filings.toolsItem 1. Financial Statements.
134K characters. Original on sec.gov · Markdown
Item 1. Financial Statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts, unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Services | $ | 2,178 | $ | 2,045 | $ | 4,410 | $ | 4,114 | |||||||||||||||
| Commodity sales | 1,346 | 1,421 | 2,866 | 3,206 | |||||||||||||||||||
| Other | 48 | 35 | 138 | 69 | |||||||||||||||||||
| Total Revenues | 3,572 | 3,501 | 7,414 | 7,389 | |||||||||||||||||||
| Operating Costs, Expenses and Other | |||||||||||||||||||||||
| Costs of sales (exclusive of items shown separately below) | 967 | 971 | 2,074 | 2,186 | |||||||||||||||||||
| Operations and maintenance | 741 | 685 | 1,421 | 1,324 | |||||||||||||||||||
| Depreciation, depletion and amortization | 584 | 557 | 1,171 | 1,122 | |||||||||||||||||||
| General and administrative | 179 | 169 | 354 | 335 | |||||||||||||||||||
| Taxes, other than income taxes | 109 | 103 | 220 | 213 | |||||||||||||||||||
| Gain on divestitures, net | (45) | (13) | (77) | (13) | |||||||||||||||||||
| Other income, net | (1) | (1) | (10) | (2) | |||||||||||||||||||
| Total Operating Costs, Expenses and Other | 2,534 | 2,471 | 5,153 | 5,165 | |||||||||||||||||||
| Operating Income | 1,038 | 1,030 | 2,261 | 2,224 | |||||||||||||||||||
| Other Income (Expense) | |||||||||||||||||||||||
| Earnings from equity investments | 208 | 208 | 451 | 373 | |||||||||||||||||||
| Amortization of excess cost of equity investments | (13) | (19) | (25) | (36) | |||||||||||||||||||
| Interest, net | (464) | (443) | (936) | (888) | |||||||||||||||||||
| Other, net | 1 | 2 | 1 | 4 | |||||||||||||||||||
| Total Other Expense | (268) | (252) | (509) | (547) | |||||||||||||||||||
| Income Before Income Taxes | 770 | 778 | 1,752 | 1,677 | |||||||||||||||||||
| Income Tax Expense | (168) | (168) | (377) | (364) | |||||||||||||||||||
| Net Income | 602 | 610 | 1,375 | 1,313 | |||||||||||||||||||
| Net Income Attributable to Noncontrolling Interests | (27) | (24) | (54) | (48) | |||||||||||||||||||
| Net Income Attributable to Kinder Morgan, Inc. | $ | 575 | $ | 586 | $ | 1,321 | $ | 1,265 | |||||||||||||||
| Class P Common Stock | |||||||||||||||||||||||
| Basic and Diluted Earnings Per Share | $ | 0.26 | $ | 0.26 | $ | 0.59 | $ | 0.56 | |||||||||||||||
| Basic and Diluted Weighted Average Shares Outstanding | 2,219 | 2,237 | 2,219 | 2,242 | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions, unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income | $ | 602 | $ | 610 | $ | 1,375 | $ | 1,313 | |||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Net unrealized (loss) gain from derivative instruments (net of taxes of $3, $(14), $24 and $(46), respectively) | (12) | 49 | (81) | 155 | |||||||||||||||||||
| Reclassification into earnings of net derivative instruments loss (gain) to net income (net of taxes of $(8), $—, $(7) and $15, respectively) | 25 | (2) | 22 | (51) | |||||||||||||||||||
| Benefit plan adjustments (net of taxes of $—, $(1), $(4) and $(2), respectively) | 1 | 4 | 14 | 8 | |||||||||||||||||||
| Total other comprehensive income (loss) | 14 | 51 | (45) | 112 | |||||||||||||||||||
| Comprehensive income | 616 | 661 | 1,330 | 1,425 | |||||||||||||||||||
| Comprehensive income attributable to noncontrolling interests | (27) | (24) | (54) | (48) | |||||||||||||||||||
| Comprehensive income attributable to KMI | $ | 589 | $ | 637 | $ | 1,276 | $ | 1,377 |
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts, unaudited)
| June 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 98 | $ | 83 | |||||||
| Restricted deposits | 26 | 13 | |||||||||
| Accounts receivable | 1,293 | 1,588 | |||||||||
| Fair value of derivative contracts | 46 | 126 | |||||||||
| Inventories | 537 | 525 | |||||||||
| Other current assets | 190 | 207 | |||||||||
| Total current assets | 2,190 | 2,542 | |||||||||
| Property, plant and equipment, net | 37,533 | 37,297 | |||||||||
| Investments | 7,851 | 7,874 | |||||||||
| Goodwill | 20,084 | 20,121 | |||||||||
| Other intangibles, net | 1,858 | 1,957 | |||||||||
| Deferred charges and other assets | 1,186 | 1,229 | |||||||||
| Total Assets | $ | 70,702 | $ | 71,020 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Current portion of debt | $ | 3,062 | $ | 4,049 | |||||||
| Accounts payable | 1,204 | 1,366 | |||||||||
| Accrued interest | 524 | 513 | |||||||||
| Accrued taxes | 223 | 272 | |||||||||
| Fair value of derivative contracts | 228 | 205 | |||||||||
| Other current liabilities | 717 | 816 | |||||||||
| Total current liabilities | 5,958 | 7,221 | |||||||||
| Long-term liabilities and deferred credits | |||||||||||
| Long-term debt | |||||||||||
| Outstanding | 28,560 | 27,880 | |||||||||
| Debt fair value adjustments | 89 | 187 | |||||||||
| Total long-term debt | 28,649 | 28,067 | |||||||||
| Deferred income taxes | 1,729 | 1,388 | |||||||||
| Other long-term liabilities and deferred credits | 2,672 | 2,615 | |||||||||
| Total long-term liabilities and deferred credits | 33,050 | 32,070 | |||||||||
| Total Liabilities | 39,008 | 39,291 | |||||||||
| Commitments and contingencies (Notes 4 and 10) | |||||||||||
| Stockholders’ Equity | |||||||||||
| Class P Common Stock, $0.01 par value, 4,000,000,000 shares authorized, 2,219,403,596 and 2,219,729,644 shares, respectively, issued and outstanding | 22 | 22 | |||||||||
| Additional paid-in capital | 41,218 | 41,190 | |||||||||
| Accumulated deficit | (10,640) | (10,689) | |||||||||
| Accumulated other comprehensive loss | (262) | (217) | |||||||||
| Total Kinder Morgan, Inc.’s stockholders’ equity | 30,338 | 30,306 | |||||||||
| Noncontrolling interests | 1,356 | 1,423 | |||||||||
| Total Stockholders’ Equity | 31,694 | 31,729 | |||||||||
| Total Liabilities and Stockholders’ Equity | $ | 70,702 | $ | 71,020 |
The accompanying notes are an integral part of these consolidated financial statements.
