Kinder Morgan Inc - Class P (KMI) — Q4 2023 Earnings Call Transcript

Thank you, Sheila. Before we begin, as usual, 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 look at our financial outlook for 2024, we are projecting very healthy growth in EBITDA, EPS, and DCF per share. While there are always headwinds and tailwinds for a company as sizable as Kinder Morgan, it appears that our strategy of expanding our assets through expansion CapEx and acquisitions, primarily in our Natural Gas segment, is delivering real benefits to the bottom line. Kim and the management team will be taking you through our '24 budget in great detail at the Investment Conference next week. In my remarks on these calls over the last few quarters, I've tried to outline the tremendous growth that we and most energy experts expect in natural gas production and demand over the coming years, driven primarily by LNG exports and exports to Mexico. To the obvious relief of all of you on this call, I won't be repeating the details supporting our outlook, but that growth is leading to extensive opportunities to grow our system, which already delivers about 40% of the nation's natural gas throughput. Through selective expansion and extension of our enormous system, we can benefit from this expansion. Thankfully, most of these opportunities are concentrated along the Gulf Coast, where permitting and construction usually move more quickly than elsewhere. Let me conclude with a bit of humor. Someone has recently said in comparing our growth to that of high-tech companies, that we were like the tortoise in Aesop's Fable compared to the hare represented by high-tech. And that's probably true. But I like to think that looking at 2024, the tortoise is moving a little faster, and then I would remind you of who won that race in the end. And with that, I'll turn it over to Kim.

Thanks, Rich. I'll make a few overall points and then turn it over to Tom and David to provide the details. We ended 2023 slightly below budget, with around 1% on DCF per share and about 2% on EBITDA. Various factors contributed to this, but primarily it was due to lower commodity prices. Just before the end of the year, we completed the approximately $1.8 billion NextEra South Texas acquisition. These assets integrate well into our existing Texas system to serve the Gulf Coast and Mexico demand markets. We were pleased to finalize this transaction sooner than anticipated. Looking ahead to 2024, as Rich mentioned, we expect significant growth compared to 2023, with each business unit contributing to greater earnings. We have updated the preliminary budget guidance from early December last year to include the South Texas acquisition. Consequently, our final 2024 budget now predicts a 15% increase in earnings per share compared to 2023, and an 8% increase in DCF per share. Our commodity assumptions in the final budget remain unchanged from the preliminary budget. We have assumed WTI at $82 a barrel and Henry Hub natural gas at $3.50, consistent with the forward curve during our annual budgeting process. While current prices are lower, we did not revise our price estimates in our final guidance due to their potential fluctuations throughout the year. However, based on our commodity sensitivities, even at current prices, we still anticipate robust growth in 2023, given our relatively modest commodity exposure. For instance, if WTI is at $72 per barrel and Henry Hub at $2.80, earnings per share would grow by 12% compared to 2023, and DCF per share would increase by 6%. In the fourth quarter, we put $965 million of projects into service and added $344 million to our backlog, which is currently about $3 billion. Despite the decrease compared to last quarter, we remain confident in our ability to spend at the upper end of the $1 billion to $2 billion per year discretionary CapEx range for the next few years. Our confidence is bolstered by the projected 20% growth in the natural gas market through 2030, driven by LNG exports, exports to Mexico, and industrial demand. We are exploring multiple expansion projects, some of significant size, to enable LNG exports from the Texas Coast, the Louisiana Coast, and the West Coast, as well as to provide supply to Mexico from both Texas and Arizona, facilitate incremental supply to the Southeast markets for Permian egress, and expand storage for additional power and industrial demand. We are well-positioned as we close out 2023 and progress into 2024. Our balance sheet is the strongest it has been in about a decade. We are projecting healthy growth for 2024. The natural gas business, which represents more than 60% of KMI's EBITDA, is supported by a 20% growth in that market, creating solid expansion opportunities. We will continue to return significant capital to our investors through dividends and strategic share repurchases. Next week, at our annual Investor Conference, we will delve deeper into our 2024 budget, industry fundamentals, and future opportunities, and we will be ready to answer all your questions. Now, I'll turn it over to Tom for details on the quarter's performance.

