Kinder Morgan Benefits from Strong Coal Export Demand, Oil and NGL Production in 2012

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Researched by Industrial Info Resources (Sugar Land, Texas)--Energy pipeline transportation and storage company Kinder Morgan Energy Partners LP (NYSE:KMP) (KMP) (Houston, Texas), whose general partner is owned by Kinder Morgan Incorporated (NYSE:KMI) (KMI) (Houston), boasted solid gains in fourth-quarter and full-year 2012, with coal exports hitting record volumes, oil production marking significant gains, and natural gas liquids (NGLs) hitting record levels. All five of the company's major segments posted higher earnings. Net income was reported to be $614 million for the quarter, a 29.26% increase from fourth-quarter 2011, and $1.34 billion for the year, a 6.44% increase from 2011.

Total revenues stood at $2.51 billion for the quarter, a 30.53% increase from the same period in 2011, and $8.64 billion for the year, a 9.54% increase from 2011. KMP saw record production of NGLs for both the quarter and the year, which, along with higher oil prices and stronger oil production and the SACROC and the Katz fields in Texas, more than offset the effects of lower-than-expected NGL prices in the Carbon Dioxide (CO2) segment.

The Products Pipelines segment benefited from stronger volumes at terminals in the U.S. Southeast and in the Cochin Pipeline, as well as the second-quarter completion of the 65-mile, $215 million Kinder Morgan Crude and Condensate Pipeline, which originates in the Eagle Ford Shale and runs along the Texas coastline. The segment also significantly increased its interest in ethanol and biodiesel biofuels, which was boosted to 9.4 million barrels by the third-quarter acquisition of a biofuel transload terminal in South Carolina. KMP handles about 30% of the ethanol used in the U.S.

Damage to KMP terminals from Hurricane Sandy contributed to more than half of a $50 million loss in the fourth quarter, although most of the hurricane losses are expected to be covered by insurance. Higher demand for coal exports and increased activity at liquids terminals on the Houston Ship Channel and New York Harbor benefited the Terminals segment.

Industrial Info is tracking more than $2.89 billion in active projects involving Kinder Morgan, including the $120 million modernization and expansion of the Myrtle Grove Bulk Transfer Terminal in Sulphur, Louisiana. The three-phase project involves the expansion of ground storage and throughput capacity to accommodate obtained coal storage and transshipment contracts. When it is completed, the terminal will have grown in capacity from 1.3 million to 2 million tons per year of coal.

KMP invested $2.1 billion in expansions and acquisitions in 2012, not including purchases from KMI.

"We have $2.7 billion of projects [in the Natural Gas Pipelines segment backlog] currently under way, and that doesn't include a lot of projects that we have high hopes for in the near-to-intermediate future," said Richard D. Kinder, the chairman and chief executive officer of KMP, in a conference call. "For example, that doesn't include our potential conversion of part of the El Paso Natural Gas system and its crude oil deliveries from the Permian Basin to California. That's a project we call the 'Freedom Pipeline,' and we're starting work on that for the first time since last quarter. We've had good interest from both producers and refiners."

All five major KMP segments reported gains in earnings when compared with fourth-quarter and full-year 2011:

• The Products Pipelines segment reported $176 million in segment earnings, a 9.32% increase when compared with fourth-quarter 2011. For the full year, the segment reported $703 million, a 1.3% increase from 2011.
• The Natural Gas Pipelines segment reported $474 million in segment earnings, a 63.45% increase when compared with the same period in 2011. For the full year, the segment reported $1.37 billion, a 44.48% increase from 2011.
• The CO2 segment reported $337 million in segment earnings, a 19.93% increase when compared with fourth-quarter 2011. For the full year, the segment reported $1.33 billion, a 21.21% increase from 2011.
• The Terminals segment reported $198 million in segment earnings, a 7.61% increase when compared with the same period in 2011. For the full year, the segment reported $752 million, a 7.28% increase from 2011.
• The Kinder Morgan Canada segment reported $71 million in segment earnings, a 39.22% increase compared with fourth-quarter 2011. For the full year, the segment reported $229 million, a 15.08% increase from 2011.

KMP executives say the company has about $11 billion in expansion and joint venture investments that are or are soon to be under contract. For 2013, the company expects to invest about $2.9 billion in expansions and small acquisitions, not including what it purchases from KMI. Executives expect to see strong demand for midstream services in the U.S. shale plays and Canadian oil sands, as well as strong demand for coal and CO2 exports, and believe the company will generate more than $5.4 billion in total segment earnings.

KMP expects to become the full owner of the El Paso Natural Gas Pipeline and its midstream assets in 2013 with planned "drop down" purchases from KMI.

"On the transportation side, the demand for CO2 still remains very strong in the Permian Basin and surrounding areas," Kinder said in the conference call. "We are working on our southwest Colorado expansion efforts that we've talked about in the past; those efforts are under way. We expect an increase of 50 million cubic feet per day in CO2 production coming out of southwest Colorado in 2013, and that will help to service some of this real demand for CO2 that we're seeing."

For more information, visit Industrial Info's North American Oil & Gas Transmission Project Database and North American Oil & Gas Terminal Project Database.

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