UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020March 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission file number: 001-35081
KINDER MORGAN, INC.
(Exact name of registrant as specified in its charter)
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Delaware | 80-0682103 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1001 Louisiana Street, Suite 1000, Houston, Texas 77002
(Address of principal executive offices)(zip code)
Registrant’s telephone number, including area code: 713-369-9000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class P Common Stock | KMI | New York Stock Exchange |
1.500% Senior Notes due 2022 | KMI 22 | New York Stock Exchange |
2.250% Senior Notes due 2027 | KMI 27 A | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of OctoberApril 22, 2020,2021, the registrant had 2,263,793,9232,264,582,583 Class P shares outstanding.
KINDER MORGAN, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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| Consolidated Statements of Operations - Three and Nine Months Ended September 30,March 31, 2021 and 2020 and 2019 | | |
| Consolidated Statements of Comprehensive Income (Loss) - Three and Nine Months Ended September 30,March 31, 2021 and 2020 and 2019 | | |
| Consolidated Balance Sheets - as of September 30, 2020March 31, 2021 and December 31, 20192020 | | |
| Consolidated Statements of Cash Flows - NineThree Months Ended September 30,March 31, 2021 and 2020 and 2019 | | |
| Consolidated Statements of Stockholders’ Equity - Three and Nine Months Ended September 30,March 31, 2021 and 2020 and 2019 | | |
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KINDER MORGAN, INC. AND SUBSIDIARIES
GLOSSARY
Company Abbreviations
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CIG | = | Colorado Interstate Gas Company, L.L.C. | KMPKMLT | = | Kinder Morgan Energy Partners, L.P. and its majority-owned and/or controlled subsidiariesLiquid Terminals, LLC |
ELC | = | Elba Liquefaction Company, L.L.C. | Ruby | = | Ruby Pipeline Holding Company, L.L.C. |
EPNG | = | El Paso Natural Gas Company, L.L.C. | SFPP | = | SFPP, L.P. |
KMBT | = | Kinder Morgan Bulk Terminals, Inc. | SNG | = | Southern Natural Gas Company, L.L.C. |
KMI | = | Kinder Morgan, Inc. and its majority-owned and/or controlled subsidiaries | TGP | = | Tennessee Gas Pipeline Company, L.L.C. |
| | | TMPL | = | Trans Mountain Pipeline System |
KML | = | Kinder Morgan Canada Limited and its majority-owned and/or controlled subsidiaries | | | |
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KMLT | = | Kinder Morgan Liquid Terminals, LLC | | | |
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Unless the context otherwise requires, references to “we,” “us,” “our,” or “the Company” are intended to mean Kinder Morgan, Inc. and its majority-owned and/or controlled subsidiaries. | | | | | |
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Common Industry and Other Terms | | | | | |
/d | = | per day | EPA | = | U.S. Environmental Protection Agency |
BBtuBbl | = | billion British Thermal Unitsbarrel | FASB | = | Financial Accounting Standards Board |
BcfBBtu | = | billion cubic feetBritish Thermal Units | FERC | = | Federal Energy Regulatory Commission |
Bcf | = | billion cubic feet | GAAP | = | U.S. Generally Accepted Accounting Principles |
CERCLA | = | Comprehensive Environmental Response, Compensation and Liability Act | GAAP | = | U.S. Generally Accepted Accounting Principles |
| | | LLC | = | limited liability company |
LIBOR | = | London Interbank Offered Rate |
CO2 | = | carbon dioxide or our CO2 business segment | LIBORMBbl | = | London Interbank Offered Ratethousand barrels |
COVID-19 | = | Coronavirus Disease 2019, a widespread contagious disease, or the related pandemic declared and resulting worldwide economic downturn | MBbl | = | thousand barrels |
| | | MMBbl | = | million barrels |
MMtons | = | million tons |
DCF | = | distributable cash flow | MMtonsNGL | = | million tonsnatural gas liquids |
DD&A | = | depreciation, depletion and amortization | NGLNYMEX | = | natural gas liquidsNew York Mercantile Exchange |
EBDA | = | earnings before depreciation, depletion and amortization expenses, including amortization of excess cost of equity investments | NYMEX | = | New York Mercantile Exchange |
| | | OTC | = | over-the-counter |
ROU | = | Right-of-Use |
EBITDA | = | earnings before interest, income taxes, depreciation, depletion and amortization expenses, and amortization of excess cost of equity investments | ROU | = | Right-of-Use |
| | | U.S. | = | United States of America |
| | | WTI | = | West Texas Intermediate |
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Information Regarding Forward-Looking Statements
This report includes forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “position,“outlook,” “continue,” “estimate,” “expect,” “may,” “will,” “shall,” or the negative of those terms or other variations of them or comparable terminology. In particular, expressed or implied statements concerning future actions, conditions or events, future operating results or the ability to generate sales, income or cash flow, service debt or to pay dividends, are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict.
Forward-looking statements in this report include, statements,among others, express or implied concerning, without limitation:statements pertaining to: the long-term demand for our assets and services, the future impact on our business of the global economic consequences of the COVID-19 pandemic, including the timing and extent of any economic recovery, and our anticipated dividends and capital projects, including expected 2020 outlook, including our expected DCF, Adjusted EBITDA,completion timing and Net Debt-to-Adjusted EBITDA ratio.benefits of those projects.
TheImportant factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements in this report include: the impacts of the COVID-19 pandemic and decreasesthe pace and extent of economic recovery; the timing and extent of changes in commodity prices resulting from oversupplythe supply of and demand weakness are discussedfor the products we transport and handle; commodity prices; and the other risks and uncertainties described in further detail in Part I, Item 1. “Financial Statements (Unaudited)—Note 1 General—COVID-19;” Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition of Operations—General and Basis of Presentation—COVID-19Operations” and “—2020 Outlook;” Part I, Item 3. “Quantitative and Qualitative Disclosures About Market Risk;” and Part II, Item 1A. “Risk Factors,” and in Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. In addition to the preceding factors,this report, as well as “Information Regarding Forward-Looking Statements” and Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 (2019 Form 10-K),contain a more detailed description of other factors that may affect the forward-looking statements and should be referenced, except2020 (except to the extent such other factors areinformation is modified or superseded by the descriptionsinformation in subsequent reports.reports).
You should keep these risk factors in mind when considering forward-looking statements. These risk factors could cause our actual results to differ materially from those contained in any forward-looking statement. Because of these risks and uncertainties, you should not place undue reliance on any forward-looking statement. We disclaim any obligation, other than as required by applicable law, to publicly update or revise any of our forward-looking statements to reflect future events or developments.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts, unaudited)
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
Revenues | Revenues | | | Revenues | | | |
Services | Services | $ | 1,881 | | | $ | 2,014 | | | $ | 5,664 | | | $ | 6,060 | | Services | | $ | 1,917 | | | $ | 1,992 | |
Commodity sales | Commodity sales | 982 | | | 1,154 | | | 2,772 | | | 3,659 | | Commodity sales | | 3,229 | | | 1,067 | |
Other | Other | 56 | | | 46 | | | 149 | | | 138 | | Other | | 65 | | | 47 | |
Total Revenues | Total Revenues | 2,919 | | | 3,214 | | | 8,585 | | | 9,857 | | Total Revenues | | 5,211 | | | 3,106 | |
| Operating Costs, Expenses and Other | Operating Costs, Expenses and Other | | | Operating Costs, Expenses and Other | | | |
Costs of sales | Costs of sales | 655 | | | 762 | | | 1,759 | | | 2,487 | | Costs of sales | | 2,009 | | | 663 | |
Operations and maintenance | Operations and maintenance | 643 | | | 668 | | | 1,869 | | | 1,912 | | Operations and maintenance | | 514 | | | 620 | |
Depreciation, depletion and amortization | Depreciation, depletion and amortization | 539 | | | 578 | | | 1,636 | | | 1,750 | | Depreciation, depletion and amortization | | 541 | | | 565 | |
General and administrative | General and administrative | 153 | | | 154 | | | 461 | | | 456 | | General and administrative | | 156 | | | 153 | |
Taxes, other than income taxes | Taxes, other than income taxes | 100 | | | 103 | | | 295 | | | 324 | | Taxes, other than income taxes | | 110 | | | 92 | |
| Loss (gain) on impairments and divestitures, net (Note 2) | 11 | | | (3) | | | 1,987 | | | (13) | | |
Other (income) expense, net | (1) | | | 1 | | | (2) | | | (1) | | |
(Gain) loss on divestitures and impairments, net (Note 2) | | (Gain) loss on divestitures and impairments, net (Note 2) | | (4) | | | 971 | |
Other income, net | | Other income, net | | (1) | | | (1) | |
Total Operating Costs, Expenses and Other | Total Operating Costs, Expenses and Other | 2,100 | | | 2,263 | | | 8,005 | | | 6,915 | | Total Operating Costs, Expenses and Other | | 3,325 | | | 3,063 | |
| Operating Income | Operating Income | 819 | | | 951 | | | 580 | | | 2,942 | | Operating Income | | 1,886 | | | 43 | |
| Other Income (Expense) | Other Income (Expense) | | | Other Income (Expense) | | | |
Earnings from equity investments | Earnings from equity investments | 194 | | | 173 | | | 562 | | | 526 | | Earnings from equity investments | | 66 | | | 192 | |
| Amortization of excess cost of equity investments | Amortization of excess cost of equity investments | (32) | | | (21) | | | (99) | | | (61) | | Amortization of excess cost of equity investments | | (22) | | | (32) | |
Interest, net | Interest, net | (383) | | | (447) | | | (1,214) | | | (1,359) | | Interest, net | | (377) | | | (436) | |
Other, net | 14 | | | 12 | | | 32 | | | 35 | | |
Other, net (Note 2) | | Other, net (Note 2) | | 223 | | | 2 | |
Total Other Expense | Total Other Expense | (207) | | | (283) | | | (719) | | | (859) | | Total Other Expense | | (110) | | | (274) | |
| Income (Loss) Before Income Taxes | Income (Loss) Before Income Taxes | 612 | | | 668 | | | (139) | | | 2,083 | | Income (Loss) Before Income Taxes | | 1,776 | | | (231) | |
| Income Tax Expense | Income Tax Expense | (140) | | | (151) | | | (304) | | | (471) | | Income Tax Expense | | (351) | | | (60) | |
| Net Income (Loss) | Net Income (Loss) | 472 | | | 517 | | | (443) | | | 1,612 | | Net Income (Loss) | | 1,425 | | | (291) | |
| Net Income Attributable to Noncontrolling Interests | Net Income Attributable to Noncontrolling Interests | (17) | | | (11) | | | (45) | | | (32) | | Net Income Attributable to Noncontrolling Interests | | (16) | | | (15) | |
| Net Income (Loss) Attributable to Kinder Morgan, Inc. | Net Income (Loss) Attributable to Kinder Morgan, Inc. | $ | 455 | | | $ | 506 | | | $ | (488) | | | $ | 1,580 | | Net Income (Loss) Attributable to Kinder Morgan, Inc. | | $ | 1,409 | | | $ | (306) | |
| | Class P Shares | Class P Shares | | Class P Shares | | |
Basic and Diluted Earnings (Loss) Per Common Share | $ | 0.20 | | | $ | 0.22 | | | $ | (0.22) | | | $ | 0.69 | | |
Basic and Diluted Earnings (Loss) Per Share | | Basic and Diluted Earnings (Loss) Per Share | | $ | 0.62 | | | $ | (0.14) | |
| Basic and Diluted Weighted Average Common Shares Outstanding | 2,263 | | | 2,264 | | | 2,263 | | | 2,263 | | |
Basic and Diluted Weighted Average Shares Outstanding | | Basic and Diluted Weighted Average Shares Outstanding | | 2,264 | | | 2,264 | |
|
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions, unaudited)
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | |
Net income (loss) | Net income (loss) | $ | 472 | | | $ | 517 | | | $ | (443) | | | $ | 1,612 | | Net income (loss) | $ | 1,425 | | | $ | (291) | | |
Other comprehensive (loss) income, net of tax | Other comprehensive (loss) income, net of tax | | | | | Other comprehensive (loss) income, net of tax | | | | |
Change in fair value of hedge derivatives (net of tax benefit (expense) of $17, $(6), $5, and $39, respectively) | (56) | | | 20 | | | (16) | | | (132) | | |
Reclassification of change in fair value of derivatives to net income (net of tax benefit (expense) of $1, $(13), $(22), and $(11), respectively) | (5) | | | 40 | | | 72 | | | 35 | | |
Foreign currency translation adjustments (net of tax benefit (expense) of $0, $2, $0, and $(5), respectively) | 0 | | | (7) | | | 1 | | | 16 | | |
Benefit plan adjustments (net of tax expense of $2, $3, $7 and $8, respectively) | 5 | | | 8 | | | 21 | | | 23 | | |
Change in fair value of hedge derivatives (net of tax benefit (expense) of $47 and $(67), respectively) | | Change in fair value of hedge derivatives (net of tax benefit (expense) of $47 and $(67), respectively) | (156) | | | 222 | | |
Reclassification of change in fair value of derivatives to net income (net of tax expense of $18 and $11, respectively) | | Reclassification of change in fair value of derivatives to net income (net of tax expense of $18 and $11, respectively) | 59 | | | 37 | | |
Foreign currency translation adjustments (net of tax expense of $0 and $0, respectively) | | Foreign currency translation adjustments (net of tax expense of $0 and $0, respectively) | 0 | | | 1 | | |
Benefit plan adjustments (net of tax expense of $4 and $3, respectively) | | Benefit plan adjustments (net of tax expense of $4 and $3, respectively) | 17 | | | 11 | | |
Total other comprehensive (loss) income | Total other comprehensive (loss) income | (56) | | | 61 | | | 78 | | | (58) | | Total other comprehensive (loss) income | (80) | | | 271 | | |
| Comprehensive income (loss) | Comprehensive income (loss) | 416 | | | 578 | | | (365) | | | 1,554 | | Comprehensive income (loss) | 1,345 | | | (20) | | |
Comprehensive income attributable to noncontrolling interests | Comprehensive income attributable to noncontrolling interests | (17) | | | (8) | | | (45) | | | (28) | | Comprehensive income attributable to noncontrolling interests | (16) | | | (15) | | |
Comprehensive income (loss) attributable to Kinder Morgan, Inc. | Comprehensive income (loss) attributable to Kinder Morgan, Inc. | $ | 399 | | | $ | 570 | | | $ | (410) | | | $ | 1,526 | | Comprehensive income (loss) attributable to Kinder Morgan, Inc. | $ | 1,329 | | | $ | (35) | | |
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts, unaudited)
| | | September 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 |
ASSETS | ASSETS | | | ASSETS | | |
Current Assets | Current Assets | | | Current Assets | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 632 | | | $ | 185 | | Cash and cash equivalents | $ | 1,377 | | | $ | 1,184 | |
Restricted deposits | Restricted deposits | 67 | | | 24 | | Restricted deposits | 46 | | | 25 | |
Marketable securities at fair value | 0 | | | 925 | | |
Accounts receivable | Accounts receivable | 1,142 | | | 1,379 | | Accounts receivable | 1,425 | | | 1,293 | |
Fair value of derivative contracts | Fair value of derivative contracts | 257 | | | 84 | | Fair value of derivative contracts | 218 | | | 185 | |
Inventories | Inventories | 317 | | | 371 | | Inventories | 389 | | | 348 | |
| Other current assets | Other current assets | 257 | | | 270 | | Other current assets | 279 | | | 168 | |
Total current assets | Total current assets | 2,672 | | | 3,238 | | Total current assets | 3,734 | | | 3,203 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 35,958 | | | 36,419 | | Property, plant and equipment, net | 35,605 | | | 35,836 | |
Investments | Investments | 8,014 | | | 7,759 | | Investments | 7,693 | | | 7,917 | |
Goodwill | Goodwill | 19,851 | | | 21,451 | | Goodwill | 19,851 | | | 19,851 | |
Other intangibles, net | Other intangibles, net | 2,510 | | | 2,676 | | Other intangibles, net | 2,396 | | | 2,453 | |
Deferred income taxes | Deferred income taxes | 671 | | | 857 | | Deferred income taxes | 213 | | | 536 | |
| Deferred charges and other assets | Deferred charges and other assets | 2,145 | | | 1,757 | | Deferred charges and other assets | 1,716 | | | 2,177 | |
Total Assets | Total Assets | $ | 71,821 | | | $ | 74,157 | | Total Assets | $ | 71,208 | | | $ | 71,973 | |
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | | | |
Current Liabilities | Current Liabilities | | | | Current Liabilities | | | |
Current portion of debt | Current portion of debt | $ | 2,057 | | | $ | 2,477 | | Current portion of debt | $ | 2,173 | | | $ | 2,558 | |
Accounts payable | Accounts payable | 774 | | | 914 | | Accounts payable | 968 | | | 837 | |
| Accrued interest | Accrued interest | 351 | | | 548 | | Accrued interest | 304 | | | 525 | |
Accrued taxes | Accrued taxes | 335 | | | 364 | | Accrued taxes | 205 | | | 267 | |
Accrued contingencies | Accrued contingencies | 315 | | | 89 | | Accrued contingencies | 157 | | | 307 | |
| Other current liabilities | Other current liabilities | 544 | | | 708 | | Other current liabilities | 811 | | | 580 | |
Total current liabilities | Total current liabilities | 4,376 | | | 5,100 | | Total current liabilities | 4,618 | | | 5,074 | |
| Long-term liabilities and deferred credits | Long-term liabilities and deferred credits | | | | Long-term liabilities and deferred credits | | | |
Long-term debt | Long-term debt | | | | Long-term debt | | | |
Outstanding | Outstanding | 31,281 | | | 30,883 | | Outstanding | 30,007 | | | 30,838 | |
| Debt fair value adjustments | Debt fair value adjustments | 1,379 | | | 1,032 | | Debt fair value adjustments | 1,054 | | | 1,293 | |
Total long-term debt | Total long-term debt | 32,660 | | | 31,915 | | Total long-term debt | 31,061 | | | 32,131 | |
| Other long-term liabilities and deferred credits | Other long-term liabilities and deferred credits | 2,093 | | | 2,253 | | Other long-term liabilities and deferred credits | 2,221 | | | 2,202 | |
| Total long-term liabilities and deferred credits | Total long-term liabilities and deferred credits | 34,753 | | | 34,168 | | Total long-term liabilities and deferred credits | 33,282 | | | 34,333 | |
Total Liabilities | Total Liabilities | 39,129 | | | 39,268 | | Total Liabilities | 37,900 | | | 39,407 | |
| Commitments and contingencies (Notes 3 and 9) | Commitments and contingencies (Notes 3 and 9) | | Commitments and contingencies (Notes 3 and 9) | 0 | | 0 |
Redeemable Noncontrolling Interest | Redeemable Noncontrolling Interest | 747 | | | 803 | | Redeemable Noncontrolling Interest | 705 | | | 728 | |
Stockholders’ Equity | Stockholders’ Equity | | | | Stockholders’ Equity | | | |
| Class P shares, $0.01 par value, 4,000,000,000 shares authorized, 2,263,749,898 and 2,264,936,054 shares, respectively, issued and outstanding | 23 | | | 23 | | |
Class P shares, $0.01 par value, 4,000,000,000 shares authorized, 2,264,470,730 and 2,264,257,336 shares, respectively, issued and outstanding | | Class P shares, $0.01 par value, 4,000,000,000 shares authorized, 2,264,470,730 and 2,264,257,336 shares, respectively, issued and outstanding | 23 | | | 23 | |
Additional paid-in capital | Additional paid-in capital | 41,736 | | | 41,745 | | Additional paid-in capital | 41,775 | | | 41,756 | |
Accumulated deficit | Accumulated deficit | (9,945) | | | (7,693) | | Accumulated deficit | (9,124) | | | (9,936) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (255) | | | (333) | | Accumulated other comprehensive loss | (487) | | | (407) | |
Total Kinder Morgan, Inc.’s stockholders’ equity | Total Kinder Morgan, Inc.’s stockholders’ equity | 31,559 | | | 33,742 | | Total Kinder Morgan, Inc.’s stockholders’ equity | 32,187 | | | 31,436 | |
Noncontrolling interests | Noncontrolling interests | 386 | | | 344 | | Noncontrolling interests | 416 | | | 402 | |
Total Stockholders’ Equity | Total Stockholders’ Equity | 31,945 | | | 34,086 | | Total Stockholders’ Equity | 32,603 | | | 31,838 | |
Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity | Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity | $ | 71,821 | | | $ | 74,157 | | Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity | $ | 71,208 | | | $ | 71,973 | |
The accompanying notes are an integral part of these consolidated financial statements.
| KINDER MORGAN, INC. AND SUBSIDIARIES | KINDER MORGAN, INC. AND SUBSIDIARIES | | KINDER MORGAN, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | | CONSOLIDATED STATEMENTS OF CASH FLOWS |
(In millions, unaudited) | (In millions, unaudited) | | (In millions, unaudited) |
| | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash Flows From Operating Activities | Cash Flows From Operating Activities | | | Cash Flows From Operating Activities | | |
Net (loss) income | $ | (443) | | | $ | 1,612 | | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities | | | |
Net income (loss) | | Net income (loss) | $ | 1,425 | | | $ | (291) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities | | Adjustments to reconcile net income (loss) to net cash provided by operating activities | | |
Depreciation, depletion and amortization | Depreciation, depletion and amortization | 1,636 | | | 1,750 | | Depreciation, depletion and amortization | 541 | | | 565 | |
Deferred income taxes | Deferred income taxes | 164 | | | 254 | | Deferred income taxes | 347 | | | (69) | |
Amortization of excess cost of equity investments | Amortization of excess cost of equity investments | 99 | | | 61 | | Amortization of excess cost of equity investments | 22 | | | 32 | |
| Loss (gain) on impairments and divestitures, net (Note 2) | 1,987 | | | (13) | | |
| (Gain) loss on divestitures and impairments, net (Note 2) | | (Gain) loss on divestitures and impairments, net (Note 2) | (4) | | | 971 | |
Gain from sale of interest in equity investment (Note 2) | | Gain from sale of interest in equity investment (Note 2) | (206) | | | 0 | |
Earnings from equity investments | Earnings from equity investments | (562) | | | (526) | | Earnings from equity investments | (66) | | | (192) | |
Distributions from equity investment earnings | Distributions from equity investment earnings | 487 | | | 412 | | Distributions from equity investment earnings | 184 | | | 152 | |
Changes in components of working capital | Changes in components of working capital | | Changes in components of working capital | |
Accounts receivable | Accounts receivable | 238 | | | 224 | | Accounts receivable | (122) | | | 222 | |
Inventories | Inventories | 41 | | | (28) | | Inventories | (47) | | | 59 | |
Other current assets | Other current assets | 14 | | | 97 | | Other current assets | 4 | | | 50 | |
Accounts payable | Accounts payable | (107) | | | (266) | | Accounts payable | 26 | | | (200) | |
Accrued interest, net of interest rate swaps | Accrued interest, net of interest rate swaps | (208) | | | (218) | | Accrued interest, net of interest rate swaps | (204) | | | (202) | |
Accrued taxes | Accrued taxes | (25) | | | (107) | | Accrued taxes | (63) | | | (59) | |
Other current liabilities | Other current liabilities | (111) | | | (136) | | Other current liabilities | 157 | | | (131) | |
| Rate reparations, refunds and other litigation reserve adjustments | | Rate reparations, refunds and other litigation reserve adjustments | (144) | | | 10 | |
Other, net | Other, net | 72 | | | 5 | | Other, net | 23 | | | (24) | |
Net Cash Provided by Operating Activities | Net Cash Provided by Operating Activities | 3,282 | | | 3,121 | | Net Cash Provided by Operating Activities | 1,873 | | | 893 | |
Cash Flows From Investing Activities | Cash Flows From Investing Activities | | Cash Flows From Investing Activities | |
| Capital expenditures | Capital expenditures | (1,351) | | | (1,719) | | Capital expenditures | (267) | | | (440) | |
Proceeds from sales of assets and investments, net of working capital adjustments | 907 | | | 80 | | |
Proceeds from sales of investments | | Proceeds from sales of investments | 413 | | | 907 | |
Contributions to investments | Contributions to investments | (365) | | | (1,148) | | Contributions to investments | (22) | | | (151) | |
Distributions from equity investments in excess of cumulative earnings | Distributions from equity investments in excess of cumulative earnings | 105 | | | 207 | | Distributions from equity investments in excess of cumulative earnings | 18 | | | 41 | |
| Other, net | Other, net | (72) | | | (30) | | Other, net | (12) | | | (22) | |
Net Cash Used in Investing Activities | (776) | | | (2,610) | | |
Net Cash Provided by Investing Activities | | Net Cash Provided by Investing Activities | 130 | | | 335 | |
Cash Flows From Financing Activities | Cash Flows From Financing Activities | | Cash Flows From Financing Activities | |
Issuances of debt | Issuances of debt | 3,888 | | | 5,118 | | Issuances of debt | 3,110 | | | 2,125 | |
Payments of debt | Payments of debt | (3,991) | | | (6,303) | | Payments of debt | (4,268) | | | (1,969) | |
Debt issue costs | Debt issue costs | (23) | | | (9) | | Debt issue costs | (10) | | | (7) | |
Common stock dividends | (1,764) | | | (1,593) | | |
Dividends | | Dividends | (597) | | | (569) | |
| Repurchases of common shares | (50) | | | (2) | | |
Repurchases of shares | | Repurchases of shares | 0 | | | (50) | |
| Contributions from investment partner and noncontrolling interests | Contributions from investment partner and noncontrolling interests | 11 | | | 138 | | Contributions from investment partner and noncontrolling interests | 3 | | | 5 | |
Distributions to investment partner | Distributions to investment partner | (60) | | | 0 | | Distributions to investment partner | (23) | | | (18) | |
Distribution to noncontrolling interests - KML distribution of the TMPL sale proceeds | 0 | | | (879) | | |
Distributions to noncontrolling interests - other | (11) | | | (42) | | |
| Distributions to noncontrolling interests | | Distributions to noncontrolling interests | (2) | | | (3) | |
Other, net | Other, net | (13) | | | (28) | | Other, net | (2) | | | (1) | |
Net Cash Used in Financing Activities | Net Cash Used in Financing Activities | (2,013) | | | (3,600) | | Net Cash Used in Financing Activities | (1,789) | | | (487) | |
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Deposits | Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Deposits | (3) | | | 26 | | Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Deposits | 0 | | | (8) | |
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Deposits | 490 | | | (3,063) | | |
Net Increase in Cash, Cash Equivalents and Restricted Deposits | | Net Increase in Cash, Cash Equivalents and Restricted Deposits | 214 | | | 733 | |
Cash, Cash Equivalents, and Restricted Deposits, beginning of period | Cash, Cash Equivalents, and Restricted Deposits, beginning of period | 209 | | | 3,331 | | Cash, Cash Equivalents, and Restricted Deposits, beginning of period | 1,209 | | | 209 | |
Cash, Cash Equivalents, and Restricted Deposits, end of period | Cash, Cash Equivalents, and Restricted Deposits, end of period | $ | 699 | | | $ | 268 | | Cash, Cash Equivalents, and Restricted Deposits, end of period | $ | 1,423 | | | $ | 942 | |
| |
| KINDER MORGAN, INC. AND SUBSIDIARIES (Continued) | KINDER MORGAN, INC. AND SUBSIDIARIES (Continued) | | KINDER MORGAN, INC. AND SUBSIDIARIES (Continued) |
CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | | CONSOLIDATED STATEMENTS OF CASH FLOWS |
(In millions, unaudited) | (In millions, unaudited) | | (In millions, unaudited) |
| | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash and Cash Equivalents, beginning of period | Cash and Cash Equivalents, beginning of period | $ | 185 | | | $ | 3,280 | | Cash and Cash Equivalents, beginning of period | $ | 1,184 | | | $ | 185 | |
Restricted Deposits, beginning of period | Restricted Deposits, beginning of period | 24 | | | 51 | | Restricted Deposits, beginning of period | 25 | | | 24 | |
Cash, Cash Equivalents, and Restricted Deposits, beginning of period | Cash, Cash Equivalents, and Restricted Deposits, beginning of period | 209 | | | 3,331 | | Cash, Cash Equivalents, and Restricted Deposits, beginning of period | 1,209 | | | 209 | |
Cash and Cash Equivalents, end of period | Cash and Cash Equivalents, end of period | 632 | | | 241 | | Cash and Cash Equivalents, end of period | 1,377 | | | 360 | |
Restricted Deposits, end of period | Restricted Deposits, end of period | 67 | | | 27 | | Restricted Deposits, end of period | 46 | | | 582 | |
Cash, Cash Equivalents, and Restricted Deposits, end of period | Cash, Cash Equivalents, and Restricted Deposits, end of period | 699 | | | 268 | | Cash, Cash Equivalents, and Restricted Deposits, end of period | 1,423 | | | 942 | |
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Deposits | $ | 490 | | | $ | (3,063) | | |
Net Increase in Cash, Cash Equivalents and Restricted Deposits | | Net Increase in Cash, Cash Equivalents and Restricted Deposits | $ | 214 | | | $ | 733 | |
| Non-cash Investing and Financing Activities | Non-cash Investing and Financing Activities | | Non-cash Investing and Financing Activities | |
ROU assets and operating lease obligations recognized | ROU assets and operating lease obligations recognized | $ | 15 | | | $ | 764 | | ROU assets and operating lease obligations recognized | $ | 7 | | | $ | 14 | |
| Increase in property, plant and equipment from both accruals and contractor retainage | | Increase in property, plant and equipment from both accruals and contractor retainage | | 41 | |
Supplemental Disclosures of Cash Flow Information | Supplemental Disclosures of Cash Flow Information | | Supplemental Disclosures of Cash Flow Information | |
Cash paid during the period for interest (net of capitalized interest) | Cash paid during the period for interest (net of capitalized interest) | 1,440 | | | 1,584 | | Cash paid during the period for interest (net of capitalized interest) | 589 | | | 661 | |
Cash paid during the period for income taxes, net | Cash paid during the period for income taxes, net | 202 | | | 364 | | Cash paid during the period for income taxes, net | 1 | | | 134 | |
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 | | | | Common stock | |
| | Issued shares | | Par value | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Stockholders’ equity attributable to KMI | | Non-controlling interests | | Total | | Issued shares | | Par value | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Stockholders’ equity attributable to KMI | | Non-controlling interests | | Total |
Balance at June 30, 2020 | 2,261 | | | $ | 23 | | | $ | 41,731 | | | $ | (9,802) | | | $ | (199) | | | $ | 31,753 | | | $ | 371 | | | $ | 32,124 | | |
Balance at December 31, 2020 | | Balance at December 31, 2020 | 2,264 | | | $ | 23 | | | $ | 41,756 | | | $ | (9,936) | | | $ | (407) | | | $ | 31,436 | | | $ | 402 | | | $ | 31,838 | |
| Restricted shares | Restricted shares | 3 | | | 5 | | | 5 | | | 5 | | Restricted shares | | 19 | | | 19 | | | 19 | |
Net income | Net income | | 455 | | | 455 | | | 17 | | | 472 | | Net income | | 1,409 | | | 1,409 | | | 16 | | | 1,425 | |
Distributions | Distributions | | 0 | | | (4) | | | (4) | | Distributions | | 0 | | | (3) | | | (3) | |
Contributions | Contributions | | 0 | | | 2 | | | 2 | | Contributions | | 0 | | | 2 | | | 2 | |
| Common stock dividends | | (598) | | | (598) | | | (598) | | |
| Dividends | | Dividends | | (597) | | | (597) | | | (597) | |
Other | | Other | | 0 | | | (1) | | | (1) | |
Other comprehensive loss | Other comprehensive loss | | (56) | | | (56) | | | (56) | | Other comprehensive loss | | (80) | | | (80) | | | (80) | |
Balance at September 30, 2020 | 2,264 | | | $ | 23 | | | $ | 41,736 | | | $ | (9,945) | | | $ | (255) | | | $ | 31,559 | | | $ | 386 | | | $ | 31,945 | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | 2,264 | | | $ | 23 | | | $ | 41,775 | | | $ | (9,124) | | | $ | (487) | | | $ | 32,187 | | | $ | 416 | | | $ | 32,603 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | | | | | | | | | | | | |
| Issued shares | | Par value | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Stockholders’ equity attributable to KMI | | Non-controlling interests | | Total |
Balance at June 30, 2019 | 2,262 | | | $ | 23 | | | $ | 41,734 | | | $ | (7,670) | | | $ | (448) | | | $ | 33,639 | | | $ | 846 | | | $ | 34,485 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Restricted shares | 3 | | | | | (7) | | | | | | | (7) | | | | | (7) | |
Net income | | | | | | | 506 | | | | | 506 | | | 11 | | | 517 | |
Distributions | | | | | | | | | | | 0 | | | (14) | | | (14) | |
Contributions | | | | | | | | | | | 0 | | | 2 | | | 2 | |
Common stock dividends | | | | | | | (569) | | | | | (569) | | | | | (569) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other | | | | | | | | | | | 0 | | | (1) | | | (1) | |
Other comprehensive income (loss) | | | | | | | | | 64 | | | 64 | | | (3) | | | 61 | |
Balance at September 30, 2019 | 2,265 | | | $ | 23 | | | $ | 41,727 | | | $ | (7,733) | | | $ | (384) | | | $ | 33,633 | | | $ | 841 | | | $ | 34,474 | |
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(In millions, unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | | | | | | | | | | | | |
| Issued shares | | Par value | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Stockholders’ equity attributable to KMI | | Non-controlling interests | | Total |
Balance at December 31, 2019 | 2,265 | | | $ | 23 | | | $ | 41,745 | | | $ | (7,693) | | | $ | (333) | | | $ | 33,742 | | | $ | 344 | | | $ | 34,086 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Repurchases of common shares | (4) | | | | | (50) | | | | | | | (50) | | | | | (50) | |
Restricted shares | 3 | | | | | 41 | | | | | | | 41 | | | | | 41 | |
Net (loss) income | | | | | | | (488) | | | | | (488) | | | 45 | | | (443) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Distributions | | | | | | | | | | | 0 | | | (11) | | | (11) | |
Contributions | | | | | | | | | | | 0 | | | 8 | | | 8 | |
| | | | | | | | | | | | | | | |
Common stock dividends | | | | | | | (1,764) | | | | | (1,764) | | | | | (1,764) | |
| | | | | | | | | | | | | | | |
Other comprehensive income | | | | | | | | | 78 | | | 78 | | | | | 78 | |
Balance at September 30, 2020 | 2,264 | | | $ | 23 | | | $ | 41,736 | | | $ | (9,945) | | | $ | (255) | | | $ | 31,559 | | | $ | 386 | | | $ | 31,945 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | | | | | | | | | | | | |
| Issued shares | | Par value | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Stockholders’ equity attributable to KMI | | Non-controlling interests | | Total |
Balance at December 31, 2018 | 2,262 | | $ | 23 | | | $ | 41,701 | | | $ | (7,716) | | | $ | (330) | | | $ | 33,678 | | | $ | 853 | | | $ | 34,531 | |
Impact of adoption of ASU 2017-12 | | | | | | | (4) | | | | | (4) | | | | | (4) | |
Balance at January 1, 2019 | 2,262 | | 23 | | | 41,701 | | | (7,720) | | | (330) | | | 33,674 | | | 853 | | | 34,527 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Repurchases of common shares | | | | | (2) | | | | | | | (2) | | | | | (2) | |
Restricted shares | 3 | | | | 28 | | | | | | | 28 | | | | | 28 | |
Net income | | | | | | | 1,580 | | | | | 1,580 | | | 32 | | | 1,612 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Distributions | | | | | | | | | | | 0 | | | (42) | | | (42) | |
Contributions | | | | | | | | | | | 0 | | | 3 | | | 3 | |
Common stock dividends | | | | | | | (1,593) | | | | | (1,593) | | | | | (1,593) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other | | | | | | | | | | | 0 | | | (1) | | | (1) | |
Other comprehensive loss | | | | | | | | | (54) | | | (54) | | | (4) | | | (58) | |
Balance at September 30, 2019 | 2,265 | | $ | 23 | | | $ | 41,727 | | | $ | (7,733) | | | $ | (384) | | | $ | 33,633 | | | $ | 841 | | | $ | 34,474 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | | | | | | | | | | |
| Issued shares | | Par value | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss | | Stockholders’ equity attributable to KMI | | Non-controlling interests | | Total |
Balance at December 31, 2019 | 2,265 | | $ | 23 | | | $ | 41,745 | | | $ | (7,693) | | | $ | (333) | | | $ | 33,742 | | | $ | 344 | | | $ | 34,086 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Repurchases of shares | (4) | | | | | (50) | | | | | | | (50) | | | | | (50) | |
Restricted shares | | | | | 18 | | | | | | | 18 | | | | | 18 | |
Net (loss) income | | | | | | | (306) | | | | | (306) | | | 15 | | | (291) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Distributions | | | | | | | | | | | 0 | | | (3) | | | (3) | |
Contributions | | | | | | | | | | | 0 | | | 2 | | | 2 | |
Dividends | | | | | | | (569) | | | | | (569) | | | | | (569) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other comprehensive income | | | | | | | | | 271 | | | 271 | | | 0 | | 271 | |
Balance at March 31, 2020 | 2,261 | | $ | 23 | | | $ | 41,713 | | | $ | (8,568) | | | $ | (62) | | | $ | 33,106 | | | $ | 358 | | | $ | 33,464 | |
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 83,000 miles of pipelines and 147144 terminals. Our pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2 and other products, and our terminals store and handle various commodities including gasoline, diesel fuel, chemicals, metals and petroleum coke.