| KINDER MORGAN, INC. AND SUBSIDIARIES | |||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| (In millions, unaudited) | |||||||||||
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash Flows From Operating Activities | |||||||||||
| Net income | $ | 1,375 | $ | 1,313 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
| Depreciation, depletion and amortization | 1,171 | 1,122 | |||||||||
| Deferred income taxes | 357 | 354 | |||||||||
| Amortization of excess cost of equity investments | 25 | 36 | |||||||||
| Change in fair value of derivative contracts | 52 | (129) | |||||||||
| Gain on divestitures, net | (77) | (13) | |||||||||
| Earnings from equity investments | (451) | (373) | |||||||||
| Distributions of equity investment earnings | 416 | 367 | |||||||||
| Changes in components of working capital | |||||||||||
| Accounts receivable | 267 | 573 | |||||||||
| Inventories | (7) | 101 | |||||||||
| Other current assets | (10) | 89 | |||||||||
| Accounts payable | (121) | (370) | |||||||||
| Accrued interest, net of interest rate swaps | 25 | (6) | |||||||||
| Accrued taxes | (48) | (52) | |||||||||
| Other current liabilities | (78) | (82) | |||||||||
| Other, net | (20) | (47) | |||||||||
| Net Cash Provided by Operating Activities | 2,876 | 2,883 | |||||||||
| Cash Flows From Investing Activities | |||||||||||
| Acquisition of assets (Note 2) | (58) | (14) | |||||||||
| Capital expenditures | (1,200) | (1,042) | |||||||||
| Contributions to investments | (44) | (136) | |||||||||
| Distributions from equity investments in excess of cumulative earnings | 81 | 118 | |||||||||
| Other, net | 49 | (12) | |||||||||
| Net Cash Used in Investing Activities | (1,172) | (1,086) | |||||||||
| Cash Flows From Financing Activities | |||||||||||
| Issuances of debt | 5,943 | 3,119 | |||||||||
| Payments of debt | (6,239) | (3,511) | |||||||||
| Debt issue costs | (19) | (15) | |||||||||
| Dividends | (1,272) | (1,264) | |||||||||
| Repurchases of shares | (7) | (317) | |||||||||
| Distributions to noncontrolling interests | (81) | (80) | |||||||||
| Other, net | (1) | (3) | |||||||||
| Net Cash Used in Financing Activities | (1,676) | (2,071) | |||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Deposits | 28 | (274) | |||||||||
| Cash, Cash Equivalents and Restricted Deposits, beginning of period | 96 | 794 | |||||||||
| Cash, Cash Equivalents and Restricted Deposits, end of period | $ | 124 | $ | 520 | |||||||
| KINDER MORGAN, INC. AND SUBSIDIARIES (Continued) | |||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| (In millions, unaudited) | |||||||||||
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash and Cash Equivalents, beginning of period | $ | 83 | $ | 745 | |||||||
| Restricted Deposits, beginning of period | 13 | 49 | |||||||||
| Cash, Cash Equivalents and Restricted Deposits, beginning of period | 96 | 794 | |||||||||
| Cash and Cash Equivalents, end of period | 98 | 497 | |||||||||
| Restricted Deposits, end of period | 26 | 23 | |||||||||
| Cash, Cash Equivalents and Restricted Deposits, end of period | 124 | 520 | |||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Deposits | $ | 28 | $ | (274) | |||||||
| Non-cash Investing and Financing Activities | |||||||||||
| ROU assets and operating lease obligations recognized including adjustments | $ | 25 | $ | 31 | |||||||
| Assets contributed to equity investment | — | 16 | |||||||||
| Net increase in property, plant and equipment from both accruals and contractor retainage | 74 | ||||||||||
| Supplemental Disclosures of Cash Flow Information | |||||||||||
| Cash paid during the period for interest (net of capitalized interest) | 914 | 919 | |||||||||
| Cash paid during the period for income taxes, net | 11 | 9 |
The accompanying notes are an integral part of these consolidated financial statements.
