Kinder Morgan (NYSE:KMI) released first-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.
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Access the full call at https://events.q4inc.com/attendee/866091806
Summary
Kinder Morgan reported a strong first quarter with adjusted EPS up 41% and EBITDA growing by 18%, driven largely by increased natural gas demand.
The company is acquiring the Monument Pipeline System in Texas for $500 million, which fits well with its existing network and is expected to close soon.
Kinder Morgan anticipates exceeding its EBITDA budget by more than 3% for the year, excluding contributions from the Monument acquisition, with strong performance in the natural gas segment.
The expansion project backlog increased to $10.1 billion, with substantial growth opportunities in natural gas pipelines, driven by increasing power demand and LNG exports.
Management highlighted the strategic positioning of their assets and strong cash flow, enabling financing of growth projects primarily through internal cash flow while maintaining a strong balance sheet.
Full Transcript
OPERATOR
Good afternoon and thank you for standing by and welcome to the first quarter 2026 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 first and last 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 (Executive Chairman)
Thank you Michelle, as usual. Before we begin, I’d like to remind you that KMI’s earnings release today and this call include 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 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. Now, in preparing for this investor call, I look back at the text of the introductory remarks I’ve made over the past several years. Most of what I’ve said concerned the future of natural gas demand and the positive impact it has on midstream energy players like Kinder Morgan. In almost every case, the projections I made turn out to be understated. In other words, the demand for natural gas, driven primarily by growth in LNG feed gas demand and by increased utilization of natural gas for electric generation, has simply grown faster than we expected. Now I think events since the last call have made the outlook for growth even more positive. Regarding LNG demand, the recent events in the Middle east will clearly have substantial impact. While the ultimate outcome is certainly not clear at this point, the damage to Qatari liquefaction facilities and continued uncertainty regarding ship traffic through the Strait of Hormuz will lead to more preference for US Sourced lng. And the predictions for growth in gas powered electric generation have also increased. In a piece that surfaced just this week, S and P Global Market Intelligence reports that utilities plan to add a staggering number of 153 gigawatts of gas fired generation capacity in the next several years, primarily to serve data centers, with the bulk of this coming online by 2030. Now this is twice the estimate by the same group of one year ago and reflects plans to build about 210 additional natural gas fired facilities. Our Kinder Morgan forecast for overall US gas demand now extends through 2031 and estimates demand in that year of 150bcf a day, a growth of about 27% from this year. In short, the natural gas story has legs and Kinder Morgan’s strong start to 2026 that Kim and the team will explain supports that view. While the old saying that rising tide lifts all boats has some applicability to this situation, there will clearly be some players who will benefit more than others from this positive story. I believe that the midstream sector as a whole will be one beneficiary and it offers a low risk way to invest in the growth story of natural gas given the prevalence of long term throughput agreements with investment grade credits underpinning the bulk of midstream assets. The INGAA Foundation, in a study released in March, estimates that North America needs 70 bcf a day of new gas pipeline capacity by the 2050 time frame and I believe Kinder Morgan will fare very well in this environment. Let me tell you why we have a superb set of assets located in the areas where gas demand is growing dramatically. Our strategy is to concentrate on expanding and extending those assets in an aggressive but disciplined manner. This means we will continue to identify and pursue the myriad of growth opportunities we are currently seeing and once undertaken, to complete the resulting projects on time and on budget. Because our cash flow is very strong, we will be able to finance these projects primarily with internally generated cash flow and I can promise you an intense and unrelenting focus on these unparalleled opportunities. This strategy will enable us to grow our EBITDA and EPS substantially over the coming years as these projects come online while still maintaining a strong balance sheet and growing our dividend. To me, that’s a pretty good recipe for success, and with that I’ll turn it over to Kim.
Kim
Okay, thanks Rich. We had a remarkable first quarter. The best I can remember with adjusted EPS up 41% and EBITDA growing by 18%. Importantly, every segment delivered growth versus 1Q25 and every segment outperformed our budget. Natural gas drove the most significant share of the outperformance, benefiting from winter storm Uri and the extended cold in the Northeast. These results reflect the value of our critical infrastructure and the essential role it plays in serving our customers, especially in periods of high demand. During the quarter we entered into an agreement to acquire the Monument Pipeline System in Texas for approximately 500 million these assets are a natural fit with our existing network, supported by long term contracts and acquired at an attractive multiple. We received early termination of HSR yesterday and expect to close by the end of the month on full year guidance. We now expect to exceed our EBITDA budget by more than 3%, excluding any contributions from the Monument acquisition. Most, but not all of that outperformance is attributable to the first quarter. Given that we are still early in the year, we’ve taken a somewhat conservative approach to our expectations for the year. However, continued outperformance in our gas group and or higher oil prices, which benefit our 10% unhedged oil in the CO2 segment, could provide upsides for the balance of the year. The growth in the overall natural gas market of over 36 bcf since 2016 has driven utilization on our five largest gas pipelines to over 90%. That utilization, combined with the projected growth in the market to approximately 150bcf a day in 2031 highlight both the need and the opportunity for expansion. Our expansion project backlog increased to $10.1 billion this quarter, up 145 million from the last quarter. We put approximately 230 million of projects in service and added 375 million in new projects, including 3 data center deals. The backlog multiple remains below 6 times with an average in service date of Q1.20. With respect to our 3 largest projects, which make up over 50% of the project backlog, we continue to be on time and on budget. Beyond our reported backlog, we’re actively advancing a number of identified opportunities. Much of this activity is being driven by power growth and we expect a meaningful amount of these opportunities to convert into Approved projects during 2026. Our performance this quarter demonstrates the strategic positioning of our 78,000 miles of pipeline and 136 terminals and the tightness of energy infrastructure. As we look ahead, we’re confident in our ability to complete our $10.1 billion backlog of projects, add to that backlog and deliver tremendous value to our investors. With that, I’ll turn it over to dax.
