Kinder Morgan, Inc. (KMI) September 9, 2026 Conference Transcript

Good morning, everyone. Thank you so much for joining us. My name is Teresa Chen, and I'm the midstream and refining analyst here at Barclays. It is my pleasure to introduce our next company, Kinder Morgan. With us from Kinder is CEO Kim Dang. Welcome, Kim. Thank you Teresa. Nice to be here. Thank you very much for being here. There is quite a bit happening across your footprint. We're going to go segment by segment effectively, but maybe beginning with the natural gas side of things. I want to begin with a discussion of your project commercialization plans through year-end. As highlighted in the second quarter earnings, you expect to sanction at least $1.4 billion in new natural gas projects by the end of this year. Would you be able to provide any color on these late-stage opportunities and how they could strategically enhance Kinder's broader transmission footprint?

So let me start by saying that the natural gas segment is about two-thirds of our business. So it is, and it is the area where we expect the most growth. So, as you said, on our second quarter call, we talked about at least $1.4 billion of projects. And just so that, to give a little background for people, at the end of the first quarter, our backlog was about $10.1 billion. And then it reduced in the second quarter to about $9.6 as a result of projects that we put in service. And so what we said, and for the balance of the year, so the back half of the year, we expect to put another billion dollars of projects in service. And so what we said is that we think that we will at least, you know, get back over $10 billion in our backlog by the time we get to the end of the year. So expecting the backlog to be $10 billion or likely more by the end of the year. And I think it's important also that people understand, you know, a lot of different companies have backlogs and, you know, GE has a certain backlog. Our backlog, so that people understand what it is, is, you know, approved, board-approved projects. And generally, you know, 90% of them are backed by take-or-pay contracts, the ones that aren't in our CO2 business and some smaller gathering projects that have dedications as opposed to take or pay. And generally, those types of projects have higher returns. So these are projects that we are moving forward with. But I think the reason that we have so much confidence about adding projects to the backlog is just a result of the environment that we're in and all the opportunity set that we're working on. The opportunity set that we're working on that's not in the backlog is like $10 billion. We won't get all those projects, but we'll get our fair share. And it's really driven by the growth in the natural gas market. You know, Wood Mac shows that the natural gas market is going to grow from like 115 BCF a day, almost 115 BCF in 2025, to like 160 BCF by 2035. It's like 46 BCF a day of growth in the natural gas market, primarily driven by export LNG and power. The export LNG number is like 23 BCF, and the power number is like 17 BCF. And so that's just driving enormous opportunities for us. You know, a lot of those opportunities are across the southern United States. The $10 billion is composed of some really big projects, and then, you know, a lot of singles and doubles, kind of like our existing backlog is today. But, you know, the growth combined with the asset footprint that we have, you know, the 80,000 miles of pipe, we serve, you know, 40% of the natural gas demand in the United States. We move 40% of the volumes that go for export LNG. We move 50% of the exports to Mexico. You know, those two things combine the nature of our footprint and the tremendous amount of demand is what gives us so much confidence that, you know, we'll be able to replenish that backlog over the course of this year.

That makes sense. And I mean, I'm happy that you touched both on the macro outlook for natural gas as well as defining what backlog means to you, because understandably, Kinder's backlog is sanctioned, bona fide, carved in stone, and that word means different things across your competitors. Right. So as these late stage natural gas opportunities materialize and move into the sanctioned backlog and looking at that, you know, sanction set of projects in general, how should we think about the impact to your medium term earnings growth trajectory? Sure.

So what we do for people is on the backlog, we give them a multiple, right? And so if you look at our backlog, 90% of it roughly is in these take or pay type of contracts. And that's the ones we put a backlog on. So, you know, 8.2 or 8.5 of the 9.6 is associated with those type of projects. And we have a 5.6 times multiple on those projects. The 1.2 of other projects is gathering and processing and also the oil and gas production in our CO2 business. And those projects actually come at higher returns than the 5.6 multiple. It's just that the nature of that cash flow is that it increases and then over time it begins to decrease. And so you get more of your return up front. So actually the upfront multiple on those projects is even better. So to make it simple, just take the 5.6 on the full $9.6 billion. That's $1.7 billion incremental EBITDA that we expect. And the average in-service on our backlog is really the first half of 2028. And so, you know, those projects will largely contribute growth, some in 27, but a lot more in 28 and in 2029. As we add projects, you know, that will extend out that growth because, you know, as you add projects and they're FERC-regulated, a lot of them will be FERC-regulated. you know, they'll take a couple of years to get permitted or two to three years probably to get permitted and come online. So it will extend out. So the projects that, you know, probably are in the, the projects that are in the, you know, at least 1.4 billion are going to be things that come in online and service in the end of 2029 and into 2030. So what it does is it extends out the growth trajectory that's coming from the growth backlog.

