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Kinder Morgan Energy Beats on Q4 Earnings

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Kinder Morgan Energy Partners L.P.’s fourth quarter 2013 earnings of 77 cents per limited partner unit (excluding certain items) beat the Zacks Consensus Estimate of 73 cents. The bottom line also improved 2.7% from the year-ago profit of 75 cents.

Full-year 2013 earnings were $2,742 million or $2.42 per limited partner unit which lagged the Zacks Consensus Estimate of $2.44 per limited partner unit but increased over the last year earnings of $2,244 million or $2.31 per limited partner unit.

Revenues increased 29.5% to $3,471 million in the reported quarter from $2,680 million a year ago. Revenues also surpassed the Zacks Consensus Estimate of $3,426.0 million. In 2013, total revenue increased to $12,530 million from $9,035 million reported in 2012.

Importantly, quarterly cash distribution per common unit was raised to $1.36 ($5.44 annualized), representing 5% year-over-year growth. The dividend is payable on Feb 14, 2014 to unitholders of record as of Jan 31. Including this hike, the partnership has increased the quarterly distribution 50 times since its current management took over in Feb 1997.

Kinder Morgan Energy’s annual distribution of $5.33 per unit exceeded the previously announced level of $5.28 per unit, fueled by growth opportunities in the midstream energy sector, with more emphasis in the natural gas shale plays as well as in the coal export business.

The partnership’s distributable cash flow –– a measure of its ability to make unitholders’ payments –– before certain items was $635 million versus $495 million in the comparable quarter last year. Additionally, distributable cash flow per unit before certain items was $1.44, down 6.7% year over year.

Segmental Highlights

Products Pipelines: The business segment experienced a 15.3% year-over-year improvement in earnings before DD&A and certain items to $203 million in the fourth quarter. The upside came from higher revenues from the Cochin pipeline system along with higher volumes and margins in the transmix business. Total refined products volume was 175.0 million barrels, up 6.2% from the prior-year period.

For 2013, segment earnings before DD&A and certain items increased 11.5% to $784 million from $703 million last year, significantly below its published annual budget of 13% growth.

Natural Gas Pipelines: Earnings before DD&A and certain items from the business climbed 36% year over year to $665 million. Drop downs from Kinder Morgan Inc. (KMI - Free Report) associated with the El Paso acquisition and contribution from the Copano Energy acquisition aided the growth.

Last May, Kinder Morgan Energy acquired Copano – a midstream entity with operations mainly in Texas, Oklahoma and Wyoming. Prior to that, Copano unitholders approved the transaction, with more than 99% of the units, casting votes in favor of the transaction.

This Copano acquisition facilitated Kinder Morgan Energy to pursue development activities in the prolific Eagle Ford Shale areas of South Texas and also allowed entry into the Barnett Shale Combo in north Texas as well as the Mississippi Lime and Woodford shales in Oklahoma.

Overall, transport volumes increased 5.6% from the year-ago quarter.

The segment earnings before DD&A and certain items grew an impressive 70% to $2,336 million in 2013 from $1,374 million in 2012. This segment’s earnings substantially exceeded its published annual budget of 54% growth mainly on the back of the Copano acquisition.

CO2: The segment’s earnings before DD&A and certain items were $392 million, up 16% year over year on increased oil and NGL production and higher prices.

In 2013, CO2 segment earnings before DD&A and certain items were $1.43 billion, up from $1.32 billion in 2012, and higher than the published annual budget of 5% growth.

Terminals: The business segment earned $221 million before DD&A and certain items in the fourth quarter, up 12% year over year. The segment reported earnings before DD&A and certain items of $798 million in 2013, up 6% from $752 million a year ago. This was slightly below the published annual growth rate of 12% mainly due to lower bulk volumes.

Kinder Morgan Canada: The segment reported earnings of $54 million before DD&A and certain items in the fourth quarter compared with $71 million in the year-ago quarter.

The partnership’s segment earnings before DD&A and certain items were $200 million in 2013, down 12.7% from $229 million for 2012.


As of Dec 31, 2013, Kinder Morgan Energy had cash and cash equivalents of $377 million and long-term debt of $18,410 million. Debt-to-capitalization ratio was 51.7%.

Our Take

Kinder Morgan Energy is one of the largest publicly traded master limited partnerships (MLPs) and generally serves as a benchmark for the pipeline MLP group. A focus on fee-based and diversified businesses has enabled the partnership to dilute its business risks. Kinder Morgan Inc., one of the largest mid-stream energy companies in the U.S., owns the partnership’s general partner interest.

However, Kinder Morgan Energy remains vulnerable to volatile crude oil and natural gas prices, imbalance between supply and demand for its products, and rising interest rates. As such, we expect the partnership to perform in line with the broader industry and rate it Neutral on a long-term basis. Kinder Morgan Energy currently holds a Zacks #3 Rank (short-term Hold rating).

Meanwhile, there are certain other energy pipeline operators like Cheniere Energy Partners L.P. (CQP - Free Report) and NGL Energy Partners LP (NGL - Free Report) that offer value and are worth buying now. Both these partnerships sport a Zacks Rank #1 (Strong Buy).

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