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 20192020 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.
COVID-19
The COVID-19 pandemic-related reduction in energy demand and the dramatic decline in commodity prices that began to impact us in the first quarter of 2020 has continued to cause disruptions and volatility. Sharp declines in crude oil and natural gas production along with reduced demand for refined products due to the economic shutdown in the wake of the pandemic also affected our business in the second quarter and continues to do so. Further, significant uncertainty remains regarding the duration and extent of the impact of the pandemic on the energy industry, including demand and prices for the products handled by our pipelines, terminals, shipping vessels and other facilities.
These events, among other factors, resulted in certain non-cash impairments charges during 2020 as further discussed in Note 2.
Goodwill
In addition to periodically evaluating long-lived assets and goodwill for impairment based on changes in market conditions as discussed above, we evaluate goodwill for impairment on May 31 of each year. For this purpose, we have 6 reporting units as follows: (i) Products Pipelines (excluding associated terminals); (ii) Products Pipelines Terminals (evaluated separately from Products Pipelines for goodwill purposes); (iii) Natural Gas Pipelines Regulated; (iv) Natural Gas Pipelines Non-Regulated; (v) CO2; and (vi) Terminals. See Note 2 for results of our May 31, 2020 goodwill impairment test.
The goodwill impairment tests for our reporting units reflected our adoption of the Accounting Standards Updates (ASU) No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” on January 1, 2020.This new accounting method simplifies the goodwill impairment test by removing Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation.
Earnings per Share
We calculate earnings per share using the two-class method. Earnings were allocated to Class P shares 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 earnings or excess distributions over earnings. Our unvested restricted stock awards, which may be restricted stock or restricted stock units issued to employees and non-employee directors and which include dividend equivalent payments, do not participate in excess distributions over earnings.
The following table sets forth the allocation of net income (loss) available to shareholders of Class P shares and participating securities:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (In millions, except per share amounts) | | | | | | |
Net Income (Loss) Available to Common Stockholders | $ | 455 | | | $ | 506 | | | $ | (488) | | | $ | 1,580 | |
Participating securities: | | | | | | | |
Less: Net Income allocated to restricted stock awards(a) | (3) | | | (3) | | | (9) | | | (9) | |
Net Income (Loss) Allocated to Class P Stockholders | $ | 452 | | | $ | 503 | | | $ | (497) | | | $ | 1,571 | |
| | | | | | | |
Basic Weighted Average Common Shares Outstanding | 2,263 | | | 2,264 | | | 2,263 | | | 2,263 | |
Basic Earnings (Loss) Per Common Share | $ | 0.20 | | | $ | 0.22 | | | $ | (0.22) | | | $ | 0.69 | |
________ | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | (In millions, except per share amounts) |
Net Income (Loss) Available to Stockholders | | | | | $ | 1,409 | | | $ | (306) | |
Participating securities: | | | | | | | |
Less: Net Income allocated to restricted stock awards(a) | | | | | (7) | | | (3) | |
Net Income (Loss) Allocated to Class P Stockholders | | | | | $ | 1,402 | | | $ | (309) | |
| | | | | | | |
Basic Weighted Average Shares Outstanding | | | | | 2,264 | | | 2,264 | |
Basic Earnings (Loss) Per Share | | | | | $ | 0.62 | | | $ | (0.14) | |
(a)As of September 30, 2020,March 31, 2021, there were approximately 1312 million restricted stock awards outstanding.
The following maximum number of potential common stock equivalents are antidilutive and, accordingly, are excluded from the determination of diluted earnings per share:
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | (In millions on a weighted average basis) | | | | (In millions on a weighted average basis) |
Unvested restricted stock awards | Unvested restricted stock awards | 13 | | | 13 | | | 13 | | | 13 | | Unvested restricted stock awards | | 13 | | | 12 | |
Convertible trust preferred securities | Convertible trust preferred securities | 3 | | | 3 | | | 3 | | | 3 | | Convertible trust preferred securities | | 3 | | | 3 | |
2. Gains and Losses on Divestitures, Impairments and Other Write-downs
We recognized the following non-cash pre-tax (gains) losses on divestitures, impairments and other write-downs, net on assets during the three months ended March 31, 2021 and 2020:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | (In millions) |
Natural Gas Pipelines | | | | | | | |
| | | | | | | |
Gain on sale of interest in NGPL Holdings LLC(a) | | | | | $ | (206) | | | $ | 0 | |
Loss on write-down of related party note receivable(a) | | | | | 117 | | | 0 | |
Products Pipelines | | | | | | | |
Impairment of long-lived and intangible assets | | | | | 0 | | | 21 | |
| | | | | | | |
Terminals | | | | | | | |
| | | | | | | |
Gain on divestitures of long-lived assets | | | | | (1) | | | 0 | |
CO2 | | | | | | | |
Impairment of goodwill(a) | | | | | 0 | | | 600 | |
Impairment of long-lived assets(a) | | | | | 0 | | | 350 | |
Other gain on divestitures of long-lived assets | | | | | (3) | | | 0 | |
Pre-tax (gain) loss on divestitures, impairments and other write-downs, net | | | | | $ | (93) | | | $ | 971 | |
| | | | | | | |
(a)See below for a further discussion of these items.
Sale of an Interest in NGPL Holdings
On March 8, 2021, we and Brookfield Infrastructure Partners L.P. (Brookfield) completed the sale of a combined 25% interest in our joint venture, NGPL Holdings LLC (NGPL Holdings), to a fund controlled by ArcLight Capital Partners, LLC (ArcLight). We received net proceeds of $413 million for our proportionate share of the interests sold which included the transfer of $125 million of our $500 million related party promissory note receivable from NGPL Holdings to ArcLight with quarterly interest payments at 6.75%. We recognized a pre-tax gain of $206 million for our proportionate share, which is included within “Other, net” in our accompanying consolidated statement of operations for the three months ended March 31, 2021. Upon closing, we and Brookfield each hold a 37.5% interest in NGPL Holdings.
Impairments
During the first quarter of 2020, the energy production and demand factors related to COVID-19 and the sharp decline in commodity prices represented a triggering eventsevent that required us to perform impairment testing on certain businesses that are sensitive to commodity prices. As a result, we performed an impairment analysis of long-lived assets within our CO2business segment and conducted interim tests of the recoverability of goodwill for our CO2 and Natural Gas Pipelines Non-Regulated reporting units as of March 31, 2020, which resulted in impairments of long-lived assets and goodwill within our CO2business segment shown in the above table during the three months ended March 31, 2020.
Additionally, we performed our annual goodwill impairment testing as of May 31, 2020. For our Natural Gas Pipelines Non-Regulated reporting unit, while no goodwill impairment was required as of March 31, 2020, the additional market and economic indicators existing at May 31, 2020, as further described below, resulted in the recognition of a goodwill impairment for that reporting unit during the three months ended June 30, 2020.
We recognized the following non-cash pre-tax loss (gain) on impairments and divestitures on assets during the nine months ended September 30, 2020 and 2019:
| | | | | | | | | | | | | | | |
| | | | | Nine Months Ended September 30, | | |
| | | | | 2020 | | 2019 |
| | | | | (In millions) | | |
Natural Gas Pipelines | | | | | | | |
Impairment of goodwill | | | | | $ | 1,000 | | | $ | 0 | |
Impairments of inventory | | | | | 11 | | | 0 | |
Gain on divestitures of long-lived assets | | | | | 0 | | | (10) | |
Products Pipelines | | | | | | | |
Impairment of long-lived and intangible assets | | | | | 21 | | | 0 | |
| | | | | | | |
Terminals | | | | | | | |
Impairment of long-lived and intangible assets | | | | | 5 | | | 0 | |
Gain on divestitures of long-lived assets | | | | | 0 | | | (3) | |
CO2 | | | | | | | |
Impairment of goodwill | | | | | 600 | | | 0 | |
Impairment of long-lived assets | | | | | 350 | | | 0 | |
Kinder Morgan Canada | | | | | | | |
Loss on divestiture of long-lived assets | | | | | 0 | | | 2 | |
| | | | | | | |
Other gain on divestitures of long-lived assets | | | | | 0 | | | (2) | |
Pre-tax loss (gain) on divestitures and impairments, net | | | | | $ | 1,987 | | | $ | (13) | |
| | | | | | | |
Long-lived Assets
As of March 31, 2020, for our CO2 assets, the long lived asset impairment test involved an assessment as to whether each asset’s net book value is expected to be recovered from the estimated undiscounted future cash flows.
•To compute estimated future cash flows for our oil and gas producing properties, we used our reserve engineer’s estimates of proved and risk adjusted probable reserves. These estimates of proved and probable reserves are based upon historical performance along with adjustments for expected crude oil and natural gas field development. In calculating future cash flows, management utilized estimates of commodity prices based on a March 31, 2020 NYMEX forward curve adjusted for the impact of our existing sales contracts to determine the applicable net crude oil and NGL pricing for each property. Operating expenses were determined based on estimated fixed and variable field production requirements, and capital expenditures were based on economically viable development projects.
•To compute estimated future cash flows for our CO2 source and transportation assets, volume forecasts were developed based on projected demand for our CO2 services based upon management’s projections of the availability of CO2 supply and the future demand for CO2 for use in enhanced oil recovery projects. The CO2 pricing assumption was a function of the March 31, 2020 NYMEX forward curve adjusted for the impact of existing sales contracts to determine the applicable net CO2 pricing. Operating expenses were determined based on estimated fixed and variable field production requirements, and capital expenditures were based on economically viable development projects.
Certain oil and gas properties failed the first step. For these assets, we used a discounted cash flow analysis to estimate fair value. We applied a 10.5% discount rate, which we believe represented the estimated weighted average cost of capital of a theoretical market participant. Based on step two of our long lived assets impairment test, we recognized $350 million of impairments on those oil and gas producing properties where the total carrying value exceeded its total estimated fair market value as of March 31, 2020.
Goodwill
Changes in the amounts of our goodwill for the nine months ended September 30, 2020 are summarized by reporting unit as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Natural Gas Pipelines Regulated | | Natural Gas Pipelines Non-Regulated | | CO2 | | Products Pipelines | | Products Pipelines Terminals | | Terminals | | Total |
| (In millions) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Goodwill as of December 31, 2019 | $ | 14,249 | | | $ | 3,343 | | | $ | 1,528 | | | $ | 1,378 | | | $ | 151 | | | $ | 802 | | | $ | 21,451 | |
Impairments | 0 | | | (1,000) | | | (600) | | | 0 | | | 0 | | | 0 | | | (1,600) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Goodwill as of September 30, 2020 | $ | 14,249 | | | $ | 2,343 | | | $ | 928 | | | $ | 1,378 | | | $ | 151 | | | $ | 802 | | | $ | 19,851 | |
| | | | | | | | | | | | | |
•Our May 31, 2020 goodwill impairment tests of the Products Pipelines, Products Pipelines Terminals, Natural Gas Pipelines Regulated and CO2 reporting units indicated that their fair values exceeded their carrying values. The results of our impairment analyses for our Products Pipelines, Terminals and CO2 reporting units, determined that each of the three reporting unit’s fair value was in excess of carrying value by less than 10%. For the Products Pipelines and Terminals reporting units, we used the market approach with assumptions similar to those described below for the Natural Gas Pipelines Non-Regulated reporting unit. For our May 31, 2020 goodwill impairment test of the CO2 reporting unit we used the income approach with assumptions similar to those used for its March 31, 2020 goodwill impairment test.
•In regards to our Natural Gas Pipelines Non-Regulated reporting unit, it experienced a sharp decline in customer demand for its services during the second quarter of 2020. This represented a timing lag from the initial economic decline impacts resulting from the severe downturn in the upstream energy industry, including our CO2 business, whereby oil and gas producing companies accelerated their shut down of wells and reduced production during the second quarter which consequently adversely impacted the demand for our midstream services. In addition, continued diminished (i) current and expected future commodity pricing and (ii) peer group market capitalization values provided further indicators that an impairment of goodwill had occurred for this reporting unit during the second quarter.
Our May 31, 2020 goodwill impairment test for the Natural Gas Pipelines Non-Regulated reporting unit utilized a weighted average of a market approach (25%) and income approach (75%) to estimate its fair value. We gave higher weighting to the income approach as we believe it was more representative of the value that would be received from a market participant.
The market approach was based on enterprise value (EV) to estimated 2020 EBITDA multiples for a selected number of peer group midstream companies with comparable operations and economic characteristics. We estimated the median EV to EBITDA multiple to be approximately 10x without consideration of any control premium. The income approach we used to determine fair value included an analysis of estimated discounted cash flows based on 6.5 years of projections and application of an exit multiple based on management’s expectations of a discount rate and exit multiple that would be applied by a theoretical market participant and for market transactions of comparable assets. We applied an approximate 8% discount rate to the undiscounted cash flow amounts which represents our estimate of the weighted average cost of capital of a theoretical market participant. The discounted cash flows included various assumptions on commodity volumes and prices for each underlying asset within the reporting unit, and as applicable applied to our existing contracts and expected future customer demand for such commodities. The fair value based on a weighting of the market and income approaches resulted in an implied EV to 2020 EBITDA multiple valuation of approximately 11x. Management believes this is a reasonable estimate of fair value based on comparable sales transactions and the fact that it implies a reasonable control premium at the reporting unit level.
The results of the Natural Gas Pipelines Non-Regulated reporting unit goodwill impairment analysis was a partial impairment of goodwill of approximately $1,000 million as of May 31, 2020.
•For our March 31, 2020 interim goodwill impairment test of the CO2 reporting unit, we applied an income approach to evaluate its fair value based on the present value of its cash flows that it is expected to generate in the future. Due to the uncertainty and volatility in market conditions within its peer group as of the test date, we did not incorporate the market approach to estimate fair value as of March 31, 2020.
In determining the fair value for our CO2 reporting unit, we applied a 9.25% discount rate to the undiscounted cash flow amounts computed in the long-lived asset impairment analyses described above. The discount rate we used represents our estimate of the weighted average cost of capital of a theoretical market participant. The result of our goodwill analysis was a partial impairment of goodwill in our CO2 reporting unit of approximately $600 million as of March 31, 2020.Other Write-downs
The fair value estimates used inDuring the long-lived asset and goodwill test were primarily based on Level 3 inputsfirst quarter of 2021, we recognized a pre-tax charge of $117 million related to a write-down of our subordinated note receivable from our equity investee, Ruby, driven by the fair value hierarchy.
Economic disruptions resulting from events such as COVID-19, conditions in the business environment generally, such as sustained low crude oil demand and continued low commodity prices, supply disruptions, or higher development or production costs, could result in a slowingrecent impairment by Ruby of supply to our pipelines, terminals and otherits assets, which will have an adverse effect onis included within “Earnings from equity investments” in our accompanying consolidated statement of operations. The impairment at Ruby was the result of upcoming contract expirations and additional uncertainty identified in late February 2021 regarding the proposed development of a third party liquefied natural gas exporting facility that could significantly increase the demand for services provided by our four business segments. Financial distress experienced by our customers or other counterparties could have an adverse impact on us in the event they are unable to pay us for the products or services we provide or otherwise fulfill their obligations to us.its services.
As conditions warrant, we routinely evaluate our assets for potential triggering events such as those described above that could impact the fair value of certain assets or our ability to recover the carrying value of long-lived assets. Such assets include accounts receivable, equity investments, goodwill, other intangibles and property plant and equipment, including oil and gas properties and in-process construction. Depending on the nature of the asset, these evaluations require the use of significant judgments including but not limited to judgments related to customer credit worthiness, future volume expectations, current and future commodity prices, discount rates, regulatory environment, as well as general economic conditions and the related demand for products handled or transported by our assets. Although we did not identify additional triggering events during the third quarter of 2020, in the current worldwide economic and commodity price environment and to the extent conditions further deteriorate, we may identify additional triggering events that may require future evaluations of the recoverability of the carrying value of our long-lived assets, investments and goodwill which could result in further impairment charges. Because certain of our assets have been written down to fair value, or its fair value is close to carrying value, any deterioration in fair value could result in further impairments. Such non-cash impairments could have a significant effect on our results of operations, which would be recognized in the period in which the carrying value is determined to not be recoverable.
3. Debt
The following table provides information on the principal amount of our outstanding debt balances:
| | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | (In millions, unless otherwise stated) | | |
Current portion of debt | | | | |
| | | | |
$4 billion credit facility due November 16, 2023 | | $ | 0 | | | $ | 0 | |
Commercial paper notes(a) | | 0 | | | 37 | |
Current portion of senior notes | | | | |
6.85%, due February 2020(b) | | 0 | | | 700 | |
6.50%, due April 2020(c) | | 0 | | | 535 | |
5.30%, due September 2020(d) | | 0 | | | 600 | |
6.50%, due September 2020(d) | | 0 | | | 349 | |
5.00%, due February 2021 | | 750 | | | 0 | |
3.50%, due March 2021 | | 750 | | | 0 | |
5.80%, due March 2021 | | 400 | | | 0 | |
| | | | |
Trust I preferred securities, 4.75%, due March 2028 | | 111 | | | 111 | |
Kinder Morgan G.P. Inc, $1,000 Liquidation Value Series A Fixed-to-Floating Rate Term Cumulative Preferred Stock, due August 2057(e) | | 0 | | | 100 | |
Current portion of other debt | | 46 | | | 45 | |
Total current portion of debt | | 2,057 | | | 2,477 | |
| | | | |
Long-term debt (excluding current portion) | | | | |
Senior notes | | 30,578 | | | 30,164 | |
EPC Building, LLC, promissory note, 3.967%, due 2020 through 2035 | | 369 | | | 381 | |
| | | | |
Trust I preferred securities, 4.75%, due March 2028 | | 110 | | | 110 | |
Other | | 224 | | | 228 | |
Total long-term debt | | 31,281 | | | 30,883 | |
Total debt(f) | | $ | 33,338 | | | $ | 33,360 | |
_______ | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| | (In millions, unless otherwise stated) |
Current portion of debt | | | | |
| | | | |
$4 billion credit facility due November 16, 2023 | | $ | 0 | | | $ | 0 | |
Commercial paper notes | | 0 | | | 0 | |
Current portion of senior notes | | | | |
5.00%, due February 2021(a) | | 0 | | | 750 | |
3.50%, due March 2021(a) | | 0 | | | 750 | |
5.80%, due March 2021(a) | | 0 | | | 400 | |
5.00%, due October 2021 | | 500 | | | 500 | |
8.625%, due January 2022 | | 260 | | | 0 | |
4.15%, due March 2022 | | 375 | | | 0 | |
1.50%, due March 2022(b) | | 880 | | | 0 | |
Trust I preferred securities, 4.75%, due March 2028 | | 111 | | | 111 | |
Current portion of other debt | | 47 | | | 47 | |
Total current portion of debt | | 2,173 | | | 2,558 | |
| | | | |
Long-term debt (excluding current portion) | | | | |
Senior notes | | 29,314 | | | 30,141 | |
EPC Building, LLC, promissory note, 3.967%, due 2020 through 2035 | | 361 | | | 364 | |
| | | | |
Trust I preferred securities, 4.75%, due March 2028 | | 110 | | | 110 | |
Other | | 222 | | | 223 | |
Total long-term debt | | 30,007 | | | 30,838 | |
Total debt(c) | | $ | 32,180 | | | $ | 33,396 | |
(a)Weighted average interest rateWe repaid the principal amounts on borrowings outstanding asthese senior notes during the first quarter of December 31, 2019 was 1.90%.2021.
(b)On January 9, 2020, we soldConsists of senior notes denominated in Euros that have been converted to U.S. dollars. The March 31, 2021 balance is reported above at the approximate 25exchange rate of 1.1730 U.S. dollars per Euro. As of March 31, 2021, the cumulative change in the exchange rate of U.S. dollars per Euro since issuance had resulted in an increase to our debt balance of $65 million shares of Pembina Pipeline Corporation (Pembina) common equity that we received as considerationrelated to these notes. The cumulative increase in debt due to the changes in exchange rates for the sale of KML. We received proceeds of approximately $907 million ($764 million after tax) for1.50% notes due 2022 is offset by a corresponding change in the sale of the Pembina shares, which were used to partially repay debt that matured in February 2020. The fair value of the Pembina common equity of $925 million as of December 31, 2019 was reported as “Marketable securities at fair value”cross-currency swaps reflected in the accompanying consolidated balance sheet.
(c)In April 2020, we repaid $535 million of maturing senior notes.
(d)In September 2020, we repaid a combined $949 million of maturing senior notes using proceeds from our newly issued senior notes.
(e)In December 2019, we notified the holder of our intent to redeem these securities. As our notification was irrevocable, the outstanding balance was classified as“Other current inassets” and “Other current liabilities” on our accompanying consolidated balance sheet assheets. At the time of December 31, 2019. We redeemedissuance, we entered into foreign currency contracts associated with these securities, including accrued dividends, on January 15, 2020.senior notes, effectively converting these Euro-denominated senior notes to U.S. dollars (see Note 5 “Risk Management—Foreign Currency Risk Management”).
(f)(c)Excludes our “Debt fair value adjustments” which, as of September 30, 2020March 31, 2021 and December 31, 2019,2020, increased our total debt balances by $1,379$1,054 million and $1,032$1,293 million, respectively.
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.
On August 5, 2020,February 11, 2021, we issued in a registered offering two series of senior notes consisting of $750 million aggregate principal amount of 2.00%3.60% senior notes due 2031 and $500 million aggregate principal amount of 3.25% senior notes due 2050 and received combined net proceeds of $1,226 million.
On February 24, 2020, TGP, a wholly owned subsidiary, issued in a private placement $1,000 million aggregate principal amount of its 2.90% senior notes due 20302051 and received net proceeds of $991$741 million.
