Kinder Morgan, Inc. Q2 2026 Earnings Call

Welcome to Kinder Morgan's second quarter 2026 earnings results conference call. Today's conference is being recorded. I will now turn the call over to Mr. Rich Kinder, Executive Chairman of Kinder Morgan.

Thank you, Ted. Before we begin, as we usually do, 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. My remarks for this investor call could really be summed up in four sentences.

First, the second quarter was another strong quarter for KMI, as both our EBITDA and EPS continued to exceed both prior year and our own budget for 2026 by significant margins. Second, the natural gas growth story remains very positive as demand for LNG export volumes and gas per electric generation continues to grow. Third, this growth is leading to numerous additional opportunities to build new midstream infrastructure supported by long-term contracts with creditworthy customers, and we expect to FID very substantial additional CapEx projects during the remainder of this year. Finally, and very importantly, we can fund these projects almost completely with our internally generated cash flow while still continuing to pay a solid and growing dividend and maintaining a debt-to-EBITDA ratio at the lower end of our targeted range. For some of you, those four sentences may not make a compelling case for investing in Kinder Morgan.

Not an exciting enough story, I will remind you that this unexcited company has, over the last 29 years of its existence, grown its enterprise value at a compound annual rate of approximately 22%, while also paying out over $40 billion in dividends. Just maybe that gives us what we say, a little bit of credibility. With that, I'll turn it over to Kim and the team.

All right. Thank you, Rich. We're extremely pleased with our second quarter results. Another fantastic quarter for Kinder Morgan. I think one that reflects both the strength of our underlying business and the outstanding execution of our employees across the company. We significantly outperformed both last year and our budget expectations. Adjusted EBITDA increased 12% compared to the second quarter of 2025, while adjusted earnings per share increased 32%. Importantly, growth was broad-based, with every one of our business segments contributing positively to the quarter's strong performance. Given our results for the first half of the year and our confidence in the outlook for the remainder of 2026, we are increasing our guidance. We now expect full-year adjusted EBITDA to be at least 5% above our 2026 budget and adjusted EPS to be at least 11% above our original budget.

Turning to growth capital, our backlog remains one of the strongest in our history. During the quarter, our backlog decreased from approximately $10.1 billion to $9.6 billion. This decline was primarily the result of successfully placing more than $650 million of projects into service, partially offset by the approximately $200 million of new project additions. While our sanctioned backlog was down modestly this quarter, today, the board contingently approved almost $400 million of projects, which are in advanced contract negotiations and will be added to the backlog upon contract execution, virtually offsetting this quarter's decline. In addition, we anticipate, as Rich said, adding significant projects from our over $10 billion opportunity set before year-end, likely more than offsetting the approximately $1 billion of projects we expect to place into service during the second half of 2026.

Our three largest natural gas expansion projects that are underway continue to make excellent progress. Mississippi Crossing, South System Expansion Four, and Trident are each progressing on schedule and on budget. These projects represent critical infrastructure supporting increasing electric power generation, growing LNG exports, and broader natural gas demand across North America. For Mississippi Crossing and South System Four, we received our final FERC Environmental Impact Statement in June and expect to receive our FERC certificates by the end of this month, an important milestone as both projects move towards construction. Trident continues to advance well and is now approximately 60% complete. Financially, we remain in an exceptionally strong position. Our balance sheet ended the quarter at approximately 3.6 times leverage, providing significant flexibility to fund attractive growth opportunities while continuing to maintain our disciplined capital allocation framework. Finally, I'd like to spend a moment on the broader market backdrop.

The fundamentals supporting our natural gas business have never been stronger.

According to Wood Mackenzie's most recent outlook, U.S. natural gas demand is expected to exceed 160 billion cubic feet per day by 2035. That represents approximately 46 billion cubic feet per day of incremental demand growth compared to 2025. The primary drivers continue to be increased LNG export capacity and rapidly growing power demand. The scale of this projected demand growth underscores the critical need for the infrastructure we own and the projects we are developing. With one of the largest natural gas transmission systems in North America, a premier portfolio of expansion opportunities, a strong balance sheet, and a highly experienced management team, we believe Kinder Morgan is exceptionally well-positioned to continue delivering value for our customers and shareholders for many years to come. With that, I'll turn it over to Dax.