Thanks, Kim. Starting with the natural gas business unit, transport volumes increased by 5% or 1.9 million dekatherms per day for the quarter versus the fourth quarter of 2022, driven primarily from EPNG's Line 2000 return to service and the Texas intrastate increased LNG feedgas demand and increased power demand. These increases were partially offset by decreased deliveries to local distribution companies. Our natural gas gathering volumes were up 27% in the quarter compared to the fourth quarter of '22, driven by Haynesville volumes which were up 59%, Bakken volumes which were up 14%, and Eagle Ford volumes up 18%. Gathering volumes grew 14% compared to Q3 2023. For the full year, gathering volumes were up nicely at 19% over 2022 and just slightly below our 2023 plan. We continue to see high demand for and utilization of our natural gas assets, which is driving in many instances, longer-term contracts, higher rates, and increased project opportunities in a growing US market. In our Products Pipeline segment, refined product volumes were up slightly about 1% for the quarter versus the fourth quarter of 2022, driven by an increase in jet fuel, partially offset by a slight reduction in diesel volumes. Gasoline volumes were flat for the comparable quarter of last year. We continue to see a considerable ramp in renewable diesel volumes flowing in our pipelines serving California. The pipeline volumes from the RD hub projects we placed into service earlier this year have grown from 700 a day in Q1 to 27,000 a day in Q4, and we're currently expecting well above 30,000 a day in January. As we stated previously, these RD hub projects are largely underpinned with take-or-pay contracts associated with our terminals facilities, so we get paid most of our revenue even if those volumes do not flow. However, when RD volumes actually flow on our pipelines, we collect the additional tariff on those barrels as well. Crude and condensate volumes were up 7% in the quarter versus fourth quarter of 2022, driven by higher Hiland wellhead volumes and favorable Double H transportation fundamentals from the Bakken. In our Terminals business segment, our liquids lease capacity remains high at 93%. Excluding tanks out-of-service for required inspections, approximately 97% of our capacity is leased. Utilization at our key hubs in the Houston Ship Channel and New York Harbor strengthened in the quarter versus fourth quarter of 2022. We continue to see nice rate increases in those markets and leasing remains near all-time record levels. Our Jones Act tankers are 100% leased through 2024, assuming likely options are exercised. On the bulk side, overall volumes were up 3% from the fourth quarter of 2022, primarily from metals, pet coke, and soda ash tonnage, partially offset by decreases in grain and aggregate volumes. Grain volumes have minimal impact on our financial results. Excluding grain, bulk volumes were up 5%. The CO2 segment experienced lower overall volumes on NGLs, CO2, and oil production, and lower prices on NGLs and CO2 versus the fourth quarter 2022. Overall, oil production decreased by 7% from the fourth quarter last year, but was above our plan for this quarter. For the year, net oil volumes slightly exceeded our plan, largely due to better-than-expected performance from projects at Yates and SACROC, as well as strong base volumes post the February outage at SACROC. These favorable volumes relative to the 2023 plan helped to offset some of the price weakness that we have experienced. With that, I will turn it over to David Michels.