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 March 31, 2024 | 2,219 | $ | 22 | $ | 41,200 | $ | (10,574) | $ | (276) | $ | 30,372 | $ | 1,371 | $ | 31,743 | ||||||||||||||||||||||||||||||||
| Restricted shares | 18 | 18 | 18 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | 575 | 575 | 27 | 602 | |||||||||||||||||||||||||||||||||||||||||||
| Dividends | (641) | (641) | (641) | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions | — | (42) | (42) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 14 | 14 | 14 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | 2,219 | $ | 22 | $ | 41,218 | $ | (10,640) | $ | (262) | $ | 30,338 | $ | 1,356 | $ | 31,694 |
| 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 March 31, 2023 | 2,241 | $ | 22 | $ | 41,575 | $ | (10,499) | $ | (341) | $ | 30,757 | $ | 1,357 | $ | 32,114 | ||||||||||||||||||||||||||||||||
| Repurchases of shares | (12) | (204) | (204) | (204) | |||||||||||||||||||||||||||||||||||||||||||
| Restricted shares | 19 | 19 | 19 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | 586 | 586 | 24 | 610 | |||||||||||||||||||||||||||||||||||||||||||
| Dividends | (637) | (637) | (637) | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions | — | (41) | (41) | ||||||||||||||||||||||||||||||||||||||||||||
| Other | (3) | (3) | (3) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 51 | 51 | 51 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 2,229 | $ | 22 | $ | 41,387 | $ | (10,550) | $ | (290) | $ | 30,569 | $ | 1,340 | $ | 31,909 |
| 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 | 2,220 | $ | 22 | $ | 41,190 | $ | (10,689) | $ | (217) | $ | 30,306 | $ | 1,423 | $ | 31,729 | ||||||||||||||||||||||||||||||||
| Repurchases of shares | (1) | (7) | (7) | (7) | |||||||||||||||||||||||||||||||||||||||||||
| Restricted shares | 35 | 35 | 35 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | 1,321 | 1,321 | 54 | 1,375 | |||||||||||||||||||||||||||||||||||||||||||
| Dividends | (1,272) | (1,272) | (1,272) | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions | — | (81) | (81) | ||||||||||||||||||||||||||||||||||||||||||||
| Acquisition adjustment (Note 2) | — | (38) | (38) | ||||||||||||||||||||||||||||||||||||||||||||
| Other | — | (2) | (2) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (45) | (45) | (45) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | 2,219 | $ | 22 | $ | 41,218 | $ | (10,640) | $ | (262) | $ | 30,338 | $ | 1,356 | $ | 31,694 |
| 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 | 2,248 | $ | 22 | $ | 41,673 | $ | (10,551) | $ | (402) | $ | 30,742 | $ | 1,372 | $ | 32,114 | ||||||||||||||||||||||||||||||||
| Repurchases of shares | (19) | (317) | (317) | (317) | |||||||||||||||||||||||||||||||||||||||||||
| Restricted shares | 34 | 34 | 34 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | 1,265 | 1,265 | 48 | 1,313 | |||||||||||||||||||||||||||||||||||||||||||
| Dividends | (1,264) | (1,264) | (1,264) | ||||||||||||||||||||||||||||||||||||||||||||
| Distributions | — | (80) | (80) | ||||||||||||||||||||||||||||||||||||||||||||
| Other | (3) | (3) | (3) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 112 | 112 | 112 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 2,229 | $ | 22 | $ | 41,387 | $ | (10,550) | $ | (290) | $ | 30,569 | $ | 1,340 | $ | 31,909 |
The accompanying notes are an integral part of these consolidated financial statements.
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.
Goodwill
In addition to periodically evaluating long-lived assets and goodwill for impairment based on changes in market conditions, we evaluate goodwill for impairment on May 31 of each year. For our May 31, 2024 evaluation, we grouped our businesses into seven reporting units as follows: (i) Natural Gas Pipelines Regulated; (ii) Natural Gas Pipelines Non-Regulated; (iii) CO2; (iv) Products Pipelines (excluding associated terminals); (v) Products Pipelines Terminals (evaluated separately from Products Pipelines for goodwill purposes); (vi) Terminals; and (vii) Energy Transition Ventures.
The fair value estimates used in our goodwill impairment test include Level 3 inputs of the fair value hierarchy. The inputs include valuation estimates, which include assumptions primarily involving management’s judgments and estimates. For all reporting units other than our Energy Transition Ventures reporting unit, we estimated fair value based on a market approach utilizing forecasted earnings before interest, income taxes, DD&A expenses, including amortization of excess cost of equity investments, (EBITDA) and the enterprise value to estimated EBITDA multiples of comparable companies for each of our reporting units. The value of each reporting unit was determined from the perspective of a market participant in an orderly transaction between market participants at the measurement date. For Energy Transition Ventures, we estimated fair value based on an income approach, which includes assumptions regarding future cash flows based primarily on production growth assumptions, terminal values and discount rates. Changes to any one or a combination of these factors would result in a change to the reporting unit fair values, which could lead to future impairment charges. Such potential non-cash impairments could have a significant effect on our results of operations.
The results of our May 31, 2024 annual impairment test indicated that for each of our reporting units, the reporting unit’s fair value exceeded the carrying value.
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 units or restricted stock issued to employees and non-employee directors and include dividend equivalent payments, do not participate in excess distributions over earnings.
The following table sets forth the allocation of net income available to shareholders of Class P common stock and participating securities:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| Net Income Available to Stockholders | $ | 575 | $ | 586 | $ | 1,321 | $ | 1,265 | |||||||||||||||
| Participating securities: | |||||||||||||||||||||||
| Less: Net Income Allocated to Restricted Stock Awards(a) | (3) | (4) | (7) | (7) | |||||||||||||||||||
| Net Income Allocated to Common Stockholders | $ | 572 | $ | 582 | $ | 1,314 | $ | 1,258 | |||||||||||||||
| Basic Weighted Average Shares Outstanding | 2,219 | 2,237 | 2,219 | 2,242 | |||||||||||||||||||
| Basic Earnings Per Share | $ | 0.26 | $ | 0.26 | $ | 0.59 | $ | 0.56 |
(a)As of June 30, 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (In millions on a weighted average basis) | |||||||||||||||||||||||
| Unvested restricted stock awards | 13 | 13 | 13 | 13 | |||||||||||||||||||
| Convertible trust preferred securities | 3 | 3 | 3 | 3 |
2. Acquisitions and Divestitures
Acquisitions
As of June 30, 2024, our preliminary allocation of the purchase price for acquisitions are detailed below.
| Assignment of Purchase Price | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ref | Acquisition | Purchase price | Current assets | Property, plant & equipment | Other long-term assets | Current liabilities | Long-term liabilities | Non-controlling interest | Resulting goodwill | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | North McElroy Unit | $ | 60 | $ | 1 | $ | 101 | $ | — | $ | — | $ | (42) | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||
| (2) | STX Midstream(a) | 1,829 | 25 | 1,199 | 549 | (6) | — | (66) | 128 |
(a)The purchase price allocation for the STX Midstream acquisition is preliminary.