Thanks, Kim. Starting with the natural gas business unit, transport volumes were up 7% in the quarter versus the second quarter of 2025. There were multiple drivers for the incremental demand, including increased LNG feed gas deliveries on the Tennessee Gas Pipeline, incremental demand on our intrastate system, incremental power demand along our El Paso pipeline, and greater exports to Mexico. Natural gas gathering volumes were up 26% in the quarter from the second quarter of 2025 and increased across most of our gathering and processing assets, with the largest impact coming from our KinderHawk system in the Haynesville, which was up 54%. As we have continued to say, demand for gas on our pipes remains high and our system remains highly utilized. Looking forward, consistent with Kim's comments on our shadow backlog, we continue to see significant incremental project opportunities across our natural gas pipeline network.

For example, we are in various stages of development on projects to serve more than 10 Bcf a day of natural gas demand in the power generation sector and approximately three Bcf a day in the LNG sector. In our products pipeline segment, refined product volumes were down 5% in the quarter compared to the second quarter of 2025, and crude and condensate volumes were down 16% in the quarter compared to the first quarter of 2025, with most of the decline in crude volumes explained by the removal of Double H from service for the NGL conversion early in the third quarter of 2025. Excluding Double H volumes in both periods, crude condensate volumes were down about 5% in the quarter compared to the second quarter of 2025. Regarding Western Gateway, KMI and Phillips 66 are steadily moving the project forward.

While progress on our partnership agreements has been significant, the process has taken longer than initially anticipated, primarily due to the complexity of the proposed arrangement. Our aim is to complete the documents within the next month or two, at which point, assuming satisfactory progress continues, we would plan to FID the overall project. In our terminals business segment, our liquids lease capacity remains high at 93%. Market conditions continue to remain supportive of strong rates, and the utilization of tanks available for use is approximately 99% at our key hubs on the Houston Ship Channel and at Carteret. While the temporary Jones Act waiver has added some market uncertainty, our 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 almost three years and over three years when considering options that are likely exercised. The CO₂ segment saw 10% higher net oil production volumes compared to Q2 of 2025, which was led by a 15% increase in production at SACROC. NGL volumes were 9% higher, and CO₂ volumes were 5% higher. Finally, RNG volumes increased 8% as the significantly improved operations that are driving both greater uptime and hydrocarbon recovery at our facilities continued in the second quarter. With that, I'll turn it over to David.

Thank you, Dax. We're declaring a quarterly dividend of $0.2975 per share, which is $1.19 annualized and an increase of 2% over 2025. As you heard, we had a record-setting quarter with both net income attributable to KMI and adjusted EBITDA reaching record levels for the second quarter. That performance was also meaningfully ahead of our internal expectations, with EPS more than 24% above our budget and adjusted EBITDA more than 9% above our budget. This follows a first quarter where we achieved similar outperformance, we've completed our first half of 2026. That was extremely strong. For the second quarter, we generated net income attributable to KMI of $867 million and EPS of $0.39. These are 21% and 22% above the second quarter of 2025, respectively. Adjusted EPS was $0.37, a 32% increase from last year, and adjusted EBITDA grew 12% from last year.

These are very strong results, as Kim mentioned, it was very impressive that each one of our business units contributed to the year-over-year growth. The natural gas business saw higher volumes and favorable margins across the Texas intrastate network. We also had greater gathering and processing volumes, as well as increased contributions from park and loan services, growth project contributions, capacity sales, and utilization increases across multiple assets. The products business benefited from improved commodity pricing as well as greater butane blending volumes and rates, partially offset by lower refined product volumes. Our CO₂ segments saw greater contributions from commodity prices as well as very nice volume growth, as Dax mentioned, especially at SACROC, which was up 15% from last year.