The senior These notes issued in August 2020 and February 2020 are guaranteed through the cross guarantee agreement discussed above.
Credit Facility
As of September 30, 2020,March 31, 2021, we had 0 borrowings outstanding under our $4.0 billion credit facility, 0 borrowings outstanding under our commercial paper program and $81 million in letters of credit. Our availability under our credit facility as of September 30, 2020March 31, 2021 was $3,919 million. As of September 30, 2020,March 31, 2021, 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:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | | | December 31, 2019 | | |
| Carrying value | | Estimated fair value | | Carrying value | | Estimated fair value |
| (In millions) | | | | | | |
Total debt | $ | 34,717 | | | $ | 38,253 | | | $ | 34,392 | | | $ | 38,016 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Carrying value | | Estimated fair value | | Carrying value | | Estimated fair value |
| (In millions) |
Total debt | $ | 33,234 | | | $ | 37,050 | | | $ | 34,689 | | | $ | 39,622 | |
We used Level 2 input values to measure the estimated fair value of our outstanding debt balance as of both September 30, 2020March 31, 2021 and December 31, 2019.2020.
4. Stockholders’ Equity
Class P Common Stock
On July 19, 2017, our board of directors approved a $2 billion common share buy-back program that began in December 2017. In March 2020, we repurchased approximately 3.6 million of our Class P shares for approximately $50 million at an average price of approximately $13.94 per share. Since December 2017, in total, we have repurchased approximately 32 million of our Class P shares under the program at an average price of approximately $17.71 per share for approximately $575 million.
Common Stock Dividends
Holders of our common stock participate in common stock dividends declared by our board of directors, subject to the rights of the holders of any outstanding preferred stock. The following table provides information about our per share dividends:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Per common share cash dividend declared for the period | $ | 0.2625 | | | $ | 0.25 | | | $ | 0.7875 | | | $ | 0.75 | |
Per common share cash dividend paid in the period | 0.2625 | | | 0.25 | | | 0.775 | | | 0.70 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Per share cash dividend declared for the period | | | | | $ | 0.27 | | | $ | 0.2625 | |
Per share cash dividend paid in the period | | | | | 0.2625 | | | 0.25 | |
On OctoberApril 21, 2020,2021, our board of directors declared a cash dividend of $0.2625$0.27 per common share for the quarterly period ended September 30, 2020,March 31, 2021, which is payable on November 16, 2020May 17, 2021 to common shareholders of record as of the close of business on November 2, 2020.April 30, 2021.
Accumulated Other Comprehensive Loss
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Loss
Cumulative revenues, expenses, gains and losses that under GAAP are included within our comprehensive income but excluded from our earnings are reported as “Accumulated other comprehensive loss” within “Stockholders’ Equity” in our consolidated balance sheets. Changes in the components of our “Accumulated other comprehensive loss” not including non-controlling interests are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Net unrealized gains/(losses) on cash flow hedge derivatives | | Foreign currency translation adjustments | | Pension and other postretirement liability adjustments | | Total accumulated other comprehensive loss |
| (In millions) | | | | | | |
Balance as of December 31, 2019 | $ | (7) | | | $ | 0 | | | $ | (326) | | | $ | (333) | |
Other comprehensive (loss) gain before reclassifications | (16) | | | 1 | | | 21 | | | 6 | |
Loss reclassified from accumulated other comprehensive loss | 72 | | | 0 | | | 0 | | | 72 | |
Net current-period change in accumulated other comprehensive (loss) income | 56 | | | 1 | | | 21 | | | 78 | |
Balance as of September 30, 2020 | $ | 49 | | | $ | 1 | | | $ | (305) | | | $ | (255) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Net unrealized gains/(losses) on cash flow hedge derivatives | | Foreign currency translation adjustments | | Pension and other postretirement liability adjustments | | Total accumulated other comprehensive loss |
| (In millions) |
Balance as of December 31, 2020 | $ | (13) | | | $ | 0 | | | $ | (394) | | | $ | (407) | |
Other comprehensive (loss) gain before reclassifications | (156) | | | 0 | | | 17 | | | (139) | |
Loss reclassified from accumulated other comprehensive loss | 59 | | | 0 | | | 0 | | | 59 | |
Net current-period change in accumulated other comprehensive loss | (97) | | | 0 | | | 17 | | | (80) | |
Balance as of March 31, 2021 | $ | (110) | | | $ | 0 | | | $ | (377) | | | $ | (487) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Net unrealized gains/(losses) on cash flow hedge derivatives | | Foreign currency translation adjustments | | Pension and other postretirement liability adjustments | | Total accumulated other comprehensive loss |
| (In millions) | | | | | | |
Balance as of December 31, 2018 | $ | 164 | | | $ | (91) | | | $ | (403) | | | $ | (330) | |
Other comprehensive (loss) gain before reclassifications | (132) | | | 20 | | | 23 | | | (89) | |
Loss reclassified from accumulated other comprehensive loss | 35 | | | 0 | | | 0 | | | 35 | |
Net current-period change in accumulated other comprehensive income (loss) | (97) | | | 20 | | | 23 | | | (54) | |
Balance as of September 30, 2019 | $ | 67 | | | $ | (71) | | | $ | (380) | | | $ | (384) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Net unrealized gains/(losses) on cash flow hedge derivatives | | Foreign currency translation adjustments | | Pension and other postretirement liability adjustments | | Total accumulated other comprehensive loss |
| (In millions) |
Balance as of December 31, 2019 | $ | (7) | | | $ | 0 | | | $ | (326) | | | $ | (333) | |
Other comprehensive gain before reclassifications | 222 | | | 1 | | | 11 | | | 234 | |
Loss reclassified from accumulated other comprehensive loss | 37 | | | 0 | | | 0 | | | 37 | |
Net current-period change in accumulated other comprehensive (loss) income | 259 | | | 1 | | | 11 | | | 271 | |
Balance as of March 31, 2020 | $ | 252 | | | $ | 1 | | | $ | (315) | | | $ | (62) | |
5. 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.
During the three months ended March 31, 2020, we entered into a floating-to-fixed interest rate swap agreement with a notional principal amount of $2,500 million. During the three months ended September 30, 2020, we entered into an additional floating-to-fixed interest rate swap agreement with a notional principal amount of $1,000 million. These agreements were not designated as accounting hedges and effectively fixed our LIBOR exposure for a portion of our fixed to floating rate interest rate swaps through 2021.
Energy Commodity Price Risk Management
As of September 30, 2020,March 31, 2021, 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 | (20.2)(16.6) | | | MMBbl |
Crude oil basis | (2.6)(8.7) | | | MMBbl |
Natural gas fixed price | (34.8)(35.0) | | | Bcf |
Natural gas basis | (34.8)(30.5) | | | Bcf |
NGL fixed price | (1.2) | | | MMBbl |
Derivatives not designated as hedging contracts | | | |
Crude oil fixed price | (2.4)(1.0) | | | MMBbl |
Crude oil basis | (0.9)(12.6) | | | MMBbl |
Natural gas fixed price | (9.7)(8.2) | | | Bcf |
Natural gas basis | 2.2 (10.6) | | | Bcf |
NGL fixed price | (1.4)(1.1) | | | MMBbl |
As of September 30, 2020,March 31, 2021, 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 2024.2025.
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 September 30, 2020:March 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional amount | | | Accounting treatment | | | Maximum term | | |
| | (In millions) | | | | | | | | |
Derivatives designated as hedging instruments | | | | | | | | | | |
Fixed-to-variable interest rate contracts(a) | | $ | 7,6257,100 | | | | Fair value hedge | | | March 2035 | | |
Variable-to-fixed interest rate contracts | | 250 | | | | Cash flow hedge | | | January 2023 | | |
Derivatives not designated as hedging instruments | | | | | | | | | | |
Variable-to-fixed interest rate contracts | | 3,5002,500 | | | | Mark-to-Market | | | December 2021 | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
_______
(a)The principal amount of hedged senior notes consisted of $900$250 million included in “Current portion of debt” and $6,725$6,850 million included in “Long-term debt” on our accompanying consolidated balance sheet.
During the three months ended March 31, 2021, we entered into fixed-to-variable interest rate swap agreements with a combined notional principal amount of $375 million. These agreements were designated as accounting hedges and convert a portion of our fixed rate debt to variable rate through February 2028.
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 September 30, 2020:March 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Notional amount | | | Accounting treatment | | | Maximum term | | |
| | (In millions) | | | | | | | | |
Derivatives designated as hedging instruments | | | | | | | | | | |
EUR-to-USD cross currency swap contracts(a) | | $ | 1,358 | | | | Cash flow hedge | | | March 2027 | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
_______
(a)These swaps eliminate the foreign currency risk associated with our Euro-denominated debt.
The following table summarizes the fair values of our derivative contracts included in our accompanying consolidated balance sheets:
| Fair Value of Derivative Contracts | Fair Value of Derivative Contracts | | Fair Value of Derivative Contracts |
| | Derivatives Asset | | | Derivatives Liability | | | Derivatives Asset | | Derivatives Liability |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 | | March 31, 2021 | | December 31, 2020 | | March 31, 2021 | | December 31, 2020 |
| | Location | | Fair value | | | Fair value | | | Location | | Fair value | | Fair value |
| | (In millions) | | | (In millions) |
Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | Derivatives designated as hedging instruments | |
Energy commodity derivative contracts | Energy commodity derivative contracts | | Fair value of derivative contracts/(Other current liabilities) | | $ | 103 | | | $ | 31 | | | $ | (25) | | | $ | (43) | | Energy commodity derivative contracts | | Fair value of derivative contracts/(Other current liabilities) | | $ | 13 | | | $ | 42 | | | $ | (92) | | | $ | (33) | |
| | Deferred charges and other assets/(Other long-term liabilities and deferred credits) | | 59 | | | 17 | | | (4) | | | (8) | | | Deferred charges and other assets/(Other long-term liabilities and deferred credits) | | 6 | | | 33 | | | (29) | | | (8) | |
Subtotal | Subtotal | | 162 | | | 48 | | | (29) | | | (51) | | Subtotal | | 19 | | | 75 | | | (121) | | | (41) | |
Interest rate contracts | Interest rate contracts | | Fair value of derivative contracts/(Other current liabilities) | | 134 | | | 45 | | | (3) | | | 0 | | Interest rate contracts | | Fair value of derivative contracts/(Other current liabilities) | | 126 | | | 119 | | | (3) | | | (3) | |
| | Deferred charges and other assets/(Other long-term liabilities and deferred credits) | | 634 | | | 313 | | | (8) | | | (1) | | | Deferred charges and other assets/(Other long-term liabilities and deferred credits) | | 364 | | | 575 | | | (19) | | | (7) | |
Subtotal | Subtotal | | 768 | | | 358 | | | (11) | | | (1) | | Subtotal | | 490 | | | 694 | | | (22) | | | (10) | |
Foreign currency contracts | Foreign currency contracts | | Fair value of derivative contracts/(Other current liabilities) | | 0 | | | 0 | | | (14) | | | (6) | | Foreign currency contracts | | Fair value of derivative contracts/(Other current liabilities) | | 56 | | | 0 | | | (12) | | | (6) | |
| | Deferred charges and other assets/(Other long-term liabilities and deferred credits) | | 70 | | | 46 | | | 0 | | | 0 | | | Deferred charges and other assets/(Other long-term liabilities and deferred credits) | | 43 | | | 138 | | | 0 | | | 0 | |
Subtotal | Subtotal | | 70 | | | 46 | | | (14) | | | (6) | | Subtotal | | 99 | | | 138 | | | (12) | | | (6) | |
Total | Total | | 1,000 | | | 452 | | | (54) | | | (58) | | Total | | 608 | | | 907 | | | (155) | | | (57) | |
| Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | Derivatives not designated as hedging instruments | |
Energy commodity derivative contracts | Energy commodity derivative contracts | | Fair value of derivative contracts/(Other current liabilities) | | 19 | | | 8 | | | (10) | | | (7) | | Energy commodity derivative contracts | | Fair value of derivative contracts/(Other current liabilities) | | 23 | | | 24 | | | (33) | | | (21) | |
| | Deferred charges and other assets/(Other long-term liabilities and deferred credits) | | 6 | | | 0 | | | (1) | | | 0 | | | Deferred charges and other assets/(Other long-term liabilities and deferred credits) | | 0 | | | 0 | | | (1) | | | 0 | |
Subtotal | | 25 | | | 8 | | | (11) | | | (7) | | |
Interest rate contracts | | Fair value of derivative contracts/(Other current liabilities) | | 0 | | | 0 | | | (3) | | | 0 | | |
| Subtotal | | 0 | | | 0 | | | (3) | | | 0 | | |
| | Total | Total | | 25 | | | 8 | | | (14) | | | (7) | | Total | | 23 | | | 24 | | | (34) | | | (21) | |
Total derivatives | Total derivatives | | $ | 1,025 | | | $ | 460 | | | $ | (68) | | | $ | (65) | | Total derivatives | | $ | 631 | | | $ | 931 | | | $ | (189) | | | $ | (78) | |
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 | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Gross amount | | Contracts available for netting | | Cash collateral held(b) | | Net amount |
| (In millions) | | | | | | | | | | | | |
As of September 30, 2020 | | | | | | | | | | | | | |
Energy commodity derivative contracts(a) | $ | 3 | | | $ | 184 | | | $ | 0 | | | $ | 187 | | | $ | (28) | | | $ | 0 | | | $ | 159 | |
Interest rate contracts | 0 | | | 768 | | | 0 | | | 768 | | | (2) | | | 0 | | | 766 | |
Foreign currency contracts | 0 | | | 70 | | | 0 | | | 70 | | | (14) | | | 0 | | | 56 | |
As of December 31, 2019 | | | | | | | | | | | | | |
Energy commodity derivative contracts(a) | $ | 19 | | | $ | 37 | | | $ | 0 | | | $ | 56 | | | $ | (19) | | | $ | (21) | | | $ | 16 | |
Interest rate contracts | 0 | | | 358 | | | 0 | | | 358 | | | 0 | | | 0 | | | 358 | |
Foreign currency contracts | 0 | | | 46 | | | 0 | | | 46 | | | (6) | | | 0 | | | 40 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance sheet liability fair value measurements by level | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Gross amount | | Contracts available for netting | | Cash collateral posted(b) | | Net amount |
| (In millions) | | | | | | | | | | | | |
As of September 30, 2020 | | | | | | | | | | | | | |
Energy commodity derivative contracts(a) | $ | (29) | | | $ | (11) | | | $ | 0 | | | $ | (40) | | | $ | 28 | | | $ | 8 | | | $ | (4) | |
Interest rate contracts | 0 | | | (14) | | | 0 | | | (14) | | | 2 | | | 0 | | | (12) | |
Foreign currency contracts | 0 | | | (14) | | | 0 | | | (14) | | | 14 | | | 0 | | | 0 | |
As of December 31, 2019 | | | | | | | | | | | | | |
Energy commodity derivative contracts(a) | $ | (3) | | | $ | (55) | | | $ | 0 | | | $ | (58) | | | $ | 19 | | | $ | 0 | | | $ | (39) | |
Interest rate contracts | 0 | | | (1) | | | 0 | | | (1) | | | 0 | | | 0 | | | (1) | |
Foreign currency contracts | 0 | | | (6) | | | 0 | | | (6) | | | 6 | | | 0 | | | 0 | |
_______ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance sheet asset fair value measurements by level | | | | |
| Level 1 | | Level 2 | | Level 3 | | Gross amount | | Contracts available for netting | | Cash collateral held(b) | | Net amount |
| (In millions) |
As of March 31, 2021 | | | | | | | | | | | | | |
Energy commodity derivative contracts(a) | $ | 10 | | | $ | 32 | | | $ | 0 | | | $ | 42 | | | $ | (37) | | | $ | 0 | | | $ | 5 | |
Interest rate contracts | 0 | | | 490 | | | 0 | | | 490 | | | (9) | | | 0 | | | 481 | |
Foreign currency contracts | 0 | | | 99 | | | 0 | | | 99 | | | (12) | | | 0 | | | 87 | |
As of December 31, 2020 | | | | | | | | | | | | | |
Energy commodity derivative contracts(a) | $ | 6 | | | $ | 93 | | | $ | 0 | | | $ | 99 | | | $ | (35) | | | $ | 0 | | | $ | 64 | |
Interest rate contracts | 0 | | | 694 | | | 0 | | | 694 | | | (2) | | | 0 | | | 692 | |
Foreign currency contracts | 0 | | | 138 | | | 0 | | | 138 | | | (6) | | | 0 | | | 132 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance sheet liability fair value measurements by level | | | | |
| Level 1 | | Level 2 | | Level 3 | | Gross amount | | Contracts available for netting | | Cash collateral posted(b) | | Net amount |
| (In millions) |
As of March 31, 2021 | | | | | | | | | | | | | |
Energy commodity derivative contracts(a) | $ | (12) | | | $ | (143) | | | $ | 0 | | | $ | (155) | | | $ | 37 | | | $ | 6 | | | $ | (112) | |
Interest rate contracts | 0 | | | (22) | | | 0 | | | (22) | | | 9 | | | 0 | | | (13) | |
Foreign currency contracts | 0 | | | (12) | | | 0 | | | (12) | | | 12 | | | 0 | | | 0 | |
As of December 31, 2020 | | | | | | | | | | | | | |
Energy commodity derivative contracts(a) | $ | (7) | | | $ | (56) | | | $ | 0 | | | $ | (63) | | | $ | 35 | | | $ | (8) | | | $ | (36) | |
Interest rate contracts | 0 | | | (10) | | | 0 | | | (10) | | | 2 | | | 0 | | | (8) | |
Foreign currency contracts | 0 | | | (6) | | | 0 | | | (6) | | | 6 | | | 0 | | | 0 | |
(a)Level 1 consists primarily of NYMEX natural gas futures. Level 2 consists primarily of OTC WTI swaps, NGL swaps and crude oil basis swaps.
(b)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.
The following tables summarize the pre-tax impact of our derivative contracts in our accompanying consolidated statements of operations and comprehensive income (loss):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in fair value hedging relationships | | Location | | Gain/(loss) recognized in income on derivative and related hedged item | | | | | | |
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | (In millions) | | | | | | |
Interest rate contracts | | Interest, net | | $ | (50) | | | $ | 117 | | | $ | 409 | | | $ | 453 | |
| | | | | | | | | | |
Hedged fixed rate debt(a) | | Interest, net | | $ | 50 | | | $ | (119) | | | $ | (418) | | | $ | (468) | |
_______ | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in fair value hedging relationships | | Location | | | | | | Gain/(loss) recognized in income on derivative and related hedged item |
| | | | | | Three Months Ended March 31, |
| | | | | | | | 2021 | | 2020 |
| | | | | | | | (In millions) |
Interest rate contracts | | Interest, net | | | | | | $ | (217) | | | $ | 433 | |
| | | | | | | | | | |
Hedged fixed rate debt(a) | | Interest, net | | | | | | $ | 219 | | | $ | (440) | |
(a)As of September 30, 2020,March 31, 2021, the cumulative amount of fair value hedging adjustments to our hedged fixed rate debt was an increase of $777$484 million 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(b) | | |
| | Three Months Ended September 30, | | | | | | Three Months Ended September 30, | | |
| | 2020 | | 2019 | | | | 2020 | | 2019 |
| | (In millions) | | | | | | (In millions) | | |
Energy commodity derivative contracts | | $ | (143) | | | $ | 96 | | | Revenues—Commodity sales | | $ | (47) | | | $ | 9 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Costs of sales | | (7) | | | (3) | |
Interest rate contracts | | 0 | | | (1) | | | Earnings from equity investments(c) | | (1) | | | 0 | |
Foreign currency contracts | | 70 | | | (69) | | | Other, net | | 61 | | | (59) | |
Total | | $ | (73) | | | $ | 26 | | | Total | | $ | 6 | | | $ | (53) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in cash flow hedging relationships | | Gain/(loss) recognized in OCI on derivative(a) | | | | Location | | Gain/(loss) reclassified from Accumulated OCI into income(b) | | |
| | Nine Months Ended September 30, | | | | | | Nine Months Ended September 30, | | |
| | 2020 | | 2019 | | | | 2020 | | 2019 |
| | (In millions) | | | | | | (In millions) | | |
Energy commodity derivative contracts | | $ | (29) | | | $ | (74) | | | Revenues—Commodity sales | | $ | (145) | | | $ | 15 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Costs of sales | | (12) | | | 8 | |
Interest rate contracts | | (9) | | | (2) | | | Earnings from equity investments(c) | | (1) | | | 2 | |
Foreign currency contracts | | 17 | | | (95) | | | Other, net | | 64 | | | (71) | |
Total | | $ | (21) | | | $ | (171) | | | Total | | $ | (94) | | | $ | (46) | |
_______ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in cash flow hedging relationships | | Gain/(loss) recognized in OCI on derivative(a) | | Location | | Gain/(loss) reclassified from Accumulated OCI into income(b) |
| | Three Months Ended March 31, | | | | Three Months Ended March 31, |
| | 2021 | | 2020 | | | | 2021 | | 2020 |
| | (In millions) | | | | (In millions) |
Energy commodity derivative contracts | | $ | (158) | | | $ | 379 | | | Revenues—Commodity sales | | $ | (20) | | | $ | (8) | |
| | | | | | | | | | |
| | | | | | Costs of sales | | 4 | | | (17) | |
Interest rate contracts | | 1 | | | (8) | | | Earnings from equity investments(c) | | 0 | | | 0 | |
Foreign currency contracts | | (46) | | | (82) | | | Other, net | | (61) | | | (23) | |
Total | | $ | (203) | | | $ | 289 | | | Total | | $ | (77) | | | $ | (48) | |
(a)We expect to reclassify an approximate $68approximately $35 million gainof loss associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balance as of September 30, 2020March 31, 2021 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.
(b)During the ninethree months ended September 30, 2019,March 31, 2021 and 2020, we recognized agains of $6 million and $12 million, gainrespectively, associated with a write-down of hedged inventory. All other amounts reclassified were the result of the hedged forecasted transactions actually affecting earnings (i.e., when the forecasted sales and purchases actually occurred).
(c)Amounts represent our share of an equity investee’s accumulated other comprehensive income (loss).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives in net investment hedging relationships | | Gain/(loss) recognized in OCI on derivative | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | | | | | | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | | | | | |
| | (In millions) | | | | | | | | | | | | |
Foreign currency contracts | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (8) | | | | | | | |
Total | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (8) | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments | | Location | | Gain/(loss) recognized in income on derivatives | | | | | | |
| | | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| | | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | (In millions) | | | | | | |
Energy commodity derivative contracts | | Revenues—Commodity sales | | $ | 87 | | | $ | 12 | | | $ | 353 | | | $ | 36 | |
| | Costs of sales | | 12 | | | 0 | | | 18 | | | (3) | |
| | Earnings from equity investments(b) | | 0 | | | 0 | | | 0 | | | 2 | |
Total(a) | | | | $ | 99 | | | $ | 12 | | | $ | 371 | | | $ | 35 | |
_______ | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as accounting hedges | | Location | | | | | | Gain/(loss) recognized in income on derivatives |
| | | | | | Three Months Ended March 31, |
| | | | | | | | 2021 | | 2020 |
| | | | | | | | (In millions) |
Energy commodity derivative contracts | | Revenues—Commodity sales | | | | | | $ | (631) | | | $ | 117 | |
| | Costs of sales | | | | | | 163 | | | 4 | |
Total(a) | | | | | | | | $ | (468) | | | $ | 121 | |
(a)The three and nine months ended September 30,March 31, 2021 and 2020 amounts include approximate losses of $448 million and gains of $96$74 million, and $349 million, respectively, and the three and nine months ended September 30, 2019 include an approximate loss of $4 million and $2 million, respectively. These gains and losses were associated with natural gas, crude and NGL derivative contract settlements.
(b)Amounts represent our share of an equity investee’s income (loss).
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 September 30, 2020March 31, 2021 and December 31, 2019,2020, we had 0 outstanding letters of credit supporting our commodity price risk management program. As of September 30, 2020,March 31, 2021, we had cash margins of $32$30 million posted by us with our counterparties as collateral and reported within “Restricted deposits” on our accompanying consolidated balance sheets.sheet. As of December 31, 2019,2020, we had cash margins of $15$3 million posted by our counterparties with us as collateral and reported within “Other current liabilities” on our accompanying consolidated balance sheets.sheet. The balance at September 30, 2020March 31, 2021 represents the net of our initial margin requirements of $24 million and counterparty variation margin requirements of $8$6 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 September 30, 2020,March 31, 2021, based on our current mark-to-market positions and posted collateral, we estimate that if our credit rating were downgraded one or two notchesnotch, we would not be required to post additional collateral. If we were downgraded two notches, we estimate that we would be required to post $67 million of additional collateral.
