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KMP Posts In-line Earnings, Up YoY

Zacks Equity Research

Kinder Morgan Energy Partners L.P.'s (KMP) first quarter 2013 earnings from continuing operations of 66 cents per limited partner unit (excluding certain items) were at par with the Zacks Consensus Estimate. The quarterly results were 8.2% higher than the year-ago quarter's earnings of 61 cents per share.

Revenues increased 44% to $2,661.0 million in the quarter from $1,848.0 million in the year-ago quarter and beat the Zacks Consensus Estimate of $2,490.0 million. The outperformance was mainly attributable to higher volumes in its interstate pipeline network.

The partnership's cash distribution per common unit was raised to $1.30 ($5.20 annualized), representing an 8% year-over-year growth. The distribution is payable on May 15, 2013. The partnership has increased the quarterly distribution 47 times since the current management team took over in Feb1997.

Kinder Morgan's payout hike was fueled by incremental contribution from the dropdown of 100% of Tennessee Gas Pipeline (TGP) and 50% of El Paso Natural Gas (:EPNG), from its parent company Kinder Morgan Inc. (KMI), growth opportunities in the coal export business as well as robust oil yield.

The partnership's distributable cash flow – a measure of its ability to make unitholders' payments – before considering certain items was $550 million versus $462 million in the year-ago quarter. Additionally, distributable cash flow per unit, excluding certain items, was $1.46, up 6.6% year over year.

First Quarter Segmental Highlights

Products Pipelines: The business segment's earnings before DD&A and certain items climbed 13.6% year over year to $200 million. The higher revenues from the Cochin Pipeline also aided the growth. This was accompanied by higher transmix volumes with improved contributions from the Kinder Morgan Crude and Condensate Pipeline. Further, a new long-term contract with BP plc (BP) is expected to boost earnings going forward. Total refined products volume was up 1.4% from the prior-year quarter.

Natural Gas Pipelines: Earnings before DD&A and certain items from the segment shot up 78.1% year over year to $497 million. The performance was aided by the dropdown of TGP and EPNG as well as higher contributions from the Jun 2012 acquisition of 50% of some midstream properties. Further, solid performances by the Eagle Ford assets also contributed to the results, which were partly offset by the divestiture of Rockies assets.

Overall, transport volumes moved up 7% from the year-ago quarter, mainly attributable to robust volumes in the Eagle Ford and strong transport volumes on the Texas intrastate pipeline system due to increased deliveries to Mexico. Again, a new supply project at TGP and colder weather in the Northeast also added to this.

CO2: The segment's earnings before DD&A and certain items were $340 million, up 0.9% year over year on the back of increased yield at the SACROC as well as record natural gas liquids (NGL) output. Increased output at the Katz field also aided earnings growth.

Terminals: The business segment earned $187 million before DD&A and certain items in the first quarter, unchanged year over year. The segment benefited from its liquids terminals in the Northeast as well as in the Gulf, which saw new and restructured contracts with higher rates and increased demand for export coal.

Kinder Morgan Canada: The segment reported earnings of $52 million before DD&A and certain items, up 4% year over year, reflecting superior performance by the Express-Platte Pipeline and increased shipments into Washington through the Puget Sound pipeline system. The recent approval by the National Energy Board for a new three-year toll agreement on Trans Mountain also augmented the segment’s earnings.


As of Mar 31, 2013, Kinder Morgan had cash and cash equivalents of $736 million and long-term debt of $16,829 million. Debt-to-capitalization ratio was 57.9% (versus 56.0% in the last quarter).

Capital Expenditure

Kinder Morgan currently expects to invest approximately $11 billion in expansion and joint venture related operations. For 2013, the partnership intends to spend nearly $3 billion in expansion and acquisitions and is reaping benefits from the recent boom in oil and gas exploration in the North American shale formations as most of these basins have very few or no transportation infrastructure.


Kinder Morgan currently has a Zacks Rank #3 (short-term Hold rating). However, the Zacks Ranked #1 Range Resources Corporation (RRC) is expected to outperform the market over the next few months.

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