Thank you, Tom. So, for the fourth quarter of 2023, we're declaring a dividend of $0.2825 per share or $1.13 per share annualized, which is 2% up from the 2022 dividend. We continued with our opportunistic share repurchase program in the fourth quarter, bringing our total year-to-date repurchases to over 31 million shares at an average price of $16.56 per share, creating a good value for our shareholders. We ended 2023 with net debt to adjusted EBITDA of 4.2 times, and that includes $522 million of repurchased shares and the $1.8 billion closing of our acquisition of the South Texas Midstream assets before year-end. Our leverage would have been 4.1 times if we had included a full year adjusted EBITDA contribution from those acquired assets. We ended 2023 just slightly below budget for the full year. And more than all of that underperformance can be explained by lower-than-budgeted commodity prices. We saw better-than-budgeted performance in both our natural gas and terminals businesses. And for the quarterly performance, we generated revenues of $4 billion, which was down $541 million from the fourth quarter of 2022. Cost of sales were down a bit more than that, at a reduction of $614 million. Both of those declines were due to a decline in commodity price year-over-year. As you'll recall, we enter offsetting purchase and sales positions in our Texas Intrastate business, which is primarily why our revenue and cost of sales are exposed to price fluctuations, but our margin is generally not impacted by price. Interest expense was higher versus 2022 as expected, driven by short-term interest rates impacting our floating rate interest swaps. We generated net income attributable to KMI of $594 million, down 11% from the fourth quarter of 2022. Our EPS was $0.27, down $0.03 from 2022. Our average share count reduced by 27 million shares or 1% due to the repurchased shares. For our business segment performance, Terminals and Products segments were up, Natural Gas and CO2 segments were down versus the fourth quarter of 2022. The Natural Gas segment was down mostly due to mild winter weather in 2023 versus 2022. The Product Pipeline segment was up due to higher rates on existing assets as well as contributions from new expansion projects, including our renewable diesel assets. Terminals were up due to improved rates on our Jones Act business, contractual rate escalations across multiple assets, and improved tank lease rates in the Northeast region. Our CO2 segment was down due to lower oil and CO2 volumes. Our DCF per share was $0.52, down $0.02 from last year. Excluding interest expense, we were favorable to last year. For the balance sheet, we ended the year with $31.8 billion of net debt, which was an increase from year-end of $901 million from year-end 2022 that is. So, a high-level reconciliation for the year-to-date or the full-year 2023 change in net debt is as follows. We generated $6.5 billion of cash flow from operations. We spent $2.5 billion in dividends. We spent $2.5 billion of total CapEx. That includes our growth, sustaining, and contributions to JVs. We repurchased $500 million of stock and we spent $1.8 billion on the South Texas Midstream acquisition, which gets you close to the $901 million increase in net debt for the year. As Kim mentioned, we updated our 2024 budget for the South Texas acquisition from the December guidance that we released. As you can see, the acquisition was quite accretive on both EPS and DCF per share. We're very pleased with the resulting growth projected for 2024 with EPS growth of 15%, DCF per share and EBITDA growth of 8%, and a nice improvement in our leverage ratio to 3.9 times by year-end 2024. And as Rich said, we'll be providing all the details behind those at our annual Investor Day meeting one week from today. With that, back to Kim.

Okay. Sheila, we'd like now to open it up for questions. We would request that those asking questions, if you'd please limit it to one question and one follow-up. And if you have additional questions, please get back in the queue, and we will stay here until we get to everyone.

Hi. Good afternoon.

Good afternoon, Jeremy.

Maybe just starting off here, wanted to start off with the recent weather. It's been a cold snap that we've seen across a lot of the country, in Texas as well. And last time we saw a cold snap with Uri, it led to notable opportunities for the Midstream and KMI. Granted, it's probably not the same order of magnitude here by any means, but just wondering if you could shed any color on if you are seeing kind of increased opportunities in this environment or how we should think about that in general.

Sure, Jeremy. Yeah, I mean, the cold weather, you're right, does lead to incremental opportunities for us. You're also right that this is not the same order of magnitude as a Uri. When we do our budget, we do budget for some cold weather and I think coming into the year, we were a little bit nervous about that given the warmer than expected weather. With this cold front, I think we have made good progress on achieving our way to achieving some of those cold weather budget assumptions. So, very happy with the progress to date.

Got it. That's helpful there, thanks. And then, just wanted to come back to capital allocation, as maybe you talked about in the past and we've seen Kinder execute on repurchases this year and also some sizable M&A, and just wondering on a go-forward basis here, if you could walk us through, I guess, how those two specific opportunities could stack up in your mind? Clearly, there is still room on the Kinder balance sheet given leverage targets and where leverage sits today, and just wondering how those two stack up? And as it relates to buybacks, is there a certain kind of cap and pace or any other thoughts that we should think about there?