In terminals, we had increased volumes and rates in our liquids business, as well as favorable commodity pricing, those were partially offset by some favorable one-time items that we experienced in 2025. The year-to-date versus 2025, EBITDA has grown 15% and adjusted EPS has grown by 35%. Very impressive growth. For the full year 2026, as Kim mentioned but is worth repeating, we expect to be more than 5% favorable to our budget on adjusted EBITDA and more than 12% favorable on adjusted EPS. That represents more than $430 million of additional EBITDA contribution. We think this is a clear demonstration of the enhanced value of energy infrastructure in the U.S., particularly as we suspect we will continue to see growing demand for natural gas across the country. Moving on to the balance sheet.

Our net debt to adjusted EBITDA ratio ended the quarter at 3.6 times, which is down from 3.8 at the beginning of the year and is down from what we have budgeted. Now we expect to end the year at 3.6 leverage as well, and that's down from the budget of 3.8 times, despite spending more on our Monument acquisition and increasing our growth capital relative to what we had budgeted. That's all driven by our EBITDA outperformance. This also puts us well below the midpoint of our target leverage range of 4.0 times. Year-to-date, our net debt increased $311 million. I'll walk through a high-level reconciliation of how we get to that increase. We generated $3.45 billion of cash flow from operations. We've paid out $1.315 billion in dividends.

We've spent $1.92 billion in total capital, which includes growth capital, sustaining capital, and our contributions to JVs. With the Monument acquisition of $500 million, it gets you pretty close to the increase in net debt for the year. I'll turn it back to Kim for Q&A.

Okay. Thanks, David. Ted, if you'll come on, we will take questions.

Okay. The phone lines are now open for questions. If you would like to ask a question over the phone, please press star one and record your name. To withdraw your question, press star two. The first question in the queue is from Praneeth Satish with Wells Fargo. Your line is open. Thanks.

Good afternoon, everyone. I wanted to start with a high-level question. You talked roughly about spending about $3 billion per year of growth CapEx, which you mentioned kind of keeps you around free cash flow breakeven. I guess when I look at the size of the data center opportunities, power-related opportunities across your footprint, I'm wondering if that's the right target anymore. Is there a scenario here where the backlog becomes large enough, maybe with SSC5 or something along those lines, where you significantly outspend free cash flow and move to a more leverage-neutral approach? On our math, you can spend up to $6 billion per year of growth CapEx and keep leverage unchanged. I guess I'm just wondering if there's enough demand in the potential backlog to get to those levels. Would that level of CapEx spend fit within your guardrails?

Let me say a couple of things on that. The over $3 billion in expansion CapEx per year that we've projected is based on the current backlog, so the roughly $10 billion. As I think Rich alluded to and I said is, we do expect that we will be adding significantly to that backlog. With the current backlog, what happens to our debt to EBITDA is it comes down over time as we add incremental EBITDA and the debt balance essentially stays flat. Right now, we're at 3.6, spending the roughly $3 billion per year. Debt to EBITDA comes down. At 3.6, if we needed to take that up to fund incremental CapEx in excess of our cash flow, if we wanted to go to 4 times, we have $850 million of capacity for every 0.1 times.

If we wanted to go up to 4 times, for example, that's $3.4 billion of incremental balance sheet capacity. We absolutely have the ability to finance incremental CapEx, stay within at the middle, potentially, of our balance sheet target range. Look, I think we expect that we will be adding projects to the backlog, and a lot of that's really around power is the primary driver of those incremental expansion projects.

Got it. That's clear. Maybe shifting gears. On TGP, looks like there was a non-binding open season, Project 219 South. Can you talk about how you're thinking about the competitive landscape here for building a takeaway project out of the Northeast down to the southern markets? I guess, what drove the project size and the scope of it versus potentially pursuing something larger? Is this fundamentally a brownfield expansion or more greenfield? How do you think about execution and permitting? Thanks. Praneeth, this is Sejal.

