Kinder Morgan (KMI) Q2 2023 Earnings Call Transcript

Kinder Morgan (KMI -0.64%)
Q2 2023 Earnings Call
Jul 19, 2023, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the quarterly earnings conference call. Today's call is being recorded. If you have any objections, you may disconnect at this time. [Operator instructions] I would now like to turn the call over to Mr.

Rich Kinder, executive chairman of Kinder Morgan. You may begin.

Rich Kinder -- Executive Chairman

Thank you, Jordan. Before we begin, I'd like to remind you, as we always do, that KMI's earnings is released today and this call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934, as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosure on forward-looking statements and use of non-GAAP financial measures set forth at the end of our earnings release, as well as review our latest filings with the SEC, for important material assumptions, expectations, and risk factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. About the most important thing a board of directors does is to structure and implement orderly succession planning, and I'm proud of the job we've done at Kinder Morgan.

In our 26-year history, we've only had two CEOs and will welcome our third on August 1st. This will be Steve Kean's last investment call as CEO, and I want to thank him for all his dedication and hard work in that position for the last eight years and for his service to the company over the past two decades. He's been a fine leader of the organization, with the ability to understand the big picture and still pay attention to the details. And I can assure you, that's a unique combination.

We're happy that Steve will stay on our board, and I'm sure he will continue to contribute to our success in that role. As all of you know, Kim Dang, our current president, will succeed Steve; and Tom Martin, the long-term president of our natural gas segment, will replace Kim as president. Kim, Tom, and I will constitute the office of the chair. We announced all this back in January, and the transition has proceeded very smoothly.

Kim joined Kinder Morgan in 2001 and Tom in 2003, so they both have long experience with the company and in the midstream energy business. They've both been outstanding contributors to our success, and I know they'll be great leaders of the company in the coming months and years. In short, the board and I are very comfortable that we will march forward without missing a beat. Now, as we make this change, it's important to again emphasize, while we're bullish about the long-term future of Kinder Morgan, the single most important reason for optimism is the role natural gas will play in this country and around the world in the coming decades.

We forecast U.S. natural gas demand will grow by about 20 Bcf a day between 2023 and 2028 to about 121 Bcf a day. And that's a 20% increase. We expect 13.5 Bcf a day of that growth to come from LNG and Mexico exports, with moderate growth in the power, residential, and commercial sectors.

Almost all of that LNG and Mexico growth will occur in Texas and the Gulf Coast, where we have a superb and multifaceted pipeline system. That's why we believe that growth in demand, combined with the strategic location of our network, will drive expansion and extension opportunities for our network and significant bottom-line growth for years to come. And with that, for the last time, I'll turn it over to Steve.

Steve Kean -- Chief Executive Officer

Thank you, Rich. And thanks for the kind words. It's been an honor to work for you, for the board, for our shareholders, and to work with this great management team that we have around the table. And I can only double down on what you said about Kim and Tom.

They work extremely well together and with the rest of the management team, and this is going to be very good for the company. And so, we had a good quarter and a solid year so far. We beat our budget for the second quarter. And although our outlook predicts slight underperformance on a full year basis, that is all more than explained, more than explained by commodity prices coming in lower than our budget year to date and according to the forward curve for the balance of the year.

Put another way, our business is performing better, and that is partially offsetting the lower commodity prices. We also continue to see a strong market from our business development standpoint. While our backlog is roughly even with the first quarter update at $3.75 billion, that's the net result of having placed about $450 million of projects in service during the quarter while adding roughly $500 million of new projects to the backlog during the quarter. As we have noted many times, these projects are getting done at attractive returns, well above our cost of capital.

Notable among the projects brought into service was the first of our Wabash Valley RNG projects. Those projects were part of our Kinetrex acquisition from 2021. The first one went into service on June 27th. The project was later than planned and a little more expensive, but still a nice return.

And we expect the whole portfolio of Kinetrex projects to yield a very attractive return on our overall investment, even with the delays we've experienced. I'll note also on our RNG business that we got a favorable outcome from the EPA. Those are four or five words that you don't often hear from an energy executive. Favorable outcome from the EPA on its June order, establishing the renewable volume obligation for the next three years.

That pushed D3 RINs, those are the RINs values that matter most to us, up over $3. And we held off on selling RINs until after that ruling came out. More significantly, our natural gas and terminals businesses are leading the way with outperformance versus plan. One other performance highlight to note, our CO2 business is beating the plan on production.

Kim and David will give you the percentages there, but we're actually up year over year. Now, that's more than offset by lower commodity prices, as I mentioned. But it's a significant accomplishment given the significant outage that we had at our SACROC, our largest field, in the first quarter. That's very strong work by our EOR team.

Other than that, the song remains the same. We're maintaining a strong balance sheet, originating new projects at attractive returns, and returning value to our shareholders through a well-covered dividend and opportunistic share repurchase. And now, I'll turn it over to our president, soon-to-be CEO, Kim Dang.