6. Revenue Recognition
Disaggregation of Revenues
The following tables present our revenues disaggregated by revenue source and type of revenue for each revenue source:
| | | Three Months Ended September 30, 2020 | | | Three Months Ended March 31, 2021 |
| | Natural Gas Pipelines | | Products Pipelines | | Terminals | | CO2 | | Corporate and Eliminations | | Total | | Natural Gas Pipelines | | Products Pipelines | | Terminals | | CO2 | | Corporate and Eliminations | | Total |
| | (In millions) | | | (In millions) |
Revenues from contracts with customers(a) | Revenues from contracts with customers(a) | | Revenues from contracts with customers(a) | |
Services | Services | | Services | |
Firm services(b) | Firm services(b) | | $ | 818 | | | $ | 69 | | | $ | 185 | | | $ | 1 | | | $ | (2) | | | $ | 1,071 | | Firm services(b) | | $ | 866 | | | $ | 59 | | | $ | 191 | | | $ | 0 | | | $ | 0 | | | $ | 1,116 | |
Fee-based services | Fee-based services | | 173 | | | 228 | | | 91 | | | 8 | | | 3 | | | 503 | | Fee-based services | | 178 | | | 221 | | | 81 | | | 15 | | | 0 | | | 495 | |
Total services | Total services | | 991 | | | 297 | | | 276 | | | 9 | | | 1 | | | 1,574 | | Total services | | 1,044 | | | 280 | | | 272 | | | 15 | | | 0 | | | 1,611 | |
Commodity sales | Commodity sales | | Commodity sales | |
Natural gas sales | Natural gas sales | | 507 | | | 0 | | | 0 | | | 1 | | | (2) | | | 506 | | Natural gas sales | | 3,319 | | | 0 | | | 0 | | | 1 | | | (5) | | | 3,315 | |
Product sales | Product sales | | 158 | | | 97 | | | 5 | | | 180 | | | (5) | | | 435 | | Product sales | | 220 | | | 125 | | | 5 | | | 229 | | | (10) | | | 569 | |
| Total commodity sales | Total commodity sales | | 665 | | | 97 | | | 5 | | | 181 | | | (7) | | | 941 | | Total commodity sales | | 3,539 | | | 125 | | | 5 | | | 230 | | | (15) | | | 3,884 | |
Total revenues from contracts with customers | Total revenues from contracts with customers | | 1,656 | | | 394 | | | 281 | | | 190 | | | (6) | | | 2,515 | | Total revenues from contracts with customers | | 4,583 | | | 405 | | | 277 | | | 245 | | | (15) | | | 5,495 | |
Other revenues(c) | Other revenues(c) | | Other revenues(c) | |
Leasing services(d) | Leasing services(d) | | 119 | | | 42 | | | 143 | | | 13 | | | 0 | | | 317 | | Leasing services(d) | | 119 | | | 43 | | | 143 | | | 12 | | | (1) | | | 316 | |
Derivatives adjustments on commodity sales | Derivatives adjustments on commodity sales | | (6) | | | 0 | | | 0 | | | 46 | | | 0 | | | 40 | | Derivatives adjustments on commodity sales | | (618) | | | 0 | | | 0 | | | (33) | | | 0 | | | (651) | |
Other | Other | | 40 | | | 6 | | | 0 | | | 2 | | | (1) | | | 47 | | Other | | 41 | | | 5 | | | 0 | | | 5 | | | 0 | | | 51 | |
Total Other revenues | | 153 | | | 48 | | | 143 | | | 61 | | | (1) | | | 404 | | |
Total other revenues | | Total other revenues | | (458) | | | 48 | | | 143 | | | (16) | | | (1) | | | (284) | |
Total revenues | Total revenues | | $ | 1,809 | | | $ | 442 | | | $ | 424 | | | $ | 251 | | | $ | (7) | | | $ | 2,919 | | Total revenues | | $ | 4,125 | | | $ | 453 | | | $ | 420 | | | $ | 229 | | | $ | (16) | | | $ | 5,211 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 | | | | | | | | | | |
| | Natural Gas Pipelines | | Products Pipelines | | Terminals | | CO2 | | Corporate and Eliminations | | Total |
| | (In millions) | | | | | | | | | | |
Revenues from contracts with customers(a) | | | | | | | | | | | | |
Services | | | | | | | | | | | | |
Firm services(b) | | $ | 882 | | | $ | 89 | | | $ | 256 | | | $ | 1 | | | $ | (1) | | | $ | 1,227 | |
Fee-based services | | 182 | | | 265 | | | 132 | | | 14 | | | 0 | | | 593 | |
Total services | | 1,064 | | | 354 | | | 388 | | | 15 | | | (1) | | | 1,820 | |
Commodity sales | | | | | | | | | | | | |
Natural gas sales | | 618 | | | 0 | | | 0 | | | 0 | | | (1) | | | 617 | |
Product sales | | 162 | | | 84 | | | 9 | | | 268 | | | (7) | | | 516 | |
| | | | | | | | | | | | |
Total commodity sales | | 780 | | | 84 | | | 9 | | | 268 | | | (8) | | | 1,133 | |
Total revenues from contracts with customers | | 1,844 | | | 438 | | | 397 | | | 283 | | | (9) | | | 2,953 | |
Other revenues(c) | | | | | | | | | | | | |
Leasing services | | 57 | | | 45 | | | 111 | | | 13 | | | 0 | | | 226 | |
Derivatives adjustments on commodity sales | | 23 | | | 0 | | | 0 | | | (1) | | | (1) | | | 21 | |
Other | | 10 | | | 1 | | | 0 | | | 3 | | | 0 | | | 14 | |
Total Other revenues | | 90 | | | 46 | | | 111 | | | 15 | | | (1) | | | 261 | |
Total revenues | | $ | 1,934 | | | $ | 484 | | | $ | 508 | | | $ | 298 | | | $ | (10) | | | $ | 3,214 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | | | | | | | | | | |
| | Natural Gas Pipelines | | Products Pipelines | | Terminals | | CO2 | | Corporate and Eliminations | | Total |
| | (In millions) | | | | | | | | | | |
Revenues from contracts with customers(a) | | | | | | | | | | | | |
Services | | | | | | | | | | | | |
Firm services(b) | | $ | 2,479 | | | $ | 215 | | | $ | 563 | | | $ | 1 | | | $ | (2) | | | $ | 3,256 | |
Fee-based services | | 523 | | | 670 | | | 307 | | | 31 | | | 1 | | | 1,532 | |
Total services | | 3,002 | | | 885 | | | 870 | | | 32 | | | (1) | | | 4,788 | |
Commodity sales | | | | | | | | | | | | |
Natural gas sales | | 1,385 | | | 0 | | | 0 | | | 1 | | | (5) | | | 1,381 | |
Product sales | | 396 | | | 255 | | | 11 | | | 546 | | | (22) | | | 1,186 | |
| | | | | | | | | | | | |
Total commodity sales | | 1,781 | | | 255 | | | 11 | | | 547 | | | (27) | | | 2,567 | |
Total revenues from contracts with customers | | 4,783 | | | 1,140 | | | 881 | | | 579 | | | (28) | | | 7,355 | |
Other revenues(c) | | | | | | | | | | | | |
Leasing services | | 346 | | | 126 | | | 404 | | | 34 | | | 0 | | | 910 | |
Derivatives adjustments on commodity sales | | 35 | | | 0 | | | 0 | | | 173 | | | 0 | | | 208 | |
Other | | 91 | | | 16 | | | 0 | | | 6 | | | (1) | | | 112 | |
Total Other revenues | | 472 | | | 142 | | | 404 | | | 213 | | | (1) | | | 1,230 | |
Total revenues | | $ | 5,255 | | | $ | 1,282 | | | $ | 1,285 | | | $ | 792 | | | $ | (29) | | | $ | 8,585 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2019 | | | | | | | | | | |
| | Natural Gas Pipelines | | Products Pipelines | | Terminals | | CO2 | | Corporate and Eliminations | | Total |
| | (In millions) | | | | | | | | | | |
Revenues from contracts with customers(a) | | | | | | | | | | | | |
Services | | | | | | | | | | | | |
Firm services(b) | | $ | 2,701 | | | $ | 253 | | | $ | 785 | | | $ | 1 | | | $ | (3) | | | $ | 3,737 | |
Fee-based services | | 561 | | | 752 | | | 398 | | | 45 | | | 0 | | | 1,756 | |
Total services | | 3,262 | | | 1,005 | | | 1,183 | | | 46 | | | (3) | | | 5,493 | |
Commodity sales | | | | | | | | | | | | |
Natural gas sales | | 1,979 | | | 0 | | | 0 | | | 1 | | | (7) | | | 1,973 | |
Product sales | | 599 | | | 211 | | | 16 | | | 827 | | | (23) | | | 1,630 | |
| | | | | | | | | | | | |
Total commodity sales | | 2,578 | | | 211 | | | 16 | | | 828 | | | (30) | | | 3,603 | |
Total revenues from contracts with customers | | 5,840 | | | 1,216 | | | 1,199 | | | 874 | | | (33) | | | 9,096 | |
Other revenues(c) | | | | | | | | | | | | |
Leasing services | | 167 | | | 129 | | | 325 | | | 39 | | | 0 | | | 660 | |
Derivatives adjustments on commodity sales | | 61 | | | 0 | | | 0 | | | (10) | | | 0 | | | 51 | |
Other | | 35 | | | 5 | | | 0 | | | 10 | | | 0 | | | 50 | |
Total Other revenues | | 263 | | | 134 | | | 325 | | | 39 | | | 0 | | | 761 | |
Total revenues | | $ | 6,103 | | | $ | 1,350 | | | $ | 1,524 | | | $ | 913 | | | $ | (33) | | | $ | 9,857 | |
_______ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2020 |
| | Natural Gas Pipelines | | Products Pipelines | | Terminals | | CO2 | | Corporate and Eliminations | | Total |
| | (In millions) |
Revenues from contracts with customers(a) | | | | | | | | | | | | |
Services | | | | | | | | | | | | |
Firm services(b) | | $ | 865 | | | $ | 79 | | | $ | 189 | | | $ | 0 | | | $ | 0 | | | $ | 1,133 | |
Fee-based services | | 193 | | | 260 | | | 121 | | | 13 | | | 0 | | | 587 | |
Total services | | 1,058 | | | 339 | | | 310 | | | 13 | | | 0 | | | 1,720 | |
Commodity sales | | | | | | | | | | | | |
Natural gas sales | | 501 | | | 0 | | | 0 | | | 0 | | | (2) | | | 499 | |
Product sales | | 136 | | | 109 | | | 3 | | | 232 | | | (13) | | | 467 | |
| | | | | | | | | | | | |
Total commodity sales | | 637 | | | 109 | | | 3 | | | 232 | | | (15) | | | 966 | |
Total revenues from contracts with customers | | 1,695 | | | 448 | | | 313 | | | 245 | | | (15) | | | 2,686 | |
Other revenues(c) | | | | | | | | | | | | |
Leasing services(d) | | 113 | | | 42 | | | 129 | | | 10 | | | 0 | | | 294 | |
Derivatives adjustments on commodity sales | | 52 | | | 0 | | | 0 | | | 52 | | | 0 | | | 104 | |
Other | | 15 | | | 5 | | | 0 | | | 2 | | | 0 | | | 22 | |
Total other revenues | | 180 | | | 47 | | | 129 | | | 64 | | | 0 | | | 420 | |
Total revenues | | $ | 1,875 | | | $ | 495 | | | $ | 442 | | | $ | 309 | | | $ | (15) | | | $ | 3,106 | |
(a)Differences between the revenue classifications presented on the consolidated statements of operations and the categories for the disaggregated revenues by type of revenue above are primarily attributable to revenues reflected in the “Other revenues” category (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)For the three and nine months ended September 30, 2020 and 2019, amountsAmounts 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 5 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
Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections.
As of September 30, 2020March 31, 2021 and December 31, 2019,2020, our contract asset balances were $44$31 million and $27$20 million, respectively. Of the contract asset balance at December 31, 2019, $212020, $9 million was transferred to accounts receivable during the ninethree months ended September 30, 2020.March 31, 2021. As of September 30, 2020March 31, 2021 and December 31, 2019,2020, our contract liability balances were $237$243 million and $232$239 million, respectively. Of the contract liability balance at December 31, 2019, $572020, $24 million was recognized as revenue during the ninethree months ended September 30, 2020.March 31, 2021.
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 September 30, 2020March 31, 2021 that we will invoice or transfer from contract liabilities and recognize in future periods:
| Year | Year | | Estimated Revenue | Year | | Estimated Revenue |
| | | (In millions) | | (In millions) |
Three months ended December 31, 2020 | | $ | 1,152 | | |
2021 | | 4,102 | | |
Nine months ended December 31, 2021 | | Nine months ended December 31, 2021 | | $ | 3,276 | |
2022 | 2022 | | 3,344 | | 2022 | | 3,626 | |
2023 | 2023 | | 2,715 | | 2023 | | 2,924 | |
2024 | 2024 | | 2,361 | | 2024 | | 2,508 | |
2025 | | 2025 | | 2,124 | |
Thereafter | Thereafter | | 14,722 | | Thereafter | | 13,585 | |
Total | Total | | $ | 28,396 | | Total | | $ | 28,043 | |
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 generally exclude, based on the following practical expedientsexpedient that we elected to apply, remaining performance obligations for: (i)for contracts with index-based pricing or variable volume attributes in which such variable consideration is allocated entirely to a wholly unsatisfied performance obligation and (ii) contracts with an original expected duration of one year or less.obligation.
7. Reportable Segments
Financial information by segment follows:
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | (In millions) | | | | (In millions) |
Revenues | Revenues | | Revenues | | |
Natural Gas Pipelines | Natural Gas Pipelines | | Natural Gas Pipelines | | |
Revenues from external customers | Revenues from external customers | $ | 1,803 | | | $ | 1,925 | | | $ | 5,229 | | | $ | 6,073 | | Revenues from external customers | | $ | 4,110 | | | $ | 1,861 | |
Intersegment revenues | Intersegment revenues | 6 | | | 9 | | | 26 | | | 30 | | Intersegment revenues | | 15 | | | 14 | |
| Products Pipelines | Products Pipelines | 442 | | | 484 | | | 1,282 | | | 1,350 | | Products Pipelines | | 453 | | | 495 | |
| Terminals | Terminals | | Terminals | | |
Revenues from external customers | Revenues from external customers | 423 | | | 507 | | | 1,282 | | | 1,521 | | Revenues from external customers | | 419 | | | 441 | |
Intersegment revenues | Intersegment revenues | 1 | | | 1 | | | 3 | | | 3 | | Intersegment revenues | | 1 | | | 1 | |
CO2 | CO2 | 251 | | | 298 | | | 792 | | | 913 | | CO2 | | 229 | | | 309 | |
| Corporate and intersegment eliminations | Corporate and intersegment eliminations | (7) | | | (10) | | | (29) | | | (33) | | Corporate and intersegment eliminations | | (16) | | | (15) | |
Total consolidated revenues | Total consolidated revenues | $ | 2,919 | | | $ | 3,214 | | | $ | 8,585 | | | $ | 9,857 | | Total consolidated revenues | | $ | 5,211 | | | $ | 3,106 | |
|
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | (In millions) | | | | (In millions) |
Segment EBDA(a) | Segment EBDA(a) | | | | | Segment EBDA(a) | | |
Natural Gas Pipelines | Natural Gas Pipelines | $ | 1,091 | | | $ | 1,092 | | | $ | 2,284 | | | $ | 3,383 | | Natural Gas Pipelines | | $ | 2,103 | | | $ | 1,196 | |
Products Pipelines | Products Pipelines | 223 | | | 325 | | | 719 | | | 908 | | Products Pipelines | | 248 | | | 269 | |
Terminals | Terminals | 246 | | | 295 | | | 732 | | | 884 | | Terminals | | 227 | | | 257 | |
CO2 | CO2 | 156 | | | 164 | | | (453) | | | 558 | | CO2 | | 286 | | | (755) | |
Kinder Morgan Canada | 0 | | | 0 | | | 0 | | | (2) | | |
| | Total Segment EBDA | Total Segment EBDA | 1,716 | | | 1,876 | | | 3,282 | | | 5,731 | | Total Segment EBDA | | 2,864 | | | 967 | |
DD&A | DD&A | (539) | | | (578) | | | (1,636) | | | (1,750) | | DD&A | | (541) | | | (565) | |
Amortization of excess cost of equity investments | Amortization of excess cost of equity investments | (32) | | | (21) | | | (99) | | | (61) | | Amortization of excess cost of equity investments | | (22) | | | (32) | |
| General and administrative and corporate charges | General and administrative and corporate charges | (150) | | | (162) | | | (472) | | | (478) | | General and administrative and corporate charges | | (148) | | | (165) | |
Interest, net | Interest, net | (383) | | | (447) | | | (1,214) | | | (1,359) | | Interest, net | | (377) | | | (436) | |
| Income tax expense | Income tax expense | (140) | | | (151) | | | (304) | | | (471) | | Income tax expense | | (351) | | | (60) | |
| Total consolidated net income (loss) | Total consolidated net income (loss) | $ | 472 | | | $ | 517 | | | $ | (443) | | | $ | 1,612 | | Total consolidated net income (loss) | | $ | 1,425 | | | $ | (291) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 | | | | |
| (In millions) | | | | | | |
Assets | | | | | | | |
Natural Gas Pipelines | $ | 48,522 | | | $ | 50,310 | | | | | |
Products Pipelines | 9,216 | | | 9,468 | | | | | |
Terminals | 8,808 | | | 8,890 | | | | | |
CO2 | 2,589 | | | 3,523 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Corporate assets(b) | 2,686 | | | 1,966 | | | | | |
| | | | | | | |
Total consolidated assets | $ | 71,821 | | | $ | 74,157 | | | | | |
_______ | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| (In millions) |
Assets | | | |
Natural Gas Pipelines | $ | 48,262 | | | $ | 48,597 | |
Products Pipelines | 9,152 | | | 9,182 | |
Terminals | 8,560 | | | 8,639 | |
CO2 | 2,517 | | | 2,478 | |
| | | |
| | | |
| | | |
Corporate assets(b) | 2,717 | | | 3,077 | |
| | | |
Total consolidated assets | $ | 71,208 | | | $ | 71,973 | |
(a)Includes revenues, earnings from equity investments, other, net, less operating expenses, (gain) loss (gain) on impairmentsdivestitures and divestitures,impairments, net, and other (income) expense,income, net.
(b)Includes cash and cash equivalents, restricted deposits, certain prepaid assets and deferred charges, including income tax related assets, 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.
8. Income Taxes
Income tax expense included in our accompanying consolidated statements of operations is as follows:
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | (In millions, except percentages) | | | | (In millions, except percentages) |
Income tax expense | Income tax expense | $ | 140 | | | $ | 151 | | | $ | 304 | | | $ | 471 | | Income tax expense | | $ | 351 | | | $ | 60 | |
Effective tax rate | Effective tax rate | 22.9 | % | | 22.6 | % | | (218.7) | % | | 22.6 | % | Effective tax rate | | 19.8 | % | | (26.0) | % |
The effective tax rate for the three months ended March 31, 2021 is lower than the statutory federal rate of 21% primarily due to the release of the valuation allowance on our investment in NGPL Holdings upon the sale of a partial interest in NGPL Holdings, and dividend-received deductions from our investments in Citrus Corporation (Citrus), NGPL Holdings and Products (SE) Pipe Line Corporation (PPL), partially offset by state income taxes.
The effective tax rate for the three months ended September 30, 2020 is higher than the statutory federal rate of 21% primarily due to state income taxes.
The effective tax rate for the nine months ended September 30,March 31, 2020 is “negative” and lower than the statutory federal rate of 21% primarily due to the $1,600a $600 million CO2 and Natural Gas Pipelines Non-Regulated reporting units’ impairment of non-taxgoodwill, which is a reduction to income but is not deductible goodwill contributing tofor tax purposes. This was partially offset by the refund of alternative minimum tax sequestration credits and dividend-received deductions from our loss before income taxes but not providing a tax benefit.investment in Citrus and PPL. While we would normally expect a federal income tax benefit from our loss
before income taxes for the three months ended March 31, 2020, because a tax benefit is not allowed on the goodwill impairment, we incurred an income tax expense for the period, partially offset by the refund of alternative minimum tax
sequestration credits and dividend-received deductions from our investments in Citrus Corporation (Citrus) and Plantation Pipe Line Company (Plantation).
The effective tax rate for the three and nine months ended September 30, 2019 is higher than the statutory federal rate of 21% primarily due to state and foreign taxes, partially offset by dividend-received deductions from our investments in Citrus, NGPL Holdings LLC and Plantation.period.
9. 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 meritorious 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 contingencies where an adverse outcome may be material or, in the judgment of management, we conclude the matter should otherwise be disclosed.
SFPP FERC Inquiry Regarding the Commission’s Policy for Determining Return on EquityProceedings
On March 21, 2019,The FERC approved the FERC issued a notice of inquiry (NOI) seeking comments regarding whetherSFPP East Line Settlement in Docket No. IS21-138 (“EL Settlement”) on December 31, 2020 and it became final and effective on February 2, 2021. The EL Settlement resolved certain dockets in their entirety (IS09-437 and OR16-6) and resolved the FERC should revise its policies for determiningSFPP East Line related disputes in other dockets which remain ongoing (OR14-35/36 and OR19-21/33/37). The amounts SFPP agreed to pay pursuant to the base returnEL Settlement were fully accrued on equity (ROE) used in setting cost of service rates charged by jurisdictional public utilities and interstate natural gas and liquids pipelines. The NOI sought comment on whether any aspects of the existing methodologies used by the FERC to set an ROE for a regulated entity should be changed, whether the ROE methodology should be the same across all three industries, and whether alternative methodologies should be considered. Comments were filed by industry groups, pipeline companies and shippers for review and evaluation by the FERC. On May 21, 2020, the FERC issued its Policy Statement on Determining Return on Equity for Natural Gas and Oil Pipelines (Policy Statement). As it applies to natural gas and oil pipelines, the Policy Statement requires averaging the results of the discounted cash flow model and capital asset pricing model, giving equal weight to each model, retains its existing two-thirds/one-third weighting of short and long-term growth projections in the discounted cash flow model, and excludes the risk premium or expected earnings models. On other matters raised in this proceeding, the FERC declined to adopt rigid policy changes, and will address issues, such as the appropriate sources for data sets and the specific companies to use for a given proxy group, as those issues arise in future rate proceedings on a pipeline-by-pipeline, case-by-case basis. The Policy Statement does not result in any immediate changes to any existing rates or ROEs for any of our pipelines, and any future changes to rates or ROEs for a pipeline will depend on a variety of factors that remain to be determined when they are raised and argued in connection with future or existing rate proceedings, including the OR16-6 proceeding referenced in “SFPP FERC Proceedings” below.
SFPP FERC Proceedingsbefore December 31, 2020.
The tariffs and rates charged by SFPP which were not fully resolved by the EL Settlement are subject to a number of ongoing shipper-initiated proceedings at the FERC. These include IS08-390, filed in June 2008, in which various shippers are challenging SFPP’s West Line rates (pending before the D.C. Circuit Court on rehearing following an order that upheld the FERC’s underlying decision); IS09-437, filed in July 2009, in which various shippers are challenging SFPP’s East Line rates (pending before the FERC on rehearing); OR11-13/16/18, filed in June 2011, in which various shippers are seeking to challenge SFPP’s North Line, Oregon Line, and West Line rates (pending before the FERC for an order on the complaint); OR14-35/36, filed in June 2014, in which various shippers are challenging SFPP’s index increases in 2012 and 2013 (dismissed by the FERC, but remanded back to the FERC from the D.C. Circuit for further consideration); OR16-6, filed in December 2015, in which various shippers are challenging SFPP’s East line rates (the FERC issued Order 571 which largely confirmed the initial decision, but granted SFPP’s motion to reopen the record and allowed the parties to file written submissions addressing the FERC’s Policy Statement on ROE for purposes of establishing SFPP’s ROE in this matter); and OR19-21/33/37, filed beginning in April 2019, in which various shippers are challenging SFPP’s index increases in 2018 (pending before the FERC for an order on the complaints). In general, these complaints and protests allege the rates and tariffs charged by SFPP are not just and reasonable under the Interstate Commerce Act (ICA). In some of these proceedings shippers have challenged the overall rate being charged by SFPP, and in others the shippers have challenged SFPP’s index-based rate increases. The issues involved in these proceedings include, among others, whether indexed rate increases are justified, and the appropriate level of return and income tax allowance SFPP may include in its rates. If the shippers prevail on their arguments or claims, they would be entitled to seek reparations for the two yeartwo-year period preceding the filing date of their complaints (OR cases) and/or prospective refunds in protest cases from the
date of protest, (IS cases), and SFPP may be required to reduce its rates going forward. With respect to the ongoing shipper-initiated proceedings at the FERC that were not fully resolved by the EL Settlement, the shippers pleaded claims to at least $50 million in rate refunds and unspecified rate reductions as of the date of their complaints in 2014 and 2018. The claims pleaded by the shippers are expected to change due to the passage of time and interest. These proceedings tend to be protracted, with decisions of the FERC often appealed to the federal courts.
SFPP paid refunds to shippers in May 2019, in the IS08-390 proceeding as ordered by the FERC based on its denial of an income tax allowance. With respect to the various SFPP related complaints and protest proceedings at the FERC (including IS08-390), we estimate that the shippers are seeking approximately $50 million in annual rate reductions and approximately $425 million in refunds. Management believes SFPP has meritorious arguments supporting SFPP’s rates and intends to vigorously defend SFPP against these complaints and protests. However, toWe do not believe the extent the shippers are successful in one or moreultimate resolution of the shipper complaints or protest proceedings, SFPP estimates that applying the principles of FERC precedent, as applicable, as well as the compliance filing methodology recently approved by the FERC to pending SFPP cases would result inand protests seeking rate reductions andor refunds substantially lower than those sought by the shippers.
EPNG FERC Proceedings
The tariffs and rates charged by EPNG are subject to 2 ongoing FERC proceedings (the “2008 rate case” and the “2010 rate case”). With respect to the 2008 rate case, the FERC issued its decision (Opinion 517-A) in July 2015. The FERC generally upheld its prior determinations, ordered refunds to be paid within 60 days, and stated that it would apply its findings in Opinion 517-A to the same issues in the 2010 rate case. All refund obligations related to the 2008 rate case were satisfied in 2015. EPNG sought federal appellate review of Opinion 517-A. With respect to the 2010 rate case, the FERC issued its decision (Opinion 528-A)ongoing proceedings will have a material adverse impact on February 18, 2016. The FERC generally upheld its prior determinations, affirmed prior findings of an Administrative Law Judge that certain shippers qualify for lower rates, and required EPNG to file revised pro forma recalculated rates consistent with the terms of Opinions 517-A and 528-A. On May 3, 2018, the FERC issued Opinion 528-B upholding its decisions in Opinion 528-A and requiring EPNG to implement the rates required by its rulings and provide refunds within 60 days. On July 2, 2018, EPNG reported to the FERC the refund calculations, and that the refunds had been provided as ordered. Also on July 2, 2018, EPNG initiated appellate review of Opinions 528, 528-A and 528-B. EPNG’s appeals in the 2008 and 2010 rate cases as well as the intervenors’ appeal in the 2010 rate case were consolidated. The U.S. Court of Appeals for the D.C. Circuit denied all petitions for review on July 24, 2020.our business.
Gulf LNG Facility Disputes
On March 1, 2016, Gulf LNG Energy, LLC and Gulf LNG Pipeline, LLC (GLNG) received a Notice of Arbitration from Eni USA Gas Marketing LLC (Eni USA), one of two companies that entered into a terminal use agreement for capacity of the Gulf LNG Facility in Mississippi for an initial term that was not scheduled to expire until the year 2031. Eni USA is an indirect subsidiary of Eni S.p.A., a multi-national integrated energy company headquartered in Milan, Italy. Pursuant to its Notice of Arbitration, Eni USA sought declaratory and monetary relief based upon its assertion that (i) the terminal use agreement should be terminated because changes in the U.S. natural gas market since the execution of the agreement in December 2007 have “frustrated the essential purpose” of the agreement and (ii) activities allegedly undertaken by affiliates of Gulf LNG Holdings Group LLC “in connection with a plan to convert the LNG Facility into a liquefaction/export facility have given rise to a contractual right on the part of Eni USA to terminate” the agreement. On June 29, 2018, the arbitration panel delivered its Award, and the panel's ruling called for the termination of the agreement and Eni USA'sUSA’s payment of compensation to GLNG. The Award resulted in our recording a net loss in the second quarter of 2018 of our equity investment in GLNG due to a non-cash impairment of our investment in GLNG partially offset by our share of earnings recognized by GLNG. On September 25, 2018, GLNG filed a lawsuit against Eni USA in the Delaware Court of Chancery to enforce the Award. On February 1, 2019, the Delaware Court of Chancery issued a Final Order and Judgment confirming the Award, which was paid by Eni USA on February 20, 2019.
On September 28, 2018, GLNG filed a lawsuit against Eni S.p.A. in the Supreme Court of the State of New York in New York County to enforce a Guarantee Agreement entered into by Eni S.p.A. in connection with the terminal use agreement. On December 12, 2018, Eni S.p.A. filed a counterclaim seeking unspecified damages from GLNG. This lawsuit remains pending.
On June 3, 2019, Eni USA filed a second Notice of Arbitration against GLNG asserting the same breach of contract claims that had been asserted in the first arbitration and alleging that GLNG negligently misrepresented certain facts or contentions in the first arbitration. By its second Notice of Arbitration, Eni USA seekssought to recover as damages some or all of the payments made by Eni USA to satisfy the Final Order and Judgment of the Court of Chancery. In response to the second Notice of Arbitration, GLNG filed a complaint with the Court of Chancery together with a motion seeking to permanently enjoin the arbitration. On January 10, 2020, the Court of Chancery enteredcross-appeals from an Order and Final Judgment granting GLNG’s motion to enjoin arbitration of the negligent misrepresentation claim, but denyingCourt of Chancery, the motion to enjoin arbitrationDelaware Supreme Court ruled in favor of GLNG on November 17, 2020 and a permanent injunction was entered prohibiting Eni USA from re-arbitrating both the breach of contract and negligent misrepresentation claims. The partiesOn April 15, 2021, Eni USA filed cross appealsa petition for writ of certiorari with the Final Judgment. The Delaware cross appeals were argued to the DelawareU.S. Supreme Court on September 9, 2020. The arbitration proceeding remains pending, but has been stayed by agreement pendingseeking review of the Delaware Supreme Court’s decision.
This petition remains pending.
On December 20, 2019, GLNG’s remaining customer, Angola LNG Supply Services LLC (ALSS), filed a Notice of Arbitration seeking a declaration that its terminal use agreement should be deemed terminated as of March 1, 2016 on substantially the same terms and conditions as set forth in the arbitration award pertaining to Eni USA. ALSS also seeks a declaration that activities allegedly undertaken by affiliates of Gulf LNG Holdings Group LLC in connection with the pursuit of an LNG liquefaction export project have given rise to a contractual right on the part of ALSS to terminate the agreement. ALSS also seeks a monetary award directing GLNG to reimburse ALSS for all reservation charges and operating fees paid by ALSS after December 31, 2016 plus interest. A final decision in this arbitration is expected bybefore the end of the secondthird quarter of 2021.
GLNG intends to continue to vigorously prosecute and defend all of the foregoing proceedings.
Continental Resources, Inc. v. Hiland Partners Holdings, LLC
On December 8, 2017, Continental Resources, Inc. (CLR) filed an action in Garfield County, Oklahoma state court alleging that Hiland Partners Holdings, LLC (Hiland Partners) breached a Gas Purchase Agreement, dated November 12, 2010, as amended (GPA), by failing to receive and purchase all of CLR’s dedicated gas under the GPA (produced in three North Dakota counties). CLR also alleged fraud, maintaining that Hiland Partners promised the construction of several additional facilities to process the gas without an intention to build the facilities. Hiland Partners denied these allegations, but the parties entered into a settlement agreement in June 2018, under which CLR agreed to release all of its claims in exchange for Hiland Partners’ construction of 10 infrastructure projects by November 1, 2020. CLR has filed an amended petition in which it asserts that Hiland Partners’ failure to construct certain facilities by specific dates nullifies the release contained in the settlement agreement. CLR’s amended petition makes additional claims under both the GPA and a May 8, 2008 gas purchase contract covering additional North Dakota counties, including CLR’s contention that Hiland Partners is not allowed to deduct third-party processing fees from the gas purchase price. CLR seeks damages in excess of $225 million. Hiland Partners denies and will vigorously defend against these claims.
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 September 30, 2020March 31, 2021 and December 31, 2019,2020, our total reserve for legal matters was $280$130 million and $203$273 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 federal,local, state and localfederal 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 and CO2 field and oil field 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, including alleged violations of the Risk Management Program, and leak detection and repair requirements of the Clean Air Act.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 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 state remediation programs. We have established a reserve to address the costs associated with the remediation.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, NGL, natural gas or CO2.
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 by the EPA to be approximately $1.1more than $3 billion and active cleanup is expected to take as long as 13more 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 2 facilities acquired from GATX Terminals Corporation)facilities) and KMBT (in connection with its ownership or operation of 2 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 2023. 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, natural resource damage (NRD) claims asserted by state and federal trustees following their natural resource assessment of the PHSS. At this time, we are unable to reasonably estimate the extent of our potential NRD liability.
Uranium Mines in Vicinity of Cameron, Arizona
In the 1950s and 1960s, Rare Metals Inc., a historical subsidiary of EPNG, mined approximately 20 uranium mines in the vicinity of Cameron, Arizona, many of which are located on the Navajo Indian Reservation. The mining activities were in response to numerous incentives provided to industry by the U.S. to locate and produce domestic sources of uranium to support the Cold War-era nuclear weapons program. In May 2012, EPNG received a general notice letter from the EPA notifying EPNG of the EPA’s investigation of certain sites and its determination that the EPA considers EPNG to be a PRP within the meaning of CERCLA. In August 2013, EPNG and the EPA entered into an Administrative Order on Consent and Scope of Work pursuant to which EPNG is conducting environmental assessments of the mines and the immediate vicinity. On September 3, 2014, EPNG filed a complaint in the U.S. District Court for the District of Arizona seeking cost recovery and contribution from the applicable federal government agencies toward the cost of environmental activities associated with the mines. The U.S. District Court issued an order on April 16, 2019 that allocated 35% of past and future response costs to the U.S. The decision does not provide or establish the scope of a remedial plan with respect to the sites, nor does it establish the total cost for addressing the sites, all of which remain to be determined in subsequent proceedings and adversarial actions, if necessary, with the EPA. Until such issues are determined, we are unable to reasonably estimate the extent of our potential liability. Because costs associated with any remedial plan approved by the EPA 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.
