Kinder Morgan, Inc. Q3 FY2025 earnings call

• Natural Gas Demand: Continued rapid growth in LNG feedgas demand driven by Gulf Coast export facility expansions, with demand expected to at least double by 2030. AI data centers driving electricity demand, with natural gas seen as a key fuel source due to renewables and nuclear limitations.
• Long-Term Strategy: Prolific cash generator with majority assets in natural gas transportation. $9 billion+ projects approved, with capital projects driving EBITDA and EPS growth. Federal regulatory process more supportive of projects.
• Financial Results: Strong quarter with EBITDA up 6% and adjusted EPS up 16% Y/Y. Expected to exceed full-year budget due to Outrigger acquisition, though RNG volumes and RIN prices impact outperformance.
• Backlog: Expansion backlog flat at $9.3 billion, with ~$500 million new projects offset by projects in service. Over $10 billion in potential natural gas projects pursued.

The natural gas segment, accounting for 2/3 of the business, had EBITDA up 6% and adjusted EPS growing 16% year-on-year. Transport volumes in the natural gas segment were up 6% compared to the third quarter of 2024, with gathering volumes up 9% in the quarter. The products pipelines segment saw refined product volumes down 1% Q/Q and crude and condensate volumes down 3% Q/Q. The terminals business had liquids lease capacity at 95%, with the Jones Act tanker fleet fully leased through 2025 and 100% leased through 2026. The CO2 segment experienced 4% lower oil production volumes, 4% higher NGL volumes, and 14% lower CO2 volumes in the quarter compared to the third quarter of 2024.

• Expect to exceed 2025 budget, with adjusted EBITDA and EPS growth. Dividend increased by 2% to $0.2925 per share. Net debt to adjusted EBITDA ratio improved to 3.9x. Tax reform expected to provide cash flow benefits, enhancing credit ratings.

• Regulatory risks related to project approvals and federal processes.
• Commodity price fluctuations affecting volumes and prices of natural gas, refined products, and CO2.
• Uncertainty in AI data center electricity demand capture by natural gas, as renewables and nuclear face challenges.

Q: Theresa Chen with Barclays asked about the over $10 billion opportunity set, what drove the improved outlook, commercialization speed, and customer interest for expansion projects.

A: Kimberly Dang responded that the opportunity set is mostly natural gas, supporting LNG export, power, Mexico exports, and industrial growth. Opportunities are across the Southern U.S. and include smaller and larger projects. Commercialization cadence is hard to project but significant projects expected in 2026.

Q: Jeremy Tonet with JPMorgan followed up on the competitive landscape and capital cadence.

A: Kimberly Dang stated Kinder Morgan is competitive due to existing footprint, track record of on-time project delivery, and will get fair share of projects. Cadence of bringing projects to FID is hard to project but based on $10 billion backlog.

Q: Julien Dumoulin-Smith with Jefferies asked about shadow backlog, power opportunities, and El Paso system.

A: Kimberly Dang and Sital Mody discussed power development for data centers, coal retirements, storage needs, and connectivity to Mexico. Opportunities in Southeast, West, and Haynesville-Marcellus/Utica regions.

Q: Michael Blum with Wells Fargo asked about Hiland Express project and behind-the-meter opportunities.

A: Sital Mody said Hiland Express is on track for initial commitment next year, with repurposing of assets. Kimberly Dang noted behind-the-meter investments unlikely, but working with partners to supply gas for power.

Q: Spiro Dounis with Citi asked about 2026 outlook and opportunity set time frame.

A: Kimberly Dang mentioned tailwinds from expansion projects, contract escalators, and interest rate declines, but uncertainties in commodity prices. Opportunity set includes regulated and unregulated projects with shorter capital cycles due to FERC changes.

Q: Keith Stanley with Wolfe Research asked about Western Gateway project structure and TGP Appalachia capacity.

A: Kimberly Dang said Western Gateway is a 50-50 JV with Phillips 66, with Kinder's capital expenditure smaller. Sital Mody discussed working on increasing TGP Appalachia capacity for incremental gas egress.

Q: Zackery Van Everen with TPH asked about Haynesville volumes and Permian West expansion.

A: Sital Mody said Haynesville volumes close to capacity, with private drilling increasing. Permian West expansion open season serves power, with bids evaluated for capacity accommodation.

Q: Brandon Bingham with Scotiabank asked about California refined products market and Western Gateway.

A: Sital Mody noted Western Gateway provides access to California via West line reversal, depending on California refining market changes.

Q: Jason Gabelman with TD Cowen asked about large projects in backlog and M&A opportunities.

A: Kimberly Dang said large projects support export LNG and power themes. M&A is opportunistic, looking for fee-based energy infrastructure assets fitting strategy within balance sheet metrics.

Q: David Winans with Prudential asked about CO2 business and tight plays.

A: Sital Mody and Kimberly Dang discussed interest in supplying CO2 for tight plays but needing higher returns to compensate for risk of new activities.

Q: Jean Ann Salisbury with Bank of America asked about pipelines from Tier 2 basins to LNG and contract underwriting.

A: Kimberly Dang and Sital Mody said second-tier basins like Eagle Ford are well-positioned, with market-driven demand and mix of end users, E&Ps, and marketers for pipelines.