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Kinder Morgan Energy Partners Increases Quarterly Distribution To $1.20 Per Unit

Kinder Morgan Energy Partners, L.P. (NYSE: KMP) is a leading pipeline transportation and energy storage company in North America. KMP owns an interest in or operates approximately 29,000 miles of pipelines and 180 terminals. Its pipelines transport natural gas, gasoline, crude oil, CO 2 and other products, and its terminals store petroleum products and chemicals and handle such products as ethanol, coal, petroleum coke and steel. KMP is also the leading provider of CO 2 for enhanced oil recovery projects in North America. One of the largest publicly traded pipeline limited partnerships in America, KMP and KMR have an enterprise value of over $40 billion. The general partner of KMP is owned by Kinder Morgan, Inc. (NYSE: KMI). Combined, KMI, KMP and KMR constitute the largest midstream energy entity in the United States with an enterprise value of over $65 billion. For more information please visit www.kindermorgan.com.

Please join Kinder Morgan at 4:30 p.m. Eastern Time on Wednesday, April 18, at www.kindermorgan.com for a LIVE webcast conference call on the company’s first quarter earnings.

The non-generally accepted accounting principles, or non-GAAP, financial measures of distributable cash flow before certain items, both in the aggregate and per unit, and segment earnings before depreciation, depletion, amortization and amortization of excess cost of equity investments, or DD&A, and certain items, are presented in this news release. Our non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income or any other GAAP measure of liquidity or financial performance. Distributable cash flow before certain items is a significant metric used by us and by external users of our financial statements, such as investors, research analysts, commercial banks and others, to compare basic cash flows generated by us to the cash distributions we expect to pay our unitholders on an ongoing basis. Management uses this metric to evaluate our overall performance. It also allows management to simply calculate the coverage ratio of estimated ongoing cash flows to expected cash distributions. Distributable cash flow before certain items is also an important non-GAAP financial measure for our unitholders because it serves as an indicator of our success in providing a cash return on investment. This financial measure indicates to investors whether or not we typically are generating cash flow at a level that can sustain or support an increase in the quarterly distributions we are paying pursuant to our partnership agreement. Our partnership agreement requires us to distribute all available cash. Distributable cash flow before certain items and similar measures used by other publicly traded partnerships are also quantitative measures used in the investment community because the value of a unit of such an entity is generally determined by the unit’s yield (which in turn is based on the amount of cash distributions the entity pays to a unitholder). The economic substance behind our use of distributable cash flow before certain items is to measure and estimate the ability of our assets to generate cash flows sufficient to make distributions to our investors.

We define distributable cash flow before certain items to be limited partners’ pretax income before certain items and DD&A, less cash taxes paid and sustaining capital expenditures for KMP, plus DD&A less sustaining capital expenditures for Rockies Express, Midcontinent Express, Fayetteville Express, KinderHawk through second quarter 2011, EagleHawk, Eagle Ford, Red Cedar and Cypress, our equity method investees, less equity earnings plus cash distributions received for Express and Endeavor, additional equity investees. Distributable cash flow before certain items per unit is distributable cash flow before certain items divided by average outstanding units. “Certain items” are items that are required by GAAP to be reflected in net income, but typically either (1) do not have a cash impact, for example, goodwill impairments, allocated compensation for which we will never be responsible, and results from assets prior to our ownership that are required to be reflected in our results due to accounting rules regarding entities under common control, or (2) by their nature are separately identifiable from our normal business operations and in our view are likely to occur only sporadically, for example legal settlements, hurricane impacts and casualty losses. Management uses this measure and believes it is important to users of our financial statements because it believes the measure more effectively reflects our business’ ongoing cash generation capacity than a similar measure with the certain items included. For similar reasons, management uses segment earnings before DD&A and certain items in its analysis of segment performance and managing our business. We believe segment earnings before DD&A and certain items is a significant performance metric because it enables us and external users of our financial statements to better understand the ability of our segments to generate cash on an ongoing basis. We believe it is useful to investors because it is a measure that management believes is important and that our chief operating decision makers use for purposes of making decisions about allocating resources to our segments and assessing the segments’ respective performance.