Sure. Just by nature of the time it takes to bring these projects to fruition and when they will actually contribute earnings. Certainly. Now, understanding that the vast majority of your business is insulated from direct commodity price exposure and largely indirect as well, given the volumetric commitments or cost of service nature of the contracts. But for your supply push assets, even if they themselves are not bearing commodity risk, I am curious. as far as your customer discussions with your producer customer base as they frame their own expectations into the next year against a backdrop of sustained commodity price volatility. I'm curious to hear, you know, from a volumetric perspective, where do you see the most near-term growth potential across your diversified footprint given this commodity price outlook?

Sure. So if you look at our gathering assets, So our gathering and processing business is about 9% of Kinder Morgan overall. So as you said, not a huge driver of growth. And natural gas is like 90% of that. So 8% of the 9% is all in natural gas. And it's largely in three basins. it's in the Hainesville it's in the Eagleford and it's in the Bakken or the are the three primary basins where we have the gathering and certainly that is going to be a tailwind for us you know if you again go back to Wood Mack and the 46 BCF a day of demand you know where is that supply coming from and that supply is projected to come from three primary basins it's coming from the Marcellus Utica, which is like 13 BCF a day. It's coming from the Haynesville, which is about 13 BCF a day. It's coming from the Permian, which is roughly 11. Those are the three primary, but then they also have the Eagleford growing by like four or five, I think. And so if you overlay that with our footprint, you know, our biggest gathering position is in the Haynesville. We've seen big volume increases, you know, over the first half of this year in the Hainesville, you know, and expect with those demand numbers, the growth numbers that Wood Mac is projecting for that to continue over the, you know, over the near term, medium term. The Eagleford, you know, will benefit from that growth as well. And then in the Bakken, you know, that's primarily an oil play. We expect oil volumes to be relatively flat, but because of increasing GORs, we expect that the natural gas volumes will continue to increase. So definitely on the 9% gathering, we see some nice tailwinds there.

That's very comprehensive. We'll answer to my question. Thank you. Okay. On the transmission side of things, according to the unsanctioned backlog, I want to ask you about TGP. This is a critical corridor, key asset within your system, critical corridor for not just kinder but producers and consumers at large. Your proposed TGP expansion following the conclusion of the non-binding open season in August, A, can you elaborate on the strategic benefits in general of this project? And how observed customer demand, how did that come about compared to your initial expectations? given the competitive landscape?

Sure. So what Teresa is referencing is an expansion on TGP, which would take volumes from the Marcellus Utica in northwest Pennsylvania and move them south down into Tennessee near Nashville, kind of is where the delivery point is on that. And it would be a little over 500 million cubic feet a day is what was open season. It was non-binding. We got tremendous interest in that. You know, really the play here is it is, you know, the Marcellus Utica right now is constrained in terms of getting gas out by pipeline, you know, lack of incremental pipeline capacity. And I think ultimately most of that gas is going to need to come south. I mean, there will be some, you know, expanding north is difficult. And, you know, there's some small incremental expansions here and there to the north. But really to get the level of supply out that would not suggest you're going to need expansions coming to the south to get that 13 BCF a day out of the Marcellus Utica. And so this is a project that would, you know, start that and we get 500 a day. It really goes into Tennessee. So, it's intended to serve power plants that are in, you know, Tennessee, Kentucky, West Virginia, largely, potentially Ohio. And so, that's really the driver of that demand. And so, right now, what we're doing is we're following up with all the parties that bid in the non-binding open season to determine, you know, when is their need? Where do they, you know, where exactly do they need the deliveries, et cetera? And then based on that, assuming that we can get the customer interest that we believe is there, you know, then we would have a project. But those things take a couple of quarters to all come together.

Okay, very fair. And understanding that the corridor to and at Tennessee, incredibly important to solidify that interest into binding commitments. but I know your ambitions lie beyond Tennessee as well on TGP so if this expansion as contemplated materializes can you talk about how this project could pave the way for future expansions across your southeast footprint including MSX as a stepping stone for SSE 5 on SNG and then you know how do you view the competitive landscape given Borealis has been out there local politics notwithstanding as well, but feel free to comment on any.