Kim Dang -- President

All right. And let me say that I've enjoyed very much working with Steve for the last eight years. He has been selfless in his transition, and he's really helped put me in a position to do this role. And as Rich said -- you know, and Tom and I are also very excited about the future of this company, and we're grateful for the opportunity to lead it.

So, with that, I'll start with the natural gas business unit, as always. Here, our transport volumes increased by 5% versus the second quarter of last year, and that was driven by EPNG's Line 2000 return to service. We also saw increased power demand, which was up 6%; increased LDC demand, which was up 6%; and increased industrial demand, which was up 5%. These increases were offset by reduced LNG volumes, and that was due to maintenance of several export facilities and decreased exports to Mexico.

Natural gas gathering volumes were up 19% in the quarter compared to the second quarter of last year, driven by Haynesville volumes, which were up 29%; Rockies volumes, up 26%; and Eagle Ford volumes, up 21%. Sequentially, gathering volumes were up 7%, with all three basins I just mentioned contributing to the increase. For the year, we expect gathering volumes to be up nicely about 16%, but that's about 4% below our budget, driven by egress project delays and an asset sale. So, largely, what we're seeing is that we're not seeing much of a volume decline from our big producers.

Where we're seeing some price sensitivity is on some of our smaller producers. And so, that's why we still expect that we'll be up 16% for the year. As you can see from the volume increases that I just mentioned, despite a brief lull in new export LNG demand and lower prices in the quarter versus the second quarter of 2022, the natural gas markets continue to be robust. In our product pipeline segment, refined products were flat for the quarter versus the second quarter of last year.

Road fuels were down about 2%. Our gasoline volumes were impacted by refinery maintenance during the quarter. Diesel volumes were down as renewable diesel volumes in California are currently being transported by other methods than pipelines, and that has replaced some of the conventional diesel that previously moved on our pipes. However, the reduction in conventional diesel volumes doesn't really reflect the true economic picture as the RD volumes and projects we placed in service earlier this year are largely underpinned with take-or-pay contracts.

So, even though the volumes may not be moving on our pipeline yet, we get paid most of the revenue from those projects. Jet fuel volumes increased 9%. Crude and condensate volumes were up about 4%, and that was driven primarily by higher Bakken volumes. Sequential volumes were up about 8%, and that was primarily driven by the Eagle Ford.

In terminals, our liquids lease capacity remains high at about 94%. Excluding the tanks out of service for required inspections, approximately 96% of our capacity is leased. Although we were down financially in the quarter, utilization at our key hubs, Houston Ship Channel and the New York Harbor, strengthened in the quarter. And we saw nice increases on our New York Harbor contract renewables that were negotiated during the quarter.

Rates on our renewals in the Houston Ship Channel were slightly positive, and our Jones Act tankers were 97% leased -- or 97% leased through 2024, assuming likely option for exercise. On the bulk side, overall volumes were flat, with increases in coal, fertilizer, and salt, offset by a reduction in grain. The grain volumes have a minimal impact on our financial results. And so, excluding grain, the bulk volumes were up 5.5%.

And we also benefited financially from rate escalations. On the CO2 segment, lower prices on NGL and CO2 more than offset the increase in oil production. Overall, oil production increased 7%, and that was driven by SACROC volumes, where our projects have performed much better than we expected. And we've also seen strong volumes post the January outage.

For the year, we still expect net oil volumes to exceed our plan, which helped offset some of the price weakness. With that, I'll turn it over to David.

David Michels -- Chief Financial Officer

OK. Thank you, Kim. All right. So, for the second quarter of 2023, we're declaring a dividend of $0.2825 per share, which is $1.13 annualized, up 2% from last year.

I'll start with a few highlights before getting into the quarterly performance. We ended the second quarter 2023 with a net debt to adjusted EBITDA of 4.1 times ratio, leaving us with a good amount of capacity under our leverage target of around 4.5 times. We also had almost $500 million of cash at the end of the quarter and nothing drawn on our $4 billion revolving credit facility. We also repurchased over $203 million worth of shares in the quarter, which brings our total share repurchases for the year to almost 20 million shares repurchased at an average price of $16.61, creating what we think is very good value for our shareholders.

While we were forecasting to be slightly below budget for the full year, more than all of that can be explained by the lower-than-budgeted commodity prices. We're seeing better-than-budgeted performance in both our natural gas and in our terminals segments. For the quarterly performance, we generated revenue of $3.5 billion. That is down $1.65 billion from the second quarter of 2022.

But our cost of sales were also down, down $1.7 billion. These were both due to the large decline in commodity prices from last year. As you will recall, we entered into offsetting purchase and sales positions in our Texas Intrastate natural gas pipeline system. Those arrangements resulted in an effective take-or-pay transportation service.

And while that leaves us -- leaves our revenue and our cost of sales exposed to price fluctuations, our margin from that activity is not impacted by price. In fact, netting the revenue and the offsetting cost of sales impacts, gross margin grew. Interest expense was higher versus 2022, as expected, which is driven by the short-term interest rates impacting our floating rate swaps. And we generated net income of $586 million, down 8% from the second quarter of last year.