No. I mean, I think we like the flexibility that we have on our balance sheet. We've been around 4-ish times for the last three years. I think in end of '21, we were at 3.9. Last year, we were at 4.1. And right now, we're at 4.2. But if you adjusted for the EBITDA on the acquisition, you would be at 4.1. And so that gives us flexibility to do acquisitions. That gives us flexibility to do share repurchases. And so, last year we were able to do share repurchase, we did $522 million, as you heard David say. We made a $1.8 billion acquisition and our balance sheet ended essentially in the same place that we started the year. So, especially when we're doing attractive acquisitions, it's not that dilutive to our debt metric and so we acquired the NextEra acquisition at about 8.6 times. And so, relative to our debt metrics, even though we are 100% debt-funded, it wasn't that dilutive. So, I think where our balance sheet is, it gives us lots of flexibility and we were able to execute on multiple opportunistic transactions during 2023. And that's quite frankly what we would look to do going forward as well.

Got it. Makes sense. See you at the Analyst Day. Thank you.

Hey, Brian.

Hi. Good afternoon, everyone. Maybe to start off on just the quarterly performance and the '24 guidance, kind of as it relates specifically to the Natural Gas segment. Jeremy touched on it a little bit, but we saw the year-over-year decline in Nat Gas segment driven by some winter storms in 4Q '22, but I'd be great if you could just refresh us on maybe some of the marketing exposure in the business. Previously, we kind of view it as mostly contracted at this point, but just given the year-over-year earnings decline and maybe looking forward, just given significant amount of Nat Gas price volatility expected ahead and Kinder's strategic positioning in natural gas storage, just kind of curious how we should think about maybe the marketing side of this business on a go-forward basis versus Kinder over the last five years? Thanks.

Well, let's start on the interstate transmission side. And so, when you have a winter storm, people are going to need more balancing services, they're going to need more storage services, you're going to have more usage because you have more molecules flowing. And so what happens around a lot of times in these winter storms is, we are providing ancillary services to our customers that they need and they want in order to serve their customers. So, and so you see some incremental business on the interstate side in and around those services. On the intrastate side, we actually do hold some storage in our own name and then our customers have storage as well. So, we make money from time to time on the small amount of storage that we do hold in our name. We also have a little bit of transport capacity that we hold in our own name. It's not significant overall, but we can make money on that where we haven't already hedged it. And then some of the same types of services that the interstate customers need, the intrastate customers also need. So, they will over-pull on our system above their rights, and those services come at premium rates. And so, those are the types of things that you see when we have winter weather that leads to some incremental margins on the margins.

Thank you for that. As a follow-up regarding Permian Natural Gas egress, it seems there may be a shortage of natural gas in the Agua Dulce market as LNG demand increases later in the decade. I'm curious if you could discuss potential new projects, such as the GCX expansion, and provide any updates or insights about the prospects for new builds in the long term. Thank you.

Sure. I can discuss both topics, and then I'll invite others to contribute. Yes, we anticipate a need for additional Permian egress in the latter part of the decade, which aligns with our previous statements. We believe we are well-prepared for this. We have successfully constructed multiple pipelines, which have typically been on schedule. Additionally, we possess an existing system for interconnection, allowing us to provide shippers on a Permian egress pipeline with storage and other downstream services that some competitors may not offer. Therefore, we are very interested in this project, but we will be cautious in our approach to ensure that the returns are appealing to our shareholders. Regarding GCX, we are seeing similar dynamics. Since GCX involves the compression and expansion of an existing system, we will be able to bring it to market more quickly. We have ongoing discussions with shippers about this capacity, although we're not quite there yet. If we decide to participate in the new-build for the GCX expansion, additional downstream expansions of our existing systems could also be considered, which is something we are actively exploring.

Great. Makes sense. I'll leave it there. See you next week.

I'll follow up to give you a better understanding. When we consider the need for capacity, we mention the latter half of the decade, but our customers are indicating it may be needed by late '26 or early '27. We're certainly in a competitive landscape, so I won't delve into many specifics, but we likely need to take action in the next couple of quarters to align with that timeline. The key question is whether we need one or two pipelines when addressing the upcoming demand.

