Earnings Call Transcript - KMI Q4 FY2025

Operator

Good afternoon and thank you for standing by and welcome to the fourth quarter 2025 Earnings Results conference call. Your lines are in a listen-only mode until the question and answer session of today's conference. At that time, you may press star followed by the number one to ask a question. Please unmute your phones and state your name when prompted. Today's conference is being recorded. If you have any objections, you may disconnect at this time. It is now my pleasure to turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan.

Rich Kinder, Chairman

Thank you, Michelle. Before we begin, as usual, I'd like to remind you that KMI's earnings release today and this call include forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995 and the Securities and Exchange Act of 1934, before, as well as certain non-GAAP financial measures. Before making any investment decisions, we strongly encourage you to read our full disclosures 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. I have only two comments before turning the call over to our CEO, Kim Dang, and the team. First, we believe our bullish outlook on natural gas demand remains ground, and we expect to see very strong growth over the rest of this decade and beyond. Now, while there are several important drivers of that growth, the largest and most certain driver remains the need for additional LN service, both expansions of existing export facilities and new greenfield projects coming online. We now estimate feed gas demand will average 19.8 BCF per day in 2026, which is an all-time record and an increase of 19% from the daily average of 16.6 BCF per day in 2025 and we see that demand increasing to over 34 BCF per day by 2030. This astounding growth is to the midstream sector and especially to companies like Kinder Morgan that have extensive pipeline networks along the Texas, Louisiana, Gulf Coast, which is the location of most of the export terminals present and future. Our throughput agreements for delivery of the feed gas are essentially taker pay in nature, which gives us great confidence in the resulting cash flow. My second comment is specific to Kinder Morgan. You will hear from Kim and the team that we finished 2025 compared to 2024 and to our budget for 2025 and as you know from our earlier release of the budget for 2026 we expect more good performance this year once again the chief driver of our success in both years is the

Kimberly Allen Dang, CEO

extraordinary strength of our natural gas assets and with that i'll turn it over to kim and the year much stronger than we anticipated when we announced our q3 results for the quarter adjusted EBITDA was up 10 fourth quarter of last year and adjusted EPS grew big numbers first. The biggest driver of the outperformance was natural gas. It had an outstanding quarter and year. Our project backlog in 50 million to we added a little over 900 million which was offset by 265 million of projects. Most two significant additions are Florida gas transmission projects by long-term shipper contracts. Our backlog multiple remains below six times, which will drive very nice growth over the next few years. In addition, we're working on greater than 10, while we won't be successful, opportunity. We believe we will continue to find attractive opportunities for years to come. Wood and Mac currently projects the U.S. natural gas market will continue to grow over the longer term, with an incremental 20 BCF a day of demand growth between 2030 and 2035. Now quick update on our three largest projects, MSX, South System 4, and Trident. We started construction on Trident last week, and for MSX and South System 4, we received our FERC scheduling order. The FERC anticipates issuing our final certificate by July 31st, which is a schedule we requested but ahead of our original expectations. There's still a lot of work ahead, but all three projects were positive. Last week, S&P upgraded KMI to BBB+. Steve is in great shape. On the management front, I want to take a moment to recognize the end of this month for his wise counsel and the value he has helped deliver to our students. As we have previously announced, Tom will continue to serve as an advisor to the OTC. He will continue to benefit from his work. I'm excited to have Dax, who many of you know from his long tenure at the company. I'm looking forward to working with him closely as we continue to execute on our strategy. To sum it up, we'll see an advanced key project with a $10 billion backlog and tremendous potential beyond that writing future. With that, I'll turn it over to David.

Kimberly Allen Dang, CEO

Starting with the natural gas business unit, transport volumes were up 9% primarily due to increased LNG feed gas deliveries on Tennessee gas pipeline. So the full year transport 19% from our Hainesville, so total gathering volumes were up 9%, and the full year 2025 gathering volume sent a daily throughput record of 1.97 BCF a day. Again, incremental projects, more than all of that declined. On January 6th, Western Gateway Pipeline KMI's existing SFPP lines between Watson and Colton, California. In addition to expanding the offered terminals, business-seeming likely options are exercised.