Adjusted earnings was $540 million, down 13% compared to the second quarter of '22. Excluding the impact from commodity prices and interest expense, we would have been favorable to last year's performance. Our share count was down $28 million, or 1%, this quarter versus the second quarter of last year due to our share repurchase efforts. Onto our business segment performance.

Improvements in our natural gas and terminals segments, which were both up, were partially offset by outperformance in our products and our CO2 segments. In natural gas, the largest driver of the outperformance came from greater sales margin in our Texas Intrastate system and favorable rates on recontracting at our Midcontinent Express Pipeline, as well as contributions from EPNG due to a pipeline returning to service and higher value capacity sales on Stagecoach and our Tennessee Gas Pipeline. And those were partially offset by an unfavorable recontracting impacts on our South Texas assets. Product pipeline segment was down, mostly due to unfavorable pricing impacts impacting our transmix business and unfavorable recontracting on our KMCC asset.

The terminals segment was up, mainly due to improved contributions from our Jones Act tanker business, expansion project contributions, and rate escalations, which were all partially offset by lower truck rack volumes and some higher operating costs. Our CO2 segment was down due to our CO2, NGL, and oil prices, partially offset by, as Steve and Kim both mentioned, higher oil production volume. Our adjusted EBITDA was $1.8 billion for the quarter, which was down 1% from last year. DCF was 1.076 billion, down 9% from last year.

And our DCF per share was $0.48, down 8% from last year. On these non-GAAP measures, just like on our GAAP measures, excluding interest expense and commodity price headwinds, we were favorable to last year. Moving on to the balance sheet. We ended the second quarter with $30.8 billion of net debt and a net debt to adjusted EBITDA ratio of 4.1 times, as I mentioned.

Our net debt decreased $139 million since the beginning of the year, and I'll provide a high-level reconciliation. We generated cash flow from operations of $2.883 billion. We've paid out dividends of 1.265 billion. We've spent capital growth sustaining and contributions to our joint ventures of 1.18 billion, and we've made [Inaudible] we had stock share repurchases through the end of the quarter of $317 million, and that gets you pretty close to the reconciliation for the year-to-date net debt change.

Back to Steve.

Steve Kean -- Chief Executive Officer

OK. We're going to take your questions now. And as usual, we have a good chunk of our management team around the table. We'll try to make sure that you hear from them as well.

Jordan, if you would please open up the line for questions.

Questions & Answers:

Operator

Thank you. We will now begin our question-and-answer session. [Operator instructions] Our first question comes from Brian Reynolds with UBS. Your line is open.

Brian Reynolds -- UBS -- Analyst

Hi. Good morning, everyone. My first question is just around the guidance. We've seen 1Q and 2Q come roughly in line with the original quarterly guidance outlined at the Analyst Day.

But in your prepared remarks, you talked about how commodity headwinds have been really offset by base business outperformance. So, kind of looking ahead to second half, should we expect continued outperformance in kind of the nat gas and terminal line segment or could we see a recovery in products in the back half as well? Thanks.

David Michels -- Chief Financial Officer

Yeah. Good question, Brian. I think part of the outperformance year to date has been our ability to take advantage of some of the volatility that we've experienced, particularly in our natural gas assets. And we saw some outperformance there in our intrastate business, like I've mentioned.

Our storage is a bit full, which might limit our ability to take advantage of that going into the end of the year. But there might be some additional ability to take advantage of that if prices and storage capacity becomes more available.

Brian Reynolds -- UBS -- Analyst

Yeah. So --

Kim Dang -- President

And so --

Brian Reynolds -- UBS -- Analyst

Go ahead.

Kim Dang -- President

And so, you know, we haven't assumed that same level of outperformance in the back half of the year as what we experienced in the first part of the year. And therefore, that's why we're saying that we will be slightly down versus planned. To the extent that we see some of that outperformance in the back half of the year, then that could improve the outlook that we've given you here today.

Brian Reynolds -- UBS -- Analyst

Great. Really appreciate that color. As a follow-up, just wanted to talk RIN pricing. It's been very volatile year to date based on the RVO outlook.

So, just curious if you could help sensitize perhaps the ability for Kinder to utilize its RINs on the balance sheet that were held on the first half and then monetize in the back half or second half of '23. Thanks.

Steve Kean -- Chief Executive Officer

Yeah. So, as I mentioned, and then I'll let Anthony expand on it, we did -- we knew that there was another round coming from the EPA in June, and we expected that based on all the comments and the feedback and the data that they were going to increase their renewable volume obligation, which they did on the order of 30% for each -- this year and the following two years. There was 33% this year [Inaudible] for the next two years. And so, anticipating that, we'd see some positive news rather than selling at a 1.95, we held on and settled it -- sold it to 2.90 and above.