(1) North McElroy Unit Acquisition
On June 10, 2024, we completed the acquisition of AVAD Energy Partners’ interest in North McElroy Unit, which is an existing waterflood located in Crane County, Texas for a purchase price of $60 million. The acquired long-term liabilities consist of asset retirement obligations. The acquired assets are included in our CO2 business segment.
(2) 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 $1,829 million, including purchase price adjustments for working capital. During the six months ended June 30, 2024, the Company identified an adjustment of $38 million to the calculation of noncontrolling interest in addition to measurement period adjustments of $10 million, resulting in a net $28 million decrease to goodwill. The acquired assets are included in our Natural Gas Pipelines business segment.
Pro Forma Information
Pro forma consolidated income statement information that gives effect to the above acquisitions as if they had occurred as of January 1 of each year preceding each transaction is not presented because it would not be materially different from the information presented in our accompanying consolidated statements of income.
Divestitures
CO**2 Divestiture
In June 2024, we divested our interests in the Katz Unit, Goldsmith Landreth San Andres Unit, Tall Cotton Field and Reinecke Unit, along with certain shallow interests in the Diamond M Field, all located in the Permian Basin, and received a leasehold interest in an undeveloped leasehold directly adjacent to the SACROC Unit. In addition to the leasehold interest, we received $25 million of cash proceeds from this divestiture, which is reported as an investing activity within “Other, net” on our accompanying consolidated statement of cash flows, and recorded a gain of $41 million, which is reported within “Gain on divestitures, net” on our accompanying consolidated statement of income and includes the effect of a $33 million reduction in our asset retirement obligations that were transferred to the buyer. In July 2024, we paid $6 million for a working capital adjustment related to this divestiture. The assets were included in our CO2 business segment.
Goodwill
Changes in the amounts of our goodwill for the six months ended June 30, 2024 are summarized by reporting unit as follows:
| Natural Gas Pipelines Regulated | Natural Gas Pipelines Non-Regulated | CO****2 | Products Pipelines | Products Pipelines Terminals | Terminals | Energy Transition Ventures | Total | ||||||||||||||||||||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill as of December 31, 2023 | $ | 14,249 | $ | 2,499 | $ | 928 | $ | 1,378 | $ | 151 | $ | 802 | $ | 114 | $ | 20,121 | |||||||||||||||||||||||||||||||
| Acquisition(a) | — | (28) | — | — | — | — | — | (28) | |||||||||||||||||||||||||||||||||||||||
| Divestitures(b) | — | — | (9) | — | — | — | — | (9) | |||||||||||||||||||||||||||||||||||||||
| Goodwill as of June 30, 2024 | $ | 14,249 | $ | 2,471 | $ | 919 | $ | 1,378 | $ | 151 | $ | 802 | $ | 114 | $ | 20,084 | |||||||||||||||||||||||||||||||
(a)Reflects adjustment to purchase price allocation related to the December 2023 STX Midstream acquisition.
(b)Associated with our CO2 business segment assets that were divested in June 2024.
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.
4. Debt
The following table provides information on the principal amount of our outstanding debt balances:
| June 30, 2024 | December 31, 2023 | |||||||||||||
| (In millions, unless otherwise stated) | ||||||||||||||
| Current portion of debt | ||||||||||||||
| $3.5 billion credit facility due August 20, 2027 | $ | — | $ | — | ||||||||||
| Commercial paper notes(a) | 735 | 1,989 | ||||||||||||
| Current portion of senior notes | ||||||||||||||
| 4.15% due February 2024 | — | 650 | ||||||||||||
| 4.30% due May 2024 | — | 600 | ||||||||||||
| 4.25% due September 2024 | 650 | 650 | ||||||||||||
| 4.30% due June 2025 | 1,500 | — | ||||||||||||
| Trust I preferred securities, 4.75%, due March 2028(b) | 111 | 111 | ||||||||||||
| Current portion of other debt | 66 | 49 | ||||||||||||
| Total current portion of debt | 3,062 | 4,049 | ||||||||||||
| Long-term debt (excluding current portion) | ||||||||||||||
| Senior notes | 27,989 | 27,255 | ||||||||||||
| EPC Building, LLC, promissory note, 3.967%, due 2023 through 2035 | 300 | 311 | ||||||||||||
| Trust I preferred securities, 4.75%, due March 2028 | 110 | 110 | ||||||||||||
| Other | 161 | 204 | ||||||||||||
| Total long-term debt | 28,560 | 27,880 | ||||||||||||
| Total debt(c) | $ | 31,622 | $ | 31,929 |
(a)Weighted average interest rate on borrowings at June 30, 2024 and December 31, 2023 was 5.52% 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 June 30, 2024 and December 31, 2023, increased our total debt balances by $89 million and $187 million, respectively.
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 million.
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.
Credit Facilities and Restrictive Covenants
As of June 30, 2024, we had no borrowings outstanding under our credit facility, $735 million borrowings outstanding under our commercial paper program and $57 million in letters of credit. Our availability under our credit facility as of June 30, 2024 was $2.7 billion. For the period ended June 30, 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:
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying value | Estimated fair value(a) | Carrying value | Estimated fair value(a) | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Total debt | $ | 31,711 | $ | 30,540 | $ | 32,116 | $ | 31,370 |
(a)Included in the estimated fair value are amounts for our Trust I Preferred Securities of $206 million and $207 million as of June 30, 2024 and December 31, 2023, respectively.