Lower Passaic River Study Area of the Diamond Alkali Superfund Site, New Jersey
EPEC Polymers, Inc. (EPEC Polymers) and EPEC Oil Company Liquidating Trust (EPEC Oil Trust), former El Paso Corporation entities now owned by KMI, are involved 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. It has been alleged that EPEC Polymers and EPEC Oil Trust may be PRPs under CERCLA based on prior ownership and/or operation of properties located along the relevant section of the Passaic River. EPEC Polymers and EPEC Oil Trust entered into two Administrative Orders on Consent (AOCs) with the EPA which obligate them to investigate and characterize contamination at the Site. They are also part of a joint defense group of approximately 44 cooperating parties, referred to as the Cooperating Parties Group (CPG), which is directing and funding the AOC work required by the EPA. Under the first AOC, the CPG submitted draft remedial investigation and feasibility studies (RI/FS) of the Site to the EPA in 2015, and EPA approval remains pending. Under the second AOC, the CPG conducted a CERCLA removal action at the Passaic River Mile 10.9, and is obligated to conduct EPA-directed post-remedy monitoring in the removal area. We have established a reserve for the anticipated cost of compliance with these two AOCs.
On March 4, 2016, the EPA issued its Record of Decision (ROD) for the lower 8 miles of the Site. At that time the final cleanup plan in the ROD was estimated by the EPA to cost $1.7 billion. On October 5, 2016, the EPA entered into an AOC with Occidental Chemical Company (OCC), a member of the PRP group requiring OCC to spend an estimated $165 million to perform engineering and design work necessary to begin the cleanup of the lower 8 miles of the Site. The design work is underway. Initial expectations were that the design work would take four years to complete. The cleanup is expected to take at least six years to complete once it begins.
In addition, the EPA and numerous PRPs, including EPEC Polymers, are engaged in an allocation process for the implementation of the remedy for the lower 8 miles of the Site. That process was completed December 28, 2020. We anticipate that processthe PRPs, including EPEC Polymers, will be completed by December 31, 2020.engage in further discussions with the EPA during 2021. There remains significant uncertainty as to the implementation and associated costs of the remedy set forth in the ROD. There is also uncertainty as to the impact of the EPA FS directive for the upper nine miles of the Site not subject to the lower eight mile ROD. In a letter dated October 10, 2018, the EPA directed the CPG to prepare a streamlined FS for the Site that evaluates interim remedy alternatives for sediments in the upper nine miles of the Site. Until the allocation process andPRPs engage in discussions with the EPA, the FS areis completed, and the RI/FS is finalized, we are unable to reasonably estimate the extent of our potential liability. 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.
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, 1 of which is against TGP and 1 of which is against SNG, both described further below.
On November 8, 2013, the Parish of Plaquemines, Louisiana 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. In May 2019, the case was remanded to the state district court for Plaquemines Parish. At the same time, the U.S. District Court certified a federal jurisdiction issue for review by the U.S. Fifth Circuit Court of Appeals. On August 10, 2020, the Fifth Circuit affirmed remand. The defendants filed a motion for rehearing which is pending. The case remains effectively stayed pending a final ruling by the Court of Appeals. Until these and other issues are determined, we are not able to reasonably estimate the extent of our potential liability, if any. We will continue to vigorously defend this case.
On March 29, 2019, the City of New Orleans and Orleans Parish (collectively, 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 May 2019, Orleans moved to remand the case to the state district court. 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; Parish of Cameron vs. Auster Oil & Gas, Inc., pending in U.S. District Court for the Western District of Louisiana; after which either party may move to re-open the case. Until these and other issues are determined, we are not able to reasonably estimate the extent of our potential liability, if any. We will continue to vigorously defend this case.
Louisiana Landowner Coastal Erosion Litigation
Beginning in January 2015, several private landowners in Louisiana, as Plaintiffs, filed separate lawsuits in state district courts in Louisiana against a number of oil and gas pipeline companies, including 23 cases against TGP, 2 cases against SNG, and 2 cases1 case against both TGP and SNG. In these cases, the Plaintiffs allege that the defendants failed to properly maintain pipeline canals and canal banks on their property, which caused the canals to erode and widen and resulted in substantial land loss, including significant damage to the ecology and hydrology of the affected property, and damage to timber and wildlife. The plaintiffsPlaintiffs allege the defendants’ conduct constitutes a breach of the subject right of way agreements, is inconsistent with prudent operating practices, violates Louisiana law, and that defendants’ failure to maintain canals and canal banks constitutes negligence and trespass. The plaintiffs seek, among other relief, unspecified money damages, attorney fees,
interest, and payment of costs necessary to return the canals and canal banks to their as-built conditions and restore and remediate the affected property. The plaintiffsPlaintiffs also seek a declaration that the defendants are obligated to take steps to maintain canals and canal banks going forward. One of these cases filed by Vintage Assets, Inc. and several landowners against SNG, TGP, and another defendant was tried in 2017 to the U.S. District Court for the Eastern District of Louisiana. On May 4, 2018, the U.S. District Court entered a judgment ruling in favor of the plaintiffs on certain of their contract claims. The Court stayed the judgment pending appeal. The parties each filed a separate appeal to the U.S. Court of Appeals for the Fifth Circuit. In October 2018, the Court of Appeals dismissed the appeals for lack of subject matter jurisdiction. In April 2019, the case was remanded to the state district court for Plaquemines Parish, Louisiana for further proceedings. On October 2, 2020, the case was settled for an amount which is not material to our business. We will continue to vigorously defend the remaining cases.
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 September 30, 2020March 31, 2021 and December 31, 2019,2020, we have accrued a total reserve for environmental liabilities in the amount of $253$256 million and $259$250 million, respectively. In addition, as of September 30, 2020both March 31, 2021 and December 31, 2019,2020, we have recordedhad a receivable of $12 million and $15 million, respectively,recorded for expected cost recoveries that have been deemed probable.
10. Recent Accounting Pronouncements
ASU No. 2018-14
On August 28, 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU amends existing annual disclosure requirements applicable to all employers that sponsor defined benefit pension and other postretirement plans by adding, removing, and clarifying certain disclosures. ASU No. 2018-14 will be effective for us for the fiscal year ending December 31, 2020, and earlier adoption is permitted. We are currently reviewing the effect of this ASU to our financial statements.
ASU No. 2020-04Reference Rate Reform (Topic 848)
On March 12, 2020, the FASB issued ASUAccounting Standards Update (ASU) No. 2020-04, “Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by this reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met.
On January 7, 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that all derivative instruments affected by changes to the interest rates used for discounting, margining or contract price alignment (the “Discounting Transition”) are in the scope of ASC 848 and therefore qualify for the available temporary optional expedients and exceptions. As such, entities that employ derivatives that are the designated hedged item in a hedge relationship where perfect effectiveness is assumed can continue to apply hedge accounting without de-designating the hedging relationship to the extent such derivatives are impacted by the Discounting Transition.
The guidance is effective upon issuance and generally can be applied through December 31, 2022. We are currently reviewing the effect of this ASUTopic 848 to our financial statements.
ASU No. 2020-06
On August 5, 2020, the FASB issued ASU No. 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This ASU (i) simplifies an issuer’s accounting for convertible instruments by eliminating two of the three models in ASC 470-20 that require separate accounting for embedded conversion features,features; (ii) amends diluted EPS calculations for convertible instruments by requiring the use of the if-converted methodmethod; and (iii) simplifies the settlement assessment entities are required to perform on contracts that can potentially settle in an entity’s own equity by removing certain requirements. ASU No. 2020-06 will be effective for us for the fiscal year ending December 31, 2021,beginning January 1, 2022, and earlier adoption is permitted. We are currently reviewing the effect of this ASU to our financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General and Basis of Presentation
The following discussion and analysis should be read in conjunction with our accompanying interim consolidated financial statements and related notes included elsewhere in this report, and in conjunction with (i) our consolidated financial statements and related notes andnotes; (ii) our management’s discussion and analysis of financial condition and results of operations included in our 20192020 Form 10-K; (iii) “Information Regarding Forward-Looking Statements” at the beginning of this report and in our 2020 Form 10-K; and (iv) “Risk Factors” in our 2020 Form 10-K.
Sale of U.S. Portion of Cochin Pipeline and KMLan Interest in NGPL Holdings LLC
On December 16, 2019,March 8, 2021, we closed on two cross-conditional transactions resulting inand Brookfield Infrastructure Partners L.P. (Brookfield) completed the sale of the U.S. portion of the Cochin Pipeline and all the outstanding equity of KML, includinga combined 25% interest in our 70% interest,joint venture, NGPL Holdings LLC (NGPL Holdings), to Pembina Pipeline Corporation (Pembina) (together, the “KML and U.S. Cochin Sale”)a fund controlled by ArcLight Capital Partners, LLC (ArcLight). We received approximately 25net proceeds of $413 million shares of Pembina common equity for our proportionate share of the interests sold which included the transfer of $125 million of our $500 million related party promissory note receivable from NGPL Holdings to ArcLight with quarterly interest payments at 6.75%. We recognized a pre-tax gain of $206 million for our proportionate share, which is included within “Other, net” in our accompanying consolidated statement of operations for the three months ended March 31, 2021. Upon closing, we and Brookfield each hold a 37.5% interest in KML. On January 9, 2020, we sold our Pembina shares and received proceeds of approximately $907 million ($764 million after tax) which were used to repay maturing debt. The assets sold were part of our Natural Gas Pipelines and Terminals business segments.NGPL Holdings.
COVID-19February 2021 Winter Storm
The COVID-19 pandemic-related reduction in energy demand and the dramatic decline in commodity prices that began to impact us in theOur first quarter of 2020 continued to cause disruptions and volatility. Sharp declines in crude oil and natural gas production along with reduced demand for refined products due to the economic shutdown in the wakeearnings reflect impacts of the pandemic alsoFebruary 2021 winter storm that affected our business in the second quarter and continues to do so. Further, significant uncertainty remains regarding the duration and extentTexas, which are largely nonrecurring. See “—Segment Earnings Results” below. Some of the impacttransactions executed during the winter storm remain subject to risks, including counterparty financial risk, potential disputed purchases and sales and potential legislative or regulatory action in response to, or litigation arising out of, the pandemic onunprecedented circumstances of the energy industry, including demandwinter storm, which could adversely affect our future earnings, cash flows and prices for the products handled by our pipelines, terminals, shipping vessels and other facilities.financial condition.
The events as described above resulted in decreases of current2021 Dividends and estimated long-term crude oil and NGL sale prices and volumes we expect to realize and in significant reductions to the market capitalization of many midstream and oil and gas producing companies. These events triggered us to review the carrying value of our long-lived assets and recoverability of goodwill as of March 31, 2020 and impacted our annual goodwill testing performed as of May 31, 2020. Our evaluations resulted in the recognition during the first six months of 2020 of a $350 million impairment for long-lived assets in our CO2 business segment and goodwill impairments of $1,000 million and $600 million to our Natural Gas Pipelines Non-Regulated and CO2 reporting units, respectively. For a further discussion of these impairments and our risk for future impairments, see Note 2, “Impairments.”Discretionary Capital
We have placed a priority on protecting our employees during this pandemic while continuing to provide essential services to our customers. We continue to follow the Centers for Disease Control guidelines for those employees that perform essential tasks in our operations and have taken a cautious enterprise-wide approach with a phased return to workplace process for our employees who are currently working remotely. During the nine months ended September 30, 2020, our incremental employee safety costs associated with COVID-19 mitigation have been approximately $11 million, primarily for personal protective equipment, enhanced cleaning protocols, temperature screening and other measures we adopted to protect our employees. We continue to operate our assets safely and efficiently during this challenging period.
2020 Outlook
As previously announced, for 2020 our original budget contemplated DCF of approximately $5.1 billion ($2.24 per common share) and Adjusted EBITDA of approximately $7.6 billion. We now expect DCF to be below plan by slightly more than 10% and Adjusted EBITDA to be below plan by slightly more than 8%. As a result, we now expect to enddeclare dividends of $1.08 per share for 2021, a 3% increase from the 2020 with a Net Debt-to-Adjusted EBITDA ratiodeclared dividends of approximately 4.6 times.
Market conditions$1.05 per share. We also negatively impacted a number of planned expansion projects such that they are not needed at this time or no longer meet our internal return thresholds. We therefore expect the budgeted $2.4to invest $0.8 billion in expansion projects and contributions to joint ventures for 2020 to be lower by approximately $680 million. With this reduction, DCF less expansion capital expenditures is improved by approximately $135 million compared to budget, helping to keep our balance sheet strong. In addition, to help preserve flexibility and maintain balance sheet strength, our board of directors has maintained the dividend level and declared a dividend of $0.2625 per share, or $1.05 per share annualized, for the third quarter of 2020. This represents a 5% increase over the dividend declared for the third quarter of 2019 rather than the previously budgeted dividend of $0.3125,
which would have been a 25% increase. We expect that our 2020 dividend payments as well as our 2020 discretionary spending will be fully funded with internally generated cash flow.during 2021.
We do not provide budgeted net income attributable to Kinder Morgan, Inc. or budgeted net income, the GAAP financial measures most directly comparable to the non-GAAP financial measures of DCF and Adjusted EBITDA, respectively, due to the impracticality of quantifying certain components required by GAAP such as: unrealized gains and losses on derivatives marked-to-market and potential changes in estimates for certain contingent liabilities. See “—Results of Operations—Overview—Non-GAAP Financial Measures”below.
Considerable uncertainty exists with respect to the future pace and extent of a global economic recovery from the effects of the COVID-19 pandemic. Our updatedThe expectations for 20202021 discussed above involve risks, uncertainties and assumptions, and are not guarantees of performance. Many of the factors that will determine these expectations are beyond our ability to control or predict, and because of these uncertainties, it is advisable not to put undue reliance on any forward-looking statements. Please read Part II, Item 1A. “Risk Factors”below and “Information Regarding Forward-Looking Statements”at the beginning of this report for more information.statement. Furthermore, we disclaim any obligation, other than as required by applicable law,plan to publicly update or revise any of our forward-looking statementsprovide updates to reflect future events or developments.these 2021 expectations when we believe previously disclosed expectations no longer have a reasonable basis.
Results of Operations
Overview
As described in further detail below, our management evaluates our performance primarily using the GAAP financial measures of Segment EBDA (as presented in Note 7, “Reportable Segments”), net income (loss) and net income (loss) attributable to Kinder Morgan, Inc., along with the non-GAAP financial measures of Adjusted Earnings and DCF, both in the aggregate and per share for each, Adjusted Segment EBDA, Adjusted EBITDA, Net Debt and Net Debt to Adjusted EBITDA.
GAAP Financial Measures
The Consolidated Earnings Results for the three and nine months ended September 30,March 31, 2021 and 2020 and 2019 present Segment EBDA net income (loss) and net income (loss) attributable to Kinder Morgan, Inc. which are prepared and presented in accordance with GAAP. Segment EBDA is a useful measure of our operating performance because it measures the operating results of our segments before DD&A and certain expenses that are generally not controllable by our business segment operating managers, such as general and administrative expenses and corporate charges, interest expense, net, and income taxes. Our general and administrative expenses and corporate charges include such items as unallocated employee benefits, insurance, rentals, unallocated litigation and environmental expenses, and shared corporate services including accounting, information technology, human resources and legal services.
Non-GAAP Financial Measures
Our non-GAAP financial measures described below should not be considered alternatives to GAAP net income (loss) attributable to Kinder Morgan, Inc. or other GAAP measures and have important limitations as analytical tools. Our computations of these non-GAAP financial measures may differ from similarly titled measures used by others. You should not consider these non-GAAP financial measures in isolation or as substitutes for an analysis of our results as reported under GAAP. Management compensates for the limitations of these non-GAAP financial measures by reviewing our comparable GAAP measures, understanding the differences between the measures and taking this information into account in its analysis and its decision making processes.
Certain Items
Certain Items, as adjustments used to calculate our non-GAAP financial measures, are items that are required by GAAP to be reflected in net income (loss) attributable to Kinder Morgan, Inc., but typically either (i) do not have a cash impact (for example, asset impairments), or (ii) by their nature are separately identifiable from our normal business operations and in our view are likely to occur only sporadically (for example, certain legal settlements, enactment of new tax legislation and casualty losses). We also include adjustments related to joint ventures (see “Amounts from Joint Ventures” below and the tables included in “—Consolidated Earnings Results (GAAP)—Certain Items Affecting Consolidated Earnings Results,” “—Non-GAAP Financial Measures—Reconciliation of Net Income (Loss) Attributable to Kinder Morgan, Inc. (GAAP) to Adjusted EBITDA” and “—Non-GAAP Financial Measures—Supplemental Information” below). In addition, Certain Items are described in more detail in the footnotes to tables included in “—Segment Earnings Results” and “—DD&A, General and Administrative and Corporate Charges, Interest, net, and Noncontrolling Interests” below.
Adjusted Earnings
Adjusted Earnings is calculated by adjusting net income (loss) attributable to Kinder Morgan, Inc. for Certain Items. Adjusted Earnings is used by us and certain external users of our financial statements to assess the earnings of our business excluding Certain Items as another reflection of the Company’sour ability to generate earnings. We believe the GAAP measure most directly comparable to Adjusted Earnings is net income (loss) attributable to Kinder Morgan, Inc. Adjusted Earnings per share uses Adjusted Earnings and applies the same two-class method used in arriving at basic earnings (loss) per common share. See “—Non-GAAP Financial Measures—Reconciliation of Net Income (Loss) Attributable to Kinder Morgan, Inc. (GAAP) to Adjusted Earnings to DCF” below.
DCF
DCF is calculated by adjusting net income (loss) attributable to Kinder Morgan, Inc. for Certain Items (Adjusted Earnings), and further by DD&A and amortization of excess cost of equity investments, income tax expense, cash taxes, sustaining capital expenditures and other items. We also include amounts from joint ventures for income taxes, DD&A and sustaining capital expenditures (see “Amounts from Joint Ventures” below). DCF is a significant performance measure useful to management and external users of our financial statements in evaluating our performance and in measuring and estimating the ability of our assets to generate cash earnings after servicing our debt, paying cash taxes and expending sustaining capital, that could be used for discretionary purposes such as common stock dividends, stock repurchases, retirement of debt, or expansion capital expenditures. DCF should not be used as an alternative to net cash provided by operating activities computed under GAAP. We believe the GAAP measure most directly comparable to DCF is net income (loss) attributable to Kinder Morgan, Inc. DCF per common share is DCF divided by average outstanding common shares, including restricted stock awards that participate in common share dividends. See “—Non-GAAP Financial Measures—Reconciliation of Net Income (Loss) Attributable to Kinder Morgan, Inc. (GAAP) to Adjusted Earnings to DCF” and “—Adjusted Segment EBDA to Adjusted EBITDA to DCF” below.
Adjusted Segment EBDA
Adjusted Segment EBDA is calculated by adjusting Segment EBDA for Certain Items attributable to the segment. Adjusted Segment EBDA is used by management in its analysis of segment performance and management of our business. We believe Adjusted Segment EBDA is a useful performance metric because it provides management and external users of our financial statements additional insight into the ability of our segments to generate segment cash earnings on an ongoing basis. We believe it is useful to investors because it is a measure that management uses to allocate resources to our segments and assess each segment’s performance. We believe the GAAP measure most directly comparable to Adjusted Segment EBDA is Segment EBDA. See “—Consolidated Earnings Results (GAAP)—Certain Items Affecting Consolidated Earnings Results” for a reconciliation of Segment EBDA to Adjusted Segment EBDA by business segment.
Adjusted EBITDA
Adjusted EBITDA is calculated by adjusting EBITDA for Certain Items. We also include amounts from joint ventures for income taxes and DD&A (see “Amounts from Joint Ventures” below). Adjusted EBITDA is used by management and external users, in conjunction with our Net Debt (as described further below), to evaluate certain leverage metrics. Therefore, we believe Adjusted EBITDA is useful to investors. We believe the GAAP measure most directly comparable to Adjusted EBITDA is net income (loss). attributable to Kinder Morgan, Inc. In prior periods Net income (loss) was considered the comparable GAAP measure and has been updated to Net income (loss) attributable to Kinder Morgan, Inc. for consistency with our other non-GAAP performance measures. See “—Adjusted Segment EBDA to Adjusted EBITDA to DCF” and “—Non-GAAP Financial Measures—Reconciliation of Net Income (Loss) Attributable to Kinder Morgan, Inc. (GAAP) to Adjusted EBITDA” below.
Amounts from Joint Ventures
Certain Items, DCF and Adjusted EBITDA reflect amounts from unconsolidated joint ventures and consolidated joint ventures utilizing the same recognition and measurement methods used to record “Earnings from equity investments” and “Noncontrolling interests,” respectively. The calculations of DCF and Adjusted EBITDA related to our unconsolidated and consolidated joint ventures include the same items (DD&A and income tax expense, and for DCF only, also cash taxes and sustaining capital expenditures) with respect to the joint ventures as those included in the calculations of DCF and Adjusted EBITDA for our wholly-owned consolidated subsidiaries. (See “—Non-GAAP Financial Measures—Supplemental Information” below.) Although these amounts related to our unconsolidated joint ventures are included in the calculations of DCF and Adjusted EBITDA, such inclusion should not be understood to imply that we have control over the operations and resulting revenues, expenses or cash flows of such unconsolidated joint ventures. DCF and Adjusted EBITDA are further adjusted for certain KML activities attributable to our noncontrolling interests in KML for the periods presented through KML’s sale on December 16, 2019 (See “—Non-GAAP Financial Measures—Supplemental Information, KML Activities Prior to December 16, 2019” below.)
Net Debt
Net Debt is calculated, based on amounts as of March 31, 2021, by subtracting the following amounts from our debt balance of $33,234 million: (i) cash and cash equivalents;equivalents of $1,377 million; (ii) the preferred interest in the general partner of KMP (which was redeemed in January 2020); (iii) debt fair value adjustments;adjustments of $1,054 million; and (iv)(iii) the foreign exchange impact on Euro-denominated bonds of $109 million for which we have entered into currency swaps. Net Debt is a non-GAAP financial measure that is useful to investors and other users of our financial information in evaluating our leverage. We believe the most comparable measure to Net Debt is debt net of cash and cash equivalents. Our Net Debt-to-Adjusted EBITDA ratio was 4.6 as of September 30, 2020.
Consolidated Earnings Results (GAAP)
The following tables summarize the key components of our consolidated earnings results.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | | | |
| 2020 | | 2019 | | Earnings increase/(decrease) | | |
| (In millions, except percentages) | | | | | | |
Segment EBDA(a) | | | | | | | |
Natural Gas Pipelines | $ | 1,091 | | | $ | 1,092 | | | $ | (1) | | | — | % |
Products Pipelines | 223 | | | 325 | | | (102) | | | (31) | % |
Terminals | 246 | | | 295 | | | (49) | | | (17) | % |
CO2 | 156 | | | 164 | | | (8) | | | (5) | % |
| | | | | | | |
| | | | | | | |
Total Segment EBDA | 1,716 | | | 1,876 | | | (160) | | | (9) | % |
DD&A | (539) | | | (578) | | | 39 | | | 7 | % |
Amortization of excess cost of equity investments | (32) | | | (21) | | | (11) | | | (52) | % |
| | | | | | | |
General and administrative and corporate charges | (150) | | | (162) | | | 12 | | | 7 | % |
| | | | | | | |
Interest, net | (383) | | | (447) | | | 64 | | | 14 | % |
Income before income taxes | 612 | | | 668 | | | (56) | | | (8) | % |
Income tax expense | (140) | | | (151) | | | 11 | | | 7 | % |
| | | | | | | |
| | | | | | | |
Net income | 472 | | | 517 | | | (45) | | | (9) | % |
Net income attributable to noncontrolling interests | (17) | | | (11) | | | (6) | | | (55) | % |
Net income attributable to Kinder Morgan, Inc. | $ | 455 | | | $ | 506 | | | $ | (51) | | | (10) | % |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | | | |
| 2020 | | 2019 | | Earnings increase/(decrease) | | |
| (In millions, except percentages) | | | | | | |
Segment EBDA(a) | | | | | | | |
Natural Gas Pipelines | $ | 2,284 | | | $ | 3,383 | | | $ | (1,099) | | | (32) | % |
Products Pipelines | 719 | | | 908 | | | (189) | | | (21) | % |
Terminals | 732 | | | 884 | | | (152) | | | (17) | % |
CO2 | (453) | | | 558 | | | (1,011) | | | (181) | % |
Kinder Morgan Canada | — | | | (2) | | | 2 | | | 100 | % |
| | | | | | | |
Total Segment EBDA | 3,282 | | | 5,731 | | | (2,449) | | | (43) | % |
DD&A | (1,636) | | | (1,750) | | | 114 | | | 7 | % |
Amortization of excess cost of equity investments | (99) | | | (61) | | | (38) | | | (62) | % |
| | | | | | | |
General and administrative and corporate charges | (472) | | | (478) | | | 6 | | | 1 | % |
| | | | | | | |
Interest, net | (1,214) | | | (1,359) | | | 145 | | | 11 | % |
(Loss) income before income taxes | (139) | | | 2,083 | | | (2,222) | | | (107) | % |
Income tax expense | (304) | | | (471) | | | 167 | | | 35 | % |
| | | | | | | |
| | | | | | | |
Net (loss) income | (443) | | | 1,612 | | | (2,055) | | | (127) | % |
Net income attributable to noncontrolling interests | (45) | | | (32) | | | (13) | | | (41) | % |
Net (loss) income attributable to Kinder Morgan, Inc. | $ | (488) | | | $ | 1,580 | | | $ | (2,068) | | | (131) | % |
| | | | | | | |
| | | | | | | |
_______ | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | Earnings increase/(decrease) |
| (In millions, except percentages) |
Segment EBDA(a) | | | | | | | |
Natural Gas Pipelines | $ | 2,103 | | | $ | 1,196 | | | $ | 907 | | | 76 | % |
Products Pipelines | 248 | | | 269 | | | (21) | | | (8) | % |
Terminals | 227 | | | 257 | | | (30) | | | (12) | % |
CO2 | 286 | | | (755) | | | 1,041 | | | 138 | % |
| | | | | | | |
| | | | | | | |
Total Segment EBDA | 2,864 | | | 967 | | | 1,897 | | | 196 | % |
DD&A | (541) | | | (565) | | | 24 | | | 4 | % |
Amortization of excess cost of equity investments | (22) | | | (32) | | | 10 | | | 31 | % |
| | | | | | | |
General and administrative and corporate charges | (148) | | | (165) | | | 17 | | | 10 | % |
| | | | | | | |
Interest, net | (377) | | | (436) | | | 59 | | | 14 | % |
Income (loss) before income taxes | 1,776 | | | (231) | | | 2,007 | | | 869 | % |
Income tax expense | (351) | | | (60) | | | (291) | | | (485) | % |
| | | | | | | |
| | | | | | | |
Net income (loss) | 1,425 | | | (291) | | | 1,716 | | | 590 | % |
Net income attributable to noncontrolling interests | (16) | | | (15) | | | (1) | | | (7) | % |
Net income (loss) attributable to Kinder Morgan, Inc. | $ | 1,409 | | | $ | (306) | | | $ | 1,715 | | | 560 | % |
| | | | | | | |
| | | | | | | |
(a)Includes revenues, earnings from equity investments, and other, net, less operating expenses, (gain) loss (gain) on impairmentsdivestitures and divestitures,impairments, net, and other (income) expense,income, net. Operating expenses include costs of sales, operations and maintenance expenses, and taxes, other than income taxes.
IncomeNet income (loss) before income taxes decreased $56attributable to Kinder Morgan, Inc. increased $1,715 million and $2,222 million for the three and nine months ended September 30, 2020, respectively, asin 2021 compared to the respective prior year periods.2020. The decreasesincrease in results were impacted by lowerhigher earnings from our Products Pipelines and Terminals in the comparative three-month periods and from all of our business segments in the comparative nine-month periods primarily attributable to COVID-19-related reduced energy demand and commodity price impacts and the impact of the KML and U.S. Cochin Sale in the fourth quarter of 2019 on our Natural Gas Pipelines and Terminals CO2 business segments partially offset byprimarily related to the benefit of completed expansion projects in our Natural Gas Pipelines business segmentFebruary 2021 winter storm and by lower interest expense and DD&A expense. The year-to-date decrease also includedtherefore largely nonrecurring, a combined $1.95 billion$950 million of non-cash impairments of goodwill associated with our Natural Gas Pipelines Non-Regulated and CO2 reporting unitsunit and non-cash impairments of certain oil and gas producing assets in our CO2 business segment.segment recognized in 2020, lower interest expense and DD&A expense, partially offset by lower earnings from our Terminals and Products Pipelines business segments.