David Michels, CFO

Share, which is $1.17 per share annualized, up 2% from 2024. For the fourth quarter, we generated net income attributable to KMI of $996 million and EPS of 45 cents, 49% and 50% above the fourth quarter of 2024. This quarter's results included a gain on an asset sale which we treat as a certain item. Excluding certain items, our adjusted net income and adjusted EPS still grew very nicely, both 22 percent above the fourth quarter of 2024. Our growth was driven by newly placed in service natural gas expansion projects, contributions from our outrigger acquisition, and continued strong demand for natural gas transport, storage, and related services. For the full year, 2025, we beat our budget by more than the contributions from our outriver acquisition. Our performance came from our natural gas business, driven by greater value on transport capacity and ancillary services. Our terminals segment also generated better than budgeted contributions. We budgeted to grow adjusted EBITDA by 4% and adjusted EPS by 10% from 2024. We actually grew adjusted EBITDA by 6% and adjusted EPS by 13%. Our 2025 EBITDA and net income were all-time record levels for Kinder Morgan. Moving on to the balance sheet, as we continue to grow our cash flows and take a disciplined approach to capital allocation, our balance sheet continues to strengthen. Our net debt to adjusted EBITDA ratio improved to 3.8 times down from 3.9 times last quarter and down from 4.1 times at the end of the first quarter which was immediately following the acquisition of Outrigger. Since the end of 2024 our net debt has decreased 9 million dollars despite nearly 3 billion of total investments in growth projects and the acquisition. So we'll go through a high level reconciliation. We generated cash flow from operations of 5.92 billion we've spent two point or we spent 2.6 billion in dividends we invested 3.15 billion dollars in total capex including growth sustaining and contributions to joint ventures we spent approximately 650 million dollars on the outrigger acquisition we've received 380 million dollars on divestitures primarily the Eagle Hawk sale and then we had all other items a source of cash of about 100 million dollars that gets you close to the nine million dollar decrease in net debt for the year the rating agencies have recognized or strengthened financial profile last week s p upgraded us to triple b positive fitch upgraded us to triple b plus during the summer of 2025 and we're on positive outlook by moody's so as uh as has already been mentioned but i'll mention it again 2025 was an exceptionally strong year a record setting year in fact we beat our budget and delivered double digit earnings growth we grew our backlog from 8.1 billion to 10.0 billion despite placing 1.8 billion dollars of projects into service meaning we added 3.7 billion dollars of projects to the backlog during the year we improved our balance sheet we achieved credit rating upgrades and expect meaningful cash flow benefits from tax reform which will generate additional investment capacity We have very positive momentum heading into 2026.

Operator

Thank you. At this time, if you would like to ask a question, you may press star followed by the number To withdraw your question, you may press star two. Please unmute your phones and state your name when prompted. Our first caller is Julian DeMoulin-Smith with Jeffries. Your line is open.

Julian DeMoulin-Smith, Analyst — Jefferies

Hey, good afternoon, team. Thank you guys very much for the time. I appreciate it. Look, if I can kick it off more on the data center front. You guys talk about the 70% number with respect to where you have exposure and aligned with data synopsis. Can you talk a little bit about what you're seeing actively on the front? Obviously, we saw the FGT announcement here. Perhaps that speaks to that a little bit. But how do you think about that regionally in terms of further data points we should be seeing through the course

Kimberly Allen Dang, CEO

of the year? And I've got a quick follow-up. Okay. I'm not exactly sure about the 70%, But if you look at our $10 billion backlog, about 60% of our backlog is, you know, anything associated. And if you think about the opportunities on the power side, you know, I think a great example is if you look in the state of Georgia, where, you know, Georgia Power recently, I think the end of November, filed IRP, and they're projecting 53 gigawatts of power demand between now and the early 2030s. 100% gas, you know, that would be like 10 BCF a day, roughly, depending on the conversion metric sheet. We expect that a significant portion of that will be gas, and that's just one utility in one state. And so, you know, Louisiana or Arkansas or Texas or New Mexico, Colorado, I mean, we are seeing similar stories just across our network. And, you know, the other thing is you look at power demand. We've got a higher power demand growth between Wood MAC has, you know, in their most recent estimates, increased theirs. And if you look at Wood MAC, they think the power growth, at least in their projections, than it is in their projections between 25. You know, this is something that, you know, is driving a significant amount of projects. It's also, you know, a significant driver of the potential opportunities that we have, and we think will last, you know, for a day.