We used Level 2 input values to measure the estimated fair value of our outstanding debt balance as of both June 30, 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 six months ended June 30, 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Per share cash dividend declared for the period | $ | 0.2875 | $ | 0.2825 | $ | 0.575 | $ | 0.565 | |||||||||||||||
| Per share cash dividend paid in the period | 0.2875 | 0.2825 | 0.57 | 0.56 |
On July 17, 2024, our board of directors declared a cash dividend of $0.2875 per share for the quarterly period ended June 30, 2024, which is payable on August 15, 2024 to shareholders of record as of the close of business on July 31, 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 | $ | (44) | $ | (173) | $ | (217) | |||||||||||||||||
| Other comprehensive (loss) gain before reclassifications | (81) | 14 | (67) | ||||||||||||||||||||
| Loss reclassified from accumulated other comprehensive loss | 22 | — | 22 | ||||||||||||||||||||
| Net current-period change in accumulated other comprehensive loss | (59) | 14 | (45) | ||||||||||||||||||||
| Balance as of June 30, 2024 | $ | (103) | $ | (159) | $ | (262) |
| 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 | $ | (164) | $ | (238) | $ | (402) | |||||||||||||||||
| Other comprehensive gain before reclassifications | 155 | 8 | 163 | ||||||||||||||||||||
| Gain reclassified from accumulated other comprehensive loss | (51) | — | (51) | ||||||||||||||||||||
| Net current-period change in accumulated other comprehensive loss | 104 | 8 | 112 | ||||||||||||||||||||
| Balance as of June 30, 2023 | $ | (60) | $ | (230) | $ | (290) |
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 June 30, 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 | (16.3) | MMBbl | |||||||||
| Natural gas fixed price | (70.2) | Bcf | |||||||||
| Natural gas basis | (44.3) | Bcf | |||||||||
| Derivatives not designated as hedging contracts | |||||||||||
| Crude oil fixed price | (1.1) | MMBbl | |||||||||
| Crude oil basis | (3.4) | MMBbl | |||||||||
| Natural gas fixed price | (7.2) | Bcf | |||||||||
| Natural gas basis | (58.8) | Bcf | |||||||||
| NGL fixed price | (1.4) | MMBbl |
As of June 30, 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 June 30, 2024:
| Notional amount | Accounting treatment | Maximum term | |||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||||||||
| Fixed-to-variable interest rate contracts(a) | $ | 5,350 | Fair value hedge | March 2035 | |||||||||||||||||||
(a)The principal amount of hedged senior notes consisted of $2,100 million included in “Current portion of debt” and $3,250 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 June 30, 2024:
| Notional amount | Accounting treatment | Maximum term | |||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Derivatives designated as hedging instruments | |||||||||||||||||||||||
| EUR-to-USD cross currency swap contracts(a) | $ | 543 | Cash flow hedge | March 2027 | |||||||||||||||||||
(a)These swaps eliminate the foreign currency risk associated with our Euro-denominated debt.
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 | |||||||||||||||||||||||||||
| June 30, 2024 | December 31, 2023 | June 30, 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) | $ | 30 | $ | 77 | $ | (93) | $ | (75) | |||||||||||||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | 1 | 12 | (43) | (29) | |||||||||||||||||||||||||
| Subtotal | 31 | 89 | (136) | (104) | |||||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||||||||
| Fair value of derivative contracts/(Fair value of derivative contracts) | — | — | (101) | (120) | |||||||||||||||||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | 24 | 37 | (208) | (158) | |||||||||||||||||||||||||
| Subtotal | 24 | 37 | (309) | (278) | |||||||||||||||||||||||||
| Foreign currency contracts | |||||||||||||||||||||||||||||
| Fair value of derivative contracts/(Fair value of derivative contracts) | — | — | (9) | (2) | |||||||||||||||||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | — | — | (8) | (2) | |||||||||||||||||||||||||
| Subtotal | — | — | (17) | (4) | |||||||||||||||||||||||||
| Total | 55 | 126 | (462) | (386) | |||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | |||||||||||||||||||||||||||||
| Energy commodity derivative contracts | |||||||||||||||||||||||||||||
| Fair value of derivative contracts/(Fair value of derivative contracts) | 16 | 49 | (25) | (8) | |||||||||||||||||||||||||
| Deferred charges and other assets/(Other long-term liabilities and deferred credits) | 1 | 3 | (1) | (1) | |||||||||||||||||||||||||
| Total | 17 | 52 | (26) | (9) | |||||||||||||||||||||||||
| Total derivatives | $ | 72 | $ | 178 | $ | (488) | $ | (395) |
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 June 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Energy commodity derivative contracts(b) | $ | 27 | $ | 21 | $ | — | $ | 48 | $ | (25) | $ | — | $ | 23 | |||||||||||||||||||||||||||
| Interest rate contracts | — | 24 | — | 24 | — | — | 24 | ||||||||||||||||||||||||||||||||||
| As of December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Energy commodity derivative contracts(b) | $ | 65 | $ | 75 | $ | — | $ | 140 | $ | (16) | $ | — | $ | 124 | |||||||||||||||||||||||||||
| Interest rate contracts | — | 38 | — | 38 | — | — | 38 | ||||||||||||||||||||||||||||||||||
| 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 June 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Energy commodity derivative contracts(b) | $ | (12) | $ | (150) | $ | — | $ | (162) | $ | 25 | $ | (15) | $ | (152) | |||||||||||||||||||||||||||
| Interest rate contracts | — | (309) | — | (309) | — | — | (309) | ||||||||||||||||||||||||||||||||||
| Foreign currency contracts | — | (17) | — | (17) | — | — | (17) | ||||||||||||||||||||||||||||||||||
| As of December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Energy commodity derivative contracts(b) | $ | (17) | $ | (96) | $ | — | $ | (113) | $ | 16 | $ | (85) | $ | (182) | |||||||||||||||||||||||||||
| Interest rate contracts | — | (278) | — | (278) | — | — | (278) | ||||||||||||||||||||||||||||||||||
| Foreign currency contracts | — | (4) | — | (4) | — | — | (4) |
(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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| Interest rate contracts | Interest, net | $ | 1 | $ | (99) | $ | (55) | $ | 19 | |||||||||||||||||||||||
| Hedged fixed rate debt(a) | Interest, net | $ | — | $ | 101 | $ | 57 | $ | (18) |
(a)As of June 30, 2024, the cumulative amount of fair value hedging adjustments resulted in a decrease of $292 million in the carrying value of our hedged fixed rate debt balance and is included in “Debt fair value adjustments” on our accompanying consolidated balance sheet.
