A Closer Look at Kinder Morgan Energy Partners’ Strong Second Quarter Results

Source: Kinder Morgan

Kinder Morgan’s second quarter

• The MLP delivered strong results with distributable cash flow up 11% to $561 million.

• Because of that, the partnership remains on pace to meet or exceed its full-year targets for distributions.

Kinder Morgan Energy Partners reported results on July 16th.

Photo credit: Kinder Morgan

Why the focus on Kinder Morgan Energy Partners?

Because Kinder Morgan Management’s (KMR) only assets are units of Kinder Morgan Energy Partners (KMP), the MLP’s results are what fuels the stock.

Meanwhile, 75% of Kinder Morgan’s (KMI) cash this past quarter came from its ownership of the general partner interest and units of KMP as well as shares of KMR.

Basically, as KMP goes so goes both KMR and KMI.

Kinder Morgan Energy Partners started 2014 off by delivering strong first-quarter results. In order for a repeat performance the

company needed to again see solid results across four of its five business segments.

Photo credit: Kinder Morgan

Last quarter the natural gas pipeline segment fueled strong growth. While both the CO2 and terminals segments also

delivered solid growth.

Source: Kinder Morgan Energy Partners press release. Note: Segment earnings in millions.

We see a similar thing this quarter as the natural gas pipeline segment experienced the most growth. While the terminals and products pipelines segments also contributed growth.

Source: Kinder Morgan Energy Partners press release. Note: Segment earnings in millions.

Now, let’s drill down a bit deeper into each segment.

Natural Gas Pipelines Segment earnings rose 13% over last year’s second

quarter to $556 million. The company noted that its quarter was fueled by

outstanding results from the Tennessee Gas Pipeline.

Its services are in high demand due to the growth of the Marcellus and Utica Shale plays.

Earnings in the quarter were boosted by expansion projects, including the $175 million Utica Backhaul project that began service in April.

Natural Gas Pipelines The other highlight was higher throughput from

El Paso Natural Gas due to increased natural gas exports to Mexico.

Additionally, the Copano Energy acquisition contributed to results this year.

For the full-year, the natural gas pipelines segment expects to exceed its published annual budget of 14% growth.

CO2 Segment earnings rose 3% from last year’s

second quarter to $360 million. Strong performance from SACROC led the

segment as oil production was up 7%, while NGL production rose 3%.

The CO2 business remains on track to meet its published annual budget of 8% growth.

Products Pipelines Segment earnings surged 17% from last year’s

second quarter to $209 million. Higher volumes from the KMCC pipeline,

including a significant ramp in Eagle Ford condensate volume, fueled growth in the quarter.

That being said, the segment expects its growth to come in slightly below its published annual budget of 18% growth.

Terminals Segment earnings surged 19% from last year’s

second quarter to $227 million. About 60% of the growth in the quarter came

from organic growth projects as expansions at several terminal facilities fueled increased earnings.

This segment is on track to exceed its published annual budget of 21% growth due to the acquisition of American Petroleum Tankers.

Canada Segment earnings slipped from $50 million in last

year’s second quarter to $40 million this quarter. While demand remained strong, earnings were

impacted by unfavorable foreign exchange rates. This segment’s growth remains at a stand still

until it can move forward with its proposed expansion of the Trans Mountain Pipeline.

Overall, Kinder Morgan Energy Partners delivered a strong quarter. As a whole, the company remains on pace

to meet or exceed its published annual budget targets.

Photo credit: Kinder Morgan

Add it all up

Looking ahead Kinder Morgan Energy Partners is on pace to hit this

year’s growth targets. However, it is also moving ahead with projects that

will fuel future growth. The company added a net $500 million to its project

backlog since the first quarter, and its backlog now stands at $15.4 billion.

This past quarter it added $1.2 million in new projects while removing $700 million of projects that were recently placed into service.

Bottom line While Kinder Morgan Energy Partners’ results

weren’t as outstanding as its first quarter results, the second quarter was still very strong.

The company remains on pace to meet or exceed this year’s guidance.

Further, it continues to add projects to fuel future growth.

Bottom line, the main engine of the Kinder Morgan family of companies is still a well oiled machine.

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