We believe the GAAP measure most directly comparable to distributable cash flow before certain items is net income. Our calculation of distributable cash flow before certain items, which begins with net income after subtracting certain items that are specifically identified in the accompanying tables, is set forth in those tables. Net income before certain items is presented primarily because we use it in this calculation. Segment earnings before DD&A as presented in our GAAP financials is the measure most directly comparable to segment earnings before DD&A and certain items. Segment earnings before DD&A and certain items is calculated by removing the certain items attributable to a segment, which are specifically identified in the footnotes to the accompanying tables, from segment earnings before DD&A. In addition, segment earnings before DD&A as presented in our GAAP financials is included on the first page of the tables presenting our financial results.

Our non-GAAP measures described above should not be considered as an alternative to GAAP net income, segment earnings before DD&A or any other GAAP measure. Distributable cash flow before certain items and segment earnings before DD&A and certain items are not financial measures in accordance with GAAP and have important limitations as analytical tools. You should not consider either of these non-GAAP measures in isolation or as a substitute for an analysis of our results as reported under GAAP. Because distributable cash flow before certain items excludes some but not all items that affect net income and because distributable cash flow measures are defined differently by different companies in our industry, our distributable cash flow before certain items may not be comparable to distributable cash flow measures of other companies. Segment earnings before DD&A and certain items has similar limitations. Management compensates for the limitations of these non-GAAP measures by reviewing our comparable GAAP measures, understanding the differences between the measures and taking this information into account in its analysis and its decision making processes.

This news release includes forward-looking statements. Although Kinder Morgan believes that its expectations are based on reasonable assumptions, it can give no assurance that such assumptions will materialize. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein are enumerated in Kinder Morgan’s Forms 10-K and 10-Q as filed with the Securities and Exchange Commission.

       
Kinder Morgan Energy Partners, L.P. and Subsidiaries Preliminary Consolidated Statement of Income (Unaudited) (in millions except per unit amounts)
 
Three Months Ended March 31,
2012 2011
 
Revenues $ 1,848   $ 1,917  
 
Costs, expenses and other
Operating expenses 886 1,089
Depreciation, depletion and amortization 239 215
General and administrative 107 189
Taxes, other than income taxes 50 46
Other expense (income)   -     -  
  1,282     1,539  
Operating income 566 378
 
Other income (expense)
Earnings from equity investments 65 47
Amortization of excess cost of equity investments (2 ) (1 )
Interest, net (135 ) (128 )
Other, net   1     1  
 
Income before income taxes 495 297
 
Income taxes   (15 )   (6 )
 
Income from continuing operations 480 291
 
Income from discontinued operations 50 50
Loss on remeasurement of discontinued operations to fair value   (322 )   -  
(Loss) income from discontinued operations (272 ) 50
 
Net income   208     341  
 
Net income attributable to Noncontrolling Interests   (2 )   (3 )
 
Net income attributable to KMP   206     338  
 
 

Calculation of Limited Partners' interest in net income (loss) attributable to KMP

Income from continuing operations attributable to KMP $ 478 $ 288
Less: General Partner's interest   (321 )   (280 )
Limited Partners' interest 157 8
Add: Limited Partners' interest in discontinued operations   (269 )   49  
Limited Partners' interest in net income $ (112 ) $ 57  
 

Limited Partners' net income (loss) per unit:

Income from continuing operations $ 0.46   $ 0.03  
Income (loss) from discontinued operations $ (0.79 ) $ 0.15  
Net income (loss) $ (0.33 ) $ 0.18  
Weighted average units outstanding   338     317  
 
Declared distribution / unit $ 1.20   $ 1.14  
 
 
Three Months Ended March 31,
2012 2011
Segment earnings before DD&A and amortization of excess investments
Products Pipelines $ 176 $ 180
Natural Gas Pipelines 222 166
CO 2 334 262
Terminals 187 174
Kinder Morgan Canada   50     48  
$ 969   $ 830  
       
Kinder Morgan Energy Partners, L.P. and Subsidiaries Preliminary Earnings Contribution by Business Segment (Unaudited) (in millions except per unit amounts)
 
Three Months Ended March 31,
2012 2011
Segment earnings before DD&A and amort. of excess investments (1)
Products Pipelines $ 176 $ 180
Natural Gas Pipelines (2) 279 223
CO 2 337 258
Terminals 187 170
Kinder Morgan Canada   50     48  
Total   1,029     879  
 
Segment DD&A and amortization of excess investments
Products Pipelines $ 29 $ 27
Natural Gas Pipelines (3) 50 32
CO 2 104 103
Terminals 51 47
Kinder Morgan Canada   14     14  
Total   248     223  
 
