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Why did El Paso announce a capex guidance of 1 billion for 2014?

Kshitija Bhandaru

An investor's must-know guide to El Paso's 2014 growth outlook (Part 2 of 4)

(Continued from Part 1)

Earnings Analysis

On April 16, 2014, El Paso declared its results for the first quarter of 2014. Total revenues at the end of the first quarter were $382 million, down 1% from $386 million in the year-ago period and down 7.9% below the consensus estimate of $415 million. Earnings were impacted in both the third and fourth quarters by two rate case settlements that resulted in lower rates on the Southern Natural Gas (or SNG) and Wyoming Interstate Company (or WIC) pipelines. However, earnings before DD&A (EBDA) were $319 million, which are slightly higher than the $317 million generated for the same period last year. EPB reported first quarter distributable cash flow of $163 million compared to $169 million for the same period in 2013, and first quarter net income was $173 million compared to $174 million for the same period in 2013.

El Paso Pipeline Partners, also announced its quarterly cash distribution per common unit of $0.65 ($2.60 annualized) payable on May 15, 2014, to unitholders. This represents a 5% increase over the first quarter 2013 cash distribution per unit of $0.62 ($2.48annualized) but is the same as the fourth quarter 2013 distribution.

EPB is the highest-yielding security within the Kinder Morgan family as it currently yields ~7.3% compared to KMP, which yields 6.7%. However, EPB is less diversified compared to KMP and has a lot of room for distribution growth, which hasn’t changed since the last quarter of 2013.


El Paso plans for more than $1 billion worth of its own expansion projects in the upcoming year as Kinder Morgan returns to a pure general partner and is pushing more assets into El Paso. These expenditures are already under contract with customers, which means El Paso unitholders will benefit in 2016 and beyond. In 2014, management believes El Paso will generate $1.3 billion in core earnings, which would amount to 7% growth and would also be instrumental in driving up the yield to ~9%. El Paso expects to distribute $2.60 per unit this year, a 2% increase over 2013′s total.

Kinder Morgan Energy Partners (KMP) which owns El Paso is one of the largest master limited partnerships operating in the midstream energy space. Other major companies operating in the same sector as KMP include Targa Resource Partners (NGLS), Regency Energy Partners (RGP), Plains All American Pipeline (PAA), and Energy Products Partners (EPD). All of these companies are components of the Alerian MLP ETF (AMLP). KMP is part of the Alerian MLP ETF (AMLP), as well as the MLPA ETF (MLPA). KMI is part of the MLPX ETF.

To know about EPB’s growth plans in 2014, continue reading the next part of the series.

Continue to Part 3

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