Kinder Morgan's first-half outperformance rooted in natural gas demand and SACROC CO2 growth

Kinder Morgan: primary on-ground drivers of first-half outperformance, and whether it can set a new segment run-rate

What drove the first-half outperformance (on-the-ground, operational)

Management pointed to a mix of (a) fundamental volume/margin improvements and (b) commodity-price and some “nonrecurring” operational/weather/contract items that were more concentrated earlier in the year.

1) CO2/Helium production strength (SACROC) and volume follow-through

• The CO2 oil production was “very strong,” cited as one of the larger quarter outperformers versus budget ¹.
• For SACROC specifically, management said it was “up 15% … year-to-date,” which was “better than what we had expected” ¹.

Implication for run-rate: This is at least partially operational (production growth), so it’s more “repeatable” than pure one-time items—but it still depends on underlying operational performance rather than commodity movements.

2) Commodity-price contribution (supporting multiple assets/business units)

• Management explicitly attributed outperformance to commodity prices “with the Iran conflict,” which “contributed to outperformance across multiple assets across multiple business units” ¹.
• In the Products/CO2 context, management also tied segment results to improved commodity pricing and CO2 commodity contributions ².

Implication for run-rate: This is harder to extend because commodity prices are “out of our hands” and management noted they haven’t projected as much outperformance for the rest of the year relative to the second quarter ¹. That argues against a fully repeatable run-rate from this driver alone.

3) Natural gas margin and commercial execution (Texas intrastate margins; capacity sales/utilization)

• Natural Gas outperformance was linked to “squeeze out additional margins” in the Texas intrastate business ¹.
• Management also cited “capacity sales at greater rates and greater capacity than what we had expected in the interstate business” ¹.
• On the results side, they described Natural Gas as having higher volumes and favorable margins: “higher volumes and favorable margins across the Texas intrastate network” plus “increased contributions” from capacity sales/utilization increases and other services ².
• More broadly, they described Natural Gas transport volumes up 7% quarter-over-quarter with incremental demand drivers including LNG feed gas deliveries (Tennessee Gas Pipeline), intrastate demand, power demand (El Paso pipeline), and exports to Mexico ³.

Implication for run-rate: Capacity sales/utilization and margin improvements are the most operational/commercially driven elements in management’s explanation—and management described demand for gas on their pipes as “high” and the system “highly utilized” ³. That supports the plausibility of a continued elevated run-rate for segments where these effects persist.

4) First-half weather/“nonrecurring” items and early-year one-time support

Management distinguished first-half drivers that were less likely to continue:

• They cited “stronger winter weather relative to historical norms and extended cold periods” that led to outperformance across natural gas assets in the first quarter ¹.
• They also cited “a contract buyout in our terminals group” as another first-quarter driver ¹.
• Management reiterated that the second quarter did not have the same kind of onetime items: they contrasted Q1’s winter storm/other items with Q2 having “nothing material” onetime, and characterized Q2 as reflecting “pretty strong performance across the base business” ⁴.

Implication for run-rate: These drivers help explain why first-half results exceeded expectations, but management’s own framing suggests they are not the foundation for a straight-line continuation of first-half outperformance.

5) Record-setting base business performance with broad segment participation

• Management stated the quarter was “meaningfully ahead of our internal expectations,” with EPS “more than 24% above our budget” and adjusted EBITDA “more than 9% above our budget” ².
• They emphasized growth was “broad-based,” with “every one of our business segments contributing positively” ².
• They reiterated continued outperformance through first half: both EBITDA and EPS “continue to exceed” last year and the 2026 budget by significant margins, leading to guidance increases ⁵⁶.

Implication for run-rate: Broad-based segment contribution suggests the company is not relying on a single isolated driver for the outperformance—though segment-level repeatability still depends on whether the specific tailwinds were commodity-driven, weather-driven, or contract/volume-driven.

Could these drivers set a new run-rate for certain segments?

Yes—most plausibly for segments where management framed the drivers as ongoing operational fundamentals

The strongest candidates (based on management’s language) are:

• Natural Gas: Because drivers included incremental demand sources (LNG feed gas, power demand, Mexico exports), gathering volume strength, “high” demand, and “highly utilized” system—factors that can persist across quarters ³. Additionally, they referenced continued efforts that “squeeze out additional margins” and better-than-expected capacity sales/rates/utilization ¹.
• CO2 (SACROC): Because SACROC was up 15% year-to-date and management highlighted “CO2 segment” volume growth, including “very nice volume growth … especially at SACROC” ¹². If production levels remain strong, this can support a higher run-rate than a commodity-only story.

But no—at least not for the full “first-half magnitude,” because management explicitly signaled conservation for the back half

Management’s own caution is central:

• They said they can’t easily call the continuation of some drivers: “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” ¹.
• They emphasized commodity-price effects are not controllable and therefore they didn’t project as much outperformance later: “Commodity prices are out of our hands” ¹.
• They explained that first-half outperformance included “nonrecurring” items (winter weather; contract buyout), and they expected these nonrecurring items to be less than half of overall full-year outperformance; they also said they took a “more conservative guide for the second half of 2026” ¹.

Guidance framing supports “higher run-rate, but less than first-half”

• Management confirmed full-year outlook improvement: full year adjusted EBITDA expected to be “at least 5% favorable” to budget and adjusted EPS “at least 12% favorable” ⁵.
• They also said adjusted EBITDA and EPS continued to exceed budget/expectations through the first half, but the guide for the back half was made more conservative specifically because of nonrecurring items and reduced expectation of repeating the same degree of outperformance ¹⁴.

Conclusion on run-rate setting: The first-half “on-the-ground” drivers include elements that appear structurally supportive (notably Natural Gas volume/margins/utilization and CO2/SACROC production growth) ¹³, but management indicated that the back half is unlikely to replicate the first-half outperformance level due to commodity uncertainty and the fading contribution of nonrecurring weather/one-time items ¹⁴. Therefore, a new elevated run-rate is more plausible for specific segments with ongoing operational drivers, but the overall company-level run-rate is constrained by the blend of repeating vs nonrepeating factors.

A practical way to distinguish “repeatable” vs “diminishing” drivers from the excerpt

Overall, management’s own language points to Natural Gas and CO2 (notably SACROC) as the segments most supported by operational momentum, while commodity-price effects and nonrecurring early-year items are the biggest reasons the company avoided assuming the first-half outperformance fully becomes the new back-half baseline ¹⁴.