Kinder Morgan Energy Partners Distributes $4.98 Per Unit For 2012 – Meets Annual Budget

Kinder Morgan Management, LLC

Shareholders of KMR will also receive a $1.29 dividend ($5.16 annualized) payable on Feb. 14, 2013, to shareholders of record as of Jan. 31, 2013. The dividend to KMR shareholders will be paid in the form of additional KMR shares. The dividend is calculated by dividing the cash distribution to KMP unitholders by KMR’s average closing price for the 10 trading days prior to KMR’s ex-dividend date.

Kinder Morgan Energy Partners, L.P. (NYSE: KMP) is a leading pipeline transportation and energy storage company and one of the largest publicly traded pipeline limited partnerships in America. It owns an interest in or operates approximately 46,000 miles of pipelines and 180 terminals. The general partner of KMP is owned by Kinder Morgan, Inc. (NYSE: KMI). Kinder Morgan is the largest midstream and the third largest energy company in North America with a combined enterprise value of approximately $100 billion. It owns an interest in or operates approximately 75,000 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. KMI owns the general partner interest of KMP and El Paso Pipeline Partners, L.P. (NYSE: EPB), along with limited partner interests in KMP and EPB and shares in Kinder Morgan Management, LLC (NYSE: KMR). For more information please visit www.kindermorgan.com.

Please join Kinder Morgan at 4:30 p.m. Eastern Time on Wednesday, Jan. 16, at www.kindermorgan.com for a LIVE webcast conference call on the company’s fourth 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 through Oct. 31, 2012, Midcontinent Express, Fayetteville Express, KinderHawk through second quarter 2011, EagleHawk, Eagle Ford, El Paso Natural Gas, Bear Creek Storage Company, Red Cedar, Cypress and EP Midstream Investment Co., LLC, 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. These forward-looking statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management, based on information currently available to them. Although Kinder Morgan believes that these forward-looking statements 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 include those enumerated in Kinder Morgan’s reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they were made, and except to the extent required by law, Kinder Morgan undertakes no obligation to update or review any forward-looking statement because of new information, future events or other factors. Because of these uncertainties, readers should not place undue reliance on these forward-looking statements.

Kinder Morgan Energy Partners, L.P. and Subsidiaries
Preliminary Consolidated Statement of Income
(Unaudited)
(in millions except per unit amounts)
						Three Months Ended December 31,														Year Ended December 31,
						2012							2011							2012							2011
Revenues						$	2,510						$	1,923						$	8,642						$	7,889
Costs, expenses and other
Operating expenses							1,391							1,055							4,521							4,768
Depreciation, depletion and amortization							297							243							1,093							928
General and administrative							114							86							493							473
Taxes, other than income taxes							54							41							223							174
Other expense (income)							-							4							(28	)						(11	)
							1,856							1,429							6,302							6,332
Operating income							654							494							2,340							1,557
Other income (expense)
Earnings from equity investments							114							69							339							224
Amortization of excess cost of equity investments							(2	)						(2	)						(7	)						(7	)
Interest, net							(174	)						(133	)						(635	)						(513	)
Other, net							4							7							18							(149	)
Income before income taxes							596							435							2,055							1,112
Income taxes							10							(12	)						(30	)						(45	)
Income from continuing operations							606							423							2,025							1,067
Income from discontinued operations							15							56							160							201
Loss on remeasurement to fair value and disposal of discontinued operations							(2	)						-							(829	)						-
(Loss) income from discontinued operations							13							56							(669	)						201
Net income							619							479							1,356							1,268
Net income attributable to Noncontrolling Interests							(5	)						(4	)						(17	)						(10	)
Net income attributable to KMP						$	614						$	475						$	1,339						$	1,258
Calculation of Limited Partners' interest in net income (loss) attributable to KMP
Income from continuing operations attributable to KMP						$	601						$	419						$	2,001						$	1,059
Less: Pre-acquisition earnings allocated to General Partner							-							-							(23	)						-
Add: Drop-down asset group severance expense allocated to General Partner							9							-							9							-
Less: General Partner's remaining interest							(386	)						(303	)						(1,410	)						(1,173	)
Limited Partners' interest							224							116							577							(114	)
Add: Limited Partners' interest in discontinued operations							13							55							(655	)						197
Limited Partners' interest in net income						$	237						$	171						$	(78	)					$	83
Limited Partners' net income (loss) per unit:
Income from continuing operations						$	0.61						$	0.35						$	1.64						$	(0.35	)
Income (loss) from discontinued operations							0.03							0.16							(1.86	)						0.60
Net income (loss)						$	0.64						$	0.51						$	(0.22	)					$	0.25
Weighted average units outstanding							368							334							351							326
Declared distribution / unit						$	1.29						$	1.16						$	4.98						$	4.61
						Three Months Ended December 31,														Year Ended December 31,
						2012							2011							2012							2011
Segment earnings before DD&A and amortization of excess investments
Products Pipelines						$	178						$	159						$	670						$	463
Natural Gas Pipelines							472							227							1,349							546
CO 2							334							276							1,322							1,099
Terminals							144							179							709							704
Kinder Morgan Canada							71							52							229							202
						$	1,199						$	893						$	4,279						$	3,014