Julian DeMoulin-Smith, Analyst — Jefferies

If I could just firm up a little bit more on the SSE 5 setup and timing, what are you looking to move forward on that? How are you thinking about timing? And then even more specifically, if you could speak to, are you thinking about this as being a compression-first or looping kind of project initially, and what level of fine utility load would unlock a more formal filing?

Sital Mody, Analyst — Other

Yeah, Julian, this is Staple. So, look, in terms of timing, we see strong interest in the southeast, and we continue to work with the customer base. In terms of what the final scope looks like, that all depends on final subscription. I do see it more than just compression. I think there could be some more brownfield looping. But once again, it's early. the demand dynamics with our customer base we do see opportunity there and you know it is it is competitive so we will continue to you know the fine deal is what drives. Excellent thank you guys

Operator

stay warm this weekend. Thank you. Thank you our next caller is Jackie Colettis with Goldman Sachs

Jackie Colettis, Analyst — Goldman Sachs

your line is open. Hi thank you so much for the time this evening. First just want to start on you know, the next steps on the Western Gateway following the second open season launch last week. How do you think about allocating capital towards this project versus natural gas opportunity

Kimberly Allen Dang, CEO

set? And how do those returns compare? Yeah, based on and so worthiness of the cash flows. And so, you know, if you've got some, you know, off that and if you have, you know, those things are less than you go above that return. All these returns are significantly that were the counter-limited capital. I think, you know, we can easily fund the contributing assets. You know, it will be less than 50-50 joint venture with P66. It would be less than half of the cost value for contributing assets. Got it. That's helpful. And then just as a follow-up,

Jackie Colettis, Analyst — Goldman Sachs

leverage ended around 3.8 times in the quarter. How do you think about maintaining leverage levels towards the midpoint of your long-term guy of 3.5 to 4.5 range versus leveraging up towards

Kimberly Allen Dang, CEO

that high end if there are multiple CapEx opportunities? We're going to spend about $3 billion per year in CapEx. Now, that won't be a perfect ground $3 billion because you just have timing of spend, but roughly $3 billion a year. And we have the ability to fund that, you know, 100% out of cash flow. The other thing I'd point out is that as our $10 billion backlog of projects come online, that our debt to EBITDA actually declines over time. And so that creates more balance sheet capacity. So, for every .1 times of leverage, that's $850 million of capacity. So, I think we've got a ton of capacity, even without leveraging up closer to the four and a half times. And I don't think, you know, I don't think we have intention of getting close to that level um so i think we've got uh plenty of of capacity to accommodate the opportunities that

Operator

we see out there great thank you so much for the time thank you our next caller is theresa chen

Theresa Chen, Analyst — Barclays

with barclays your line is open good afternoon uh kim hear you loud and clear on the less than 50 percent of capital contribution on western gateway because you're contributing sfpp When we think about the net EBITDA impact to Kinder, assuming this project moves forward, how should we quantify the displacement of existing SFPP EBITDA? How much is that contributing currently?

Kimberly Allen Dang, CEO

Well, I think two things. One, Teresa, I think we're really early. You know, we've got to get through the open season. We've got negotiations. You know, we've got to finalize costs, et cetera. So I think it's too early to go through that.

Theresa Chen, Analyst — Barclays

Understood. Maybe turning to a different portion of your liquids business, could you provide an update on the progress of the double H conversion and in light of recent upstream developments in the Bakken and the increasingly challenged near-term outlook for the basin? How are you thinking about the expected NGL throughput and EBITDA contribution from this project?