Segment earnings contribution
Products Pipelines (1) $ 147 $ 153
Natural Gas Pipelines (1) 229 191
CO 2 (1) 233 155
Terminals (1) 136 123
Kinder Morgan Canada (1) 36 34
General and administrative (1) (4) (108 ) (100 )
Interest, net (1) (5)   (139 )   (132 )
Net income before certain items 534 424
Certain items
Loss on remeasurement of discontinued operations to fair value (322 ) -
Allocated non-cash compensation - (85 )
Acquisition costs (6) - (1 )
Legal expenses (7) - (1 )
Mark to market and ineffectiveness of certain hedges (8) (3 ) 4
Insurance deductible, casualty losses and reimbursements (9) - (2 )
Gain (loss) on sale of assets and asset disposition expenses (10) - 2
Other (11)   (1 )   -  
Sub-total certain items (326 ) (83 )
Net income $ 208   $ 341  
Less: General Partner's interest in net income (12) (318 ) (281 )
Less: Noncontrolling Interests in net income   (2 )   (3 )
Limited Partners' net income (loss) $ (112 ) $ 57  
 
Net income attributable to KMP before certain items $ 528 $ 419
Less: General Partner's interest in net income before certain items (12)   (321 )   (281 )
Limited Partners' net income before certain items 207 138
Depreciation, depletion and amortization (13) 290 267
Book (cash) taxes - net 9 10
Express & Endeavor contribution - 3
Sustaining capital expenditures (14)   (44 )   (36 )
DCF before certain items $ 462   $ 382  
 
Net income / unit before certain items $ 0.61   $ 0.43  
DCF / unit before certain items $ 1.37   $ 1.21  
Weighted average units outstanding   338     317  
Notes ($ million)
(1) Excludes certain items:

1Q 2011 - CO2 $4, Terminals $4, general and administrative expense $(91)

1Q 2012 - CO2 $(3), general and administrative expense $(1)

(2) Includes $57 in 1Q 2011 and $57 in 1Q 2012 related to assets classified for GAAP purposes as discontinued operations.
(3) Includes $7 in 1Q 2011 and $7 in 1Q 2012 of DD&A expense related to assets classified for GAAP purposes as discontinued operations.

(4) General and administrative expense includes income tax that is not allocable to the segments: 1Q 2011 - $2, 1Q 2012 - $2

(5) Interest expense excludes interest income that is allocable to the segments: 1Q 2011 - $5, 1Q 2012 - $4

(6) Acquisition expense items related to closed acquisitions previously capitalized under prior accounting standards.
(7) Legal expenses associated with Certain Items such as legal settlements and pipeline failures.
(8) Actual gain or loss will continue to be taken into account in earnings before DD&A at time of physical transaction.
(9) Insurance deductible, write-off of assets, expenses and insurance reimbursements related to casualty losses.
(10) Gain or loss on sale of assets, expenses related to the preparation of assets for sale and, when applicable, the revaluation of remaining interest to fair value.
(11) Imputed interest on Cochin acquisition, FX gain on Cochin note payable, Terminals severance and overhead credit on certain items capex.
(12) General Partner's interest in net income reflects a reduction for the KinderHawk acquisition GP incentive giveback of $7 in 1Q 2011 and $6 in 1Q 2012.

(13) Includes Kinder Morgan Energy Partner's (KMP) share of Rockies Express (REX), Midcontinent Express (MEP), Fayetteville Express (FEP), KinderHawk (2011), Cypress,

EagleHawk, Eagle Ford (2012), and Red Cedar DD&A: 1Q 2011 - $44 and 1Q 2012 - $42

(14) Includes KMP share of REX, MEP, FEP, Cypress, EagleHawk, Eagle Ford, and Red Cedar sustaining capital expenditures of $1 in 1Q 2011 and $2 in 1Q 2012

         
Volume Highlights (historical pro forma for acquired assets)
 
Three Months Ended March 31,
2012 2011
Products Pipelines
Pacific, Calnev, and CFPL (MMBbl)
Gasoline (1) 64.2 65.6
Diesel 24.5 25.2
Jet Fuel   20.8     19.9  
Sub-Total Refined Product Volumes - excl. Plantation 109.5 110.7
Plantation (MMBbl)
Gasoline 30.9 30.3
Diesel 9.1 11.4
Jet Fuel   6.1     5.7  
Sub-Total Refined Product Volumes - Plantation 46.1 47.4
Total (MMBbl)
Gasoline (1) 95.1 95.9
Diesel 33.6 36.6
Jet Fuel   26.9     25.6  
Total Refined Product Volumes 155.6 158.1
NGLs (2)   7.4     6.6  
Total Delivery Volumes (MMBbl) 163.0 164.7
Ethanol (MMBbl) (3) 7.3 7.3
 
