Kinder Morgan Earnings: Natural Gas Business Outperformance Offsets Weaker Oil and Gas Prices

Kinder Morgan Stock at a Glance

• Current Morningstar Fair Value Estimate: $17.50
• Stock Star Rating: 3 Stars
• Uncertainty Rating: Medium
• Economic Moat Rating: Narrow

Kinder Morgan’s KMI first-quarter results were reasonably healthy given the relatively weaker oil and gas price environment. The firm reaffirmed its 2023 EBITDA outlook of $7.7 billion. We will maintain our $17.50 per share fair value estimate and narrow moat rating.

Kinder’s natural gas business was the clear standout during the quarter, as it offset oil and gas pricing-related weakness in its products and CO2 businesses. The difficulty in permitting new gas pipeline projects in the United States is contributing to a healthy recontracting environment for Kinder, as its Texas intrastate system and Midcontinent Express pipeline benefited in particular. Gas storage (Kinder controls about 15% of U.S. capacity) also remains a standout, given gas’ role as a backup for intermittent renewables power generation. Volumes were up slightly, with the strength coming from gathering volumes in the Haynesville (42%), and Eagle Ford (21%) plays. On the project side, Kinder’s $3.3 billion backlog is expected to be placed in service at an extremely attractive 3.5 times EBITDA multiple, far lower than its usual 5-6 times EBITDA multiple. This shift reflects Kinder’s opportunity set which is largely building off its existing network in smaller and short-haul efforts versus larger and more competitive new pipelines.

Permian gas pipeline discussions and activity remain robust. Kinder is seeing roughly a one to two-month delay to December 2023 on the Permian Highway Pipeline expansion effort due to difficulty obtaining the needed electrical equipment for compression. New future pipeline projects for the Permian are targeting the 2026-27 timeframe for an in-service date, likely directed toward the next significant liquefied natural gas project that obtains a final investment decision.