As you just take a step back, the way we look at this corridor, what drove the open season is we're seeing not only the demand in the Southeast and in the South, but we're also seeing demand through the four-state corridor, Tennessee, Ohio, West Virginia, and Kentucky. We're starting to see a power corridor form. Given the interest that we've been seeing out there, our thought was to put out. We know we have somewhat of a brownfield opportunity with the smaller case. We are evaluating a larger case. I think our objective here, we typically go out with open season with anchor shippers in hand, but the market here is still evolving. Our thought initially was to put the project out at a smaller size.

If the market indicates the need for a bigger one, we can evaluate it. We have the ability to morph this into something bigger if needed.

Sounds good. Thank you. Thank you.

The next question in the queue is from Jeremy Tonet with J.P. Morgan. Your line is open.

Hi, good afternoon. Hi, Jeremy.

Just wanted to pivot towards Permian Link, if I could. Was just wondering if you could walk through a bit what you see the competitive advantages of that project are, and when do you think you might be in a position to take a FID?

Okay. Well, I answer the second one first. Our modus is we have a contract and we go to FID. We are in discussions with customers. As you know, we had an open season, significant interest in the project. I think what differentiates this project is when you look at the NGPL footprint, we basically have a little power corridor forming across the pipeline. The real differentiator here is the link to storage, and hence the name Permian Link. I think as you see these power opportunities via data centers and organic power growth develop, that 765 kV line is, ERCOT's approved that, and that's going through there, so you're starting to see a lot of activity. That's the foundation for kind of the path that we've picked.

Where we are today is we're discussing with our customers in the open season, as you know there's lots of interest out of the Permian to get additionally addressed projects. We will sanction the project if we have contracts that support it with the returns that are acceptable.

Yeah. Thank you. Did I answer your question?

Okay. I was just wondering timeline, any thoughts you might be able to share there as well?

Well, I think we've got this thing targeted for a 2030 type in service, right? I mean, just by the nature of the long leads. I mean, obviously, the sooner we get the contract signed, the faster we can go and start getting long leads ordered. It's still competitive, but the discussions are going well.

That's helpful. Thanks. Just one more, if I could. If I think about Permian Link, if I think about TGP Station 219 South, these projects, depending on how they come together, could be fairly sizable in nature. Things that are more in the billion-dollar range as opposed to even a $400 million range. I was just curious, as you look at your project portfolio, what you see is possible out there, do you see many other projects in that chunky size? Are there smaller projects? Just wondering, if you think about these larger projects, do you see more than just a couple out there?

Yeah. I think it's like our existing backlog. Our opportunity set has a handful of the billion-dollar plus and then a lot of $100 million-$500 million projects. It's similar in terms of size and scope and number of projects.

Got it. Thank you. The next question in the queue is from Julien Dumoulin-Smith from Jefferies.

Your line is open. Hey, good morning.

I want to say good afternoon to you, and thank you. Maybe just to pivot from the last two questions here. On the approval for the almost $400 million of projects not yet in backlog, can you give color on those? Or what needs to happen for those to move into backlog? To really square it up, how do you think about the timeline for some of that shadow backlog to convert into FIDs? Is that still kind of a 2026 timeline when you think about these larger, lumpier projects?

Yeah. In terms of the $400 million, on those, we've got the project designed, we've got the costs. We have agreed on commercial terms with the customers, and we are a long way through agreeing on a contract. It's weeks to a month or something probably before you get contract signatures on those. I think those are on the lip of the cup. Your second question was with respect to converting the shadow backlog, and I think it's hard to predict exactly when projects are going to be FIDed. As we have all said on this call, I think, one, there is a lot of opportunity. We are not seeing a slowdown in the opportunity set. If anything, we're seeing increases. Second, I think we expect to add significant projects in the back half of this year.

Got it. Excellent. This year, indeed. Just specifically, if you can comment a little bit on NGPL here, as much as Obviously, you've got some very regional dynamics there working in your favor as a tailwind. Can you talk about where specifically you might see incremental demand and the potential scale and timing on that front?

