Kinder Morgan Energy Partners L.P.
) third quarter 2013 earnings of 54 cents per limited partner
unit (excluding certain items) fell short of the Zacks Consensus
Estimate of 60 cents. However, the results improved 5.3% from the
year-ago profit of 57 cents.
Revenues increased roughly 31.3% to $3,279 million in the
reported quarter from $2,497 million a year ago. Revenues also
surpassed the Zacks Consensus Estimate of $3,253.0 million.
Importantly, quarterly cash distribution per common unit was
raised to $1.35 ($5.40 annualized), representing 7%
year-over-year growth. The dividend is payable on Nov 14, 2013 to
unitholders of record as of Oct 31. Including this hike, the
partnership has increased the quarterly distribution 49 times
since its current management took over in Feb 1997.
Kinder Morgan's distribution was fueled by growth opportunities
in the midstream energy sector, with more emphasis in the natural
gas shale plays as well as coal export business.
The partnership's distributable cash flow -- a measure of its
ability to make unitholders' payments -- before certain items was
$554 million versus $455 million in the comparable quarter last
year. Additionally, distributable cash flow per unit before
certain items was $1.27, down 0.8% year over year.
Products Pipelines: The business segment experienced a 9%
year-over-year improvement in earnings before DD&A and
certain items to $202 million. The upside came from higher
revenues from the Kinder Morgan Crude and Condensate (KMCC) and
Double Eagle Pipelines; along with higher volumes on the Pacific
and Central Florida systems and at the Southeast Terminals.
Natural Gas Pipelines: Earnings before DD&A and certain items
from the business grew an impressive 58.7% year over year to $608
million. Drop downs from
Kinder Morgan Inc.
) associated with the El Paso acquisition and contribution from
the Copano Energy acquisition aided the growth.
Earlier in May, Kinder Morgan 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
This Copano acquisition facilitated Kinder Morgan 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 declined 6% from the year-ago quarter,
mainly due to lower natural gas demand for electric power
CO2: The segment's earnings before DD&A and certain items
were $349 million, up 5% year over year on increased oil and NGL
production and higher prices.
Terminals: The business segment earned $199 million before
DD&A and certain items in the third quarter, up 7% year over
Kinder Morgan Canada: The segment reported earnings of $44
million before DD&A and certain items compared with $56
million in the year-ago quarter.
As of Sep 30, 2013, Kinder Morgan had cash and cash equivalents
of $534 million and long-term debt of $18,910 million.
Kinder Morgan 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
However, Kinder Morgan 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 currently
holds a Zacks #3 Rank (short-term Hold rating).
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Meanwhile, there are certain other energy pipeline operators like
Crestwood Equity Partners LP
Energy Transfer Partners, L.P.
) that offer value and are worth buying now. Both partnerships
sport a Zacks Rank #2 (Buy).