Dax
Thanks Kim. Starting with the natural gas business unit, Transport volumes were up 8% in the quarter versus the first quarter of 2025, primarily due to increased LNG feed gas deliveries on the Tennessee Gas pipeline. Natural gas gathering volumes were up 15% in the quarter from the first quarter of 2025 and increased across most of our gathering and processing assets, with the largest impact coming from our Anne Hill system, Winter Storm Fern and the extended cold weather in The Northeast contributed to higher volumes as well. Looking forward, we continue to see incremental project opportunities across our natural gas pipeline network. For example, we’re in various stages of development on projects to serve more than 10bcf a day of natural gas demand in the power generation sector and over 3bcf a day in the LNG sector. In our products pipeline segment, refined Product volumes were down 2% in the quarter compared to the first quarter of 2025, and crude and condensate volumes were down 12% in the compared to the first quarter of 2025, with more than all the decline in crude volumes explained by the removal of the Double H pipeline from service for NGL conversion in the third quarter of 2025. Excluding double H volumes in both periods, crude condensate volumes were up 2% in the quarter compared to the first quarter of 2025. With respect to Western Gateway, as noted in the joint release earlier in the week, KMI and Phillips 66 recently concluded a successful open season on the proposed Western Gateway pipeline system. The next step is to finalize definitive transportation service agreements with the shippers and hopefully acceptable joint venture agreements between KMI and P66. Assuming we can reach resolution on the noted definitive agreements, we would expect to FID the project sometime in the next few months. In our terminals business segment, our liquids lease capacity remains high at almost 94%, market conditions continue to remain supportive of strong rates and the utilization of our tanks available for use is approximately 99%. In our key hubs on the Houston Ship Channel and at Carteret, our Jones act tanker fleet remains exceptionally well contracted. Assuming likely options are exercised, our fleet is 100% leased through 2026, 97% leased through 2027 and 80% leased through 2028. We have opportunistically chartered a significant percentage of the fleet at higher market rates and have an average length of firm contract commitments of three years and over three years. When considering options that are likely exercised, the CO2 segment experienced 2% higher oil net oil production volumes compared to Q1 2025, led by a 5% increase in production. At Sacroc, NGL volumes were 5% higher and CO2 volumes were 1% higher. Notably, RNG volumes increased 63% due to greater uptime at our facilities and greater hydrocarbon recovery as the team running that business has made great progress in improving the overall operations of those assets. With that, I’ll turn it over to David.
David
Thank you, Jax. So for the quarter we’re declaring a dividend of 29.75 cents per share, which is $1.19 annualized and an increase of 2% over 2025. As you’ve heard, we had an outstanding first quarter generating net income attributable to KMI of $976 million, an EPS of 44 cents. These are 36 and 38% above the first quarter of 2025 respectively. These very impressive results reflect strong demand fundamentals across the country combined with strategically positioned assets and skilled execution by our colleagues to capture the associated opportunities and we saw growth across the business segments. The natural gas segment grew the most with colder than normal weather driving additional demand across already highly utilized natural gas midstream systems. But the segment also grew from factors other than the cold weather with contributions from growth projects, greater capacity, sales gathering volumes and utilization across numerous assets in products. We benefited from improved commodity pricing as well as the recovery of retroactive rate increases we booked following a favorable court decision. And in the terminal segment we had increased volumes and rates in our liquids business as well as the benefit of storage contract buyouts and we also saw increased volumes in our bulk business for the full year 2026. While it’s still early in the year, we expect to be more than 3% favorable to our budgeted adjusted EBITDA. That’s over $250 million of additional EBITDA contribution. We clearly outperformed in the first quarter and we expect additional outperformance for the rest of the year driven by continued strong demand for our natural gas midstream services. And the contributions from our Monument acquisition will be additive as well. Moving on to the balance sheet as we continue to grow our cash flow and remain committed to a disciplined approach to capital allocation, our balance sheet continues to strengthen our net debt to adjusted EBITDA ratio ended the quarter rounding down to 3.6 times which is down from the 3 point down from 3.8 times from the beginning of the year. Leverage of 3.6 times is the lowest for a Kinder Morgan entity since well before our 2014 consolidation transaction. That being said, we expect leverage to increase slightly by year end 2026, we expect increased capital spend during the rest of the year and we will only get a partial year EBITDA contribution from the Monument acquisition. Our budget had us finishing 2026 at 3.8 times and now we expect to end the year 2026 at 3.7 times due to our expected EBITDA outperformance and that keeps us comfortably below our midpoint of our leverage target range. During the quarter, net debt increased $82 million. And here’s a high level walkthrough of that. We generated 1.49 billion of cash flow from operations. We spent 650 million on dividends, 800 million on total …
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