Great. Makes sense. Appreciate that extra color. Have a great rest of your day.

Hi. There is a lot of differing reports around Haynesville production trajectory and whether it's in decline and kind of has been in decline for a couple of months. It seems like your fourth quarter was up quite a lot from your third quarter Haynesville volumes, but I was wondering if you could just talk about what you've been seeing on your acreage there over the last month or two, I guess towards the end of the fourth quarter?

Yeah. So, if you look at our Haynesville volumes, they were I think, Tom didn’t say this, but in the 14% quarter-over-quarter, Haynesville was up over 30%. So, we've continued to see increase in our Haynesville volumes. And so, David, will you comment?

The team has done an excellent job with our acreage, which is situated in prime Tier 1 locations. Our largest customer is preparing for the upcoming LNG wave. While we have noticed smaller producers pulling back, it seems everyone is gearing up for the demand on the horizon. In my opinion, some of the pullback has been beneficial for us. We are working to keep pace with the demand in terms of physical capacity. This year, we hope to finalize the remaining capacity to be fully prepared to support our customers when they need it. Overall, our performance has been strong, and we have almost doubled our volumes in the past couple of years.

Great. That's helpful. Thank you. And then, I have a follow-up. Do you see any risk this year that gas infrastructure out of the Bakken might limit your growth out of that basin this year?

No, I don’t believe gas will be a limiting factor. We've discussed our projects from the last quarter, specifically two initiatives aimed at increasing gas production from the Bakken. One of these projects, the Bakken Express, was just put into service this past November, which includes Phase 1 and Phase 2. The first wave is already operational, delivering 92,000 a day to the Cheyenne hub from the Bakken. With the completion of the second phase, we are confident that we are well-positioned for growth.

Great. That's all for me. Thank you.

Hey all. Thanks for the time. I'm going to start on a pretty simplistic one. You might have a straightforward answer. But just in terms of the 2024 guidance increase going from $8.0 billion to $8.16 billion, is that all on STX? Is there any other change in there that you can frame up? And maybe just how do we think about that increase versus kind of what you were guiding for the EBITDA on those assets this year?

The $8.0 billion we published was slightly below that amount, but it rounded up to $8.0 billion. The $8.16 billion reflects a difference solely due to the EBITDA on NextEra, which is in line with our expectations for 2024.

That's clear, and thank you for that. Now, could you discuss the RNG contributions for the quarter, where they ended up trending for the year, how much of the softness in 2023 versus budget was attributed to that, and how much could it potentially recover in 2024?

I would say the contribution from the RNG plants in the fourth quarter was relatively small. We now have three plants in service, but they are not operating as consistently as we would like. This is the area we are focusing on right now. We recently took over operations from Waste Management, and we believe that once we get a better handle on this, we will be able to run these plants consistently. It may take a couple of months into 2024, but we are confident we will achieve consistent operation.

All right. Appreciate that. Thank you. See you next week.

Hey, good evening, guys. Just maybe a question on the STX. Could you just talk a little bit about what's driving the growth in '24 versus '23? And then, with respect to integration of those assets, are there obvious sort of near-term low-hanging fruit type of projects as part of the integration that could drive further or even sort of similar type of growth in '25 and beyond?

Sure. Between 2023 and 2024, we have an expansion project that began late last year, and the resulting incremental EBITDA is secured through customer contracts. For 2024 and 2025, we don’t anticipate anything as significant driving growth. We previously mentioned a long-term multiple projected between 7 and 7.5 times, down from the 8.6 times at which we acquired it. This change is primarily due to commercial synergies and some additional business opportunities we expect to develop over the next three to four years, rather than significant cost savings.

Appreciate the color, Kim. And then maybe just following on a previous question around leverage. I mean, can you talk a little bit about where you sort of see the high end of where you're comfortable should something sizable, whether it be M&A or organic, come across? Where you see yourself sort of the high end in terms of comfort on leverage?