Yeah. When you look at the NGPL footprint, you've got the Permian Link corridor, if I will. Yes, that 765 kV line. There's a lot of activity there. We've got activity in the market area up in the north. There's a convergence of inquiries coming in. You've seen some capacity reservations where we are trying to target that demand up in the northern section of NGPL. Once again, these are all fluid, want to get highly competitive. Our goal is to try and get these knocked down as fast as we can.

Got it. All right. Best of luck. Look forward to it. Appreciate it.

Thank you. Next question is from Manav Gupta with UBS.

Your line is open. Good afternoon.

A quick question first on the Western Gateway. Even with the minor delay, it looks like both parties are very strongly interested in the project. Clearly, California has massively short product, and clearly their strategy of trying to import only from Korea or other places has gone wrong. Where are we with this project FID process, and how confident are you that you will get to FID probably within the next two or three months?

Yeah, Dax. Yeah. This is Dax.

As I mentioned in my comments, I think we've progressed the documents along pretty far. We've made a lot of progress and we would expect, based on what we see right now, to FID the project in the next month or two.

Thank you, Mike. Second quick follow-up here is you have a big footprint in Haynesville. We are seeing an incremental demand from Haynesville given the demand for natural gas. Do you think Haynesville would be a core basin to meet the growing demand for natural gas? Can you remind us of your footprint in the Haynesville? Thank you. Yes. We've got a very significant footprint in the Haynesville.

If you look at our numbers or WoodMac's numbers, I think we're expecting significant growth coming out of the Haynesville between 2025 and 2030. On WoodMac's numbers, it's seven Bcf a day, and on our numbers, it's 10 Bcf a day. This quarter, we're seeing sort of the start of that. Our volumes in the Haynesville were up, as Dax said, over 50% this quarter. I think we averaged 1.9 Bcf a day for the quarter, and volumes got to around two Bcf during the quarter, and so over two Bcf during the quarter. We're in the process of completing a $500 million investment to bring on incremental transport and treating capacity. That project is on time and on budget.

Manav, just to remind you, that's another Bcf of processing capacity. We just hit a peak here in June in the Haynesville.

Thank you so much. Next question is from Theresa Chen with Barclays.

Your line is open. Good afternoon.

On the Project 219, in terms of the competitive dynamics, would you be able to elaborate on what advantages your project brings versus other contenders along similar corridors, including Boardwalk's proposed Borealis Project nearby?

Well, look, I'll talk about Tennessee and the benefits of Tennessee. Ultimately, I'm not going to talk about Borealis Project, but what we view as an advantage for Tennessee is it's in our existing corridor. We've got four pipes going through that corridor. There is a developing market through that same corridor. We have some capabilities using some of our existing footprint to help facilitate. I think that's, I would call advantage number 1 for the base smaller project. In terms of access to supply, we can reach back all the way to the 219 Mercer, Pennsylvania area, which has additional supply points from the Southwest Marcellus. You've got some of the traditional supply. When you think about the Clarington opportunity, we can even look to link to access to Clarington area along the way. Supply diversity is there, the south of the Utica.

I think when you look at that diversity, I think that's an advantage, then you have market advantage, in terms of all the access that you get along the way in that developing corridor. Plus, we can get the volumes all the way to our Mississippi Crossing Project, then ultimately into the Southeast. That's kind of the design and the nature of the base plan. I think that's it in a nutshell. Diversity. Understood. Sticking to the same region in the Southeast, following Southern Company's recently announced agreement with OpenAI for a data center project in the SEM, highlighting the growing gas demand associated with AI infrastructure in general in that region.

How do you view the opportunity set for the SNG system? Could this drive future expansion projects or incremental gas-to-power opportunities for the Kinder North Erin JV over time?