| 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 June 30, | Three Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||
| Energy commodity derivative contracts | $ | (12) | $ | 50 | Revenues—Commodity sales | $ | (27) | $ | 18 | |||||||||||||||||||||||
| Costs of sales | (2) | (20) | ||||||||||||||||||||||||||||||
| Foreign currency contracts | (3) | 13 | Other, net | (4) | 4 | |||||||||||||||||||||||||||
| Total | $ | (15) | $ | 63 | Total | $ | (33) | $ | 2 |
| Derivatives in cash flow hedging relationships | Gain/(loss) recognized in OCI on derivative(a) | Location | Gain/(loss) reclassified from Accumulated OCI into income | |||||||||||||||||||||||||||||
| Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||||||||||||||||
| Energy commodity derivative contracts | $ | (105) | $ | 185 | Revenues—Commodity sales | $ | (7) | $ | 83 | |||||||||||||||||||||||
| Costs of sales | (9) | (27) | ||||||||||||||||||||||||||||||
| Interest rate contracts | 13 | — | Interest, net | 4 | — | |||||||||||||||||||||||||||
| Foreign currency contracts | (13) | 16 | Other, net | (17) | 10 | |||||||||||||||||||||||||||
| Total | $ | (105) | $ | 201 | Total | $ | (29) | $ | 66 |
(a)We expect to reclassify approximately $78 million of loss associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balance as of June 30, 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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| Energy commodity derivative contracts | Revenues—Commodity sales | $ | 2 | $ | 10 | $ | (9) | $ | 31 | |||||||||||||||||||||||
| Costs of sales | (18) | 51 | (32) | 120 | ||||||||||||||||||||||||||||
| Earnings from equity investments | — | — | — | 1 | ||||||||||||||||||||||||||||
| Interest rate contracts | Interest, net | — | 7 | (2) | 12 | |||||||||||||||||||||||||||
| Total(a) | $ | (16) | $ | 68 | $ | (43) | $ | 164 |
(a)The three and six months ended June 30, 2024 amounts include an approximate loss of $14 million and an approximate gain of $10 million, respectively, and the three and six months ended June 30, 2023 amounts include approximate gains of $7 million and $35 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 June 30, 2024 and December 31, 2023, we had no outstanding letters of credit supporting our commodity price risk management program. As of June 30, 2024 we had cash margins of $12 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 June 30, 2024 represents the initial margin requirements of $27 million, offset by
counterparty variation margin requirements of $15 million. 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 June 30, 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 $99 million of additional collateral.
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 June 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| Natural Gas Pipelines | Products Pipelines | Terminals | CO****2 | Corporate and Eliminations | Total | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||
| Revenues from contracts with customers(a) | ||||||||||||||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||||||||
| Firm services(b) | $ | 920 | $ | 49 | $ | 215 | $ | — | $ | (1) | $ | 1,183 | ||||||||||||||||||||||||||
| Fee-based services | 257 | 276 | 115 | 10 | (1) | 657 | ||||||||||||||||||||||||||||||||
| Total services | 1,177 | 325 | 330 | 10 | (2) | 1,840 | ||||||||||||||||||||||||||||||||
| Commodity sales | ||||||||||||||||||||||||||||||||||||||
| Natural gas sales | 461 | — | — | 30 | (1) | 490 | ||||||||||||||||||||||||||||||||
| Product sales | 211 | 392 | 15 | 266 | (1) | 883 | ||||||||||||||||||||||||||||||||
| Total commodity sales | 672 | 392 | 15 | 296 | (2) | 1,373 | ||||||||||||||||||||||||||||||||
| Total revenues from contracts with customers | 1,849 | 717 | 345 | 306 | (4) | 3,213 | ||||||||||||||||||||||||||||||||
| Other revenues(c) | ||||||||||||||||||||||||||||||||||||||
| Leasing services(d) | 114 | 53 | 164 | 17 | — | 348 | ||||||||||||||||||||||||||||||||
| Derivatives adjustments on commodity sales | 5 | — | — | (30) | — | (25) | ||||||||||||||||||||||||||||||||
| Other | 25 | 6 | — | 5 | — | 36 | ||||||||||||||||||||||||||||||||
| Total other revenues | 144 | 59 | 164 | (8) | — | 359 | ||||||||||||||||||||||||||||||||
| Total revenues | $ | 1,993 | $ | 776 | $ | 509 | $ | 298 | $ | (4) | $ | 3,572 |
| Three Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Natural Gas Pipelines | Products Pipelines | Terminals | CO****2 | Corporate and Eliminations | Total | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||
| Revenues from contracts with customers(a) | ||||||||||||||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||||||||
| Firm services(b) | $ | 849 | $ | 49 | $ | 208 | $ | 1 | $ | — | $ | 1,107 | ||||||||||||||||||||||||||
| Fee-based services | 248 | 246 | 98 | 10 | — | 602 | ||||||||||||||||||||||||||||||||
| Total services | 1,097 | 295 | 306 | 11 | — | 1,709 | ||||||||||||||||||||||||||||||||
| Commodity sales | ||||||||||||||||||||||||||||||||||||||
| Natural gas sales | 484 | — | — | 13 | (2) | 495 | ||||||||||||||||||||||||||||||||