Anthony Ashley -- Vice President and Treasurer

You know, I think we -- as Steve said, we have taken advantage of the increase in pricing. I think part of the reason why, and I mentioned this a little bit, I think, on the first quarter call, why was trading so low in the first half of the year is everybody had a similar strategy as we -- or there was really no liquidity in the market, which was holding prices down. I now think the RVOs that came out are very supportive for RINs pricing moving forward. As I said, we've taken advantage, I think, of the uptake already with regards to the majority of our inventory levels, but we'll be obviously generating additional RINs for the remainder of the year.

And our anticipation is that as far as we can see, there's no reason for RIN prices to diminish in the next -- over the remainder of the year.

Brian Reynolds -- UBS -- Analyst

Great. Thanks. I'll leave it there.

Operator

Our next question comes from Colton Bean with TPH and Company. Your line is open.

Colton Bean -- Tudor, Pickering, Holt and Company -- Analyst

Good afternoon. Steve, you mentioned the incremental 500 million was added to the backlog. Can you provide a bit more detail on the nature of those projects? And then safe to assume those are additive to mostly '24 and '25 so the runway is extending a bit here?

Steve Kean -- Chief Executive Officer

Yeah. So, I think we had some additions in our EOR business. We had some additions in our natural gas sector as well. I think those were the two primary contributors.

David, any --

David Michels -- Chief Financial Officer

And I think those were -- those are on the back -- those are a little bit later in the backlog than most of our backlog. So, it is adding some length to the backlog overall.

Colton Bean -- Tudor, Pickering, Holt and Company -- Analyst

Got it. And then maybe a question for Anthony on the landfill-RNG development. I think we're tracking a bit slower than expected at the time of acquisition. Can you just update us on what some of those delays may be attributable to, whether it's permitting, supply chain, construction? Just generally curious as to the build-out there.

Anthony Ashley -- Vice President and Treasurer

Yeah. Sure. We have seen multimonth delays on the three RNG projects that we've been -- that are in construction this year. Those have been primarily, I would say, supply chain, weather, and then most recently, we've had some commissioning issues, which have pushed back the in-service of some of the facilities.

The good news is we do have our first facility in service, Twin Bridges, and I think we have good line of sight for in-service for the next two projects as well.

Colton Bean -- Tudor, Pickering, Holt and Company -- Analyst

Great. Thank you.

Operator

Our next question comes from Theresa Chen with Barclays. Your line is open.

Theresa Chen -- Barclays -- Analyst

Hi. I'd like to follow up on the line of thought related to RNG and D3 RINs. Just looking beyond this year, I'd love to hear about your outlook for D3 RIN pricing over time that underlies the returns of these projects and how do you take into account the supply of additional D3 RINs if and when an eRIN pathway eventually becomes available, even if it's on pause for now?

Anthony Ashley -- Vice President and Treasurer

Yeah. Good question. So, you know, I think we obviously have a forecast for our D3 RIN. We -- when we're looking at it from an investment standpoint, we do sensitize it down to where we feel like is sort of, you know, a low-case or a worst-case type of situation and to make sure that we're satisfied with the types of returns we're getting.

You know, we do assume, in some cases, that we sell also into transportation market, some percentage into the transportation market -- I'm sorry, the voluntary market, which is more of a fixed-price environment. And we do have some, you know, price points that we use there as well. But, you know, I think, as I was saying earlier with the RVO targets that just came out, you know, and they came out for the first time for three consecutive years, right? So, normally, it's just an annual process. And, you know, they, I think, are very supportive for RINs prices moving forward with, you know, roughly a 30% increase for each consecutive year.

So, that compounds upon itself. And so, I think that's supportive. I think -- obviously, you mentioned eRINs as well, which has been delayed or postponed. I think our long-term view on eRINs is that provides another avenue for demand growth for our projects, right? So, that's supportive as well for long term for pricing as well.

You know, we'll have to see when that actually comes into play. It was postponed in June and, you know, for, we think, probably good reasons were around sort of the mechanics or logistics of how it will actually be implemented. But, you know, long term, I think it's a good thing for us if it comes into play.

Theresa Chen -- Barclays -- Analyst

Thank you. And in relation to your project backlog, so excluding CO2 and G&P, the remaining $2.6 billion in project, can you talk about why the average EBITDA multiple is now 4.2 times versus 3.9 previously and what's driving that upward pressure and lower returns?

David Michels -- Chief Financial Officer

Sure, Theresa. The change there is just the mix of the backlog, what went in service during the quarter versus what we added in the quarter. What went in service were lower multiple, so stronger returning G&P-type projects. And what came into the backlog mostly were very attractive returning projects, but a little bit -- had a little bit of a higher multiple, more in line with our longer haul pipeline-type opportunities.

And so, that was the biggest driver of it.

Theresa Chen -- Barclays -- Analyst

Thank you.

Operator

Our next question comes from Michael Blum with Wells Fargo. Your line is open.

Michael Blum -- Wells Fargo Securities -- Analyst

Thanks. Maybe -- I wanted to stay on this topic. I guess the decision to exclude the CO2 and G&P projects from the backlog multiples, I'm wondering if you just expand on your thinking there. And because you say that the cash flow streams are a little less predictable, does this change at all how you think about making those types of investments and anything around minimum hurdle rates to allocate capital there?