Yeah. Let me say a couple of things, then I'm going to pass it to Cecil. There is a clear need for additional expansion in this region. I mean, Georgia Power, earlier this year, filed their large load economic development report, which showed over 75 gigawatts of potential power demand between now and the mid-2030s. That is one utility in one state. Projects will be competitive. I'll let Sejal comment a couple this, but our asset position in the Southeast market, I think puts us in a great spot between SNG, MSX that we're developing, Bridge that we're developing, our 50% interest in FGT. It is an exciting market.

Yeah. Theresa, obviously, we're evaluating projects to serve the entire Southeast, right? We're trying to see what we can do. It's highly competitive. We're obviously very cognizant of that fact. We feel good about the opportunity set, and we're trying to get some of these across the finish line. I would say, in terms of the Southeast in particular, it's not just the SNG footprint. We got EEC, we've got other assets in the basin that can help solve some of these long-term needs. The teams are working hard to try and get these across the finish line.

Thank you. Next question is from Jean Ann Salisbury with Bank of America.

Your line is open. Hi.

Now that Double H has ramped an NGL service, what are your latest thoughts on the potential to add volumes to that system, and what would that take?

The potential to add volumes in terms of the capacity, like I said, when we had the last call, we have capability to bring incremental molecules down. We're in a pretty competitive market here, and so until we get another contract, I'm not going to comment on that, but we have capabilities to further expand. I think that'll involve some collaboration with other parties, and because it's so competitive, we're just going to stop there.

All right. Fair enough. Then as more turbines are shifting into power generation, are you seeing any constraints on getting compression for future pipeline projects? How are you mitigating that risk if so?

Yeah. One, we are starting to see pressures on some of the timelines. Obviously, we have relationships with some of these providers, and we're doing to make sure we stay ahead of it. Our team's focused on the opportunity sets that we see in front of us, and we're trying to manage that. We're trying to factor that into our project economics as we're starting to bring these projects across. They're doing an incredible job staying on top of all the variabilities. I think when we see this developing, we're just trying to stay ahead of the impending, I guess, delay in supply chain that may develop over time.

I'd say, it hasn't lengthened out that much recently. This has been an ongoing phenomenon. We've been on top of this since we started doing MSX and South System 4. It's something that over the last two years, we've gotten very good at taking into account and dealing with.

Makes sense. Thank you. Thank you.

The next question is from Spiro Dounis with Citi. Your line is open. I want to go back to the backlog quickly and really just go back to your comments on how you're thinking about it into year-end.

As you mentioned, you've got several large-scale projects in development. Many of them have come up on this call already to kind of offset that $1 billion, or I say more than offset that $1 billion coming into service. I guess I'm just curious, are all these projects you sort of talked about, or could we be surprised by what you end up announcing later this year? As you think about the complexion of the projects, are these primarily gas-related, maybe with the exception of Western Gateway, which I assume is included in that $1 billion-dollar figure?

The answer is yes. Other than Western Gateway, they are primarily gas-related. What I would say with respect to what projects they could be. I think that everybody knows the themes, is what I would say. Where the demand is growing and the areas that need pipeline capacity. I don't think you will be surprised by the underlying drivers of the demand.

Got it. That's good color. Just going to the balance sheet, maybe for you, David, but just now at 3.6x, $3.4 billion of capacity from here. You talked about the organic growth potential, which might end up consuming a lot of that capacity. Just curious to check in here on the M&A side and see where that fits in, how you see that landscape today, and if this maybe opens up room to do something larger in scale.

All right. On the M&A side, as we announced an M&A deal with last quarter that we have now closed $500 million. That's consistent with, we've been seeing opportunities of about that size over the last couple of years. Have been able to roll them in without an issue because those come with cash flow, so it's not as dilutive to your leverage metric initially given the in-place EBITDA. The other thing I'd say about those, is that everybody looks at the going-in multiple and says, "Oh, well, expansion's a better opportunity than the acquisition side. What I would say about that is you can't just look at the going-in multiple on something, because on an acquisition, you get the cash flow immediately. On an expansion project, you have a little bit of a drag.