Yeah. So, our leverage targets are 4.5 times and there's no change in that. And so, I think we feel like that's appropriate given the size and scope of our assets, the stability of our contracts that are underpinned by take-or-pay contracts with good customer credit quality. We run, as I said earlier, around 4 times at the end of the last three years. And we see value in having some cushion for opportunities and/or risk if they should arise. And so that gives us plenty of capacity to execute on some opportunity if we found it attractive. Now this isn't burning a hole in our pocket. We don't have to go out and spend this money today. I mean, you've seen us, as I talked earlier, acquire those NextEra assets. Not much impact to our debt to EBITDA multiple. We purchased 500 million in shares, not much impact. And so we've been able to do a lot of these things without huge impacts, but we've got a lot of capacity there if we find something that is a good strategic set, and that has attractive economics for our shareholders.

That's helpful. Appreciate it, Kim. Thank you.

Hi, guys. Thanks for the time here. This is JP Vachon for Neal. I had one clarification question just kind of what we were talking about earlier. The Permian nat gas egress that you guys were referring to, the 2026, I guess late '26, '27, what you've been hearing from customers, has that changed at all, I guess, maybe from last quarter or two quarters ago? Has the tone changed from customers there or has that kind of been the expectation for some time there?

I don't think it has changed much. The expectation remains the same. As the market is aligning on both the LNG and production sides, it seems to be a perfect match in terms of timing. However, I do feel there is a greater urgency now to ensure that a solution is in place compared to what we discussed in the last couple of calls.

Sure. Sure. Got it. Thank you. And then just one follow-up for me. The RD projects that you guys have anchored here, just going through the release, you guys note that you have potential capacity to expand in subsequent phases, I guess, in California. Do you mind elaborating on that? I guess, to the extent that you guys can, I guess, what would timing look like there? And I guess, what level of capacity could we expect to see ramping in that time frame?

This is Dax. Good question. I want to reiterate what we have at the moment. Between the two hubs, we are currently operating just under the capacity of 60,000 barrels a day. In Los Angeles harbor, our Carson Terminal offers 750,000 barrels of storage, which will be fully operational by the end of the year, with a rack throughput of 20,000 barrels a day. In Los Angeles Harbor, we believe we can easily double both the storage and the throughput capacity. The same applies to the hubs; if we double from 60,000 barrels a day, we would achieve a throughput rate similar to our historical supply in California, roughly around 120,000 barrels. Currently, California consumes about 250,000 barrels a day of diesel, and theoretically, we could increase our capacity above that. Our first facility, Bradshaw, near Sacramento, has been completely converted to renewable diesel, with no hydrocarbon diesel processed. However, our future plans will be determined by market demand as we remain engaged with our customers and monitor the ramp-up of these two Northern California refineries, adapting to their requests.

Perfect. Thank you very much guys. Appreciate it.

Hi. Good afternoon. I was wondering what volume assumptions you're using on the gas side for the STX acquisition in the Eagle Ford? And maybe just the dynamics that you're seeing there with GOR ratios and activity?

Yes, Neal. Regarding the 2024 budget assumptions, we will cover all of that at the conference next week. Please hold your question until then, and we will make sure to address it in detail at the Investor Conference when we discuss the 2024 budget.

Okay, fair enough. And then maybe asking the same question a different way. All else equal, if you don't make an acquisition, you're trending towards I guess 3.8 times leverage in '24. Do you see value in lowering the leverage ratio and staying under 4 times? Or do you still see kind of 4.5 times is the proper leverage ratio given your asset base?

Yeah. I think we're comfortable at 4.5 times, as I said earlier, given the size, scope of our assets and stability of our cash flow. And so, that being said, we see value in having some cushion and we've been operating with a cushion for the last couple of years.

Okay. Can I ask one additional one since the first one is going to go to the Analyst Day?

Sure. Yes.

When you said that GCX can support the downstream assets maybe with an expansion, can you explain what you meant by that comment?