Kinder Morgan Energy Partners, L.P. and Subsidiaries
Preliminary Earnings Contribution by Business Segment
(Unaudited)
(in millions except per unit amounts)
						Three Months Ended December 31,														Year Ended December 31,
						2012							2011							2012							2011
Segment earnings before DD&A and amort. of excess investments (1)
Products Pipelines						$	176						$	161						$	703						$	694
Natural Gas Pipelines (2)							474							290							1,374							951
CO 2							337							281							1,326							1,094
Terminals							198							184							752							701
Kinder Morgan Canada							71							51							229							199
Total							1,256							967							4,384							3,639
Segment DD&A and amortization of excess investments
Products Pipelines						$	31						$	28						$	121						$	109
Natural Gas Pipelines (3)							87							49							253							163
CO 2							115							110							441							439
Terminals							52							51							205							195
Kinder Morgan Canada							14							14							56							56
Total							299							252							1,076							962
Segment earnings contribution
Products Pipelines (1)						$	145						$	133						$	582						$	585
Natural Gas Pipelines (1)							387							241							1,121							788
CO 2 (1)							222							171							885							655
Terminals (1)							146							133							547							506
Kinder Morgan Canada (1)							57							37							173							143
General and administrative (1) (4)							(108	)						(86	)						(432	)						(387	)
Interest, net (1) (5)							(180	)						(138	)						(632	)						(531	)
Net income before certain items							669							491							2,244							1,759
Certain items
Loss on disposal and remeasurement of discontinued operations to fair value							(2	)						-							(829	)						(167	)
Allocated non-cash compensation							-							2							-							(82	)
Acquisition costs (6)							(5	)						-							(8	)						(2	)
Legal expenses (7)							-							(2	)						-							(3	)
Legal reserves (8)							-							(1	)						(9	)						(235	)
Pre-acquisition earnings allocated to General Partner (9)							-							-							23							-
Environmental reserves							(2	)						(3	)						(36	)						(10	)
Mark to market and ineffectiveness of certain hedges (10)							(3	)						(5	)						(11	)						5
Insurance deductible, casualty losses and reimbursements (11)							(51	)						(4	)						(41	)						(3	)
Gain (loss) on sale of assets and asset disposition expenses (12)							-							1							15							16
Release of tax reserves related to pre-acquisition periods (13)							18							-							18							-
Severance (14)							(5	)						-							(9	)						-
Write-off of under collected fuel (15)							-							-							-							(10	)
Other (16)							-							-							(1	)						-
Sub-total certain items							(50	)						(12	)						(888	)						(491	)
Net income						$	619						$	479						$	1,356						$	1,268
Less: Pre-acquisition earnings allocated to General Partner							-							-							(23	)						-
Add: Drop-down asset group severance expense allocated to General Partner							9							-							9							-
Less: General Partner's remaining interest in net income (17)							(386	)						(304	)						(1,403	)						(1,175	)
Less: Noncontrolling Interests in net income							(5	)						(4	)						(17	)						(10	)
Limited Partners' net income (loss)						$	237						$	171						$	(78	)					$	83
Net income before certain items						$	669						$	491						$	2,244						$	1,759
Less: Noncontrolling Interest before certain items							(6	)						(4	)						(22	)						(17	)
Net income attributable to KMP before certain items							663							487							2,222							1,742
Less: General Partner's interest in net income before certain items (17)							(387	)						(304	)						(1,412	)						(1,180	)
Limited Partners' net income before certain items							276							183							810							562
Depreciation, depletion and amortization (18)							339							299							1,252							1,133
Book (cash) taxes - net							(9	)						8							(2	)						27
Express & Endeavor contribution							-							7							3							15
Sustaining capital expenditures (19)							(111	)						(72	)						(285	)						(212	)
DCF before certain items						$	495						$	425						$	1,778						$	1,525
Net income / unit before certain items						$	0.75						$	0.55						$	2.31						$	1.72
DCF / unit before certain items						$	1.35						$	1.27						$	5.07						$	4.68
Weighted average units outstanding							368							334							351							326