You could have a higher going-in multiple on an acquisition than you have on an expansion and still have similar IRRs. Those all things all compete for capital. Right now, we don't feel like we are capital constrained at all.

Great. I'll leave it there for today. Thanks, everyone. The next question is from Keith Stanley with Wolfe Research.

Your line is open. Hi, good afternoon.

First, just want to confirm the full-year outlook being 5% ahead of the EBITDA budget. It seems like that just reflects the outperformance in the first half of the year. Why wouldn't the second half outlook potentially be better given the momentum you're seeing year to date?

Okay. I think one, obviously in the first quarter, we had a winter storm, we've had some Waha spreads. We had a little bit of one times. In the second quarter, we don't have that much. In fact, nothing material that I would call one times. The second quarter reflects pretty strong performance across the base business. I also think that it's debatable whether all of the winter storm is a one time, because I think with the system as tight as it is, when you're going to get volatility, the demand for our services and our assets is just going to be greater for the foreseeable future. I think generally, we try to be somewhat conservative when we project out for the balance of the year.

There is some outperformance that is baked into this guidance for the balance of the year, just not as much as what we saw in the first half of the year, given some of the things that happened in the first quarter.

Okay. Thanks for that. Second question is, it's kind of a high-level question on how to think about this shadow backlog concept. You introduced the $10 billion shadow backlog, I think about a year ago now. I think you've sanctioned around $2 billion of projects. You indicated kind of you'd expect to sanction at least another $1 billion in the second half of the year to date. It's about $3 billion over 18 months. Looking forward, would you expect the pace of converting that shadow backlog to a sanction backlog to be faster over the next year or two, a similar cadence, or is it too hard to say?

I think it's hard to say when things come to fruition, but I think we see a good line of sight of sanctioning a fair number of projects in the back half of this year. I think we are bullish on the opportunities of adding. I'd also point out that the $10 billion hasn't decreased despite the fact that we added $2 billion and are looking to add at least $1 billion in the back half of the year. Our opportunity set has continued to grow.

Thank you. The next question is from John Mackay with Goldman Sachs.

Your line is open. Hey, team.

Thanks for the time. I think I'm actually going to ask two of both of Keith's questions in another way. Just looking at the backlog, again, to that point of kind of potentially announcing another $1 billion of projects later this year to offset the $1 billion coming online. Is $10 billion generally where you expect the backlog to be able to hold going forward? Or is there room for that number to move meaningfully higher?

There's room for the number to move higher.

Appreciate that. Just cutting off to this $1 billion number, I think what Kim is trying to say is we have a lot of opportunities, and we expect to do at least that kind of thing, that $1 billion threshold.

I wouldn't take that as that's all we're going to do in the last half of this year. There's a lot of opportunities out there, and I think we're poised to move quickly on them. Again, we have to get the horses in the corral.

Understood. Thanks for that, Rich. That makes a lot of sense. Then just on the 2026 guidance. I understand the point of being a little conservative around the back half guide, it was such a strong quarter. I guess I'm just wondering if you could point to maybe a little bit more of on the ground from an operational standpoint, what some of the outperformance was coming from and, again, maybe framing up why that could be a new run rate earnings level for some of these segments.

Rick, you want to take that?

Yeah. I'll highlight a few and then Kim, you can. One, I would point out that the CO2 oil production was very strong. That's one of the larger outperformers for the quarter, versus our budget. We had SACROC is year to date up 15% over last year, which is better than what we had expected. Commodity prices, obviously with the Iran conflict, contributed to outperformance across multiple assets, across multiple business units. That contributed in the quarter. Our natural gas business, both in the Texas intrastate and across other interstate systems, continue to squeeze out additional margins. Margins in the Texas intrastate business, and then capacity sales at greater rates and greater capacity than what we had expected in the interstate business. Some of those are hard to call for the rest of the year.