Kim Dang -- President

Yeah. No, Michael, it doesn't. So, I think the reason to exclude those projects is because the other projects that we have on natural gas and products and terminals, they typically have a very consistent cash flow. And so, people, a lot of the sell side like you, are using the backlog and they're looking at the multiple and they're saying, OK, well, that's the level of EBITDA that I should assume from these projects.

Well, as you know, you know, when some of the CO2 projects come on or some of the G&P projects come on, they can come on at a higher multiple, but then they ultimately decline over time. And in many cases, you know, that cash flow is replacing other cash flows which are declining. And so, all we were trying to do is give people a better proxy for estimating, you know, what cash flow is incremental and stably recurring. It does not change the way that we think about the CO2 or G&P projects.

You know, those projects, they have more variability, and therefore, we require a higher return on those projects. And so, as you know, when we're doing CO2 projects, we're typically requiring 20% or higher returns. So, we think those are very attractive terms -- returns, and we should do those projects. And G&P are typically in the high teens, and those are very attractive returns.

And so, we'll continue to do those. But we were just trying to help people in their modeling.

Michael Blum -- Wells Fargo Securities -- Analyst

OK. Got it. That makes sense. Thanks for that.

I also wanted to ask about Midcontinent Express. You've had a really nice uptick there in the last couple of quarters, and I think you mentioned in the prepared remarks some favorable recontracting on an MEP. So, I was wondering if you could just -- maybe just clarify just how sustainable this new kind of run rate is for MEP and then how much is -- how much of the capacity is now contracted and duration of contracts? Thanks.

Steve Kean -- Chief Executive Officer

Sital.

Sital Mody -- President, Natural Gas

Yeah. Michael, so, you know, when we're -- when we take a step back and look at MEP over the past, you know, a couple of years, we've seen, you know, a lot of the Oklahoma Basin drilling driving some of that basis. But as we move forward, really, we see that basis is strengthening, not -- you know, as all the LNG facilities come on that Louisiana Gulf Coast Corridor, as well as some of our southeast markets competing for supply. So, we do see that basis continuing to sustain, if not grow.

We've got, you know, incremental LNG facilities coming on in 2024. As you know, Golden Pass, you know, first up. So, nothing but support, we think, for the basis. You know, we've been opportunistic in terms of how we're selling that capacity, trying to capture the highest margins.

And so, we'll continue to do so. You know, probably, you know, in the two- to three-year tranche, we've been selling out the capacity, waiting for that spread to widen a little bit.

Michael Blum -- Wells Fargo Securities -- Analyst

Got it. Thank you very much.

Operator

Our next question comes from Tristan Richardson with Scotiabank. Your line is open.

Tristan Richardson -- Scotiabank -- Analyst

Hey. Good evening, guys. Just a question on the midstream side. Obviously, seeing very strong year-over-year growth rates across your three primary basins.

Maybe -- you also mentioned in the prepared comments, though, that you are seeing at the margin maybe some smaller producers being a little bit more price-sensitive. Maybe curious about maybe regionally where you're seeing that most across the three basins in midstream?

Steve Kean -- Chief Executive Officer

Sital.

Sital Mody -- President, Natural Gas

Yeah. So, good question. You know, across the three basins, it's really on the -- at the -- in the, you know, Haynesville. We have some of our smaller producers that, you know, given the current pricing environment, that have kind of tapered off some of their drilling plans.

Obviously, our big producers or larger producers are there. I think you know who they are. But I mean, you know, those guys still anticipate the LNG demand coming on at the back half of the year, as well as, you know, Europe's potential volatility that may arise. So, they're -- you know, our sense is they're going to continue to keep these rigs up in the Bakken.

You know, we've continued to see growth in the Bakken. And then in the Eagle Ford, here's a data point for you, we're ahead of our volumes pre-COVID, even in this price environment. So, we're -- you know, all those systems are pretty well. All systems go.

Tristan Richardson -- Scotiabank -- Analyst

That's great. And then just a quick follow-up on the Gulf Coast storage expansion. You guys announced, I think, the Markham project. Can you maybe give some context around relative magnitude versus your overall storage portfolio? And then maybe just some of the logistics.

Are we assuming third-party contracts or is this all considered perhaps new storage that would be available to new customers? Maybe just curious to touch on that one.

Sital Mody -- President, Natural Gas

Yeah. So, you know, that basically that -- you're referring to our Markham expansion. That's a six Bcf incremental expansion to our Markham facility. We're adding about 650,000 of incremental withdrawal capacity.

And at this point, you know, our plan is to offer it up to our customer base. In fact, we sold most of it at rates really higher than we sanctioned the project, with several returns or even better than we anticipated. Well, did I answer your question there?

Tristan Richardson -- Scotiabank -- Analyst

Yup. That's very helpful. Thank you, guys.