Kimberly Allen Dang, CEO

I mean, the project's going to come on probably late first and, you know, with respect to the future phases you know that's something we continue to work on yeah i mean teresa broadly

Sital Mody, Analyst — Other

though i mean we still you know given given the recent pullback you know it's just a matter of time i think our initial phase is well contracted we see the volumes behind it you know we these and so we have visibility there uh so i don't think you know uh and that kim gave you in terms of where we've come in uh i think as we look to to look to the next phase um you know we continue have discussions we'll monitor the the overall macro situation you know that in front of us

Operator

fair enough thank you thank you our next caller is michael bloom with wells fargo your line is open

Michael Bloom, Analyst — Wells Fargo

uh thanks good afternoon everyone um yeah maybe if i could just um ask maybe a different way at the same question to some degree uh with with continental resources effectively saying they're going to stop drilling in the box and i'm wondering if you could talk about at least for now can you Can you talk about how meaningful a customer they are, either in your current business or where they were contemplated to be for double H, and if that has an impact on the further expansion?

Kimberly Allen Dang, CEO

So, yeah, if you look at the EBITDA that we get from Bakken or EBDA, it's about 3% of Kinder Morgan's overall. It'll mix up a piece of that. It'll be any material we think that the impact is very much. the year a little stronger. They're going to continue to complete well. Okay, great. That

Michael Bloom, Analyst — Wells Fargo

makes sense. Thanks for that. And then just wanted to ask in light of the asset sale that you did here in late 2025, are there more non-core assets that you're actively looking to sell? And strategically, are there segments or areas of the business that you're more inclined to reduce your

Kimberly Allen Dang, CEO

exposure to thanks okay yeah let me let me talk about um the eagle hawk sale first um you know first of all on that you know that's not an um you know our partner because they were selling and you know based on a non-off and the gmp opportunity meaning if we you know were buying you know those were gonna we thought it made comic decision to sell the way that we have been approached us which has been more opportunistic as we say you know our assets are for sale every day at the right price. We want to make good economic decisions about that. We like the portfolio of assets that we have today. You know, 60, it's two-thirds natural gas, 26 percent is products, pipelines, and terminals, very similar, you know, pipeline. We get great returns in that business expertise that a lot of people don't have. So I think we're very comfortable with the uh the suite of assets that we have and this was just an opportunistic sale that uh that made sense

Operator

thank you kim thank you our next caller is jeremy tenett with jp morgan your line is open

Jeremy Tenet, Analyst — JP Morgan

hi good afternoon jeremy i was just curious for your thoughts i guess you know industry at large and you know what opportunities it could present to you uh down the road just if you think about waha egress one we have some pretty cold weather coming up and uh you know during uri uh that presented opportunities uh for kinder last uh you know last go around so just wondering

Sital Mody, Analyst — Other

if you could share any thoughts there well look uh we you know um as always here when we look at the footprint uh you know given our footprint we're able to leverage um you know basis dislocations that occurred you know first and foremost we want to serve our customers and then to the extent that these opportunities present themselves we've been taking a little more of a you know proprietary view on certain things in certain areas strategically small amounts and so to the extent that that presents itself we'll be able to leverage that. But I don't think this storm is not

Kimberly Allen Dang, CEO

a URI. It's not a URI. Understood it seems like there might be another one on

Jeremy Tenet, Analyst — JP Morgan

the teals so we'll see what happens this winter again yeah but you know I

Kimberly Allen Dang, CEO

generally what I would say is that the the gas transportation market is very tight and so whenever you see dislocations and you know supply or demand in and around our assets you know that is going to present opportunities for what you saw in the fourth quarter yeah I mean a key

Sital Mody, Analyst — Other

component of that is storage for us and we have a significant storage portfolio that will allow us to to leverage some of that is to the extent that it

Jeremy Tenet, Analyst — JP Morgan

presents itself got it thank you for that and then just want to dial in on ngpl a little bit here hearing you know more data center driven opportunities in the midwest you know cold gas switching as well uh you know some of the other net gas pipeline operators seeing a lot of um activity there and just wondering if you could talk about what that could mean for kinder for

