locked in some of our floating rate exposure for 2023 in order to reduce some of the downside risk for the year. But with regard to the overall maturities, we do expect to access the debt capital markets during the year 2023 in order to refinance the large amount of maturities that are coming due this year. The $745 million of cash on the balance sheet coming into the year certainly helps with that. And we’ve got our $4 billion worth of revolver capacity. So, as I said last quarter, and this is still the case, we will await for favorable market conditions before we access the market, and we have the luxury of being patient.

Thank you. Congratulations, everyone. Steve, we will miss you, and I’m glad you came to our conference here. So, thank you for that. I wanted to ask back on the Red Cedar CCS project. Just wanted to see if you could talk about what type of return you expect to generate on a project like that, and just to confirm that this will be entirely fee-based from your perspective?

Yes, we won't discuss specific returns, but I can say they are very similar to our traditional businesses. We are doing the right things from a return perspective. And I apologize...

The commodity exposure.

Yes. And this is primarily on the ETV side of things, and maybe Tom wants to talk about the Red Cedar JV part of it. But ETV will have minimum volume commitments in place on that transaction.

And on the Red Cedar, it’s G&P volumes. So there is a variable component to that, but their volumes have been growing and expect them to continue to grow, so.

This is a promising opportunity for CCUS, which will be essential for long-term solutions. We have the capability to transport carbon dioxide, store it underground, and secure it effectively. There is significant potential in this area, and it is noteworthy that these activities can be carried out economically. We are pleased with this transaction, viewing it as the first of many, although there are several details that need to be addressed. The main challenge is obtaining Title VI permitting for sequestration through the EPA or securing delegated authority in Texas, Louisiana, and elsewhere to expedite the permitting process. Anthony and the team have identified alternative permitting methods for different well types that will help us move forward. We hope this is a sign of future developments, which rely on a faster permitting process from the EPA.

Got it. I appreciate all that. Second question, I just wanted to ask was on the lower gasoline and diesel volumes year-over-year. Can you just maybe just talk to what you’re seeing there? I know your overall volumes, I think, were a little better than overall industry averages. But just kind of what’s driving that? And do you think this is sort of a recurring pattern that we’re going to see throughout the year? Thanks.

Yes, I’d like to mention a few things. First, we experienced an operational issue in December. As Kim pointed out, we were down 0.7% compared to the previous year. One of our primary lines in California, which serves San Diego, was down for 12 days. Had that not occurred, we would have returned to close to flat quarter-over-quarter results. Looking into 2023, as we prepare our budget, we are planning for an overall increase of about 3.4%. While we anticipate lower increases for gasoline, we expect jet fuel and diesel to see a combined increase of approximately 6.5%. In terms of jet fuel, we've faced a slower recovery due to our focus on international flights. The Energy Information Administration reported a 10% decrease compared to 2019, while we experienced a 14% decline. We believe that as international travel, particularly to Asia, picks up, our recovery will improve. Additionally, we have renewable diesel projects commencing on the West Coast by the end of the first quarter, supported by contracts for more than 30,000 barrels a day. This should positively impact our diesel outlook. As of mid-January, we are performing well from a refined products perspective, aligned with our budget.

Good afternoon, everyone, and congrats to you both Steve and Ken. Maybe to start off on the Kinder-based business, which performed pretty well in the quarter. And I just wanted to talk a little bit about future growth opportunities there. Over the past few years, we’ve just seen a lot of competitors come into the market looking to erode that Kinder market share on LNG supply from the Permian and Louisiana. I was just curious if you could talk broadly about how Kinder has a competitive advantage there and whether you guys see yourselves well-positioned for new LNG supply projects going forward, or whether effectively, the competition has made returns not attractive at this point? Thanks.

Yes. I think we’ve always mentioned that our network's location in Texas and Louisiana, along with our storage capabilities, provides us with a significant advantage. Whether we're directly involved in constructing new LNG export facilities or supporting others that are, having access to so many basins and a mix of reservoir and salt storage across our operations puts us in a strong position to be part of the LNG export growth. We've stated that our market share is around 50% currently, and while we anticipate our volumes will keep increasing, it's difficult to predict if we'll meet or exceed that 50% in the future. However, I'm confident in our ability to engage in this growth.

Yes. You’ll see a bit more of this, Brian. Our backlog stands at $3.3 billion, and we’re executing it at 3.4 times EBITDA multiples, indicating that our network is well positioned. We can make relatively modest and efficient capital investments in our grid to expand and meet the supply and demand growth we’re experiencing. In the past, we undertook large long-haul projects at slightly higher multiples, which still offered attractive returns. However, this demonstrates that we have many projects underway with relatively modest capital expenditures, yet they yield nice returns. Our network is extremely well positioned for growth.