Operator

Our next question comes from Keith Stanley with Wolfe Research. Your line is open.

Keith Stanley -- Wolfe Research -- Analyst

Hi. Thank you. First question, kind of a random one, but how is the company thinking about gas marketing, which, I think, some of your peers are more active in? Is that a business that you could try to grow in to increase margins? It just seems like if your view is gas is going to be more volatile, you have a lot of storage and other physical asset positions. Is marketing something that's becoming more interesting given the direction that gas is going in?

Steve Kean -- Chief Executive Officer

Yes, it is, but with an important note of caution there. We have done a fair amount of enhancement in our crude pipeline assets by picking up capacity that would otherwise not be utilized by third-party shippers and making use of it and attracting additional volumes to the system in order to recover additional tariffs. And so, we've done very well with that. We are extending that a bit into the gas marketing arena, but very much sticking to our knitting there and doing it in a nonspeculative and kind of lagging into it gradually.

But we do expect we'll be able to build on that as we go. There's another part of the business which is larger than that right now, which is in our Texas Intrastate business, where we buy and sell natural gas. As David pointed out in his comments about revenue versus cost of goods sold, that is often done with reference to the same Houston Ship Channel price versus at Houston Ship Channel minus sell it at Houston Ship Channel or Houston Ship Channel plus and pull out a transport margin in between. But we have storage, and we often find that we have excess storage that we can optimize and make money on it in the state of Texas.

And we've done very well with that, and that shows up in some of the optimization numbers that David was going through. So, it's an activity that we're already in in kind of a limited way in Texas, and we're looking to pick up additional and have picked up additional bits of capacity here and there around our system in order to expand on that business but doing it in a very -- I would say very conservative and careful way.

Keith Stanley -- Wolfe Research -- Analyst

Makes sense. Thanks. And second question on the buybacks. So, you've done a lot year to date now, and the press release referenced 200 million of unbudgeted buybacks during Q2.

Can you clarify what you mean by unbudgeted buybacks and then how you think about buyback capacity for the company over the balance of the year versus other priorities? Thanks.

David Michels -- Chief Financial Officer

The unbudgeted comment just meant that we didn't budget for those, so --

Kim Dang -- President

And we don't budget for share repurchase.

David Michels -- Chief Financial Officer

And we don't budget for share repurchase. Because we take an opportunistic approach, it's share price-dependent. We don't take a program -- in general, we don't take a programmatic approach to share repurchases, and we think that's the right way to run this program. Going forward, I think we'd like to do is take a balanced approach.

You know, we do -- we will use balance sheet capacity for share repurchases if it makes sense, if the price makes sense for us to repurchase, but we want to do so in a way that's measured. We've worked really hard to improve our balance sheet. We've got it in a really good spot, and we don't want to do anything to damage that, but we also want to take advantage of good share repurchase opportunities.

Keith Stanley -- Wolfe Research -- Analyst

Thank you.

Operator

Our next question comes from Neal Dingmann with Truist Securities. Your line is open.

Neal Dingmann -- Truist Securities -- Analyst

Good afternoon, guys. Just maybe a quick broad one first. Not surprising, you all mentioned just how your lower-than-budget commodity prices impacted results. I'm just wondering, kind of a go-forward now, have you reset or how you're thinking about sort of the remainder of the year and into '24 how much differently now just maybe in broad strokes?

Kim Dang -- President

So, yes. So, the forecast that we gave you today has the gas prices and the crude prices at the -- roughly the current forward curve. So, yes, we've reset it for the -- for 2023. And then 2024, we don't really get into that till we do our budget process later in the year.

Neal Dingmann -- Truist Securities -- Analyst

OK. Great answer. And then just lastly, again also, not surprising, you all mentioned just in the release how the crude and condensate business was impacted by the lower recontracting rates, specifically just looking -- what I was looking in was in the Eagle Ford. And I'm just wondering, could you speak to the degree of rates also from the same basin going forward, again, maybe the remainder of the year that will be -- need to be recontracted there?

Steve Kean -- Chief Executive Officer

Yeah. Dax Sanders.

Dax Sanders -- Executive Vice President and Chief Strategy Officer

Yeah. So, we did -- we rolled one contract there. There's still a -- you know, we've gone through over the last couple of years the original legacy contracts from back in 2013, 2014. And not surprising, the rates that they're rolling at are lower than that.

Right now, on KMCC, we've got about 84 a day, 85 a day of capacity held by third parties. We've got about 75 held by our intercompany marketing affiliate that Steve spoke about. Of that 85, that rolls over the next kind of, call it, two to three years. And we would expect -- I mean, those contracts have largely already rolled from the high legacy rates of, you know, 10 years ago.

So, they'll roll, but we wouldn't expect that there would be any massive changes like you've seen over the past couple of years.

Neal Dingmann -- Truist Securities -- Analyst

Helpful. Thanks, guys.

Operator

Our next question comes from Jean Ann Salisbury with Bernstein. Your line is open.