Certain Items Affecting Consolidated Earnings Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | | | | | | | | | |
| 2020 | | | | | | 2019 | | | | | | |
| GAAP | | Certain Items | | Adjusted | | GAAP | | Certain Items | | Adjusted | | Adjusted amounts increase/(decrease) to earnings |
| (In millions) | | | | | | | | | | | | |
Segment EBDA | | | | | | | | | | | | | |
Natural Gas Pipelines | $ | 1,091 | | | $ | (9) | | | $ | 1,082 | | | $ | 1,092 | | | $ | (2) | | | $ | 1,090 | | | $ | (8) | |
Products Pipelines | 223 | | | 46 | | | 269 | | | 325 | | | 11 | | | 336 | | | (67) | |
Terminals | 246 | | | — | | | 246 | | | 295 | | | — | | | 295 | | | (49) | |
CO2 | 156 | | | (2) | | | 154 | | | 164 | | | (15) | | | 149 | | | 5 | |
| | | | | | | | | | | | | |
Total Segment EBDA(a) | 1,716 | | | 35 | | | 1,751 | | | 1,876 | | | (6) | | | 1,870 | | | (119) | |
DD&A and amortization of excess cost of equity investments | (571) | | | — | | | (571) | | | (599) | | | — | | | (599) | | | 28 | |
General and administrative and corporate charges(a) | (150) | | | 11 | | | (139) | | | (162) | | | 5 | | | (157) | | | 18 | |
Interest, net(a) | (383) | | | (8) | | | (391) | | | (447) | | | (5) | | | (452) | | | 61 | |
Income before income taxes | 612 | | | 38 | | | 650 | | | 668 | | | (6) | | | 662 | | | (12) | |
Income tax expense(b) | (140) | | | (8) | | | (148) | | | (151) | | | 8 | | | (143) | | | (5) | |
Net income | 472 | | | 30 | | | 502 | | | 517 | | | 2 | | | 519 | | | (17) | |
Net income attributable to noncontrolling interests(a) | (17) | | | — | | | (17) | | | (11) | | | — | | | (11) | | | (6) | |
| | | | | | | | | | | | | |
Net income attributable to Kinder Morgan, Inc. | $ | 455 | | | $ | 30 | | | $ | 485 | | | $ | 506 | | | $ | 2 | | | $ | 508 | | | $ | (23) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | | | | | | | | | |
| 2020 | | | | | | 2019 | | | | | | |
| GAAP | | Certain Items | | Adjusted | | GAAP | | Certain Items | | Adjusted | | Adjusted amounts increase/(decrease) to earnings |
| (In millions) | | | | | | | | | | | | |
Segment EBDA | | | | | | | | | | | | | |
Natural Gas Pipelines | $ | 2,284 | | | $ | 993 | | | $ | 3,277 | | | $ | 3,383 | | | $ | (21) | | | $ | 3,362 | | | $ | (85) | |
Products Pipelines | 719 | | | 50 | | | 769 | | | 908 | | | 28 | | | 936 | | | (167) | |
Terminals | 732 | | | — | | | 732 | | | 884 | | | — | | | 884 | | | (152) | |
CO2 | (453) | | | 938 | | | 485 | | | 558 | | | (36) | | | 522 | | | (37) | |
Kinder Morgan Canada | — | | | — | | | — | | | (2) | | | 2 | | | — | | | — | |
Total Segment EBDA(a) | 3,282 | | | 1,981 | | | 5,263 | | | 5,731 | | | (27) | | | 5,704 | | | (441) | |
DD&A and amortization of excess cost of equity investments | (1,735) | | | — | | | (1,735) | | | (1,811) | | | — | | | (1,811) | | | 76 | |
General and administrative and corporate charges(a) | (472) | | | 36 | | | (436) | | | (478) | | | 11 | | | (467) | | | 31 | |
Interest, net(a) | (1,214) | | | (8) | | | (1,222) | | | (1,359) | | | (6) | | | (1,365) | | | 143 | |
(Loss) income before income taxes | (139) | | | 2,009 | | | 1,870 | | | 2,083 | | | (22) | | | 2,061 | | | (191) | |
Income tax expense(b) | (304) | | | (114) | | | (418) | | | (471) | | | 15 | | | (456) | | | 38 | |
Net (loss) income | (443) | | | 1,895 | | | 1,452 | | | 1,612 | | | (7) | | | 1,605 | | | (153) | |
Net income attributable to noncontrolling interests(a) | (45) | | | — | | | (45) | | | (32) | | | (1) | | | (33) | | | (12) | |
| | | | | | | | | | | | | |
Net (loss) income attributable to Kinder Morgan, Inc. | $ | (488) | | | $ | 1,895 | | | $ | 1,407 | | | $ | 1,580 | | | $ | (8) | | | $ | 1,572 | | | $ | (165) | |
_______ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | |
| GAAP | | Certain Items | | Adjusted | | GAAP | | Certain Items | | Adjusted | | Adjusted amounts increase/(decrease) to earnings |
| (In millions) |
Segment EBDA | | | | | | | | | | | | | |
Natural Gas Pipelines | $ | 2,103 | | | $ | (9) | | | $ | 2,094 | | | $ | 1,196 | | | $ | (17) | | | $ | 1,179 | | | $ | 915 | |
Products Pipelines | 248 | | | 15 | | | 263 | | | 269 | | | 4 | | | 273 | | | (10) | |
Terminals | 227 | | | — | | | 227 | | | 257 | | | — | | | 257 | | | (30) | |
CO2 | 286 | | | 5 | | | 291 | | | (755) | | | 930 | | | 175 | | | 116 | |
| | | | | | | | | | | | | |
Total Segment EBDA(a) | 2,864 | | | 11 | | | 2,875 | | | 967 | | | 917 | | | 1,884 | | | 991 | |
DD&A and amortization of excess cost of equity investments | (563) | | | — | | | (563) | | | (597) | | | — | | | (597) | | | 34 | |
General and administrative and corporate charges(a) | (148) | | | — | | | (148) | | | (165) | | | 25 | | | (140) | | | (8) | |
Interest, net(a) | (377) | | | (6) | | | (383) | | | (436) | | | 1 | | | (435) | | | 52 | |
Income (loss) before income taxes | 1,776 | | | 5 | | | 1,781 | | | (231) | | | 943 | | | 712 | | | 1,069 | |
Income tax expense(b) | (351) | | | (40) | | | (391) | | | (60) | | | (96) | | | (156) | | | (235) | |
Net income (loss) | 1,425 | | | (35) | | | 1,390 | | | (291) | | | 847 | | | 556 | | | 834 | |
Net income attributable to noncontrolling interests(a) | (16) | | | — | | | (16) | | | (15) | | | — | | | (15) | | | (1) | |
| | | | | | | | | | | | | |
Net income (loss) attributable to Kinder Morgan, Inc. | $ | 1,409 | | | $ | (35) | | | $ | 1,374 | | | $ | (306) | | | $ | 847 | | | $ | 541 | | | $ | 833 | |
(a)For a more detailed discussion of Certain Items, see the footnotes to the tables within “—Segment Earnings Results” and “—DD&A, General and Administrative and Corporate Charges, Interest, net and Noncontrolling Interests” below.
(b)The combined net effect of the Certain Items represents the income tax provision on Certain Items plus discrete income tax items.
Net income (loss) attributable to Kinder Morgan, Inc. adjusted for Certain Items (Adjusted Earnings) decreasedincreased by $23$833 million and $165 million for the three and nine months ended September 30, 2020, respectively, asin 2021 compared to the respective prior year periods. Decreases2020. The increase in Adjusted Segment EBDA from the prior quarter and year-to-date periods were primarily due to lowerwas impacted by higher earnings from our Products Pipelines, Terminals and Natural Gas Pipelines business segments primarily attributable to COVID-19-related reduced energy demand and commodity price impacts discussed above and the impact of the KML and U.S. Cochin Sale in the fourth quarter of 2019 on our Natural Gas Pipelines and TerminalsCO2 business segments primarily related to the February 2021 winter storm, and therefore largely nonrecurring, and lower interest expense and DD&A expense partially offset by the benefit of completed expansion projects inlower earnings from our Natural GasTerminals and Products Pipelines business segment.segments.
Non-GAAP Financial Measures
Reconciliation of Net Income (Loss) Attributable to Kinder Morgan, Inc. (GAAP) to Adjusted Earnings to DCF
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | Three Months Ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 |
| | (In millions) | | | | (In millions) |
Net income (loss) attributable to Kinder Morgan, Inc. (GAAP) | Net income (loss) attributable to Kinder Morgan, Inc. (GAAP) | $ | 455 | | | $ | 506 | | | $ | (488) | | | $ | 1,580 | | Net income (loss) attributable to Kinder Morgan, Inc. (GAAP) | | $ | 1,409 | | | $ | (306) | |
Total Certain Items | Total Certain Items | 30 | | | 2 | | | 1,895 | | | (8) | | Total Certain Items | | (35) | | | 847 | |
Adjusted Earnings(a) | Adjusted Earnings(a) | 485 | | | 508 | | | 1,407 | | | 1,572 | | Adjusted Earnings(a) | | 1,374 | | | 541 | |
DD&A and amortization of excess cost of equity investments for DCF(b) | DD&A and amortization of excess cost of equity investments for DCF(b) | 662 | | | 694 | | | 2,012 | | | 2,093 | | DD&A and amortization of excess cost of equity investments for DCF(b) | | 638 | | | 691 | |
Income tax expense for DCF(a)(b) | Income tax expense for DCF(a)(b) | 171 | | | 164 | | | 484 | | | 521 | | Income tax expense for DCF(a)(b) | | 419 | | | 181 | |
Cash taxes(c)(b) | Cash taxes(c)(b) | (49) | | | (12) | | | (57) | | | (76) | | Cash taxes(c)(b) | | 1 | | | (3) | |
Sustaining capital expenditures(c)(b) | Sustaining capital expenditures(c)(b) | (177) | | | (173) | | | (477) | | | (477) | | Sustaining capital expenditures(c)(b) | | (107) | | | (141) | |
Other items(d)(c) | Other items(d)(c) | (7) | | | (41) | | | (22) | | | 6 | | Other items(d)(c) | | 4 | | | (8) | |
DCF | DCF | $ | 1,085 | | | $ | 1,140 | | | $ | 3,347 | | | $ | 3,639 | | DCF | | $ | 2,329 | | | $ | 1,261 | |
Adjusted Segment EBDA to Adjusted EBITDA to DCF
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (In millions, except per share amounts) | | | | | | |
Natural Gas Pipelines | $ | 1,082 | | | $ | 1,090 | | | $ | 3,277 | | | $ | 3,362 | |
Products Pipelines | 269 | | | 336 | | | 769 | | | 936 | |
Terminals | 246 | | | 295 | | | 732 | | | 884 | |
CO2 | 154 | | | 149 | | | 485 | | | 522 | |
| | | | | | | |
Adjusted Segment EBDA(a) | 1,751 | | | 1,870 | | | 5,263 | | | 5,704 | |
General and administrative and corporate charges(a) | (139) | | | (157) | | | (436) | | | (467) | |
Joint venture DD&A and income tax expense(a)(e) | 114 | | | 123 | | | 343 | | | 368 | |
Net income attributable to noncontrolling interests (net of KML noncontrolling interests and Certain Items)(a) | (17) | | | (2) | | | (45) | | | (7) | |
Adjusted EBITDA | 1,709 | | | 1,834 | | | 5,125 | | | 5,598 | |
Interest, net(a) | (391) | | | (452) | | | (1,222) | | | (1,365) | |
Cash taxes(c) | (49) | | | (12) | | | (57) | | | (76) | |
Sustaining capital expenditures(c) | (177) | | | (173) | | | (477) | | | (477) | |
KML noncontrolling interests DCF adjustments(f) | — | | | (16) | | | — | | | (47) | |
| | | | | | | |
Other items(d) | (7) | | | (41) | | | (22) | | | 6 | |
DCF | $ | 1,085 | | | $ | 1,140 | | | $ | 3,347 | | | $ | 3,639 | |
| | | | | | | |
Adjusted Earnings per common share | $ | 0.21 | | | $ | 0.22 | | | $ | 0.62 | | | $ | 0.69 | |
Weighted average common shares outstanding for dividends(g) | 2,276 | | | 2,277 | | | 2,276 | | | 2,276 | |
DCF per common share | $ | 0.48 | | | $ | 0.50 | | | $ | 1.47 | | | $ | 1.60 | |
Declared dividends per common share | $ | 0.2625 | | | $ | 0.25 | | | $ | 0.7875 | | | $ | 0.75 | |
_______ | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | (In millions, except per share amounts) |
Natural Gas Pipelines | | | | | $ | 2,094 | | | $ | 1,179 | |
Products Pipelines | | | | | 263 | | | 273 | |
Terminals | | | | | 227 | | | 257 | |
CO2 | | | | | 291 | | | 175 | |
| | | | | | | |
Adjusted Segment EBDA(a) | | | | | 2,875 | | | 1,884 | |
General and administrative and corporate charges(a) | | | | | (148) | | | (140) | |
Joint venture DD&A and income tax expense(a)(b) | | | | | 103 | | | 119 | |
Net income attributable to noncontrolling interests(a) | | | | | (16) | | | (15) | |
Adjusted EBITDA | | | | | 2,814 | | | 1,848 | |
Interest, net(a) | | | | | (383) | | | (435) | |
Cash taxes(b) | | | | | 1 | | | (3) | |
Sustaining capital expenditures(b) | | | | | (107) | | | (141) | |
| | | | | | | |
| | | | | | | |
Other items(c) | | | | | 4 | | | (8) | |
DCF | | | | | $ | 2,329 | | | $ | 1,261 | |
| | | | | | | |
Adjusted Earnings per share | | | | | $ | 0.60 | | | $ | 0.24 | |
Weighted average shares outstanding for dividends(d) | | | | | 2,277 | | | 2,277 | |
DCF per share | | | | | $ | 1.02 | | | $ | 0.55 | |
Declared dividends per share | | | | | $ | 0.27 | | | $ | 0.2625 | |
(a)Amounts are adjusted for Certain Items. See tables included in “—Reconciliation of Net Income (Loss) Attributable to Kinder Morgan, Inc. (GAAP) to Adjusted EBITDA” and “—Supplemental Information” below.
(b)Includes or represents DD&A, or income tax expense, ascash taxes and/or sustaining capital expenditures (as applicable for each item) from unconsolidated joint ventures, reduced by consolidated joint venture partners’ DD&A. 2019 amounts are also net of DD&A or income tax expense attributable to KML noncontrolling interests.ventures. See tables included in “—Supplemental Information” below.
(c)Includes cash taxes or sustaining capital expenditures, as applicable, from unconsolidated joint ventures, reduced by consolidated joint venture partners’ sustaining capital expenditures. See table included in “—Supplemental Information” below.
(d)Includes non-cash pension expense and non-cash compensation associated with our restricted stock program.program, non-cash pension expense and pension contributions.
(e)Represents unconsolidated joint venture DD&A and income tax expense, reduced by consolidated joint venture partners’ DD&A. See tables included in “—Supplemental Information” below.
(f)2019 amounts represent the combined net income, DD&A and income tax expense adjusted for Certain Items, as applicable, attributable to KML noncontrolling interests. See table included in “—Supplemental Information” below.
(g)(d)Includes restricted stock awards that participate in common share dividends.
Reconciliation of Net Income (Loss) Attributable to Kinder Morgan, Inc. (GAAP) to Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (In millions) | | | | | | |
Net income (loss) (GAAP) | $ | 472 | | | $ | 517 | | | $ | (443) | | | $ | 1,612 | |
Certain Items: | | | | | | | |
Fair value amortization | (5) | | | (7) | | | (17) | | | (22) | |
Legal, environmental and taxes other than income tax reserves | 46 | | | 11 | | | 38 | | | 28 | |
Change in fair value of derivative contracts(a) | (6) | | | (14) | | | (10) | | | (22) | |
Loss (gain) on impairments and divestitures, net(b) | 11 | | | — | | | 382 | | | (5) | |
Loss on impairment of goodwill(c) | — | | | — | | | 1,600 | | | — | |
COVID-19 costs | 11 | | | — | | | 11 | | | — | |
Income tax Certain Items | (8) | | | 8 | | | (114) | | | 15 | |
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Noncontrolling interests associated with Certain Items | — | | | — | | | — | | | (1) | |
Other | (19) | | | 4 | | | 5 | | | (1) | |
Total Certain Items(d) | 30 | | | 2 | | | 1,895 | | | (8) | |
DD&A and amortization of excess cost of equity investments | 571 | | | 599 | | | 1,735 | | | 1,811 | |
Income tax expense(e) | 148 | | | 143 | | | 418 | | | 456 | |
Joint venture DD&A and income tax expense(e)(f) | 114 | | | 123 | | | 343 | | | 368 | |
Interest, net(e) | 391 | | | 452 | | | 1,222 | | | 1,365 | |
Net income attributable to noncontrolling interests (net of KML noncontrolling interests(e)) | (17) | | | (2) | | | (45) | | | (6) | |
Adjusted EBITDA | $ | 1,709 | | | $ | 1,834 | | | $ | 5,125 | | | $ | 5,598 | |
______ | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | (In millions) |
Net income (loss) attributable to Kinder Morgan, Inc. (GAAP)(a) | | | | | $ | 1,409 | | | $ | (306) | |
Certain Items: | | | | | | | |
Fair value amortization | | | | | (4) | | | (8) | |
Legal, environmental and taxes other than income tax reserves | | | | | 84 | | | (8) | |
Change in fair value of derivative contracts(b) | | | | | 14 | | | (36) | |
(Gain) loss on divestitures, impairments and other write-downs, net(c) | | | | | (89) | | | 371 | |
Loss on impairment of goodwill(d) | | | | | — | | | 600 | |
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Income tax Certain Items | | | | | (40) | | | (96) | |
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Other | | | | | — | | | 24 | |
Total Certain Items(e) | | | | | (35) | | | 847 | |
DD&A and amortization of excess cost of equity investments | | | | | 563 | | | 597 | |
Income tax expense(f) | | | | | 391 | | | 156 | |
Joint venture DD&A and income tax expense(f)(g) | | | | | 103 | | | 119 | |
Interest, net(f) | | | | | 383 | | | 435 | |
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Adjusted EBITDA | | | | | $ | 2,814 | | | $ | 1,848 | |
(a)In prior periods, Net income (loss) was considered the comparable GAAP measure and has been updated to Net income (loss) attributable to Kinder Morgan, Inc. for consistency with our other non-GAAP performance measures.
(b)Gains or losses are reflected in our DCF when realized.
(b)(c)Nine months ended September 30,2021 amount includes a pre-tax gain of $206 million associated with the sale of a partial interest in our equity investment in NGPL Holdings, offset partially by a write-down of $117 million on a long-term subordinated note receivable from an equity investee, Ruby. 2020 amount includes a pre-tax non-cash impairment loss of $350 million related to oil and gas producing assets in our CO2 business segment driven by low oil prices and $21 million for asset impairments in our Products Pipelines business segment, which are reported within “Loss (gain)“(Gain) loss on impairmentsdivestitures and divestitures,impairments, net” on our Consolidated Earnings Results (GAAP) table above.the accompanying consolidated statement of operations.
(c)(d)Nine months ended September 30,2020 amount represents a non-cash impairment of goodwill associated with our CO2 reporting unit.
(e)2021 amount includes $117 million and 2020 amount includes non-cash impairments of goodwill of $1,000less than $1 million and $600 million associated with our Natural Gas Pipelines Non-Regulated and our CO2 reporting units, respectively.
(d)Three months ended September 30, 2020 and 2019 amounts include $(4) million and $(2) million, respectively, and nine months ended September 30, 2020 and 2019 amounts include $(4) million and $(15) million, respectively, reported within “Earnings from equity investments” on our consolidated statements of operations.
(e)(f)Amounts are adjusted for Certain Items. See tables included in “—Supplemental Information” and “—DD&A, General and Administrative and Corporate Charges, Interest, net, and Noncontrolling Interests” below.
(f)(g)Represents unconsolidated joint venture DD&A and income tax expense, reduced by consolidated joint venture partners’ DD&A.expense. See tabletables included in “—Supplemental Information” below.
Supplemental Information
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| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (In millions) | | | | | | |
DD&A (GAAP) | $ | 539 | | | $ | 578 | | | $ | 1,636 | | | $ | 1,750 | |
Amortization of excess cost of equity investments (GAAP) | 32 | | | 21 | | | 99 | | | 61 | |
DD&A and amortization of excess cost of equity investments | 571 | | | 599 | | | 1,735 | | | 1,811 | |
Joint venture DD&A | 91 | | | 100 | | | 277 | | | 297 | |
DD&A attributable to KML noncontrolling interests | — | | | (5) | | | — | | | (15) | |
DD&A and amortization of excess cost of equity investments for DCF | $ | 662 | | | $ | 694 | | | $ | 2,012 | | | $ | 2,093 | |
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Income tax expense (GAAP) | $ | 140 | | | $ | 151 | | | $ | 304 | | | $ | 471 | |
Certain Items | 8 | | | (8) | | | 114 | | | (15) | |
Income tax expense(a) | 148 | | | 143 | | | 418 | | | 456 | |
Unconsolidated joint venture income tax expense(a) | 23 | | | 23 | | | 66 | | | 71 | |
Income tax expense attributable to KML noncontrolling interests(a) | — | | | (2) | | | — | | | (6) | |
Income tax expense for DCF(a) | $ | 171 | | | $ | 164 | | | $ | 484 | | | $ | 521 | |
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KML activities prior to December 16, 2019 | | | | | | | |
Net income attributable to KML noncontrolling interests | $ | — | | | $ | 9 | | | $ | — | | | $ | 25 | |
KML noncontrolling interests associated with Certain Items | — | | | — | | | — | | | 1 | |
KML noncontrolling interests(a) | — | | | 9 | | | — | | | 26 | |
DD&A attributable to KML noncontrolling interests | — | | | 5 | | | — | | | 15 | |
Income tax expense attributable to KML noncontrolling interests(a) | — | | | 2 | | | — | | | 6 | |
KML noncontrolling interests DCF adjustments(a) | $ | — | | | $ | 16 | | | $ | — | | | $ | 47 | |
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Net income attributable to noncontrolling interests (GAAP) | $ | 17 | | | $ | 11 | | | $ | 45 | | | $ | 32 | |
Less: KML noncontrolling interests(a) | — | | | 9 | | | — | | | 26 | |
Net income attributable to noncontrolling interests (net of KML noncontrolling interests(a)) | 17 | | | 2 | | | 45 | | | 6 | |
Noncontrolling interests associated with Certain Items | — | | | — | | | — | | | 1 | |
Net income attributable to noncontrolling interests (net of KML noncontrolling interests and Certain Items) | $ | 17 | | | $ | 2 | | | $ | 45 | | | $ | 7 | |
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| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (In millions) | | | | | | |
Additional joint venture information | | | | | | | |
Unconsolidated joint venture DD&A | $ | 101 | | | $ | 104 | | | $ | 306 | | | $ | 308 | |
Consolidated joint venture partners’ DD&A | (10) | | | (4) | | | (29) | | | (11) | |
Joint venture DD&A | 91 | | | 100 | | | 277 | | | 297 | |
Unconsolidated joint venture income tax expense(a) | 23 | | | 23 | | | 66 | | | 71 | |
Joint venture DD&A and income tax expense(a) | $ | 114 | | | $ | 123 | | | $ | 343 | | | $ | 368 | |
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Unconsolidated joint venture cash taxes(b) | $ | (41) | | | $ | (16) | | | $ | (51) | | | $ | (50) | |
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Unconsolidated joint venture sustaining capital expenditures | $ | (32) | | | $ | (35) | | | $ | (84) | | | $ | (85) | |
Consolidated joint venture partners’ sustaining capital expenditures | 2 | | | 2 | | | 4 | | | 5 | |
Joint venture sustaining capital expenditures | $ | (30) | | | $ | (33) | | | $ | (80) | | | $ | (80) | |
______ | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | (In millions) |
DD&A (GAAP) | | | | | $ | 541 | | | $ | 565 | |
Amortization of excess cost of equity investments (GAAP) | | | | | 22 | | | 32 | |
DD&A and amortization of excess cost of equity investments | | | | | 563 | | | 597 | |
Joint venture DD&A | | | | | 75 | | | 94 | |
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DD&A and amortization of excess cost of equity investments for DCF | | | | | $ | 638 | | | $ | 691 | |
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Income tax expense (GAAP) | | | | | $ | 351 | | | $ | 60 | |
Certain Items | | | | | 40 | | | 96 | |
Income tax expense(a) | | | | | 391 | | | 156 | |
Unconsolidated joint venture income tax expense(a)(b) | | | | | 28 | | | 25 | |
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Income tax expense for DCF(a) | | | | | $ | 419 | | | $ | 181 | |
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Additional joint venture information | | | | | | | |
Unconsolidated joint venture DD&A | | | | | $ | 86 | | | $ | 103 | |
Less: Consolidated joint venture partners’ DD&A | | | | | 11 | | | 9 | |
Joint venture DD&A | | | | | 75 | | | 94 | |
Unconsolidated joint venture income tax expense(a)(b) | | | | | 28 | | | 25 | |
Joint venture DD&A and income tax expense(a) | | | | | $ | 103 | | | $ | 119 | |
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Unconsolidated joint venture cash taxes(b) | | | | | $ | — | | | $ | (4) | |
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Unconsolidated joint venture sustaining capital expenditures | | | | | $ | (20) | | | $ | (26) | |
Less: Consolidated joint venture partners’ sustaining capital expenditures | | | | | (1) | | | (1) | |
Joint venture sustaining capital expenditures | | | | | $ | (19) | | | $ | (25) | |
(a)Amounts are adjusted for Certain Items.
(b)Amounts are associated with our Citrus, NGPL and PlantationProducts (SE) Pipe Line equity investments.
Segment Earnings Results
Natural Gas Pipelines
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| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (In millions, except operating statistics) | | | | | | |
Revenues | $ | 1,809 | | | $ | 1,934 | | | $ | 5,255 | | | $ | 6,103 | |
Operating expenses | (878) | | | (993) | | | (2,455) | | | (3,190) | |
(Loss) gain on impairments and divestitures, net | (11) | | | — | | | (1,011) | | | 10 | |
Other income | — | | | — | | | 1 | | | 2 | |
Earnings from equity investments | 169 | | | 141 | | | 484 | | | 431 | |
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Other, net | 2 | | | 10 | | | 10 | | | 27 | |
Segment EBDA | 1,091 | | | 1,092 | | | 2,284 | | | 3,383 | |
Certain Items(a)(b) | (9) | | | (2) | | | 993 | | | (21) | |
Adjusted Segment EBDA | $ | 1,082 | | | $ | 1,090 | | | $ | 3,277 | | | $ | 3,362 | |
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Change from prior period | Increase/(Decrease) | | | | | | |
Adjusted revenues | $ | (128) | | | (7) | % | | $ | (852) | | | (14) | % |
Adjusted Segment EBDA | (8) | | | (1) | % | | (85) | | | (3) | % |
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Volumetric data(c) | | | | | | | |
Transport volumes (BBtu/d) | 36,453 | | | 37,028 | | | 37,091 | | | 35,958 | |
Sales volumes (BBtu/d) | 2,382 | | | 2,647 | | | 2,330 | | | 2,435 | |
Gathering volumes (BBtu/d) | 2,925 | | | 3,380 | | | 3,109 | | | 3,335 | |
NGLs (MBbl/d) | 22 | | | 33 | | | 27 | | | 32 | |
_______ | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | (In millions, except operating statistics) |
Revenues | | | | | $ | 4,125 | | | $ | 1,875 | |
Operating expenses | | | | | (2,270) | | | (848) | |
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Other income | | | | | 1 | | | 1 | |
Earnings from equity investments | | | | | 41 | | | 164 | |
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Other, net | | | | | 206 | | | 4 | |
Segment EBDA | | | | | 2,103 | | | 1,196 | |
Certain Items(a) | | | | | (9) | | | (17) | |
Adjusted Segment EBDA | | | | | $ | 2,094 | | | $ | 1,179 | |
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Change from prior period | | | | | Increase/(Decrease) | | |
Adjusted Segment EBDA | | | | | $ | 915 | | | |
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Volumetric data(b) | | | | | | | |
Transport volumes (BBtu/d) | | | | | 37,222 | | | 38,328 | |
Sales volumes (BBtu/d) | | | | | 2,260 | | | 2,495 | |
Gathering volumes (BBtu/d) | | | | | 2,509 | | | 3,361 | |
NGLs (MBbl/d) | | | | | 30 | | | 30 | |
Certain Items affecting Segment EBDA
(a)Includes revenue Certain Item amounts of $(4)$(9) million and $(5)$(17) million for 2021 and 2020, respectively. 2021 amount includes a pre-tax gain of $206 million associated with the three and nine months ended September 30, 2020, respectively, and $(1) million for both three and nine months ended September 30, 2019 which includes $(14) millionsale of amortization of
regulatory liabilities (three and nine months 2020),a partial interest in our equity investment in NGPL Holdings partially offset by a write-down of $117 million on a long-term subordinated note receivable from an equity investee, Ruby, and an increase in expense of $69 million related to a certain litigation matter. 2020 amount includes an increase in revenues of $24 million related to non-cash mark-to-market derivative contracts used to hedge forecasted natural gas and NGL sales (all periods).
(b)Includes non-revenue Certain Item amounts of $(5) million and $998 million for the three and nine months ended September 30, 2020, respectively, and $(1) million and $(20) million for the three and nine months ended September 30, 2019, respectively. Nine-month 2020 amount primarily resulted from a $1,000 million non-cash goodwill impairment on our Natural Gas Pipelines Non-Regulated reporting unit. Nine-month 2019 amounts are primarily related topartially offset by an increase in earnings fromexpense associated with a certain equity investees’ amortization of regulatory liabilities.EPNG litigation matter.
Other
(c)(b)Joint venture throughput is reported at our ownership share. Volumes for assets sold are excluded for all periods presented.