I think the Marcella-Schutica needs outlets for its gas in order to grow, and the southeast is going to have a lot of incremental demand. A lot of that's going to be driven largely by power, but you can get those molecules also potentially into the export LNG. So meeting, you know, really the two big drivers of demand. And so, you know, longer term, I think the play is to get those molecules out of the Marcellus Utica, you know, down into export LNG and down into power demand across the southern United States. And so one way to do that would be to continue the expansion. You know, TGP, you can continue south on TGP, you know, from the Tennessee area you know down south where TGP actually connects with one of our newer pipe our pipeline that we'll start building this fall called Mississippi Crossing and so you can take it south it requires expansion of TGP it would require definitely require some line looping potentially but and then you could move across MSX MSX has a very small amount of capacity left on the on the initial build but you can also do some compression expansions and then ultimately you could do some looping and MSX feeds into South System 5 and then you can also get them all it you can backflow the molecules as well to get into export on cheese so you know there's a there's a lot of different ways to feed that demand but that's you know that's one of them and and you know a It's a great opportunity for us in the Southeast, for sure.

Got it. And then on the Texas side of things, your transmission footprint there. So the initial phase of Trident is set to enter service early next year, followed by Phase 2 in the fourth quarter of 2028. And given your comments earlier about the emergent call on USLNG, Are you observing incremental demand for a possible phase three of Trident beyond the two BCF per day of sanctioned capacity at this point?

So Trident is our pipe that moves gas that's in construction right now. The first phase will be finished in the first quarter of next year. It moves gas from the Houston area, Katy, up around Houston, you know, down over to Port Arthur, so over into East Texas. and then ultimately connects into pipelines that go into Louisiana. And so, you know, the first phase will be complete in 2027, and then the second phase will be done in late 2028. But we do have the – there's a small amount of incremental capacity left on the, you know, the initial phase one, phase two project, but it's relatively small. And so beyond that, you know, there's expansion capabilities. And depending on how much you want to add, depends on whether it's, you know, just compression or whether you need compression and piping.

But I think we can serve, you know, both the Texas LNG demand and also, you know, potential demand over in the southwest Louisiana. and so that you know longer term that is a nice opportunity for us as well okay great and in the Permian when we look about you know other conduits of expansion so the introduction of incremental residue capacity has driven Waha basis narrower than faster and faster than previously expected with more to come still right um so how has this impacted your expectations for the timing um of the next wave of permian residue egress given how quickly this first phase has filled up um and uh would you touch on you know maybe um your outlook on a previously discussed um small scale westward expansion of epng yeah so you know i think at this point you know based on what's been announced You know, that there is enough egress capacity from the Permian to the Gulf Coast for the foreseeable future.

I think what we see right now, what we're talking to a lot of customers about, is demand in and around the Permian. And I use around, you know, broadly because a great example of that would be the non-binding open season that we just held on NGPL for a project called Permian Link, which would take permium molecules up into the Texas panhandle. And so, you know, and that could be, you know, and that's largely driven by power demand, had huge interest in the non-binding open season that we held. And so now, again, like on TGP, we're following up with customers, trying to nail down the timing of that demand and then try to sanction a project from that. But those are the type of opportunities that we're seeing, you know, is power plants, data centers, locating in and around that gas supply, and then being able to build off of our existing pipeline system to take that gas to those demand centers.

Understood. We've somehow gone 20 minutes without discussing Western Gateway. We're going to move to the product side of things. Okay. So this was recently FID'd with your JV partners, Phillips 66 and Dyno in August, after months of negotiations between partners and customers, I'm sure. Can you talk about the strategic merits of this finalized JV structure and what it means for Kinder?

So we're a 35% interest in the joint venture with HF Sinclair and with P66. I mean, it's a great partnership because they're very strategic partners in that they are mid-continent refiners that want to take barrels to California. And so, you know, the premise of this project is you have California refineries shutting down. California refineries serve not only the California market, but they also serve the Phoenix market, the Las Vegas market, and the Reno market. And so what's happened is these refiners have shut down is California is having to bring more barrels in over the water. And with, you know, the international situation, that is becoming more and more expensive. And so the idea behind this is to bring mid-continent supply, you know, to Arizona, to Phoenix specifically, and then on to California. And so the JV is building a new pipeline from, you know, the Borger refinery in the Panhandle of Texas to Phoenix. And then we have an existing line that goes from California to Phoenix to feed Phoenix from California. We're going to turn that pipeline around, and then we can not only – the new pipe can not only feed Phoenix, but it can also move barrels out to the West to solve California's supply issue. And so I think it's a great project. It's underpinned by a number of different customers but some very strategic partners and very strategic customers. And on this, we get our 35% interest by contributing assets. Those assets have been valued at roughly a billion five. And then we've got $250 million in cash equity that we are contributing. And we expect that, you know, we are targeting, expect to earn incremental return on that $250 million above the existing assets. So it's a great partnership for us.

And it sounds like based on the project as it's contemplated, there could be expansion capability down the line if demand warrants.