| Product sales | 233 | 380 | 9 | 277 | (3) | 896 | ||||||||||||||||||||||||||||||||
| Total commodity sales | 717 | 380 | 9 | 290 | (5) | 1,391 | ||||||||||||||||||||||||||||||||
| Total revenues from contracts with customers | 1,814 | 675 | 315 | 301 | (5) | 3,100 | ||||||||||||||||||||||||||||||||
| Other revenues(c) | ||||||||||||||||||||||||||||||||||||||
| Leasing services(d) | 120 | 52 | 163 | 11 | — | 346 | ||||||||||||||||||||||||||||||||
| Derivatives adjustments on commodity sales | 40 | 2 | — | (14) | — | 28 | ||||||||||||||||||||||||||||||||
| Other | 17 | 6 | — | 4 | — | 27 | ||||||||||||||||||||||||||||||||
| Total other revenues | 177 | 60 | 163 | 1 | — | 401 | ||||||||||||||||||||||||||||||||
| Total revenues | $ | 1,991 | $ | 735 | $ | 478 | $ | 302 | $ | (5) | $ | 3,501 |
| Six Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| Natural Gas Pipelines | Products Pipelines | Terminals | CO****2 | Corporate and Eliminations | Total | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||
| Revenues from contracts with customers(a) | ||||||||||||||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||||||||
| Firm services(b) | $ | 1,912 | $ | 107 | $ | 427 | $ | — | $ | (2) | $ | 2,444 | ||||||||||||||||||||||||||
| Fee-based services | 528 | 524 | 224 | 22 | (2) | 1,296 | ||||||||||||||||||||||||||||||||
| Total services | 2,440 | 631 | 651 | 22 | (4) | 3,740 | ||||||||||||||||||||||||||||||||
| Commodity sales | ||||||||||||||||||||||||||||||||||||||
| Natural gas sales | 1,085 | — | — | 53 | (4) | 1,134 | ||||||||||||||||||||||||||||||||
| Product sales | 434 | 756 | 28 | 533 | (2) | 1,749 | ||||||||||||||||||||||||||||||||
| Total commodity sales | 1,519 | 756 | 28 | 586 | (6) | 2,883 | ||||||||||||||||||||||||||||||||
| Total revenues from contracts with customers | 3,959 | 1,387 | 679 | 608 | (10) | 6,623 | ||||||||||||||||||||||||||||||||
| Other revenues(c) | ||||||||||||||||||||||||||||||||||||||
| Leasing services(d) | 229 | 106 | 326 | 29 | — | 690 | ||||||||||||||||||||||||||||||||
| Derivatives adjustments on commodity sales | 47 | (1) | — | (62) | — | (16) | ||||||||||||||||||||||||||||||||
| Other | 94 | 12 | — | 11 | — | 117 | ||||||||||||||||||||||||||||||||
| Total other revenues | 370 | 117 | 326 | (22) | — | 791 | ||||||||||||||||||||||||||||||||
| Total revenues | $ | 4,329 | $ | 1,504 | $ | 1,005 | $ | 586 | $ | (10) | $ | 7,414 |
| Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Natural Gas Pipelines | Products Pipelines | Terminals | CO****2 | Corporate and Eliminations | Total | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||
| Revenues from contracts with customers(a) | ||||||||||||||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||||||||
| Firm services(b) | $ | 1,766 | $ | 89 | $ | 415 | $ | 1 | $ | (1) | $ | 2,270 | ||||||||||||||||||||||||||
| Fee-based services | 484 | 486 | 196 | 20 | — | 1,186 | ||||||||||||||||||||||||||||||||
| Total services | 2,250 | 575 | 611 | 21 | (1) | 3,456 | ||||||||||||||||||||||||||||||||
| Commodity sales | ||||||||||||||||||||||||||||||||||||||
| Natural gas sales | 1,283 | — | — | 33 | (4) | 1,312 | ||||||||||||||||||||||||||||||||
| Product sales | 507 | 716 | 13 | 545 | (4) | 1,777 | ||||||||||||||||||||||||||||||||
| Total commodity sales | 1,790 | 716 | 13 | 578 | (8) | 3,089 | ||||||||||||||||||||||||||||||||
| Total revenues from contracts with customers | 4,040 | 1,291 | 624 | 599 | (9) | 6,545 | ||||||||||||||||||||||||||||||||
| Other revenues(c) | ||||||||||||||||||||||||||||||||||||||
| Leasing services(d) | 237 | 99 | 315 | 25 | — | 676 | ||||||||||||||||||||||||||||||||
| Derivatives adjustments on commodity sales | 147 | 1 | — | (34) | — | 114 | ||||||||||||||||||||||||||||||||
| Other | 33 | 12 | — | 9 | — | 54 | ||||||||||||||||||||||||||||||||
| Total other revenues | 417 | 112 | 315 | — | — | 844 | ||||||||||||||||||||||||||||||||
| Total revenues | $ | 4,457 | $ | 1,403 | $ | 939 | $ | 599 | $ | (9) | $ | 7,389 |
(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 June 30, 2024 and December 31, 2023, our contract asset balances were $29 million and $34 million, respectively. Of the contract asset balance at December 31, 2023, $21 million was transferred to accounts receivable during the six months ended June 30, 2024. As of June 30, 2024 and December 31, 2023, our contract liability balances were $407 million and $415 million, respectively. Of the contract liability balance at December 31, 2023, $65 million was recognized as revenue during the six months ended June 30, 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 $615 million and $643 million as of June 30, 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 June 30, 2024 that we will invoice or transfer from contract liabilities and recognize in future periods:
| Year | Estimated Revenue | |||||||
| (In millions) | ||||||||
| Six months ended December 31, 2024 | $ | 2,501 | ||||||
| 2025 | 4,453 | |||||||
| 2026 | 3,752 | |||||||
| 2027 | 3,101 | |||||||
| 2028 | 2,725 | |||||||
| Thereafter | 16,058 | |||||||
| Total | $ | 32,590 |
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.