Below are the changes in both Adjusted Segment EBDA and adjusted revenues in the comparable three and nine-monththree-month periods ended September 30, 2020March 31, 2021 and 2019:2020:
Three Months Ended September 30, 2020March 31, 2021 versus Three Months Ended September 30, 2019March 31, 2020
| | | Adjusted Segment EBDA increase/(decrease) | | | Adjusted revenues increase/(decrease) | | | Adjusted Segment EBDA increase/(decrease) |
| | (In millions, except percentages) | | | (In millions, except percentages) |
Midstream | Midstream | $ | (68) | | | (21) | % | | $ | (208) | | | (19) | % | Midstream | $ | 901 | | | 284% |
East Region | | East Region | 19 | | | 3% |
West Region | West Region | (5) | | | (2) | % | | 1 | | | — | % | West Region | (5) | | | (2)% |
East Region | 65 | | | 13 | % | | 77 | | | 15 | % | |
| Intrasegment eliminations | — | | | — | % | | 2 | | | 40 | % | |
| Total Natural Gas Pipelines | Total Natural Gas Pipelines | $ | (8) | | | (1) | % | | $ | (128) | | | (7) | % | Total Natural Gas Pipelines | $ | 915 | | | 78 | % |
Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019
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| Adjusted Segment EBDA increase/(decrease) | | | | Adjusted revenues increase/(decrease) | | |
| (In millions, except percentages) | | | | | | |
Midstream | $ | (183) | | | (18) | % | | $ | (1,033) | | | (29) | % |
West Region | (19) | | | (2) | % | | 4 | | | — | % |
East Region | 117 | | | 7 | % | | 173 | | | 11 | % |
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Intrasegment eliminations | — | | | — | % | | 4 | | | 33 | % |
Total Natural Gas Pipelines | $ | (85) | | | (3) | % | | $ | (852) | | | (14) | % |
The changes in Segment EBDA for our Natural Gas Pipelines business segment are further explained by the following discussion of the significant factors driving Adjusted Segment EBDA in the comparable three and nine-monththree-month periods ended September 30, 2020March 31, 2021 and 2019:2020:
•Midstream’s decreases of $68$901 million (21%(284%) and $183 million (18%), respectively, wereincrease in Midstream was primarily due to (i) decreases of $40 million and $112 million, respectively, related to the salehigher sales margins driven by higher commodity prices as a result of the Cochin PipelineFebruary 2021 winter storm on December 16, 2019 to Pembina; (ii) lower prices and quarter-to-date volumes on South Texas assets; (iii) lower volumes on KinderHawk; (iv) lower contract rates on our North Texas assets; and (v) lower sales margins partially offset by higher transportation revenues driven by new customer contracts on Texas intrastate natural gas pipeline operations. Toperationshese decreases were partially offset by ; (ii) higher commodity prices as a result of the February 2021 winter storm on our South Texas assets; and (iii) higher equity earnings due to the Gulf Coast ExpressPermian Highway Pipeline (Gulf Coast) being placed in service in September 2019. Overall Midstream’s revenues decreased in both the three and nine-month periods primarilyJanuary 2021. These increases were partially offset by lower earnings on (i) our Oklahoma assets due to lowerhigher commodity prices and volumes which was largely offset by corresponding decreases in costs of sales;
•West Region’s decreases of $5 million (2%) and $19 million (2%), respectively, were primarily due to decreases in earnings from (i) Ruby Pipeline Company, L.L.C. primarily due to lower transportation revenues and an increase in operating expenses due to the recognition of a credit loss reserve associated with a shipper; (ii) Cheyenne Plains Gas Pipeline Company, L.L.C.on certain purchase contracts as a result of the expiration of one shipper’s contract;February 2021 winter storm; and (iii) EPNG driven by(ii) KinderHawk due to lower volumes. Overall Midstream’s revenues increased primarily due to higher operating expenses,commodity prices which was partially offset by increased earnings from CIG resulting from an expansion projectcorresponding increases in the Denver Julesburg basin;costs of sales; and
•$19 million (3%) increase in the East Region’s increases of $65 million (13%) and $117 million (7%), respectively, wereRegion was primarily due to increasesan increase in earnings from ELC(i) TGP as a result of increased revenues primarily driven by the February 2021 winter storm; and Southern LNG Company, L.L.C.(ii) ELC resulting from the liquefaction units of the Elba Liquefaction project being placed into service in the later partfully operational as of 2019 and through the first eight months ofAugust 2020, and increasedpartially offset by reduced equity
earnings from Citrus Corporation (Citrus)Fayetteville Express Pipeline LLC primarily due to lower revenues as a result of lower operating expenses and interest expense and higher transportation revenues. The year-to-date increase was also impacted by reduced contributions from TGP due to mild weather in the Northeast and the impact of the FERC 501-G rate settlement.contract expirations.
Products Pipelines
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| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (In millions, except operating statistics) | | | | | | |
Revenues | $ | 442 | | | $ | 484 | | | $ | 1,282 | | | $ | 1,350 | |
Operating expenses | (233) | | | (177) | | | (585) | | | (500) | |
Loss on impairments and divestitures, net | — | | | — | | | (21) | | | — | |
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Earnings from equity investments | 14 | | | 17 | | | 42 | | | 52 | |
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Other, net | — | | | 1 | | | 1 | | | 6 | |
Segment EBDA | 223 | | | 325 | | | 719 | | | 908 | |
Certain Items(a) | 46 | | | 11 | | | 50 | | | 28 | |
Adjusted Segment EBDA | $ | 269 | | | $ | 336 | | | $ | 769 | | | $ | 936 | |
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Change from prior period | Increase/(Decrease) | | | | | | |
Adjusted revenues | $ | (42) | | | (9) | % | | $ | (68) | | | (5) | % |
Adjusted Segment EBDA | (67) | | | (20) | % | | (167) | | | (18) | % |
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Volumetric data(b) | | | | | | | |
Gasoline(c) | 941 | | | 1,066 | | | 888 | | | 1,045 | |
Diesel fuel | 383 | | | 393 | | | 371 | | | 370 | |
Jet fuel | 160 | | | 318 | | | 184 | | | 305 | |
Total refined product volumes | 1,484 | | | 1,777 | | | 1,443 | | | 1,720 | |
Crude and condensate | 530 | | | 639 | | | 570 | | | 644 | |
Total delivery volumes (MBbl/d) | 2,014 | | | 2,416 | | | 2,013 | | | 2,364 | |
_______ | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | (In millions, except operating statistics) |
Revenues | | | | | $ | 453 | | | $ | 495 | |
Operating expenses | | | | | (219) | | | (221) | |
Loss on divestitures and impairments, net | | | | | — | | | (21) | |
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Earnings from equity investments | | | | | 14 | | | 15 | |
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Other, net | | | | | — | | | 1 | |
Segment EBDA | | | | | 248 | | | 269 | |
Certain Items(a) | | | | | 15 | | | 4 | |
Adjusted Segment EBDA | | | | | $ | 263 | | | $ | 273 | |
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Change from prior period | | | | | Increase/(Decrease) | | |
Adjusted Segment EBDA | | | | | $ | (10) | | | |
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Volumetric data(b) | | | | | | | |
Gasoline(c) | | | | | 892 | | | 961 | |
Diesel fuel | | | | | 379 | | | 358 | |
Jet fuel | | | | | 175 | | | 293 | |
Total refined product volumes | | | | | 1,446 | | | 1,612 | |
Crude and condensate | | | | | 507 | | | 702 | |
Total delivery volumes (MBbl/d) | | | | | 1,953 | | | 2,314 | |
Certain Items affecting Segment EBDA
(a)Includes non-revenue Certain Item amounts of $46$15 million and $50$4 million for the three2021 and nine months ended September 30, 2020, respectively, and $11respectively. 2021 amount includes an increase in expense of $15 million and $28 million for the three and nine months ended September 30, 2019, respectively. Three and nine-month 2020 amounts both include a $46 million unfavorable rate caserelated to an environmental reserve adjustment. Nine-month 2020 amount also includes a non-cash loss on impairment of our Belton Terminal of $21 million and a $17 million favorable adjustment for tax reserves, other than income taxes. Three and nine-month 2019 amounts include an unfavorable environmental reserve adjustment. Nine-month 2019 amount also includes a $17 million unfavorable adjustment of tax reserves, other than income taxes.
Other
(b)Joint venture throughput is reported at our ownership share.
(c)Volumes include ethanol pipeline volumes.
Below are the changes in both Adjusted Segment EBDA and adjusted revenues, in the comparable three and nine-monththree-month periods ended September 30, 2020March 31, 2021 and 2019.2020:
Three Months Ended September 30, 2020March 31, 2021 versus Three Months Ended September 30, 2019March 31, 2020
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| Adjusted Segment EBDA increase/(decrease) | | | | Adjusted revenues increase/(decrease) | | |
| (In millions, except percentages) | | | | | | |
West Coast Refined Products | $ | (31) | | | (21) | % | | $ | (19) | | | (10) | % |
Crude and Condensate | (27) | | | (22) | % | | 1 | | | 1 | % |
Southeast Refined Products | (9) | | | (13) | % | | (24) | | | (22) | % |
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Total Products Pipelines | $ | (67) | | | (20) | % | | $ | (42) | | | (9) | % |
Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019
| | | Adjusted Segment EBDA increase/(decrease) | | | Adjusted revenues increase/(decrease) | | | Adjusted Segment EBDA increase/(decrease) |
| | (In millions, except percentages) | | | (In millions, except percentages) |
West Coast Refined Products | West Coast Refined Products | $ | (51) | | | (13) | % | | $ | (45) | | | (8) | % | West Coast Refined Products | $ | (13) | | | (11) | % |
Crude and Condensate | Crude and Condensate | (76) | | | (21) | % | | 2 | | | — | % | Crude and Condensate | (10) | | | (10) | % |
Southeast Refined Products | Southeast Refined Products | (40) | | | (20) | % | | (25) | | | (8) | % | Southeast Refined Products | 13 | | | 25 | % |
| Total Products Pipelines | Total Products Pipelines | $ | (167) | | | (18) | % | | $ | (68) | | | (5) | % | Total Products Pipelines | $ | (10) | | | (4) | % |
The changes in Segment EBDA for our Products Pipelines business segment are further explained by the following discussion of the significant factors driving Adjusted Segment EBDA in the comparable three and nine-monththree-month periods ended September 30, 2020March 31, 2021 and 2019:2020:
•$13 million (11%) decrease in West Coast Refined Products’ decreases of $31 million (21%) and $51 million (13%), respectively, wereProducts was primarily due to decreased earnings on Pacific (SFPP) operations Calnev Pipe Line LLC and West Coast terminals driven by lower services revenues as a result of lower volumes and higher operating expense as a reduction in volumes due to COVID-19;result of higher integrity management spending;
•$10 million (10%) decrease in Crude and Condensate’s decreases of $27 million (22%) and $76 million (21%), respectively, wereCondensate was primarily due to decreased earnings from Kinder Morgan Crude & Condensate Pipeline (KMCC) and the Bakken Crude assets. KMCC’s decreased earnings werewas primarily due to lower contracted ratesexpiration of contracts in 2020 and lower volumes.volumes which were exacerbated by temporary supply and demand interruptions from the February 2021 winter storm partially offset by lower operating expense attributable to first quarter 2020 unfavorable inventory valuation adjustments. The Bakken Crude assets decreased earnings were primarily driven by lower volumes and reduced re-contracted rates. KMCC and Bakken Crude assets year-to-date decreases were also impactedpartially offset by lower operating expense attributable to first quarter 2020 unfavorable inventory valuation adjustments driven by declines in commodity prices during the first quarter of 2020;and lower field operating expenses; and
•$13 million (25%) increase in Southeast Refined Products’ decreases of $9 million (13%) and $40 million (20%), respectively, wereProducts was primarily due to decreased earnings from our South East Terminals and Central Florida Pipeline and a decrease in equity earnings from Plantation Pipe Line as a result of decreased transportation revenues driven by lower volumes and prices due to COVID-19. The year-to-date decrease was also impacted by lower earnings fromoperating expenses at our Transmix processing operations driven by first quarter 2020 unfavorable inventory adjustments resulting from commodity price declines during the first quarter 2020.adjustments.
Terminals
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | (In millions, except operating statistics) |
Revenues | | | | | $ | 420 | | | $ | 442 | |
Operating expenses | | | | | (197) | | | (192) | |
Gain on divestitures and impairments, net | | | | | 1 | | | — | |
| | | | | | | |
Earnings from equity investments | | | | | 3 | | | 5 | |
Other, net | | | | | — | | | 2 | |
Segment EBDA | | | | | 227 | | | 257 | |
Certain Items | | | | | — | | | — | |
Adjusted Segment EBDA | | | | | $ | 227 | | | $ | 257 | |
| | | | | | | |
Change from prior period | | | | | Increase/(Decrease) | | |
Adjusted Segment EBDA | | | | | $ | (30) | | | |
| | | | | | | |
Volumetric data(a) | | | | | | | |
Liquids leasable capacity (MMBbl) | | | | | 79.9 | | | 79.7 | |
Liquids utilization %(b) | | | | | 94.6 | % | | 93.6 | % |
Bulk transload tonnage (MMtons) | | | | | 11.0 | | | 13.0 | |
Terminals
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (In millions, except operating statistics) | | | | | | |
Revenues | $ | 424 | | | $ | 508 | | | $ | 1,285 | | | $ | 1,524 | |
Operating expenses | (185) | | | (223) | | | (570) | | | (660) | |
Gain (loss) on divestitures and impairments, net | — | | | 3 | | | (5) | | | 3 | |
| | | | | | | |
Earnings from equity investments | 7 | | | 6 | | | 19 | | | 15 | |
Other, net | — | | | 1 | | | 3 | | | 2 | |
Segment EBDA | 246 | | | 295 | | | 732 | | | 884 | |
Certain Items | — | | | — | | | — | | | — | |
Adjusted Segment EBDA | $ | 246 | | | $ | 295 | | | $ | 732 | | | $ | 884 | |
| | | | | | | |
Change from prior period | Increase/(Decrease) | | | | | | |
Adjusted revenues | $ | (84) | | | (17) | % | | $ | (239) | | | (16) | % |
Adjusted Segment EBDA | (49) | | | (17) | % | | (152) | | | (17) | % |
| | | | | | | |
Volumetric data(a) | | | | | | | |
Liquids leasable capacity (MMBbl) | 79.4 | | | 79.5 | | | 79.4 | | | 79.5 | |
Liquids utilization %(b) | 96.2 | % | | 94.4 | % | | 96.2 | % | | 94.4 | % |
Bulk transload tonnage (MMtons) | 11.3 | | | 14.1 | | | 35.4 | | | 42.0 | |
Other
(a)Volumes for assets sold are excluded for all periods presented.
(b)The ratio of our tankage capacity in service to tankage capacity available for service.
Below are the changes in both Adjusted Segment EBDA and adjusted revenues, in the comparable three and nine-monththree-month periods ended September 30, 2020March 31, 2021 and 2019.2020:
Three Months Ended September 30, 2020March 31, 2021 versus Three Months Ended September 30, 2019March 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted Segment EBDA increase/(decrease) | | | | Adjusted revenues increase/(decrease) | | |
| (In millions, except percentages) | | | | | | |
Alberta Canada | $ | (31) | | | (100) | % | | $ | (47) | | | (100) | % |
Gulf Liquids | (5) | | | (6) | % | | (4) | | | (4) | % |
West Coast | (5) | | | (100) | % | | (18) | | | (100) | % |
Gulf Bulk | (4) | | | (27) | % | | (3) | | | (10) | % |
Mid Atlantic | (3) | | | (23) | % | | (4) | | | (14) | % |
All others (including intrasegment eliminations) | (1) | | | (1) | % | | (8) | | | (3) | % |
Total Terminals | $ | (49) | | | (17) | % | | $ | (84) | | | (17) | % |
Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted Segment EBDA increase/(decrease) | | | | Adjusted revenues increase/(decrease) | | |
| (In millions, except percentages) | | | | | | |
Alberta Canada | $ | (96) | | | (100) | % | | $ | (144) | | | (100) | % |
Gulf Liquids | (21) | | | (9) | % | | (10) | | | (3) | % |
West Coast | (17) | | | (100) | % | | (51) | | | (100) | % |
Gulf Bulk | (4) | | | (8) | % | | (3) | | | (3) | % |
Mid Atlantic | (12) | | | (24) | % | | (16) | | | (17) | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
All others (including intrasegment eliminations) | (2) | | | — | % | | (15) | | | (2) | % |
Total Terminals | $ | (152) | | | (17) | % | | $ | (239) | | | (16) | % |
| | | | | | | | | | | |
| Adjusted Segment EBDA increase/(decrease) |
| (In millions, except percentages) |
Gulf Central | $ | (15) | | | (44) | % |
Marine operations | (10) | | | (19) | % |
Gulf Liquids | (5) | | | (6) | % |
All others (including intrasegment eliminations) | — | | | — | % |
Total Terminals | $ | (30) | | | (12) | % |
The changes in Segment EBDA for our Terminals business segment are further explained by the following discussion of the significant factors driving Adjusted Segment EBDA in the comparable three and nine-monththree-month periods ended September 30, 2020March 31, 2021 and 2019:2020:
•combined decreases of $36$15 million and $113 million, respectively,(44%) decrease in the Gulf Central terminals primarily driven by unfavorable petroleum coke volumes due to refinery outages associated with our Alberta Canada terminals and our West Coast terminals due to the sale of KML assets to Pembina on December 16, 2019;February 2021 winter storm as well as an increase in property tax expense at Battleground Oil Specialty Terminal Company LLC;
•decreases of $5$10 million (19%) decrease in Marine operations was primarily due to lower fleet utilization due to market weakness associated with demand reduction attributable to COVID-19; and
•$5 million (6%) and $21 million (9%), respectively, from ourdecrease in the Gulf Liquids terminals was primarily driven by lower volumes and associated ancillary fees related to both continued demand reduction attributable to COVID-19. Year-to-date decrease was also impacted by tanks being temporarily off-lease as they are transitioned to new customers following the termination of a major customer contract;
•decreases of $4 million (27%) and $4 million (8%), respectively, from our Gulf Bulk terminals primarily due to lower revenues driven by lower refinery petroleum coke productionCOVID-19 and the expiration of a customer contractFebruary 2021 winter storm, which also resulted in January 2020; and
•decreases of $3 million (23%) and $12 million (24%), respectively,higher utility costs. These items were partially offset by additional contributions from our Mid Atlantic terminals primarily due to lower coal volumes at our Pier IX facility driven by coal market weakness largely attributable to demand reduction associated with COVID-19.growth projects placed in service.
CO2
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (In millions, except operating statistics) | | | | | | |
Revenues | $ | 251 | | | $ | 298 | | | $ | 792 | | | $ | 913 | |
Operating expenses | (99) | | | (143) | | | (312) | | | (383) | |
Loss on impairments and divestitures, net | — | | | — | | | (950) | | | — | |
| | | | | | | |
Earnings from equity investments | 4 | | | 9 | | | 17 | | | 28 | |
| | | | | | | |
Segment EBDA | 156 | | | 164 | | | (453) | | | 558 | |
Certain Items(a)(b) | (2) | | | (15) | | | 938 | | | (36) | |
Adjusted Segment EBDA | $ | 154 | | | $ | 149 | | | $ | 485 | | | $ | 522 | |
| | | | | | | |
Change from prior period | Increase/(Decrease) | | | | | | |
Adjusted revenues | $ | (34) | | | (12) | % | | $ | (97) | | | (11) | % |
Adjusted Segment EBDA | 5 | | | 3 | % | | (37) | | | (7) | % |
| | | | | | | |
Volumetric data | | | | | | | |
SACROC oil production | 21.2 | | | 23.2 | | | 22.1 | | | 24.0 | |
Yates oil production | 6.4 | | | 6.8 | | | 6.7 | | | 7.1 | |
Katz and Goldsmith oil production | 2.6 | | | 3.6 | | | 2.8 | | | 3.8 | |
Tall Cotton oil production | 1.4 | | | 2.1 | | | 1.9 | | | 2.4 | |
Total oil production, net (MBbl/d)(c) | 31.6 | | | 35.7 | | | 33.5 | | | 37.3 | |
NGL sales volumes, net (MBbl/d)(c) | 9.1 | | | 10.2 | | | 9.4 | | | 10.2 | |
| | | | | | | |
CO2 sales volumes, net (Bcf/d) | 0.4 | | | 0.6 | | | 0.5 | | | 0.6 | |
Realized weighted average oil price per Bbl | $ | 54.83 | | | $ | 49.45 | | | $ | 53.28 | | | $ | 49.36 | |
Realized weighted average NGL price per Bbl | $ | 17.65 | | | $ | 21.12 | | | $ | 17.77 | | | $ | 23.54 | |
_______ | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
| | | | | (In millions, except operating statistics) |
Revenues | | | | | $ | 229 | | | $ | 309 | |
Operating benefit (expenses) | | | | | 49 | | | (122) | |
Loss on divestitures and impairments, net | | | | | — | | | (950) | |
| | | | | | | |
Earnings from equity investments | | | | | 8 | | | 8 | |
| | | | | | | |
Segment EBDA | | | | | 286 | | | (755) | |
Certain Items(a) | | | | | 5 | | | 930 | |
Adjusted Segment EBDA | | | | | $ | 291 | | | $ | 175 | |
| | | | | | | |
Change from prior period | | | | | Increase/(Decrease) | | |
Adjusted Segment EBDA | | | | | $ | 116 | | | |
| | | | | | | |
Volumetric data | | | | | | | |
SACROC oil production | | | | | 19.4 | | | 23.2 | |
Yates oil production | | | | | 6.1 | | | 7.0 | |
Katz and Goldsmith oil production | | | | | 2.6 | | | 3.4 | |
Tall Cotton oil production | | | | | 0.9 | | | 2.4 | |
Total oil production, net (MBbl/d)(b) | | | | | 29.0 | | | 36.0 | |
NGL sales volumes, net (MBbl/d)(b) | | | | | 8.8 | | | 9.8 | |
| | | | | | | |
CO2 sales volumes, net (Bcf/d) | | | | | 0.4 | | | 0.5 | |
Realized weighted average oil price ($ per Bbl) | | | | | $ | 51.05 | | | $ | 54.61 | |
Realized weighted average NGL price ($ per Bbl) | | | | | $ | 20.14 | | | $ | 19.74 | |
Certain Items affecting Segment EBDA
(a)Includes revenue Certain Item amounts of $(2)$5 million and $(12)$930 million for the three2021 and nine months ended September 30, 2020, respectively,respectively. 2020 amount includes (i) a $600 million goodwill impairment on our CO2 reporting unit; (ii) non-cash impairments of $350 million on our oil and $(15)gas producing assets; and (iii) an increase in revenues of $20 million and $(36) million for the three and nine months ended September 30, 2019, respectively, related to mark-to-market gains associated with derivative contracts used to hedge forecasted commodity sales.
(b)Includes non-revenue Certain Item amount of $950 million for the nine months ended September 30, 2020 resulting from a $600 million goodwill impairment on our CO2 reporting unit and non-cash impairments of $350 million on our oil and gas producing assets.
Other
(c)(b)Net of royalties and outside working interests.
Below are the changes in both Adjusted Segment EBDA and adjusted revenues, in the comparable three and nine-monththree-month periods ended September 30, 2020March 31, 2021 and 2019.2020:
Three Months Ended September 30, 2020March 31, 2021 versus Three Months Ended September 30, 2019March 31, 2020
| | | Adjusted Segment EBDA increase/(decrease) | | | Adjusted revenues increase/(decrease) | | | Adjusted Segment EBDA increase/(decrease) |
| | (In millions, except percentages) | | | (In millions, except percentages) |
Oil and Gas Producing activities | Oil and Gas Producing activities | $ | 27 | | | 35 | % | | $ | (10) | | | (5) | % | Oil and Gas Producing activities | $ | 123 | | | 110 | % |
Source and Transportation activities | Source and Transportation activities | (22) | | | (31) | % | | (28) | | | (29) | % | Source and Transportation activities | (7) | | | (10) | % |
Intrasegment eliminations | — | | | — | % | | 4 | | | 80 | % | |
| Total CO2 | Total CO2 | $ | 5 | | | 3 | % | | $ | (34) | | | (12) | % | Total CO2 | $ | 116 | | | 67 | % |
Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019
| | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted Segment EBDA increase/(decrease) | | | | Adjusted revenues increase/(decrease) | | |
| (In millions, except percentages) | | | | | | |
Oil and Gas Producing activities | $ | 23 | | | 8 | % | | $ | (37) | | | (6) | % |
Source and Transportation activities | (60) | | | (27) | % | | (73) | | | (25) | % |
Intrasegment eliminations | — | | | — | % | | 13 | | | 72 | % |
Total CO2 | $ | (37) | | | (7) | % | | $ | (97) | | | (11) | % |
The changes in Segment EBDA for our CO2 business segment are further explained by the following discussion of the significant factors driving Adjusted Segment EBDA in the comparable three and nine-monththree-month periods ended September 30, 2020March 31, 2021 and 2019:2020:
•increases of $27$123 million (35%(110%) and $23 million (8%), respectively, from ourincrease in Oil and Gas Producing activities primarily due to (i) lower operating expenses of $32$163 million driven by a benefit for the current period realized from returning power to the grid by curtailing oil production during the February 2021 winter storm partially offset by lower volumes driven in part by the curtailed oil production, which decreased revenues by $24 million and $50 million, respectively; and (ii) higherlower realized crude oil prices which increased revenues by $18 million and $42 million, respectively, offset by (i) lower volumes which decreased revenues by $25 million and $61 million, respectively; and (ii) lower NGL prices which decreased revenues by $3 million and $19 million, respectively;$14 million; and
•decreases of $22$7 million (31%(10%) and $60 million (27%), respectively, from ourdecrease in Source and Transportation activities primarily due to decreasesa decrease of $28$12 million and $77 million, respectively, related to lower CO2 sales volumes partially offset by lower operating expenses of $9 million and $22 million, respectively.$7 million.
We believe that our existing hedge contracts in place within our CO2 business segment substantially mitigate commodity price sensitivities in the near-term and to lesser extent over the following few years from price exposure. Below is a summary of our CO2 business segment hedges outstanding as of September 30, 2020.March 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Remaining 2020 | | 2021 | | 2022 | | 2023 | | 2024 |
Crude Oil(a) | | | | | | | | | |
Price ($/barrel) | $ | 56.07 | | | $ | 52.00 | | | $ | 53.05 | | | $ | 50.14 | | | $ | 43.40 | |
Volume (barrels per day) | 30,684 | | | 20,300 | | | 8,600 | | | 5,150 | | | 950 | |
NGLs | | | | | | | | | |
Price ($/barrel) | $ | 28.17 | | | $ | 26.61 | | | | | | | |
Volume (barrels per day) | 6,315 | | | 2,474 | | | | | | | |
Midland-to-Cushing Basis Spread | | | | | | | | | |
Price ($/barrel) | $ | 0.14 | | | $ | 0.40 | | | | | | | |
Volume (barrels per day) | 31,100 | | | 1,500 | | | | | | | |
_______ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Remaining 2021 | | 2022 | | 2023 | | 2024 | | 2025 |
Crude Oil(a) | | | | | | | | | |
Price ($ per Bbl) | $ | 50.38 | | | $ | 51.03 | | | $ | 49.30 | | | $ | 45.11 | | | $ | 46.89 | |
Volume (MBbl/d) | 25.70 | | | 13.80 | | | 8.65 | | | 2.85 | | | 0.80 | |
NGLs | | | | | | | | | |
Price ($ per Bbl) | $ | 31.75 | | | $ | 44.57 | | | | | | | |
Volume (MBbl/d) | 5.36 | | | 0.16 | | | | | | | |
Midland-to-Cushing Basis Spread | | | | | | | | | |
Price ($ per Bbl) | $ | 0.26 | | | $ | 0.73 | | | | | | | |
Volume (MBbl/d) | 24.55 | | | 10.25 | | | | | | | |
(a)Includes West Texas Intermediate hedges.