Sital Mody, Analyst — Other

ngpl yeah so look we've uh you know we're we're quite a bit of you know there's significant discussions you've been seeing some of the ebb postings we've been making out there we've got interest along the pipeline in terms of you know not only just from power customers but also from you know organic markets that are that are trying to grow uh you know still early on some of these projects you know we've got some binding commitments that we're looking to convert into full-fledged you know fid projects as these develop we'll we'll bring them but i mean when you think about the the corridor itself you know we see a concentration up in the market area we have some in the producing regions where you know folks are looking to cite themselves and so i think the opportunity sets there it's just you know once again you know we're in this mode where folks are looking you know there's a competitive landscape and so we want to make sure we secure the returns that we need to to progress the projects to fid got it understood thank you

Operator

thank you thank you our next thank you our next caller is Jean Ann Salisbury with Bank of America

Jean Ann Salisbury, Analyst — Bank of America

your line is open hi uh you said in the prepared comments that MSX could be in service a couple quarters early I think is there any read across to a faster permitting process across the board

Kimberly Allen Dang, CEO

or was that project specific no I mean I think that a couple of things um on these projects One is 871 is gone, and that happened, I don't know, six or nine months ago, and that basically required us to wait five months between when we got our FERC certificate so when we could start construction. So that's gone. And then the FERC has acted within, is going to act within roughly one year on our filing. And so, previously, we've been seeing that take a little bit longer than that on big projects. And so, the fact, you know, the FERC process only took 12 months and we don't have 871 is speeding up our in-service on MSX from, you know, called the fourth quarter of 28 to the second quarter of 28.

Jean Ann Salisbury, Analyst — Bank of America

Great. That's very clear. Thank you. And then one of your peers took an equity stake in a US LNG terminal a few months ago. Is that something that KMI is actively looking at or would have interest in, especially, I guess, if you could back-to-back it with another counterparty to make it take-or-pay equivalent?

Kimberly Allen Dang, CEO

To make it, well, I'll say a couple of things on that. Generally what we've seen on the LNG front is the returns haven't been where we needed them to be to make those investments. And it's not something that we are accustomed to building. We did a small one, obviously, at Elba, but that was a relatively small facility. And so, you know, I think in general what you should expect from us is that we are kind of sticking to our knitting. We're staying in our lane. You know, we are serving those elements. You know, right now we serve 40% of that demand. As Rich said, that, you know, demand is expected to grow significantly. And we expect to get our fair share of that future demand. future demand and that's driving you know very nice project opportunities for us um so i'm not saying we would never step out it's just um you know it there hasn't been the opportunity where we thought the risk return profile was was appropriate um and uh and you know we haven't

Rich Kinder, Chairman

wanted to build these on our own i think another thing we like on a risk return basis is the fact that both on the LNG terminal side for feed gas and on the service to investment-grade utilities. And that, we think, is a very good way to look at the risk that we are taking, and we think that minimizes any risk, for example.

Jean Ann Salisbury, Analyst — Bank of America

That makes sense. Thank you.

Operator

Thank you. Our next caller is Keith Stanley with Wolf Research. Your line is open, sir.

Keith Stanley, Analyst — Wolfe Research

Hi. Good afternoon. And you updated the messaging on CapEx to at least $3 billion a year of growth CapEx for the next few years, up from two and a half. I wanted to clarify, is that solely based on the sanctioned project backlog today? So if you keep FIDing new projects and the backlog grows, CapEx could be above $3 billion a year for the next few years, or is that already reflecting your best estimate over the next few years?

Kimberly Allen Dang, CEO

I'd say it's largely based on the $10 billion, there's a small on some of the $10 billion. We updated it from, given the $10 billion, given we can log even after putting projects in service. So, this year when we were putting all those projects in service, at the beginning of the year, we thought it might come down. It's continued to increase natural gas demand. We continue to see it.

Keith Stanley, Analyst — Wolfe Research

Got it. Second question, just wanted to follow up on the earlier one on Mississippi Crossing. So if you're six months early on that project and on, you know, potentially on some of the other bigger ones, given the regulatory environment, would your contracts kick in and you'd have pretty close to a full financial contribution right away at that earlier date? Or is that not the case?

Kimberly Allen Dang, CEO

It's a project. No, the customers don't have to take it at that point in time. They can. I mean, they can elect to take it, but they don't have to. And I would say it's going to depend. Once you get sooner, you have to think about when you're getting pipe and when you're getting compression. Translate into much of an earlier date on South System 4 at this point in time. If customers don't want that capacity, it will be available for us to use during that time.

