Kinder Morgan Remains Well Positioned as the Energy Market Pivots

There’s a lot of uncertainty about the future for fossil fuel-focused companies like Kinder Morgan (NYSE:KMI) as the global economy switches to cleaner fuel sources. What’s clear right now is that those legacy fuels remain in high demand. That was evident in the company’s third-quarter results.

That’s giving it funds and the time to find the right opportunities to transition its business, which it has also started doing this year. Here’s a closer look at the quarter and what Kinder Morgan sees ahead.

A cash cow

Kinder Morgan’s energy infrastructure assets continue to generate steady cash flow supported primarily by long-term contracts with oil and gas companies and utilities. The company produced $1.013 billion, or $0.44 per share, of distributable cash flow during the third quarter. That’s about $72 million, or $0.04 per share, below the year-ago period. 

Still, that was enough money to cover Kinder Morgan’s dividend — which currently yields 5.8% — with nearly $400 million to spare even though it increased the payout by 3% over the past year. That gave Kinder Morgan the free cash flow to continue expanding its business.

Overall, Kinder Morgan delivered steady results across all four of its business segments. Earnings at its biggest division, natural gas pipelines, was flat year over year, as were its carbon dioxide operations. Meanwhile, the growth in products pipelines offset declining earnings in its terminal operations. 

While its natural gas segment delivered flat results in the period, CEO Steve Kean noted that Kinder Morgan “continue(s) to benefit from growing global natural gas demand.” He pointed out that its strategic position allows it to serve domestic and export markets, including LNG and shipments to Mexico. Meanwhile, its large-scale gas storage business enables it to move gas across the country wherever it’s needed most, including during extreme weather events or to offset the intermittency of renewable power generation.

With that solid showing in the third quarter, Kinder Morgan has now produced $4.367 billion of cash year to date, up 30% from 2020’s level. That’s due to a monster first quarter when it benefited from the impact winter storms in Texas had on the natural gas market.

A look at what’s ahead for Kinder Morgan

Kinder Morgan’s results thus far have the company on track to generate $5.4 billion of cash this year. It also expects to produce $7.9 billion of adjusted EBITDA. That has it on pace to end the year with a conservative leverage ratio of 4 times debt-to-adjusted EBITDA.

Looking further ahead, Kinder Morgan has been working to position its business for the future. One step it took was forming a new energy ventures business unit earlier this year. That segment closed its first acquisition in August, acquiring Kinetrex Energy for $310 million. Kinetrex Energy operates LNG and renewable natural gas (RNG) assets. It recently…