This is Sital. I believe Kim was discussing our potential to expand GCX. As the intrastate industrial market and power market develop, there may be an opportunity for downstream expansions to transport those volumes into that corridor. That’s what Kim was referring to.

And I think just to add something, this just demonstrates the tremendous ability we have to expand and extend our system. I think it's hard for people to realize exactly how extensive this is in Texas, Louisiana, but every time we put more gas into the system, it brings the opportunity to expand further downstream, and that's a big reason why Kim has said repeatedly that, on our expansion CapEx target, we think we'll be at the upper end of that range from $1 billion to $2 billion, we'll be at the upper end of that range. And that's the kind of opportunities we're seeing. They don't necessarily make it into a backlog, but they're out there and things we can take advantage of as more and more gas flows through the system.

Got it. I appreciate all the color.

Good afternoon. Thank you for taking my questions. First, just a quick follow-up related to the longer-term guidance on the STX acquisition. In order to get to the 7 times and 7.5 times multiple over multiple years, is there any CapEx associated with that, and how much?

There may be a little bit, but it's not material.

Got it. And on the product side in California, given the ample supply of diesel into the state, with renewable diesel being produced in state, as well as entering into the state from other areas, it looks like the state may be short on gasoline over time as in-state refineries convert. With this backdrop, if there is incremental bid for gasoline imports, are there opportunities for your waterborne terminals there?

Yeah. I think, at the end of the day, whether the barrels are supplied by the refiners or imported, I think they'll move on our pipelines. I think as long as the demand is there, the inland demand is there, and as well as the demand in the Bay areas and the LA areas that move across our racks, whether it's produced in California or it comes in, I think it will find its way into our assets.

Thank you.

Hey. Thanks, guys, for taking my question. Just following back up on the Permian pipeline, is there a market that you guys are looking more towards, whether it's Agua Dulce, or Carthage, or Houston, that would make more sense at the time for a new pipe?

We appreciate all the opportunities we have, but we are in a very competitive landscape. I believe there is a requirement in both locations. That’s all I will say on that. We genuinely like all the opportunities, but I am not certain that we will secure them all. I’m not entirely sure I addressed your question, but I do see a need for a pipeline to the Eastern Louisiana Coast and potentially another one that connects to the Gulf Coast corridor of Louisiana, as well as one for South Texas.

And ultimately, the customers and the customer contracts will drive that.

Okay. That makes sense. And then, turning to M&A, I know you all don't rule it out. And one of your peers this year will have some assets on the market. Curious if you guys would ever step out of the US for assets or mostly focused on just US assets for M&A?

Sure. I mean, we will look at the opportunity, that's what I would say. I would say, in general, what we have found outside of the US is that it's hard to get the types of risk-adjusted returns that we would like to get. And so, because you've got different tax issues associated with repatriating the cash and generally returns, depending on which market you're talking about, but returns have been lower in most of those international markets. So, I think, what I'm saying is, I doubt that happens, but we will look at those opportunities. We don't pass up looking at things and evaluating whether that could make sense and whether that has synergies with our existing assets. So, I'll just leave it at that.

Alright. Perfect. That's all I had. Thanks, guys.

Hi, good afternoon. First one, for the past couple of quarters you've been disclosing your 10-Q, some potential financial effects on the EPA's Good Neighbor Act, with the high end of the range fairly material. I was wondering if you can update us on where you stand in that process and things we can keep an eye out for in terms of whether the ultimate effect winds up being towards the higher or lower end of the range?

I'll reiterate some previous points. We believe this rule and the process behind it are flawed, and it has faced significant legal challenges that are legitimate. Every state that has sought a stay on their plans has been successful in doing so, which has been upheld in several Circuit Courts. Regarding the Federal plans, this matter is currently on appeal to the Supreme Court, which is a positive development as they have requested a hearing scheduled for later in February. As it stands, only three states still have the rule in effect that affects KMI. Therefore, the impacts we outlined in the 10-K are considerably smaller, and we discussed those potential impacts there as well.

Got it. All right. Thank you.

Thank you, Sheila.

Thank you. Appreciate it. Have a good day.