Jean Salisbury -- AllianceBernstein -- Analyst

Hi. I think that you were just addressing crude in the last question, but I think I have sort of a similar question, which is that Eagle Ford volumes for gas were up year on year pretty materially, but it sounds like Eagle Ford contribution is down. I think that that's pretty much all because of the Copano roll-off. Is that right? And has that fully rolled off now?

Sital Mody -- President, Natural Gas

Jean, yes. That's right. 2023 was the last year of those roll-offs. And so, now, we should see, you know, as we recontract -- we've already done our recontracting through the 2023 period.

And so, as we increase these volumes now, we're just going to focus on increasing our margins.

Jean Salisbury -- AllianceBernstein -- Analyst

OK. That makes sense. And then as a follow-up, a lot of people are forecasting a widening of Texas and Louisiana gas differentials as not all Permian gas is able to get to Louisiana LNG. Do you agree with this and does it change how you're thinking about your next Permian gas takeaway solution offering?

Sital Mody -- President, Natural Gas

Well, you know, one, we do see a need to get some infrastructure across to the eastern Louisiana side. We are, you know, looking at some opportunities on our interstate networks to complement that or to accomplish that. You know, as we look at the next Permian project, we are having discussions, you know, not only with Gulf Coast LNG facilities but also with the Louisiana facility. So, all of that will be taken into context.

But I do see a physical need to get across from the western side of the eastern side.

Jean Salisbury -- AllianceBernstein -- Analyst

Great. Thanks. That's all for me.

Operator

Our next question comes from Neel Mitra with Bank of America. Your line is open.

Neel Mitra -- Bank of America Merrill Lynch -- Analyst

Hi. Thanks for taking my question. I wanted to follow up on LNG demand, specifically in the Corpus Christi area. Now that we have the Rio Grande project sanctioned, do you see any incremental interest in expanding GCX given that there's more demand in the Corpus Christi area and the last two pipes have been built to the Houston area?

Sital Mody -- President, Natural Gas

Yeah. So, first, congratulations to the NextDecade team on getting that project across to the FID at the outset. You know, it's good for the network, period. But yes, there is incremental interest not only in a, you know, Permian project, but also you've noticed we've sanctioned our Freer to Sinton project.

You know, we've also got interest in -- renewed interest in GCX. Those conversations are happening. But as you know, we're in a very competitive environment, and, you know, returns are going to determine whether or not we proceed with the next project.

Steve Kean -- Chief Executive Officer

So, the reference to the NextDecade was separate and apart from GCX. We're not attributing that to that particular [Inaudible]

Sital Mody -- President, Natural Gas

That's right.

Steve Kean -- Chief Executive Officer

I think the main update there is we had told you before that those discussions had gone cold, and they are now active again.

Sital Mody -- President, Natural Gas

That's right.

Steve Kean -- Chief Executive Officer

That's the change.

Neel Mitra -- Bank of America Merrill Lynch -- Analyst

Got it. And then the second follow-up on the contract structure maybe for your Texas Intrastate network. We had a pretty weak basis in the second quarter. I think it averaged about $0.60 between Waha and Henry Hub because of the heat.

So, do you have marketing contracts or short-term contracts? How were you able to increase your earnings off of that with the narrow basis there this quarter?

Kim Dang -- President

You want to take --

Steve Kean -- Chief Executive Officer

Go ahead.

Kim Dang -- President

OK. So, I just want to clarify a couple of things. First, you know, the -- what Steve was talking about on the Texas Intrastate business and the purchase and sales there, you know, typically, we're locking in those purchase and sales, you know, over a year or two years or three years. And so -- and it's real supply and it's real demand on the other end.

And so, you know, it's not as affected by changing basis differentials. You know, there's a market for what that transport spread is worth. And because there's demand on the other end, it doesn't necessarily move as much as the forward spreads move all the time. So, that's with respect to the Texas Intrastate market.

With respect to the spread between Waha and Houston, we do have a little bit of capacity between Waha and Houston. We've hedged back capacity for this year and into next, and so we don't have much exposure there to what's happening, good or bad, with those basis differentials.

Neel Mitra -- Bank of America Merrill Lynch -- Analyst

OK. Great. Thank you very much.

Operator

Our next question comes from Jeremy Tonet with J.P. Morgan. Your line is open.

Jeremy Tonet -- JPMorgan Chase and Company -- Analyst

Hi. Good afternoon.

Steve Kean -- Chief Executive Officer

Good afternoon.

Jeremy Tonet -- JPMorgan Chase and Company -- Analyst

Steve, we wish you the best of luck in retirement here. In -- just want to start off, I guess, in the past, I think, calls, you talked about four or five as kind of a leverage level that the company thought about. I'm just wondering, is that still the level that you guys are kind of seeing as appropriate for Kinder overtime here? And if it is, what's the path to getting there given that leverage? If that sits lower right now, would it be more buybacks? Would it be acquisitions? Or would it be growth projects? And just wondering, you know, what type of multiples are you seeing on new growth projects given that this was a little bit of shift as you guys talked about with the backlog update?