8. Reportable Segments
Financial information by segment follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Natural Gas Pipelines | |||||||||||||||||||||||
| Revenues from external customers | $ | 1,990 | $ | 1,987 | $ | 4,323 | $ | 4,450 | |||||||||||||||
| Intersegment revenues | 3 | 4 | 6 | 7 | |||||||||||||||||||
| Products Pipelines | 776 | 735 | 1,504 | 1,403 | |||||||||||||||||||
| Terminals | |||||||||||||||||||||||
| Revenues from external customers | 508 | 477 | 1,002 | 937 | |||||||||||||||||||
| Intersegment revenues | 1 | 1 | 3 | 2 | |||||||||||||||||||
| CO2 | |||||||||||||||||||||||
| Revenues from external customers | 298 | 302 | 585 | 599 | |||||||||||||||||||
| Intersegment revenues | — | — | 1 | — | |||||||||||||||||||
| Corporate and intersegment eliminations | (4) | (5) | (10) | (9) | |||||||||||||||||||
| Total consolidated revenues | $ | 3,572 | $ | 3,501 | $ | 7,414 | $ | 7,389 | |||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Segment EBDA(a) | |||||||||||||||||||||||
| Natural Gas Pipelines | $ | 1,227 | $ | 1,255 | $ | 2,741 | $ | 2,750 | |||||||||||||||
| Products Pipelines | 301 | 285 | 593 | 469 | |||||||||||||||||||
| Terminals | 281 | 261 | 550 | 515 | |||||||||||||||||||
| CO2 | 206 | 175 | 364 | 347 | |||||||||||||||||||
| Total Segment EBDA | 2,015 | 1,976 | 4,248 | 4,081 | |||||||||||||||||||
| DD&A | (584) | (557) | (1,171) | (1,122) | |||||||||||||||||||
| Amortization of excess cost of equity investments | (13) | (19) | (25) | (36) | |||||||||||||||||||
| General and administrative and corporate charges | (184) | (179) | (364) | (358) | |||||||||||||||||||
| Interest, net | (464) | (443) | (936) | (888) | |||||||||||||||||||
| Income tax expense | (168) | (168) | (377) | (364) | |||||||||||||||||||
| Total consolidated net income | $ | 602 | $ | 610 | $ | 1,375 | $ | 1,313 |
| June 30, 2024 | December 31, 2023 | ||||||||||
| (In millions) | |||||||||||
| Assets | |||||||||||
| Natural Gas Pipelines | $ | 49,702 | $ | 49,883 | |||||||
| Products Pipelines | 8,674 | 8,781 | |||||||||
| Terminals | 8,164 | 8,235 | |||||||||
| CO2 | 3,541 | 3,497 | |||||||||
| Corporate assets(b) | 621 | 624 | |||||||||
| Total consolidated assets | $ | 70,702 | $ | 71,020 |
(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.
(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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||||||
| Income tax expense | $ | 168 | $ | 168 | $ | 377 | $ | 364 | |||||||||||||||
| Effective tax rate | 21.8 | % | 21.6 | % | 21.5 | % | 21.7 | % |
The effective tax rate for the three months ended June 30, 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).
The effective tax rate for the six months ended June 30, 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 Citrus, NGPL Holdings and PPL, and an adjustment to our deferred tax liability as a result of a reduction in the state tax rate.
The effective tax rates for the three and six months ended June 30, 2023 are higher than the statutory federal rate of 21% primarily due to state income taxes, partially offset by dividend-received deductions from our investments in Citrus, NGPL Holdings and PPL.
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.
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 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 June 30, 2024 and December 31, 2023, our total reserve for legal matters was $40 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 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 first made in January 2021 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 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 federal question jurisdictional issues. On June 11, 2024, the U.S. District Court lifted the stay and ordered the parties to file memoranda on or before June 28, 2024, addressing the pending jurisdictional issues. On July 8, 2024, the U.S. District Court ordered the case be stayed and administratively closed pending resolution of those same 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 U.S. District Court entered partial Final Judgment dismissing a co-defendant from the case and stayed the case pending appeal of that Judgment. On June 20, 2024, Orleans filed its Appellant’s Brief in the U.S. Court of Appeals for the Fifth Circuit seeking review of the U.S. District Court’s entry of partial Final 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 Travis 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. On July 1, 2024, the State filed a Motion for Entry of Judgment, and on July 2, 2024, the Court entered a Final Judgment. The cost to settle this case did 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 June 30, 2024 and December 31, 2023, we have accrued a total reserve for environmental liabilities in the amount of $196 million and $199 million, respectively. In addition, as of June 30, 2024 and December 31, 2023, we had receivables of $10 million and $11 million, respectively, recorded for expected cost recoveries that have been deemed probable.
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 case was styled Kinder Morgan, Inc. v. EPA, et al. and has since been consolidated with other cases and is styled Utah, et al. v, EPA, et al. 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, in combination with other parties, 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, in combination with other parties, we filed an Emergency Application for Stay of Final Agency Action in the United States Supreme Court. The case was styled Kinder Morgan, Inc, et al. v. EPA, et al. and has since been consolidated with other cases and is styled Ohio, et al. v. EPA, et al. The Supreme Court issued an order deferring consideration of the Emergency Application for Stay pending oral argument which took place February 21, 2024. On June 27, 2024, the Supreme Court granted the Emergency Application ruling that enforcement of the Plan shall be stayed pending the disposition of the case on the merits
by the U.S. Court of Appeals, and any subsequent petition for writ of certiorari to the Supreme Court, if such writ is timely sought.
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.
In reaching its decision to grant the Emergency Application, the Supreme Court found that the parties challenging the Plan are likely to prevail on their argument that the Plan was not reasonably explained, that the EPA failed to supply a satisfactory explanation for its action, and that the EPA ignored an important aspect of the problem it was attempting to solve by promulgating the Plan. The EPA has no legal basis to enforce the Plan while the Supreme Court stay remains in place. If the Plan ultimately were to take effect in its current form (including full compliance by a revised compliance deadline accounting for the stays, and assuming failure of all challenges to state implementation plan disapprovals and to the Plan), we anticipate that it would have a material impact on us. Due to the extensive pending litigation, impacts of the Plan are difficult to predict. Should the Plan take effect, 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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