Notes ($ million)
(1)			Excludes certain items:
			4Q 2011 - Products Pipelines $(2), CO2 $(5), Terminals $(5), KMC $1, general and administrative $(1)
			YTD 2011 - Products Pipelines $(231), Natural Gas Pipelines $(177), CO2 $5, Terminals $3, KMC $3, general and administrative expense $(94)
			4Q 2012 - Products Pipelines $2, Natural Gas Pipelines $11, CO2 $(3), Terminals $(54), general and administrative expense $(8), interest expense $2
			YTD 2012 - Products Pipelines $(33), Natural Gas Pipelines $(687), CO2 $(4), Terminals $(43), general and administrative expense $(70), interest expense $(20)
(2)			Includes $63 in 4Q 2011 and $238 YTD 2011, and $15 in 4Q 2012 and $167 YTD 2012 related to assets classified for GAAP purposes as discontinued operations.
			Excludes $0 in 4Q 2012 and $131 YTD 2012 from our drop down asset group for periods prior to our acquisition date of August 1, 2012, which is included in certain items above.
(3)			Includes $7 in 4Q 2011 and $27 YTD 2011, and $0 in 4Q 2012 and $7 YTD 2012 of DD&A expense related to assets classified for GAAP purposes as discontinued operations.
			Excludes $0 in 4Q 2012 and $31 YTD 2012 of DD&A expense from our drop down asset group for periods prior to our acquisition date of August 1, 2012, which is included in certain items above.
(4)			General and administrative expense includes income tax that is not allocable to the segments: 4Q 2011 - $1, YTD 2011 - $8, 4Q 2012 - $2, YTD 2012 - $9. Excludes $0 in 4Q 2012 and $56 YTD 2012 of G&A expense from our drop down asset group for periods prior to our acquisition date of August 1, 2012, which is included in certain items above.
(5)			Interest expense excludes interest income that is allocable to the segments: 4Q 2011 - $5, YTD 2011 - $20, 4Q 2012 - $4, YTD 2012 - $17. Excludes $0 in 4Q 2012 and $21 YTD 2012 of interest expense from our drop down asset group for periods prior to our acquisition date of August 1, 2012, which is included in certain items above.
(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)			Legal reserve adjustments related to the rate case and right-of-way litigation of west coast Products Pipelines.
(9)			Earnings from our drop down asset group for periods prior to our acquisition date of August 1, 2012.
(10)			Actual gain or loss will continue to be taken into account in earnings before DD&A at time of physical transaction.
(11)			Insurance deductible, write-off of assets, expenses and insurance reimbursements related to casualty losses.
(12)			Gain or loss on sale of assets and expenses related to the preparation of assets for sale.
(13)			Franchise and income tax adjustments related to the drop down assets made in the current period but pertaining to periods prior to the acquisition.
(14)			Drop-down asset group severance expense allocated to the General Partner.
(15)			Natural Gas Pipelines write-off of receivable for fuel under-collected prior to 2011.
(16)			Imputed interest on Cochin acquisition, FX gain on Cochin note payable, and Terminals severance and overhead credit on certain items capex.
(17)			General Partner's interest in net income reflects a reduction for the KinderHawk acquisition GP incentive giveback of $8 in 4Q and $29 YTD 2011, and $7 in 4Q and $26 YTD 2012.
(18)			Includes Kinder Morgan Energy Partner's (KMP) share of Rockies Express (REX) (prior to Nov 2012), Midcontinent Express (MEP), Fayetteville Express (FEP), KinderHawk (2011), Cypress, EagleHawk, Eagle Ford (2012), Midstream (2012), Red Cedar, EPNG (2012), and Bear Creek (2012) DD&A: 4Q 2011 - $47, YTD 2011 - $171, and 4Q 2012 - $40, YTD 2012 - $176.
(19)			Includes KMP share of REX, MEP, FEP, Cypress, EagleHawk, Eagle Ford, Red Cedar, Midstream, EPNG, and Bear Creek sustaining capital expenditures: 4Q 2011 - $7, YTD 2011 - $10, and 4Q 2012 - $6, YTD 2012 - $19.