Kim Dang -- President

OK. Let me make a couple of points on that. OK. Well, first one is we're very comfortable with the 4.5 times leverage target given the breadth and the scope of our assets.

And, you know, we have looked at whether it makes sense to bring that down, and we don't think it does. We think that where we are rated BBB+ is a good place for a company like ours and our ability to raise the debt that we need at reasonable rates and that it would cost a lot of money to take our leverage much lower and there's not much benefit in our cost of capital. And so, we're leaving our leverage target at 4.5 times. Right now, as David told you, we're running at 4.1 times.

It's not burning a hole in our pocket, right? I mean -- so we like having some flexibility on our balance sheet. And so, we don't feel some type of pressure to go from 4.1 to 4.5. When we see nice opportunities, we have flexibility there because we have that capacity. But if we don't see opportunities, you know, we're not going to stretch for anything to use that leverage capacity.

So, we're not changing any of our return targets because we have leverage capability. And with respect to the multiple going up on the backlog, what I would say about that is, you know, we target, on average, you know, 15% unlevered after-tax project. You know, that can be -- I mean that can, in some cases, result in a going in multiple of seven or eight times. And just because our existing backlog is less than a seven or eight times multiple, we're still going to do that project.

It's a 15% unlevered after-tax return. So, we're going to do it even though it might increase the multiple on our backlog. So, we're not -- as we look at projects, we're not saying, oh, what happens to our backlog multiple, you know, that determines whether we do the project. No.

Is it a good return project? We'll go lower than 15% unlevered tax return for a project with long-term contracts, but, you know, we don't -- we're not going to drop into single digits. So, that's how I would think about it. Think about it more, you know, we're doing -- we're out there, we're looking for projects, we're trying to earn the maximum return that we can. We have a return threshold.

And even though that might cause our backlog return to change, we'll still do that project. And another question? Oh, sorry. I said BBB+. I should have said we're happy with BBB.

Sorry.

Jeremy Tonet -- JPMorgan Chase and Company -- Analyst

Got it. That's very helpful there. And just one last one, if I could, regards to the CCS. We've seen some action recently and the industry projects continue to move forward and other items developing there.

Just wondering, is there anything new to share from Kinder Morgan's perspective with regard to CCS potential?

Kim Dang -- President

CCS?

Jeremy Tonet -- JPMorgan Chase and Company -- Analyst

Carbon capture, yeah.

Kim Dang -- President

Gotcha. OK. Sorry.

Steve Kean -- Chief Executive Officer

Go ahead.

Anthony Ashley -- Vice President and Treasurer

What was the rest of the question, sorry? I didn't hear CCS part.

Jeremy Tonet -- JPMorgan Chase and Company -- Analyst

Just there's been some actions out there in the CCS industry projects, bigger projects moving forward in the Midwest and in other actions out there in the industry at large and just wondering if there's any updated thoughts from Kinder Morgan with regards to potential CCS efforts.

Anthony Ashley -- Vice President and Treasurer

Yeah. No, I mean, we continue to be very busy on the CCS front. I would say both around our existing infrastructure that we have in West Texas. We talked about our Red Cedar project in January.

That continues to progress well. We're talking to a number of other folks in West Texas as well. And then we're very active kind of in our stations in the Gulf Coast as well. I would say both on sort of the transportation and sequestration side of things, as well as just draw up potential transportation opportunities.

And so, these are long development cycle opportunities. And I think, one, when it's appropriate for us to talk to you guys about that, we'll talk about those projects. But there is a lot of activity, especially post-IRA in that world.

Rich Kinder -- Executive Chairman

And we're definitely looking at it. And of course, what we bring to the table is the expertise to move it and sequester it. And we've done that in West Texas, and we can do that in the Gulf Coast if the opportunities are correct and the returns are correct.

Jeremy Tonet -- JPMorgan Chase and Company -- Analyst

Got it. Makes sense. I'll leave it there. Thank you.

Operator

There are no further questions in the queue.

Rich Kinder -- Executive Chairman

OK. Thank you, everybody. Have a good evening.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Rich Kinder -- Executive Chairman

Steve Kean -- Chief Executive Officer

Kim Dang -- President

David Michels -- Chief Financial Officer

Brian Reynolds -- UBS -- Analyst

Anthony Ashley -- Vice President and Treasurer

Colton Bean -- Tudor, Pickering, Holt and Company -- Analyst

Theresa Chen -- Barclays -- Analyst

Michael Blum -- Wells Fargo Securities -- Analyst

Sital Mody -- President, Natural Gas

Tristan Richardson -- Scotiabank -- Analyst

Keith Stanley -- Wolfe Research -- Analyst

Neal Dingmann -- Truist Securities -- Analyst

Dax Sanders -- Executive Vice President and Chief Strategy Officer

Jean Salisbury -- AllianceBernstein -- Analyst

Neel Mitra -- Bank of America Merrill Lynch -- Analyst

Jeremy Tonet -- JPMorgan Chase and Company -- Analyst

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