DD&A, General and Administrative and Corporate Charges, Interest, net and Noncontrolling Interests
| | | Three Months Ended September 30, | | | Earnings increase/(decrease) | | | Three Months Ended March 31, | | Earnings increase/(decrease) |
| | 2020 | | 2019 | | | | 2021 | | 2020 | | Earnings increase/(decrease) |
| | | (In millions, except percentages) |
DD&A (GAAP) | | DD&A (GAAP) | $ | (541) | | | $ | (565) | | | $ | 24 | | | 4 | % |
| | (In millions, except percentages) | | |
General and administrative (GAAP) | General and administrative (GAAP) | $ | (153) | | | $ | (154) | | | $ | 1 | | | 1 | % | General and administrative (GAAP) | $ | (156) | | | $ | (153) | | | $ | (3) | | | (2) | % |
Corporate benefit (charges) | Corporate benefit (charges) | 3 | | | (8) | | | 11 | | | 138 | % | Corporate benefit (charges) | 8 | | | (12) | | | 20 | | | 167 | % |
Certain Items(a) | Certain Items(a) | 11 | | | 5 | | | 6 | | | 120 | % | Certain Items(a) | — | | | 25 | | | (25) | | | (100) | % |
General and administrative and corporate charges(b) | General and administrative and corporate charges(b) | $ | (139) | | | $ | (157) | | | $ | 18 | | | 11 | % | General and administrative and corporate charges(b) | $ | (148) | | | $ | (140) | | | $ | (8) | | | (6) | % |
| Interest, net (GAAP) | Interest, net (GAAP) | $ | (383) | | | $ | (447) | | | $ | 64 | | | 14 | % | Interest, net (GAAP) | $ | (377) | | | $ | (436) | | | $ | 59 | | | 14 | % |
Certain Items(c) | Certain Items(c) | (8) | | | (5) | | | (3) | | | (60) | % | Certain Items(c) | (6) | | | 1 | | | (7) | | | (700) | % |
Interest, net(b) | Interest, net(b) | $ | (391) | | | $ | (452) | | | $ | 61 | | | 13 | % | Interest, net(b) | $ | (383) | | | $ | (435) | | | $ | 52 | | | 12 | % |
| | Net income attributable to noncontrolling interests (GAAP) | Net income attributable to noncontrolling interests (GAAP) | $ | (17) | | | $ | (11) | | | $ | (6) | | | (55) | % | Net income attributable to noncontrolling interests (GAAP) | $ | (16) | | | $ | (15) | | | $ | (1) | | | (7) | % |
Certain Items | — | | | — | | | — | | | — | % | |
Certain Items(d) | | Certain Items(d) | — | | | — | | | — | | | — | % |
Net income attributable to noncontrolling interests(b) | Net income attributable to noncontrolling interests(b) | $ | (17) | | | $ | (11) | | | $ | (6) | | | (55) | % | Net income attributable to noncontrolling interests(b) | $ | (16) | | | $ | (15) | | | $ | (1) | | | (7) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | Earnings increase/(decrease) | | |
| 2020 | | 2019 | | | | |
| (In millions, except percentages) | | | | | | |
General and administrative (GAAP) | $ | (461) | | | $ | (456) | | | $ | (5) | | | (1) | % |
Corporate charges | (11) | | | (22) | | | 11 | | | 50 | % |
Certain Items(a) | 36 | | | 11 | | | 25 | | | 227 | % |
General and administrative and corporate charges(b) | $ | (436) | | | $ | (467) | | | $ | 31 | | | 7 | % |
| | | | | | | |
Interest, net (GAAP) | $ | (1,214) | | | $ | (1,359) | | | $ | 145 | | | 11 | % |
Certain Items(c) | (8) | | | (6) | | | (2) | | | (33) | % |
Interest, net(b) | $ | (1,222) | | | $ | (1,365) | | | $ | 143 | | | 10 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income attributable to noncontrolling interests (GAAP) | $ | (45) | | | $ | (32) | | | $ | (13) | | | (41) | % |
Certain Items | — | | | (1) | | | 1 | | | 100 | % |
Net income attributable to noncontrolling interests(b) | $ | (45) | | | $ | (33) | | | $ | (12) | | | (36) | % |
Certain items
(a)Three and nine-month 2020 amounts both include an increase in expense of $11 million related to costs incurred associated with COVID-19 mitigation. Nine-month 2020 amount also includes an increase in expense of $23 million associated with the non-cash fair value adjustment and the dividend onaccrual prior to the sale of our investment in Pembina common stock.
(b)Amounts are adjusted for Certain Items.
(c)Three2021 and nine-month 2020 amounts include (i) decreases in interest expense of $5$4 million and $17$8 million, respectively, related to non-cash debt fair value adjustments associated with acquisitions and (ii) a decrease in expense of $3 million and an increase in expense of $11 million, respectively, related to non-cash mismatches between the change in fair value of interest rate swaps and change in fair value of hedged debt. Three and nine-month 2019 amounts include (i) decreases in interest expense of $7 million and $22 million, respectively, related to non-cash debt fair value adjustments associated with acquisitions and (ii) increases in expense of $2 million and $15$11 million, respectively, related to non-cash mismatches between the change in fair value of interest rate swaps and change in fair value of hedged debt.
(d)2021 and 2020 amounts each include less than $1 million of noncontrolling interests associated with Certain Items.
DD&A expense decreased $24 million in 2021 when compared to 2020 primarily due to non-cash impairments taken in the first quarter 2020 on our oil and gas producing assets.
General and administrative expenses and corporate charges adjusted for Certain Items decreased $18increased $8 million and $31 million for the three and nine months ended September 30, 2020, respectively,in 2021 when compared with the respective prior year periodsto 2020 primarily due to lower non-cash pension expenses of $11 million and $34 million, respectively, lower expenses of $6 million and $27 million, respectively, due to the KML and U.S. Cochin Sale, $7 million and $12 million, respectively, of cost
savings associated with reduced business activity during the pandemic, partially offset by lower capitalized costs of $4$16 million and $43 million, respectively, reflecting the COVID-19-related cutback onreduced capital projectsspending primarily by our CO2 and Natural Gas Pipelines business segments and our Gulf Coast project being placed in service in September 2019. The year-to-date decrease was also impactedsegment partially offset by $8$10 million for a reduction in other benefit-related costs and a 2019 project write-off in our Terminals segment.of cost savings associated with organizational efficiency efforts.
In the table above, we report our interest expense as “net,” meaning that we have subtracted interest income and capitalized interest from our total interest expense to arrive at one interest amount. Our consolidated interest expense, net of interest income adjusted for Certain Items for the three and nine months ended September 30, 2020decreased $52 million in 2021 when compared with the respective prior year periods decreased $61 million and $143 million, respectively,to 2020 primarily due to lower weighted averageLIBOR and long-term debt balances and lower LIBOR rates partially offset by lower capitalized interest.interest rates.
We use interest rate swap agreements to convert a portion of the underlying cash flows related to our long-term fixed rate debt securities (senior notes) into variable rate debt in order to achieve our desired mix of fixed and variable rate debt. As of September 30, 2020March 31, 2021 and December 31, 2019,2020, approximately 16%14% and 27%16%, respectively, of the principal amount of our debt balances were subject to variable interest rates—either as short-term or long-term variable rate debt obligations or as fixed-rate debt converted to variable rates through the use of interest rate swaps. For more information on our interest rate swaps, see Note 5 “Risk Management—Interest Rate Risk Management” to our consolidated financial statements.
Net income attributable to noncontrolling interests represents the allocation of our consolidated net income attributable to all outstanding ownership interests in our consolidated subsidiaries that are not owned by us. Net income attributable to noncontrolling interests for the three and nine months ended September 30, 2020 when compared with the respective prior year periods increased $6 million and $12 million, respectively.
Income Taxes
Our tax expense for the three months ended September 30, 2020March 31, 2021 was approximately $140$351 million as compared with $151$60 million for the same period of 2019.2020. The $11$291 million decrease in tax expense was due primarily due to lower pre-tax book income in the 2020 period.
Our tax expense for the nine months ended September 30, 2020 was approximately $304 million as compared with $471 million for the same period of 2019. The $167 million decreaseincrease in tax expense was due primarily to (i) lowerhigher pre-tax book income in the 2020 period; (ii) lower foreign income taxes as a result of the KML2021 period and U.S. Cochin Sale in 2019; and (iii) the refund of alternative minimum tax sequestration credits in 2020.the 2020 period, offset by the prior year disallowance of a tax benefit for the non-tax deductible goodwill impairment and the current year release of the valuation allowance on our investment in NGPL Holdings.
Liquidity and Capital Resources
General
As of September 30, 2020,March 31, 2021, we had $632$1,377 million of “Cash and cash equivalents,” an increase of $447$193 million from December 31, 2019.2020. Additionally, as of September 30, 2020,March 31, 2021, we had borrowing capacity of approximately $3.9 billion under our $4 billion revolving credit facility (discussed below in “—Short-term Liquidity”). As discussed further below, we believe our cash flows from operating activities, cash position and remaining borrowing capacity on our credit facility are more than adequate to allow us to manage our day-to-day cash requirements and anticipated obligations.
We have consistently generated substantial cash flowflows from operations, providing a source of funds of $3,282$1,873 million and $3,121$893 million in the first ninethree months of 20202021 and 2019,2020, respectively. The period-to-period increase is discussed below in “—Cash Flows—Operating Activities.” We primarily rely on cash provided from operations to fund our operations as well as our debt service, sustaining capital expenditures, dividend payments and our growth capital expenditures. We believe our current cash on hand, our cash flows from operations, and our borrowing capacity under our revolving credit facility are more than adequate to allow us to manage our cash requirements, including maturing debt, through 2021; however, we may access the debt capital markets from time to time to refinance our maturing long-term debt.
Our board of directors declared a quarterly dividend of $0.2625$0.27 per share for the thirdfirst quarter of 2020, unchanged from the previous quarter. This represents2021, a 5%3% increase over the dividend declared for the third quarter of 2019. As previously announced, market conditions have negatively impacted a number of our current year and future planned expansion projects such that they are not needed at this time or no longer meet our internal return thresholds. As a result, our estimated capital expenditures for expansion projects and contributions to joint ventures will be almost 30% below our 2020 budget.previous quarter. We
continue to expect to fully fund our dividend payments as well as our discretionary spending for 20202021 without funding from the capital markets.markets and still have additional flexibility to engage in share repurchases on an opportunistic basis.
On August 5, 2020,February 11, 2021, we issued in a registered offering two series of senior notes consisting of $750 million aggregate principal amount of 2.00%3.60% senior notes due 2031 and $500 million aggregate principal amount of 3.25% senior notes due 2050 and received combined net proceeds of $1,226 million. We used a portion of the proceeds to repay maturing debt.
To refinance construction costs of its recent expansions, on February 24, 2020, TGP, a wholly owned subsidiary, issued in a private placement $1,000 million aggregate principal amount of its 2.90% senior notes due 20302051 and received net proceeds of $991 million. We$741 million which were used the proceeds to repay maturing debt.
During March 2020, we opportunistically repurchased approximately 3.6 million of our Class P shares for approximately $50 million at an average price including commissions of $13.94 per share.senior notes.
Short-term Liquidity
As of September 30, 2020,March 31, 2021, our principal sources of short-term liquidity are (i) cash from operations; and (ii) our $4.0 billion revolving credit facility and associated commercial paper program.program; and (iii) cash and cash equivalents. The loan commitments under our revolving credit facility can be used for working capital and other general corporate purposes and as a backup to our commercial paper program. Letters of credit and commercial paper borrowings reduce borrowings allowed under our credit facility. We provide for liquidity by maintaining a sizable amount of excess borrowing capacity under our credit facility and, as previously discussed, have consistently generated strong cash flows from operations. We do not anticipate any significant limitations from the impacts of COVID-19 with respect to our ability to access funding through our credit facility.
As of September 30, 2020,March 31, 2021, our $2,057$2,173 million of short-term debt consisted primarily of senior notes that mature in the next twelve months. Although we used the proceeds from the sale of the Pembina common equity that we received for the sale of KML to reduce debt during 2020, we generallyWe intend to fund our debt, as it becomes due, primarily through cash on hand, credit facility borrowings, commercial paper borrowings, cash flows from operations, and/or issuing new long-term debt. Our short-term debt balance as of December 31, 20192020 was $2,477$2,558 million.
We had working capital (defined as current assets less current liabilities) deficits of $1,704$884 million and $1,862$1,871 million as of September 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. OurFrom time to time, our current liabilities may include short-term borrowings used to finance our expansion capital expenditures, which we may periodically replace with long-term financing and/or pay down using retained cash from operations. The overall $158$987 million favorable change from year-end 20192020 was primarily due to (i) an increase in cash and cash equivalents of $447 million; (ii) a decrease of approximately $284$385 million in senior notes that mature in the next twelve months; (ii) a $221 million decrease in accrued interest; (iii) a favorable asset fair value adjustment$193 million increase in cash and cash equivalents; (iv) a $150 million decrease in accrued contingencies; and (v) an increase in accounts receivable, net of $173change in accounts payable, of $85 million, on derivative contracts in 2020; and (iv) the $100 million repayment of the preferred interest in Kinder Morgan G.P. Inc.; partially offset by a decrease of $925$186 million related to the sale of Pembina common equityincrease in January 2020.current regulatory liabilities. Generally, our working capital balance varies due to factors such as the timing of scheduled debt payments, timing differences in the collection and payment of receivables and payables, the change in fair value of our derivative contracts, and changes in our cash and cash equivalent balances as a result of excess cash from operations after payments for investing and financing activities.
Counterparty Creditworthiness
Some of our customers or other counterparties may experience severe financial problems that may have a significant impact on their creditworthiness. These financial problems may arise from our current global economic conditions, continued volatility of commodity prices, or otherwise. In such situations, we utilize, to the extent allowable under applicable contracts, tariffs and regulations, prepayments and other security requirements, such as letters of credit, to enhance our credit position relating to amounts owed from these counterparties. While we believe we have taken reasonable measures to protect against counterparty credit risk, we cannot provide assurance that one or more of our customers or other counterparties will not become financially distressed and will not default on their obligations to us or that such a default or defaults will not have a material adverse effect on our business, financial position, future results of operations, or future cash flows. The balance of our allowance for credit losses as of September 30, 2020March 31, 2021 and December 31, 2019,2020, was $25$29 million and $9$26 million, respectively, reflected in “Other current assets” on our consolidated balance sheets which includes reserves for counterparty bankruptcies recorded during the nine months ended September 30, 2020. Our outlook as discussed under “—.2020 Outlook” takes into account the estimated impact attributable to counterparty bankruptcy filings to date. See also our “Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, Part II, Item 1A. Risk Factors —Financial distress experienced by our customers or other counterparties could have an adverse impact on us in the event they are unable to pay us for the products or services we provide or otherwise fulfill their obligations to us.”
Capital Expenditures
We account for our capital expenditures in accordance with GAAP. We also distinguish between capital expenditures that are maintenance/sustaining capital expenditures and those that are expansion capital expenditures (which we also refer to as discretionary capital expenditures). Expansion capital expenditures are those expenditures that increase throughput or capacity from that which existed immediately prior to the addition or improvement, and are not deducted in calculating DCF (see “Results of Operations—Overview—Non-GAAP Financial Measures—DCF”). With respect to our oil and gas producing activities, we classify a capital expenditure as an expansion capital expenditure if it is expected to increase capacity or throughput (i.e., production capacity) from the capacity or throughput immediately prior to the making or acquisition of such additions or improvements. Maintenance capital expenditures are those that maintain throughput or capacity. The distinction
between maintenance and expansion capital expenditures is a physical determination rather than an economic one, irrespective of the amount by which the throughput or capacity is increased.
Budgeting of maintenance capital expenditures is done annually on a bottom-up basis. For each of our assets, we budget for and make those maintenance capital expenditures that are necessary to maintain safe and efficient operations, meet customer needs and comply with our operating policies and applicable law. We may budget for and make additional maintenance capital expenditures that we expect to produce economic benefits such as increasing efficiency and/or lowering future expenses. Budgeting and approval of expansion capital expenditures are generally made periodically throughout the year on a project-by-project basis in response to specific investment opportunities identified by our business segments from which we generally expect to receive sufficient returns to justify the expenditures. Generally, the determination of whether a capital expenditure is classified as a maintenance/sustaining or as an expansion capital expenditure is made on a project level. The classification of our capital expenditures as expansion capital expenditures or as maintenance capital expenditures is made consistent with our accounting policies and is generally a straightforward process, but in certain circumstances can be a matter of management judgment and discretion. The classification has an impact on DCF because capital expenditures that are classified as expansion capital expenditures are not deducted from DCF, while those classified as maintenance capital expenditures are.
Our capital expenditures for the ninethree months ended September 30, 2020,March 31, 2021, and the amount we expect to spend for the remainder of 20202021 to sustain and grow our businesses are as follows:
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 | | 2020 Remaining | | Total 2020(a) |
| (In millions) | | | | |
Sustaining capital expenditures(b)(c) | $ | 477 | | | $ | 181 | | | $ | 658 | |
Discretionary capital investments(c)(d)(e) | 1,397 | | | 321 | | | 1,718 | |
_______ | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 | | 2021 Remaining | | Total 2021 |
| (In millions) |
Sustaining capital expenditures(a)(b) | $ | 107 | | | $ | 757 | | | $ | 864 | |
Discretionary capital investments(b)(c)(d) | 132 | | | 703 | | | 835 | |
(a)Amounts include reductions due to revised outlook, as discussed above in “—General.”
(b)NineThree months ended September 30, 2020, 2020March 31, 2021, 2021 Remaining, and Total 20202021 amounts include $80$18 million, $35$86 million, and $115$104 million, respectively, for sustaining capital expenditures from unconsolidated joint ventures, reduced by consolidated joint venture partners’ sustaining capital expenditures. See table included in “Non-GAAP Financial Measures—Supplemental Information.”
(c)(b)NineThree months ended September 30, 2020March 31, 2021 amount includes $1excludes $67 million of net changes fromdue to decreases in accrued capital expenditures and contractor retainage and net changes in other.
(d)(c)NineThree months ended September 30, 2020March 31, 2021 amount includes $442$21 million of our contributions to certain unconsolidated joint ventures for capital investments.
(e)(d)Amounts include our actual or estimated contributions to certain equity investees, net of actual or estimated contributions from certain partners in non-wholly owned consolidated subsidiaries for capital investments.
Off Balance Sheet Arrangements
There have been no material changes in our obligations with respect to other entities that are not consolidated in our financial statements that would affect the disclosures presented as of December 31, 20192020 in our 20192020 Form 10-K.
Commitments for the purchase of property, plant and equipment as of September 30, 2020March 31, 2021 and December 31, 20192020 were $192$182 million and $439$141 million, respectively. The decreaseincrease of $247$41 million was primarily driven by capital commitments related to our Natural Gas Pipelines business segment.
Cash Flows
Operating Activities
Cash provided by operating activities increased $161$980 million in the ninethree months ended September 30, 2020March 31, 2021 compared to the respective 20192020 period primarily due to:
•a $161$1,043 million increase in cash primarily resulting from $202after adjusting the $1,716 million ofincrease in net income taxby $673 million for the combined effects of the period-to-period net changes in non-cash items including the following: (i) gain from the sale of a partial interest in our equity investment in NGPL Holdings (see discussion above in “—Results of Operations”); (ii) (gain) loss on divestitures and impairments, net (see discussion above in “—Results of Operations”); (iii) DD&A expenses (including amortization of excess cost of equity investments); (iv) deferred income taxes; and (v) earnings from equity investments (including a non-cash write-down of a related party note receivable from Ruby); partially offset by,
•a $63 million decrease in cash associated with net changes in working capital items and other non-current assets and liabilities. The decrease was driven, among other things, primarily by an unfavorable change in accounts
receivables due to the timing of collections from customers, offset by a favorable change due to the timing of trade payables payments in the 20202021 period compared to $364 million of net income taxthe 2020 period. The decrease was also driven by payments for litigation matters in the 2019 period, which in both periods were primarily for foreign income taxes associated with the sale of certain Canadian assets. The income tax payments for the 2020 period are net of a $20 million refund related to alternative minimum tax sequestration credits.2021 period.
Investing Activities
Cash used inprovided by investing activities decreased $1,834$205 million for the ninethree months ended September 30, 2020March 31, 2021 compared to the respective 20192020 period primarily attributable to:
•an $827a $494 million increasedecrease in cash primarily due to $413 million of net proceeds received from the sale of a partial interest in our equity investment in NGPL Holdings in the 2021 period, versus the $907 million of proceeds received from the sale of the Pembina shares in the 2020 period;period. See Note 2 “Gains and Losses from Divestitures, Impairments and Other Write-downs” to our consolidated financial statements for further information regarding the transaction of the sale of an interest in NGPL Holdings; partially offset by,
•a $783$173 million decrease in capital expenditures reflecting our overall reduction of expansion capital projects in the 2021 period over the comparative 2020 period; and
•a $129 million decrease in cash used for contributions to equity investmentsinvestees driven by lower contributions to Gulf Coast ExpressSNG and Permian Highway Pipeline LLC, Midcontinent Express Pipeline LLC, Citrus, and Fayetteville Express Pipeline LLC in the 20202021 period compared with the 2019 period, partially offset by contributions made to SNG in the 2020 period; and
•a $368 million decrease in capital expenditures in the 2020 period over the comparative 2019 period primarily due to lower expenditures on the Elba Liquefaction expansion and also reflecting our reduction of expansion capital projects in the wake of COVID-19; partially offset by,
•a $102 million decrease in distributions received from equity investments in excess of cumulative earnings primarily from Ruby Pipeline Holding Company L.L.C. and Fayetteville Express Pipeline LLC in the 2020 period over the comparative 2019 period.
Financing Activities
Cash used in financing activities decreased $1,587increased $1,302 million for the ninethree months ended September 30, 2020March 31, 2021 compared to the respective 20192020 period primarily attributable to:
•a $1,068$1,317 million net decreaseincrease in cash used related to debt activity as a result of lower$1,168 million of net debt payments in the 20202021 period compared to the 2019 period; and
•an $879$149 million increase in cash reflecting the distribution of the TMPL sale proceeds to the owners of KML restricted voting sharesnet debt issuances in the 2019 period; partially offset by,
•a $171 million increase in dividend payments to our common shareholders; and
•a $127 million decrease in contributions received from investment partner and noncontrolling interests primarily driven by lower contributions received from EIG Global Energy Partners in the 2020 period compared to the 2019 period.
Common Stock Dividends
We expect to declare common stock dividends of $1.05$1.08 per share on our common stock for 2020.2021. The table below reflects our 2020 common stock2021 dividends declared:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended | | Total quarterly dividend per share for the period | | Date of declaration | | Date of record | | Date of dividend |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
DecemberMarch 31, 20192021 | | $ | 0.25 | | | January 22, 2020 | | February 3, 2020 | | February 18, 2020 |
March 31, 2020 | | 0.26250.27 | | | April 22, 202021, 2021 | | April 30, 2021 | | May 4, 2020 | | May 15, 2020 |
June 30, 2020 | | 0.2625 | | | July 22, 2020 | | August 3, 2020 | | August 17, 2020 |
September 30, 2020 | | 0.2625 | | | October 21, 2020 | | November 2, 2020 | | November 16, 20202021 |
The actual amount of common stock dividends to be paid on our capital stock will depend on many factors, including our financial condition and results of operations, liquidity requirements, business prospects, capital requirements, legal, regulatory and contractual constraints, tax laws, Delaware laws and other factors. See Item 1A. “Risk Factors—The guidance we provide
for our anticipated dividends is based on estimates. Circumstances may arise that lead to conflicts between using funds to pay anticipated dividends or to invest in our business.” of our 20192020 Form 10-K. All of these matters will be taken into consideration by our board of directors in declaring dividends.
Our common stock dividends are not cumulative. Consequently, if dividends on our common stock are not paid at the intended levels, our common stockholders are not entitled to receive those payments in the future. Our common stock dividends generally are expected to be paid on or about the 15th day of each February, May, August and November.
Summarized Combined Financial Information for Guarantee of Securities of Subsidiaries
KMI and certain subsidiaries (Subsidiary Issuers) are issuers of certain debt securities. KMI and substantially all of KMI’s wholly owned domestic subsidiaries (Subsidiary Guarantors), 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. Accordingly, with the exception of certain subsidiaries identified as Subsidiary Non-Guarantors, the parent issuer, subsidiary issuers and Subsidiary Guarantors (the “Obligated Group”) are all guarantors of each series of our guaranteed debt (Guaranteed Notes). As a result of the cross guarantee agreement, a holder of any of the Guaranteed Notes issued by KMI or subsidiary issuers are in the same position with respect to the net assets, and income of KMI and the Subsidiary Issuers and Guarantors. The only amounts that are not available to the holders of each of the Guaranteed Notes to satisfy the repayment of such securities are the net assets, and income of the Subsidiary Non-Guarantors.
In lieu of providing separate financial statements for subsidiary issuers and guarantors, we have presented the accompanying supplemental summarized combined income statement and balance sheet information for the Obligated Group based on Rule 13-01 of the SEC’s Regulation S-X that we early adopted effective January 1, 2020.S-X. Also, see Exhibit 10.1 to this report “Cross Guarantee Agreement, dated as of November 26, 2014, among Kinder Morgan, Inc. and certain of its subsidiaries, with schedules updated as of September 30, 2020.March 31, 2021.”
All significant intercompany items among the Obligated Group have been eliminated in the supplemental summarized combined financial information. The Obligated Group’s investment balances in Subsidiary Non-guarantors have been excluded from the supplemental summarized combined financial information. Significant intercompany balances and activity for the Obligated Group with other related parties, including Subsidiary Non-Guarantors, (referred to as “affiliates”) are presented separately in the accompanying supplemental summarized combined financial information.
Excluding fair value adjustments, as of September 30, 2020March 31, 2021 and December 31, 2019,2020, the Obligated Group had $32,502$31,353 million and $32,409$32,563 million, respectively, of Guaranteed Notes outstanding.
Summarized combined balance sheet and income statement information for the Obligated Group follows:
| Summarized Combined Balance Sheet Information | Summarized Combined Balance Sheet Information | September 30, 2020 | | December 31, 2019 | Summarized Combined Balance Sheet Information | March 31, 2021 | | December 31, 2020 |
| | (In millions) | | | (In millions) |
| Current assets | Current assets | $ | 2,418 | | | $ | 1,918 | | Current assets | $ | 3,465 | | | $ | 2,957 | |
Current assets - affiliates | Current assets - affiliates | 1,073 | | | 1,146 | | Current assets - affiliates | 1,197 | | | 1,151 | |
Noncurrent assets | Noncurrent assets | 62,131 | | | 63,298 | | Noncurrent assets | 60,648 | | | 61,783 | |
Noncurrent assets - affiliates | Noncurrent assets - affiliates | 615 | | | 441 | | Noncurrent assets - affiliates | 506 | | | 616 | |
Total Assets | Total Assets | $ | 66,237 | | | $ | 66,803 | | Total Assets | $ | 65,816 | | | $ | 66,507 | |
| | Current liabilities | Current liabilities | $ | 3,810 | | | $ | 4,569 | | Current liabilities | $ | 4,295 | | | $ | 4,528 | |
Current liabilities - affiliates | Current liabilities - affiliates | 1,118 | | | 1,139 | | Current liabilities - affiliates | 1,223 | | | 1,209 | |
Noncurrent liabilities | Noncurrent liabilities | 34,320 | | | 33,612 | | Noncurrent liabilities | 32,847 | | | 33,907 | |
Noncurrent liabilities - affiliates | Noncurrent liabilities - affiliates | 1,057 | | | 1,325 | | Noncurrent liabilities - affiliates | 893 | | | 1,078 | |
Total Liabilities | Total Liabilities | 40,305 | | | 40,645 | | Total Liabilities | 39,258 | | | 40,722 | |
Redeemable noncontrolling interest | Redeemable noncontrolling interest | 747 | | | 803 | | Redeemable noncontrolling interest | 705 | | | 728 | |
Kinder Morgan, Inc.’s stockholders’ equity | Kinder Morgan, Inc.’s stockholders’ equity | 25,185 | | | 25,355 | | Kinder Morgan, Inc.’s stockholders’ equity | 25,853 | | | 25,057 | |
Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity | Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity | $ | 66,237 | | | $ | 66,803 | | Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity | $ | 65,816 | | | $ | 66,507 | |
| | | | | | | | | | | | | |
Summarized Combined Income Statement Information | Three Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | | |
| (In millions) | | | | |
Revenues | $ | 2,653 | | | $ | 7,840 | | | |
Operating income | 788 | | | 1,032 | | | |
Net income | 463 | | | 113 | | | |
| | | | | | | | | | | |
Summarized Combined Income Statement Information | | | Three Months Ended March 31, 2021 | | |
| | (In millions) | | |
Revenues | | | $ | 4,902 | | | |
Operating income | | | 1,829 | | | |
Net income | | | 1,377 | | | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For a discussion ofThere have been no material changes in market risk exposures that would affect the quantitative and qualitative disclosures presented as of December 31, 2019,2020, in Item 7A in our 20192020 Form 10-K, see Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations—General and Basis of Presentation—2020 Outlook”and10-K. For more information on our risk management activities, refer to Item 1, Note 5 “Risk Management” to our consolidated financial statements for more information on our risk management activities, both of which are incorporated in this item by reference.statements.
Item 4. Controls and Procedures.
As of September 30, 2020,March 31, 2021, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of the evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There has been no change in our internal control over financial reporting during the quarter ended September 30, 2020March 31, 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See Part I, Item 1, Note 9 to our consolidated financial statements entitled “Litigation and Environmental” which is incorporated in this item by reference.
Item 1A. Risk Factors.
There have been no material changes in the risk factors disclosed in Part I, Item 1A in our 20192020 Form 10-K and in Part II,10-K. For more information on our risk management activities, refer to Item 1A.1, Note 5 “Risk FactorsManagement” ofto our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.consolidated financial statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
The Company does not own or operate mines for which reporting requirements apply under the mine safety disclosure requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), except for one terminal that is in temporary idle status with the Mine Safety and Health Administration. The Company has not received any specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events requiring disclosure pursuant to the mine safety disclosure requirements of Dodd-Frank for the quarter ended September 30, 2020.March 31, 2021.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibit
Number Description
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4.1 | | | |
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10.1 | | | |
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22.1 | | |
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31.1 | | | |
| | |
31.2 | | | |
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32.1 | | | |
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32.2 | | | |
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101 | | | Interactive data files pursuant to Rule 405 of Regulation S-T formatted in iXBRL (Inline Extensible Business Reporting Language): (i) our Consolidated Statements of Operations for the three and nine months ended September 30, 2020March 31, 2021 and 2019;2020; (ii) our Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2020March 31, 2021 and 2019;2020; (iii) our Consolidated Balance Sheets as of September 30, 2020March 31, 2021 and December 31, 2019;2020; (iv) our Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2020March 31, 2021 and 2019;2020; (v) our Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020March 31, 2021 and 2019;2020; and (vi) the notes to our Consolidated Financial Statements. |
| | |
104 | | | Cover Page Interactive Data File pursuant to Rule 406 of Regulation S-T formatted in iXBRL (Inline Extensible Business Reporting Language) and contained in Exhibit 101. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| KINDER MORGAN, INC. | |
| | Registrant |
| | | | | | | | | | | | | | | | | |
Date: | OctoberApril 23, 20202021 | | By: | | /s/ David P. Michels |
| | | | | David P. Michels Vice President and Chief Financial Officer (principal financial and accounting officer) |