Natural Gas Pipelines (4)
Transport Volumes (Bcf) 736.3 707.7
Sales Volumes (Bcf) 212.8 191.2
 
CO 2
Southwest Colorado Production - Gross (Bcf/d) (5) 1.2 1.3
Southwest Colorado Production - Net (Bcf/d) (5) 0.5 0.5
Sacroc Oil Production - Gross (MBbl/d) (6) 26.9 28.9
Sacroc Oil Production - Net (MBbl/d) (7) 22.4 24.1
Yates Oil Production - Gross (MBbl/d) (6) 21.2 21.9
Yates Oil Production - Net (MBbl/d) (7) 9.4 9.7
Katz Oil Production - Gross (MBbl/d) (6) 1.5 0.2
Katz Oil Production - Net (MBbl/d) (7) 1.3 0.2
NGL Sales Volumes (MBbl/d) (8) 9.0 8.3
Realized Weighted Average Oil Price per Bbl (9) (10) $ 90.63 $ 68.78
Realized Weighted Average NGL Price per Bbl (10) $ 61.36 $ 60.93
 
Terminals
Liquids Leasable Capacity (MMBbl) 60.3 58.8
Liquids Utilization % 94.7 % 94.4 %
Bulk Transload Tonnage (MMtons) (11) 24.7 23.3
Ethanol (MMBbl) 17.9 15.7
 
Trans Mountain (MMBbls - mainline throughput) 24.9 26.7
   
(1) Gasoline volumes include ethanol pipeline volumes. (5) Includes McElmo Dome and Doe Canyon sales volumes.
(2) Includes Cochin and Cypress. (6) Represents 100% production from the field.
(3) Total ethanol handled including pipeline volumes included in (7) Represents KMP's net share of the production from the field.
gasoline volumes above. (8) Net to KMP.
(4) Includes KMIGT, Texas Intrastates, KMNTP, Monterrey, Trailblazer, (9) Includes all KMP crude oil properties.
TransColorado, REX, MEP, KMLA, and FEP pipeline volumes. (10) Hedge gains/losses for Oil and NGLs are included with Crude Oil.

(11) Includes KMP's share of Joint Venture tonnage

       
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES PRELIMINARY ABBREVIATED CONSOLIDATED BALANCE SHEET (Unaudited) (in millions)
 
March 31, December 31,
2012 2011
ASSETS
 

Cash and cash equivalents

$ 491 $ 409

Other current assets (1)

3,359 1,166

Property, plant and equipment, net

14,916 15,596

Investments

1,782 3,346

Goodwill, deferred charges and other assets

  3,353     3,586  
TOTAL ASSETS $ 23,901   $ 24,103  
 
LIABILITIES AND PARTNERS' CAPITAL
 
Liabilities
Notes payable and current maturities of long-term debt $ 891 $ 1,638

Other current liabilities (1)

1,415 1,481
Long-term debt 12,156 11,159
Value of interest rate swaps 955 1,079
Other   1,173     1,142  
Total liabilities 16,590 16,499
 
Partners' capital
Accumulated other comprehensive income (loss) (42 ) 3
Other partners' capital   7,259     7,505  
Total KMP partners' capital   7,217     7,508  
Noncontrolling interests   94     96  
Total partners' capital   7,311     7,604  
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 23,901   $ 24,103  
 
 
Total Debt, net of cash and cash equivalents, and excluding
the value of interest rate swaps $ 12,556 $ 12,388
 
Segment earnings before DD&A and certain items $ 3,957 $ 3,810
G&A (395 ) (388 )
Income taxes   57     55  

EBITDA (2) (3)

$ 3,619 $ 3,477
 
Debt to EBITDA 3.5 3.6

(1) Includes assets / liabilities held for sale

(2) EBITDA is last twelve months

(3) EBITDA includes add back of KMP's share of REX, MEP, FEP, KinderHawk (through 2Q 2011), Cypress, EagleHawk, Eagle Ford (beginning 2012), and Red Cedar DD&A.




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