Great. I appreciate the color. And as my one follow-up, I just wanted to get a little bit of an update on just the RNG projects and the CapEx that are progressing through 2023. How are those projects progressing? And just as the RNG market starts to mature in the middle of the decade or end of the decade, curious if you continue to see new opportunities within that Kinetrex business and if you see continued CapEx for the next few years.

We have three original RNG projects from the Kinetrex acquisition that are set to be operational this year, with two expected to come online in the first half. One project is under an EPC contract, and the associated capital is fully accounted for in our 2023 budget. Regarding future growth opportunities, we have made three acquisitions so far and are focusing on organic growth at this time. There are potential avenues for expansion that we will evaluate individually. Recently, the EPA introduced a new proposal that could create additional demand for us, potentially allowing us to convert some assets into electric service. We are excited about the various growth opportunities we are currently exploring in this sector.

Congrats to Kim and Steve as well. I wanted to start, Steve, you said the backlog is at $3.3 billion now. So, that’s up another $600 million or $700 million since last quarter, which presumably, that’s why the growth CapEx of $2.1 billion for this year was higher than what you kind of pointed to initially. Can you talk to any of the specific projects you’ve added since last quarter because that is a decent amount?

Yes. Most of it will be in gas and renewable natural gas. On a percentage basis, I think about 64% is related to gas and renewable natural gas, possibly a bit more. This includes a mix of power demand, local distribution company demand, LNG transport, gathering and processing, and well connections. As I mentioned, this represents a combination of many smaller projects, primarily expansions of the existing network, which enhances capital efficiency and lowers execution risk. This setup generally leads to better returns on the capital we invest. So, the backlog stands at $3.3 billion, with a multiple of 3.4 times, and is primarily focused on our low carbon initiatives, including natural gas.

Yes. And a number of the projects that got added to the backlog are in the other news, like part of the Evangeline Pass project, the TVA project, the terminals renewable diesel projects. So those are some of the projects that got added to the backlog in the quarter.

Got it. Thanks. Separate question. Just on the buybacks and how you’re thinking about it for this year. So, it’s a little bit more of a growth year in terms of spending in 2023. So your DCF is only a little bit above, I think, your CapEx and your dividends. So, when you think about buybacks and obviously, you’re opportunistic, but would you be willing to increase debt or issue debt more short-term borrowings in order to buy back stock if the opportunity was there since you’re well under your leverage target for this year?

Yes, we would. We consider our capacity for buybacks and other opportunities in terms of our balance sheet strength and the excess cash we generate this year. Therefore, we would be open to increasing our leverage slightly. We will proceed with caution, ensuring that we utilize that capacity appropriately, but that is how we view our available capacity.

My question is focused on renewable diesel. What future opportunities do you see beyond the Carson terminal and the committed projects? Additionally, could you discuss the opportunities related to carbon capture and storage?

Yes. So Dax, if you’ll comment on the R&D part of it, and John, if you’ll talk about the upstream, the feedstock part of it as well.

Yes. So just to comment, I mean, as we’ve said before, right now, every drop of renewable diesel in the United States wants to go to California. I think we expect that as additional state governments later on a third level of the tax credit similar to the one that California has in other states have them, Oregon, Washington, British Columbia, that there will be more enthusiasm for projects there. We’ve got terminals there. We are having conversations with people. And so, I think that’s probably other areas in the West Coast or probably next places to potentially develop. And then certainly, with the two hubs that we’re developing in both Northern and Southern California, I think there are additional opportunities to potentially expand those. So, that’s the majority of it from the refined products perspective.

Sure. I mean we said last year when we announced the Neste deal that we felt that all boats would rise and there has created a number of opportunities to high-grade our assets, high-grade our customers at Harvey bring additional products in their raise rates, but it has also attracted other customers. And this is what we hope is the second of many projects we’ll be looking at, great opportunity to connect with a neighboring facility that’s involved in an expansion project, where we’ll be handling all the feedstocks into the facility under a long-term, 10-year take-or-pay. The other area to actually help us too is on our Jones Act vessels. We’ve seen a lot of movement as it relates to renewable diesel from the Gulf Coast to the West Coast and interest in that, which we think will further tighten an already tight Jones Act market.

Okay. Thank you very much. Everybody, have a good evening. Thank you.