Sure. I think the capacity on that pipe is about 230 a day, but we have the ability to get up over, I think, 320 a day, and so there is expansion capability.

Wonderful. On your CO2 footprint, really jumping around across your segments, okay, so commodity price tailwinds have supported earnings upside relative to initial expectations, at least. As we look towards 2027, and understanding that you'll be giving guidance in due time, how do you expect volumes to trend relative to this year? And to what extent has Kinder Mitten able to hedge those 2020 volumetric expectations at currently elevated prices?

So, again, just a little context for people. You know, CO2 segment is about 7% of Kinder Morgan overall. The oil and gas segment, which is where we produce oil and gas versus the CO2 supply business, the oil and gas piece of the CO2 business is about 4% of Kinder Morgan overall. And generally, we are hedging our oil exposure. And so going into a year, we're typically 90% hedged roughly on any given year. And so right now for 2026, we're about 90% hedged. And so we do get a little bit of upside from commodity prices. But as you can tell from the percentages, it's really, you know, it's small. It's on the margin. Now, when crude's up, you know, $20 a barrel, you know, that's some. You know, the ninth dollars. We're very thankful for it. But also, you know, our CO2 volumes, our oil and gas volumes are doing very, very well this year, outperforming our budget. So that segment's doing well. And we have put on some additional hedges for 2027 during this time. You know, right now we're about 75% hedge for 2027 at kind of a mid-60s price range. But we'll continue to lay on additional hedges as we get closer to 2027. And so right now, I think the forward curve for 27 is in around the mid-70s.

Very good. Yeah, the backwardation, it is what it is. But, yeah, you have to manage through on a, you know, ratable basis, totally understandable. And then finally, with respect to capital allocation, you have an incredible amount of growth opportunities ahead of you, and we can only see, you know, the organic piece of it that you've spoken to, right? How do you plan to balance organic growth opportunities with potential inorganic opportunities as well? Are there specific areas of your portfolio that you see gaps? We've been no stranger on the inorganic side most recently with the monument acquisition. I'd love to hear about how comprehensive you want your portfolio to be over time and where those pockets are. Okay.

So let me say, you know, first is, you know, we can fund over $3 billion of annual expansion CapEx, you know, with cash flow. So, you know, that gives us a lot of flexibility. Then added to that, we've got a fair amount of balance sheet capacity. So, right now, our balance sheet is about 3.6 times debt to EBITDA, and our target range on our balance sheet is three and a half to four and a half times. So, we are at the very low end of the range. And so, every 0.1 turn on the balance sheet is about $800 million of capacity if you're talking about an expansion CapEx project that has no cash flow coming with it for a couple of years, right? And so, you know, if you say, okay, well, we're going to go from 3.6 to 4, you know, that's an incremental $3.2 billion of capacity. So having that flexibility has been great because as we've seen, you know, these bolt-on acquisitions come up and we've seen, you know, roughly one a year over the past couple of years, it's been easy just to fold those in using our balance sheet, not having, you know, no need to raise any equity or anything like that. So, you know, and the other thing is acquisitions are coming with cash flow. So when you talk about balance sheet use, a billion-dollar acquisition only uses .05 times leverage, you know, if you do it at reasonable multiples, right? And so you're not using a lot of balance sheet capacity to be able to go out and do these bolt-on acquisitions that we've done. We've been very successful, and where we're most successful is where we find these bolt-ons that really fit into our existing system. And so this year we did Monument that folds into the Texas intrastate system. I think the year before we did a Bakken acquisition that folded into that position. The year before that we did a different Texas acquisition. So we've had a lot of success at being able to do those and fully fund our expansion CapEx. And so I think our balance sheet position gives us a lot of flexibility to be able to execute on opportunities when we see them.

Certainly not financially constrained in any way from your internal balance sheet capabilities as well as just a plethora of external funding options that we've observed across some of your competitors as well. But, you know, look forward to the next announcement on organic and inorganic side. I want to come back really quick.

I talked about the opportunity in the southeast, but just to give people more of a feel for that, if you look at the Georgia Power large economic development report, they show 75 gigawatts of potential power to be added between now and mid-2035. And, you know, all that won't be gas, but, I mean, if you just translate that, I have to translate gigawatts into BCF for me to be able to understand. I mean, horseshoes and hand grenades, that's like 15 BCF a day. I just divide by five as a rough, you know, as rough justice. Now, again, that won't all be gas, and, you know, maybe all that doesn't come on, but that's, you know, that's just a huge opportunity, and that speaks to the opportunity to take those molecules out of the Marcellus and move them down into the southeast markets because that's just one utility in one state, but that's endemic of what we see going on. The demand is extensive, to your point. Very good. Thank you so much, Kim. Thank you, Teresa.