The Daley Note: July 18, 2023
Kinder Morgan (KMI) has been on a roll of late, beating market expectations for 1Q23 earnings. Will momentum continue in the second quarter? One asset we’re watching for clues is KMI’s KinderHawk G&P system in the Haynesville.
KMI in 1Q23 reported Adj. EBITDA of $1,996MM, 4% above East Daley’s estimate and 2% above the Street. One factor cited by KMI for the strong performance was higher volumes on the KinderHawk system. We expect new investments to continue the growth trajectory.
KMI recently spent $121MM on a project to expand its Greenholly gathering pipeline in northern Louisiana. The Greenholly – North Holly expansion adds 38 miles of 36-inch pipeline to connect wells from a JV partner to the North Holly gathering system owned by KinderHawk. The project adds gas treating capacity and includes interconnects to KMI assets further downstream, including the Southern Natural Gas and Tennessee Gas Pipeline systems.
Based on gas samples for KinderHawk, we estimate system volumes grew 9% from 1Q23 to 2Q23 (see chart). Producers driving significant growth from 4Q22 to 1Q23 include BP (+107 MMcf/d), Ensight IV (+59 MMcf/d) and Silver Hill (+44 MMcf/d).
As discussed in our Macro Supply and Demand Forecast, there is near-term risk to Hayneville growth. We forecast gas supply flattening and even declining in 2024 because of our near-term bearish view of gas prices Our bearish macro call on gas price explains why uplift to KMI’s KinderHawk EBDA to $160MM is deferred until 2026, as reflected in the KMI Blueprint. – Rob Wilson, CFA Tickers: KMI
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