Volume Highlights
(historical pro forma for acquired assets)
					Three Months Ended December 31,												Year Ended December 31,
					2012						2011						2012						2011
Products Pipelines
Pacific, Calnev, and CFPL (MMBbl)
Gasoline (1)						67.5						66.7						268.9						272.4
Diesel						26.8						28.6						105.3						110.6
Jet Fuel						20.2						21.4						85.7						85.3
Sub-Total Refined Product Volumes - excl. Plantation						114.5						116.7						459.9						468.3
Plantation (MMBbl)
Gasoline						34.9						34.1						126.4						125.6
Diesel						9.0						9.6						36.2						38.3
Jet Fuel						6.4						6.3						24.9						25.2
Sub-Total Refined Product Volumes - Plantation						50.3						50.0						187.5						189.1
Total (MMBbl)
Gasoline (1)						102.4						100.8						395.3						398.0
Diesel						35.8						38.2						141.5						148.9
Jet Fuel						26.6						27.7						110.6						110.5
Total Refined Product Volumes						164.8						166.7						647.4						657.4
NGLs (2)						8.6						6.3						31.7						26.1
Total Delivery Volumes (MMBbl)						173.4						173.0						679.1						683.5
Ethanol (MMBbl) (3)						9.1						7.4						33.1						30.4
Natural Gas Pipelines (4) (5)
Transport Volumes (Bcf)						1,486.5						1,400.2						5,866.0						5,273.2
Sales Volumes (Bcf)						221.9						206.0						879.1						804.7
CO 2
Southwest Colorado Production - Gross (Bcf/d) (6)						1.2						1.2						1.2						1.3
Southwest Colorado Production - Net (Bcf/d) (6)						0.5						0.5						0.5						0.5
Sacroc Oil Production - Gross (MBbl/d) (7)						30.6						27.8						29.0						28.6
Sacroc Oil Production - Net (MBbl/d) (8)						25.4						23.2						24.1						23.8
Yates Oil Production - Gross (MBbl/d) (7)						20.8						21.8						20.8						21.7
Yates Oil Production - Net (MBbl/d) (8)						9.2						9.7						9.3						9.6
Katz Oil Production - Gross (MBbl/d) (7)						1.8						1.0						1.7						0.5
Katz Oil Production - Net (MBbl/d) (8)						1.5						0.8						1.4						0.4
NGL Sales Volumes (MBbl/d) (9)						10.0						8.8						9.5						8.5
Realized Weighted Average Oil Price per Bbl (10) (11)					$	85.84					$	70.33					$	87.72					$	69.73
Realized Weighted Average NGL Price per Bbl (11)					$	49.38					$	65.84					$	50.95					$	65.61
Terminals
Liquids Leasable Capacity (MMBbl)						60.1						60.2						60.1						60.2
Liquids Utilization %						93.2	%					94.5	%					93.2	%					94.5	%
Bulk Transload Tonnage (MMtons) (12)						21.9						25.0						96.6						99.8
Ethanol (MMBbl)						15.4						16.1						65.3						61.0
Trans Mountain (MMBbls - mainline throughput)						26.2						24.7						106.1						99.9

(1)		Gasoline volumes include ethanol pipeline volumes.				(6)		Includes McElmo Dome and Doe Canyon sales volumes.
(2)		Includes Cochin and Cypress.				(7)		Represents 100% production from the field.
(3)		Total ethanol handled including pipeline volumes included in gasoline volumes above.				(8)		Represents KMP's net share of the production from the field.
(4)		Includes Texas Intrastates, KMNTP, Monterrey, TransColorado, MEP, KMLA, FEP, TGP, and EPNG pipeline volumes.				(9)		Net to KMP.
(5)		Volumes for acquired pipelines are included for all periods.				(10)		Includes all KMP crude oil properties.
						(11)		Hedge gains/losses for Oil and NGLs are included with Crude Oil.
						(12)		Includes KMP's share of Joint Venture tonnage.

KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
PRELIMINARY ABBREVIATED CONSOLIDATED BALANCE SHEET
(Unaudited)
(in millions)
					December 31,				December 31,
					2012				2011
ASSETS
Cash and cash equivalents					$ 518				$ 409
Other current assets					1,726				1,167
Property, plant and equipment, net					19,638				15,596
Investments					3,048				3,346
Goodwill, deferred charges and other assets					7,199				3,585
TOTAL ASSETS					$ 32,129				$ 24,103
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Notes payable and current maturities of long-term debt					$ 1,155				$ 1,638
Other current liabilities					2,045				1,481
Long-term debt					14,714				11,183
Debt fair value adjustments					1,461				1,055
Other					1,175				1,142
Total liabilities					20,550				16,499
Partners' capital
Accumulated other comprehensive income					163				3
Other partners' capital					11,161				7,505
Total KMP partners' capital					11,324				7,508
Noncontrolling interests					255				96
Total partners' capital					11,579				7,604
TOTAL LIABILITIES AND PARTNERS' CAPITAL					$ 32,129				$ 24,103
Total Debt, net of cash and cash equivalents, and excluding
the debt fair value adjustments					$ 15,351				$ 12,412
Segment earnings before DD&A and certain items					$ 4,560				$ 3,810
G&A					(432)				(388)
Income taxes					40				55
EBITDA (1)					$ 4,168				$ 3,477
Debt to EBITDA					3.7				3.6

(1)			EBITDA includes add back of KMP's share of REX (prior to Nov 2012), MEP, FEP, Cypress, EagleHawk, Eagle Ford (beginning 2012), Red Cedar, Midstream (beginning 2Q 2012), EPNG (beginning in 3Q 2012), and Bear Creek (beginning in 3Q 2012) DD&A.

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