Sital Mody, Analyst — Other

And given the macro environment case, I mean, you just think about.

Keith Stanley, Analyst — Wolfe Research

Thank you.

Operator

Thank you. our next caller is man of gupta with ubs your line is open sir

Manav Gupta, Analyst — UBS

firstly congrats on all the upgrades from rating agencies reflects the strong quality of the management and execution um i wanted to ask you about the florida gas transmission projects both the projects how did these come about can you give us more details and in the last one year what you've seen is you announced a project and then end up upsizing it so if you could talk about the possibility of some upsizing here for these projects?

Sital Mody, Analyst — Other

So Amanav, this is Cecil. So just in terms of the project itself, as you know, we're not the operator. Energy transfer is the operator. So we'll let them talk about how it came about on the call. We've been working with them closely. Thematically, it's the same themes we've been talking about in the southeast. We see that as a growth area just broadly. And this is just another example of us getting incremental infrastructure to an area where there's significant growth. There's also a resiliency component there with the two projects. We think it makes sense in terms of whether or not the project gets upsized. We're in the process of having an open season right now. That open season closes here, I think, Feb. 5th, if I'm not mistaken, and, you know, based on the interest there, is it possible to upsize?

Kimberly Allen Dang, CEO

if there's if there's a demand for it yeah I mean they are they are the next

Jackie Colettis, Analyst — Goldman Sachs

question comes from Jason Gable your line is open yeah hey it's Jason Gableman

Jason Gabelman, Analyst — TD Cowen

from TD Cowan hopefully the storm isn't hitting you too hard down there maybe to start and to help everyone out maybe we could just replay Manav's question because i was interested in the answer to it i didn't quite hear so just wondering what drove um the earnings uh upside on the natural gas segment in 4q sounded like some of it was driven by um pull from lng plants so did some of these plants start up earlier than you had expected in the plan or were there other factors at play thanks i mean it was like it was across the

Kimberly Allen Dang, CEO

entire gas business. So it was a lot in our Texas intrastate market. It was in the Eagleford and the Hanesville on our gathering assets. And then it was also on the interstate markets more so in the northeast than other areas. And so, you know, it's a function of having a very tight pipeline and storage network and you know and that's going to create opportunities when you have supply or demand dislocations that could be weather that could be lng coming on or off um you know it could be a variety of factors um but that leads to volatility for us and there is the potential

Jason Gabelman, Analyst — TD Cowen

for that to happen again in 2026. great thanks and my follow-up may be staying on the topic of lng um you know it seems like the market is facing this upcoming global supply glut and maybe you get a bit of a slowdown in the pace of uh new liquefaction project sanctions here in the u.s gulf coast um so just wondering how much of that project backlog if any is tied to servicing um incremental projects and i guess it's not the project backlog it is the shadow project backlog and um projects lng projects that are associated with that shadow backlog thanks

Kimberly Allen Dang, CEO

yeah so a couple of things you know i'd reiterate the the point rich made a minute ago which is you know, we have long-term take-or-pay contracts with these LNG facilities, and so those typically are 20 to 25-year contracts, and they pay whether they use that capacity or not. You know, in our current backlog, about 12% of the $10 billion actual approved project backlog 12% of the shadow backlog is associated with LNG. It's not a huge percentage. I think a lot of the shadow backlog, again, is going to be more on the power front. But the other thing I'd say is that when you look at these LNG projects, it's not always about adding a new facility, you know, a lot of times it's about an existing facility has, you know, some capacity and they want to reach further back to get more competitive supply. So, you don't, you know, to have incremental projects, you don't have to have a new facility come online. It could be a need from an existing facility to try to get more competitive supply.

Jason Gabelman, Analyst — TD Cowen

Great. Thanks for those answers.

Kimberly Allen Dang, CEO

Michelle, is that it?

Operator

And at this time, we are showing no further questions.

Rich Kinder, Chairman

Okay. Thank you, everybody. Thank you. Have a good day.

Operator

Thank you. This concludes today's conference call. You may go ahead and disconnect at this time.