Kinder Morgan (KMI)

The C-Corp Pivot and the FCF Metric

Kinder Morgan is the large midstream name where the usual partnership screens do not apply, because it stopped being a partnership. The 2014 roll-up collapsed its MLPs into a single C-corporation, so holders receive a Form 1099 rather than a Schedule K-1, the company pays tax on its own profits, and from FY2025 the headline cash measure is free cash flow rather than distributable cash flow. Note what DCF means in this corner of the market: distributable cash flow, the MLP payout metric, not discounted cash flow.

The FY2025 cash chain is short enough to hold in your head. Cash from operations of $5,917 million, less $3,026 million of capital spending, gives free cash flow of $2,891 million; dividends of $2,604 million leave $287 million. Adjusted EBITDA was $8,391 million and leverage 3.8× against a 3.5×–4.5× target.

That free cash flow figure is struck after every dollar of capex, expansion as well as sustaining. Enterprise Products' $8,000 million of distributable cash flow is struck before growth capex. Setting the two beside each other without reading either bridge makes Kinder Morgan look a third the size on cash generation when the difference is mostly where each company draws the line, which is the error the DCF vs FCF guide exists to prevent.

Business Overview

Kinder Morgan runs roughly 66,000 miles of natural gas pipeline and about 706 Bcf of working gas storage, and says it moves around 40% of the gas produced in the United States and over 40% of the feedgas going to US liquefaction plants. The asset base is weighted to US gas transmission and storage, which is a different business from Enterprise's NGL-heavy mix or Enbridge's Canadian crude mainline.

Contract quality is disclosed on a 2026 budget basis for total adjusted segment earnings before depreciation and amortisation (EBDA): 65% take-or-pay, 26% fee-based, 5% hedged and 4% unhedged. Add the first three and you get the 96% that appears in every summary of the company. Those three are not the same thing. Take-or-pay obliges a shipper to pay for booked capacity whether it ships or not, so the money still arrives if volumes go to zero. A fee with no minimum volume commitment earns nothing on gas that stops moving. A hedge fixes a price for a while and then expires, and the exposure comes back at whatever the market is then.

So the number worth carrying is 65%, not 96%. Even that is a promise rather than a guarantee, because take-or-pay converts volume risk into credit risk on the shipper instead of removing it. Neither figure ranks against Enterprise Products' 82% fee-based share, which is struck on gross operating margin rather than segment EBDA; the take-or-pay guide uses the two as its worked contrast.

How the Economics Work

Volume drives the earnings here, not the gas price. Kinder Morgan takes a toll for moving and storing other people's molecules, so what matters is how much gas the country produces and how much of it wants to reach the Gulf Coast export plants. The EIA put US dry gas production at about 107.7 Bcf/d in 2025 and LNG exports at roughly 15 Bcf/d, heading for 17 Bcf/d in 2026. Growth on the network follows those two lines. Take-or-pay revenue cushions the fall when volumes soften, because the capacity charge is owed either way.

As a C-corp, Kinder Morgan pays entity-level tax and returns cash via dividends rather than partnership distributions. The MLP vs C-corp guide uses Kinder Morgan alongside Williams as the 1099 reporter contrast to K-1 partnerships such as Enterprise and Energy Transfer.

Without a filed DCF there is no coverage ratio in the MLP sense, and there is no honest way to build one. What replaces it is cruder and harder to game. Free cash flow is already net of all capital spending, so what it leaves against the dividend is the entire headroom, with nothing reclassifiable sitting behind it. In FY2025 that was $287 million against a $2,604 million payout, close to a tenth. One heavier year of expansion spending, or a softer operating year, closes that gap without anything going wrong at the asset level. The dividend is funded, but it is not funded with much to spare.

Valuation Framework

EV/EBITDA is the relative screen. The C-corp-heavier Alerian Midstream Energy Select index screened at 10.94× forward against 8.57× for the pure-MLP Alerian MLP Infrastructure index, and the temptation is to read those 2.4 turns as what a C-corp wrapper is worth. Resist most of it. The two indices do not hold the same companies, so a good part of the spread is asset mix and geography rather than tax form. Take it as an upper bound on the structure effect and compare Kinder Morgan against named C-corp peers, not against an index of partnerships.

Free cash flow yield is the cross-check the C-corp form allows. Against a market capitalisation near $69.7 billion, FY2025 free cash flow of $2,891 million is a yield of about 4.1%, of which the dividend takes roughly 3.7 points. The remainder is the same $287 million, seen from the other side. Whatever the model, do not label that free cash flow as DCF: it is not the same measure, and the sector's readers will assume the partnership definition.

What to Watch in the Financials

Free cash flow against the dividend. The gap was $287 million in FY2025, and it is the whole of the cushion. Watch it quarterly against the capital programme, since expansion spending is deducted before this number appears.

Leverage against the 3.5×–4.5× target. The year ended at 3.8×, comfortably inside. A drift towards the top of the range while a large project is still building, and therefore not yet earning, is the combination worth watching rather than the ratio on its own.

The take-or-pay share on each budget refresh. Not the 96%. A budget that shifts business out of take-or-pay and into the fee or hedged buckets increases volume and price exposure while the contracted headline barely moves.

Contract length. Percentages say nothing about term. A system 96% contracted for a decade and one 96% contracted for two more years are different businesses, and only the investor deck ever gives the weighted-average remaining life.

Peer Context

Williams is the nearest C-corp comparison on gas transmission, with FY2025 adjusted EBITDA of $7,750 million. It still publishes a payout bridge, available funds from operations of $5,858 million, which does the job DCF does at a partnership. Kinder Morgan dropped its equivalent bridge in favour of free cash flow in 2025, so the two are not screened the same way despite the same tax form.

Enterprise Products is the partnership counterpoint: 1.7× distribution coverage, a K-1, and a distributable cash flow reconciliation every quarter. The tax form changes who can hold the security, which is one reason the partnership and blended midstream indices price differently.

Enbridge reports in Canadian dollars and carries a crude mainline and a gas utility that Kinder Morgan does not. Its headline 98% of EBITDA from low-risk businesses is not a take-or-pay figure at all: the mainline is a common carrier, so shippers nominate volumes month by month and pay on what they actually move.

Key Risks

Recontracting. This is the real exposure behind a contracted percentage, and the one the percentage hides. Contracts have terms, and when one ends the pipeline renegotiates against whatever competing capacity has been built and whatever the basin is still producing. The 96% does not move until the day it does.

Shipper credit. Take-or-pay is a promise to pay, so it is worth what the payer is worth. A shipper in Chapter 11 can ask the court to reject contracts it no longer wants, and midstream contracts have been rejected. What the pipeline is left with then is an unsecured damages claim.

Regulation and permitting. Interstate rates are set under FERC oversight, so a rate case can reset the toll on assets that look fully contracted, and permitting can delay an expansion long after the capital is committed.

Leverage and growth capex. 3.8× leaves room inside the target, but a large project consumes debt capacity for years before its EBITDA arrives.

Reading the 96% as comparable. It sits on 2026 budget total adjusted segment EBDA, which is neither consolidated EBITDA nor gross operating margin. Ranking it against another company's contracted percentage compares two different denominators in two different years.