If that's going to continue for the rest of the year, commodity prices are out of our hands. That's probably part of the reason why for the rest of the year, we haven't projected as much outperformance for the rest of the year relative to what we experienced in the second quarter. Ken has already touched on the first quarter. We mentioned a lot of these, what I would characterize as kind of potentially non-recurring. We had really stronger winter weather relative to historical norms and extended cold periods that led to some outperformance across some of our natural gas assets. We had a contract buyout in our terminals group. Some of those are the things that led to a little bit of outperformance in the first quarter.

For the rest of the year, while we're still expecting that these kind of non-recurring items are less than half of our overall outperformance for the full year, we've probably taken a little bit more of a conservative guide for the second half of 2026.

That's great. Thank you, David. Appreciate the time. Next question is from Jason Gabelman with TD Cowen.

Your line is open. Yeah.

Hey, thanks for taking my questions. I wanted to go back to the discussion of adding $1 billion perhaps in new projects by the end of this year, just trying to understand how Western Gateway fits into that, because there's going to be, as I understand it, a cash contribution to the project, then you're going to contribute assets as well. As you think about how Western Gateway accounts for some of that $1 billion, is it the total cash plus asset that you're contributing to the joint venture, or is it just the cash portion?

Let me point out two things. Like Rich just said, what we said is at least $1 billion, it could be more than that. Absolutely, again, I think it's absolutely possible that we could go above the $10 billion backlog. I think we're saying the opportunity set here is just really tremendous. What is hard to call is the timing of it. We want to be somewhat conservative about calling our timing because you're negotiating with customers and everybody doesn't always move at the pace that you expect. With respect to Western Gateway, when we talk about the $1 billion, we are not talking about our asset contributions to that. To the extent that it would be part of the $1 billion, we would just be counting the cash contribution.

Great. My follow-up is on the startup of GCX expansion. I think the market's been a bit surprised that just with a little bit more egress out of the Permian Basin, Waha spreads have really come in. Just wondering if you saw that GCX expansion fill up pretty quickly, immediately, or if there's some space left on it. Thanks. Oh, no. I think it was waiting on capacity.

As soon as we got it up, it pretty much was full. That's been the case on all of our projects out of the Permian. They've been pretty full as we've brought the facilities on. I think what you're probably seeing is maybe less of the maintenance activity around. That also probably contributed to some of that. GCX in itself has been full.

Great. Thanks for the answers.

Thank you. The next question is from Sunil Sabal with Seaport Global Securities.

Your line is open. Yeah.

Hi, good afternoon. I just had a follow-up on your comments regarding the Haynesville volumes. I think you mentioned that you expect another BCF per day of Haynesville volumes coming online in the near term. I was curious, do you see any price sensitivity to those volumes, or those are kind of pretty much visible because the minimum volume commitments are offtake on the demand side that you may be seeing?

Yeah, Sunil, what I was saying is we are adding a BCF of processing capacity, treating capacity. We have right now where we are is our system is effectively full. We're offloading any volumes that come onto our Haynesville system, and so we're trying to catch up. Those offloads are, from a margin standpoint, not as accretive as us keeping those on our own system. We're adding a BCF of treating capacity. If the demand profiles hold up, the production should be there to support it. We just got to have the capabilities to get it from point A to point B. That's all we're saying. On price sensitivity, I'd say our largest customers have hedged.

I would expect that most of those volumes that we're expecting are going to be price insensitive.

Understood. Thanks for your comments on the GCX volumes. I was curious, although there are a number of gas pipeline projects in pipeline, are you starting to see discussion with customers on the next phase of growth in Permian, considering what we are seeing in the commodity markets?

Yeah, look, our Permian Link Project is just one example. There's a lot of discussion going on. It all depends on where the demand. I think one theme you're seeing now is where the demand is going to show up, that's where the molecules are trying to point. As those demand centers start developing, that's where those discussions will lead. We are in discussions today with customers about several options out of the Permian.

Thank you. Thank you. At this time, I'm showing no further questions.

Good. Thank you all, and hope everybody has a good evening. Thank you. This concludes today's call.

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