Summary
- The natural gas opportunity for midstream remains robust with growing project backlogs and new project announcements.
- While oil basins are getting gassier, the Permian should be able to deliver oil production growth over the coming years. On the natural gas front, the Haynesville is poised to rebound.
- For US corporations, provisions in the One Big Beautiful Bill Act are having a positive impact on cash taxes.
A handful of energy infrastructure MLPs and corporations have announced second quarter earnings results. Most names are scheduled to report the week of August 4, but in the meantime, this note provides some key takeaways from midstream earnings so far. Topics include the natural gas growth outlook, production trends, and benefits from the recent reconciliation bill.
Results and dividends solid.
Earnings results have generally been in line or ahead of consensus so far. Enbridge (ENB CN), TC Energy (TRP CN) and Hess Midstream (HESM) delivered notable beats. TRP raised its 2025 comparable EBITDA guidance for the year by $100 million, while ENB expects to end the year in the upper end of its guidance range.
Dividend announcements have been solid, with growth biased towards MLPs. Six constituents of the Alerian MLP Infrastructure Index (AMZI) announced sequential distribution increases, and the rest of the constituents maintained their payouts. A few midstream corporations have yet to announce their dividends, but there have been no cuts for the broad Alerian Midstream Energy Index (AMNA). Stay tuned for our quarterly dividend update.
Natural gas opportunity set remains strong.
As has been the case in recent quarters, a key focus has been project announcements related to natural gas infrastructure. Kinder Morgan’s (KMI) project backlog continued to grow, rising to $9.3 billion. Half of the backlog relates to power demand for natural gas (read more). In the last year, KMI’s project backlog has grown by $6 billion. However, they still see robust opportunity. In baseball terms, they are out of the first inning, but they aren’t anywhere near the seventh-inning stretch per management.
KMI’s Copper State Connector, a potential pipeline from the Permian, could help meet natural gas demand from utilities and data centers in Arizona. The project, which could cost $4-5 billion, is still being evaluated.
Meanwhile, DT Midstream (DTM) announced an expansion of its Guardian Pipeline by 210 million cubic feet per day. Expected online in 4Q28, the expansion is backed by a 20-year, negotiated rate contract with an investment-grade customer. For the potential Millennium Pro pipeline expansion in New York, DTM continues to work on regulatory alignment and state support, which remain gating items.
On their earnings call, management of TC Energy (TRP CN) highlighted conversations with more than 30 counterparties in the data center space. Management has confidence in a rising cadence of project announcements in 2H25 and into 2026. TC Energy also raised its forecast for North American natural gas demand growth to 2035 by 5 billion cubic feet per day (Bcf/d) to 45 Bcf/d.
Production updates: More natural gas on the horizon.
While natural gas demand remains topical, oil price volatility in 2Q25 put added focus on production trends, especially in the Permian. More broadly, investors have been focused on gas-to-oil ratios as oil basins mature and gas becomes a greater part of the production mix.
Specific to the Permian, management of Enterprise Products Partners (EPD) noted that producers have been drilling ~5,000 wells per year in recent years, and the oiliest locations have likely been drilled. Additionally, oil production declines faster than gas. Producers will increasingly be drilling gassier prospects. That said, EPD was comfortable with their forecast issued in April for 800,000 barrels per day in Permian oil production growth to 2027 compared to 2024.
EPD management noted Permian producers are extremely profitable at current oil prices and are benefiting from improved natural gas prices. The West Texas gas benchmark (Waha) has averaged $1.50/MMBtu year-to-date through July 30 after being negative for large portions of 2024.
In the Bakken, oil production is expected to remain flattish, while natural gas output grows. This will in turn drive gas-to-oil ratios higher. Interestingly, management from Hess Midstream (HESM) opined that more focus should be on the lateral footage available for drilling, as opposed to the inventory of drilling locations or the rig count. Longer lateral wells also tend to have stronger economics. As shown in the slide below from the state of North Dakota, 3-mile lateral wells are gaining traction.
Source: North Dakota Oil and Gas Division, Directors Cut
Shifting to a natural gas basin, DT Midstream (DTM) noted ramping output in the Haynesville, driven mostly by private operators. They expect public operators to start to ramp given demand growth and price signals. Public producers are going to tread more cautiously given a widespread emphasis on capital discipline.
DTM expects to see more growth in 2H25, and in time, management sees the Haynesville surpassing its peak production from two years ago. DTM is forecasting a 16 Bcf/d increase in LNG feed gas demand over the next decade from export facilities that can access their Haynesville system, with most of the related LNG projects already under construction.
OBBBA positive for midstream cash taxes.
Corporations have noted a positive impact from the provisions of the One Big Beautiful Bill Act (OBBBA), highlighting bonus depreciation and the higher interest expense deduction limit (read more). KMI expects meaningful cash tax benefits in 2026 and 2027 and does not expect to be a material cash tax payer until 2028. KMI noted 100% bonus depreciation is the biggest driver of tax reform benefits.
TC Energy noted little direct impact from OBBBA, explaining that their US assets are regulated and do not benefit from bonus depreciation. For example, interstate natural gas pipelines are regulated by the Federal Energy Regulatory Commission and typically use a cost-of-service rate mechanism to ensure a reasonable return for the pipeline operator. Depreciation is included in the cost of service. Midstream assets like gathering pipelines, processing plants, and storage terminals are better positioned to benefit from bonus depreciation.
DTM noted that bonus depreciation will benefit their unregulated investments (i.e., gathering and processing investments). DTM also see benefits from the increased interest expense deduction limit. Management expects a significant portion of their federal taxes to be deferred for multiple years.
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AMZI is the underlying index for the Alerian MLP ETF (AMLP) and the ETRACS Alerian MLP Infrastructure Index ETN Series B (MLPB).
Related Research:
One Big Beautiful Bill and MLP/Midstream Implications
Kinder Morgan Q2 Results: Natural Gas Trends Drive Constructive Outlook
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