Kinder Morgan Energy Partners L.P Management Discusses Q3 2010 Earnings Call Transcript

Kinder Morgan Energy Partners L.P Management Discusses Q3 2010 Earnings Call Transcript
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Kinder Morgan Energy Partners L.P (

KMP

)

Q3 2010 Earnings Call

October 20, 2010 04:30 p.m. ET

Executives

Rich Kinder - CEO

Park Shaper - President

Tom Martin - President, Natural Gas Pipelines

Tim Bradley - President, CO2

Kim Dang - VP & CFO

Steve Kean - EVP & COO

David Kinder - VP, Corporate Development

Analysts

James Allred - Raymond James

Steve Maresca - Morgan Stanley

Joseph Siano - Credit Suisse

Ross Payne - Wells Fargo

John Tysseland - Citigroup

Brian Zarahn - Barclays Capital

John Edwards - Morgan Keegan

Presentation

Operator

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Previous Statements by KMP
» Kinder Morgan Energy Partners, L.P. Q2 2010 Earnings Call Transcript
» Kinder Morgan Energy Partners LP Analyst Conference Call Transcript
» Kinder Morgan Energy Partners L.P. Q4 2009 Earnings Call Transcript
» Kinder Morgan Energy Partners LP Q3 2009 Earnings Call Transcript

Welcome and thanks for holding for the Kinder Morgan quarterly earnings conference call. (Operator Instructions). Now I would like to turn the call over to Rich Kinder, Chairman and CEO of Kinder Morgan. Sir, you may begin.

Rich Kinder

Okay thank you and as usual welcome to the call. We'll be making comments within the parameters of the Securities Act of 1933 and the Securities Exchange Act of 1934. I'll give an overview of the performance for the quarter, Park Shaper, our President will take you through the numbers and the usual detail and then we will take whatever questions you may have.

I think the biggest news is probably that we increase quarterly distribution again this time to a $1.11 which is a $4.44 to annualized rate. That's 6% of our distribution in the third quarter of 2009. We still expect full year 2010 total distributions of $4.40 that's up about 5%, 4.8 to specific compared to full year 2009.

Recognition that all of our segments look like they will be in a positive position compared to 2009 on a full year basis earnings before DD&A, on a year-to-date basis on distributable cash flow per unit which is what we think is the most important single indicator for our business. Before certain items we are up 6% year-to-date, we have generated $3.26 per unit of distributable cash flow versus 3.07 a year ago. But the third quarter was actually down year-to-year, $1.02 versus $1.12 a year ago.

That $1.02 is very close to our budget to the third quarter but we have had a number of in and outs for the quarter which Park will take you through a detail but pretty close the budget for the quarter and on track for the $4.40 distribution for the year.

As usual I will just take a look at each individual segment because I think that's probably the best way of explaining the performance in any given quarter a year. Starting with the products pipeline, probably the most important single factor there is that our refined products volumes were up for the quarter compared to a year ago. If you look at on an unadjusted basis it was up by a little less than 1%. If you look at it on an adjusted basis which takes into account the increase in the ethanol mandate California from 5.7% to 10%. They were up 2% I think that's definitely the right way to look at it. The second quarter in a row that the adjusted volumes have been up on a year-to-year basis. This is the first quarter since 2007 that the unadjusted was up quarter-to-quarter.

So, we are beginning to see I think some modest recovery in the throughput volumes on our products pipeline system and the fourth quarter is off to a pretty good start through the first half of October in terms of year-to-year comparison. That said that reminds you that obviously we are coming off some weak comparable periods for 2009.

Other important indicators in our products pipeline group, ethanol volumes were 25% versus the third quarter of 2009 and are actually up 34% for year-to-date. NGL volumes in that segment are up 7%.

And the other significant news since we last talked to you in the products pipeline segment is that we did complete the transaction with Chevron purchasing four of their products terminals around the country for a little less than $40 million including inclusion CapEx and obviously as most of these acquisitions are -- it will immediately accretive to cash flow at the KMP level.

Turning to our natural gas pipeline segment, on the positive side we got a good contribution from our treating business and from our KinderHawk joint venture and from Kinder Morgan Louisiana pipeline. On the negative side we had more results at the Rockies Express and more results at the Texas Intrastate. On Rockies Express the lower results came from the negative impact of higher Ohio property tax assessment. Park will take you through that in more detail. And increased interest compared to 2009 because we termed up some of our loans.

On the Texas Intrastate we had lower prices and less volatility in the Texas market which in turn led to some reduced sales margins and lower storage spreads. Overall as Park will tell you we're still pretty close to our plan for the full year in that segment.

Segment volumes for natural gas pipelines were up 3% for the quarter. That's primarily the impact of our Midcontinent Express Pipeline. There were a number of other significant developments during the quarter and after the quarter end in our Natural Gas Pipeline segment but virtually all of them are very positive to the long run.

First of all our Fayetteville Express Pipeline is nearing completion. In fact the pipeline is finished and in service. We're completing our compressor station and a couple of meager interconnects will be fully operational by December 1st 2010. That's a month ahead of our original target. The construction cost look to come in at about $1 billion. That's against the original budget of about $1.3 billion. So the project is coming substantially under budget move ahead of time. As you recall that's a 50-50 joint venture with Energy Transfer. It has capacity of 2 Bcf per day. 1.85 of that 2 Bcf is fully contracted for a 10 year period.

So other major developments in the Eagle Ford Shale play in South Texas that I wanted to take you through. Our joint venture with Copono is progressing nicely. Construction has begun on the first portion of that line. As you will recall that line has a capacity of 375 million cubic feet a day. We previously announced that we signed ASM Energy for a big quantity of that capacity up to 200 million a day. We expect to announce very shortly binding commitments for the remaining 175 million a day and we've also made significant progress on other Eagle Ford buy ins and projects which we expect to be announcing in the coming months. So I think that's a very exiting shale play. I think we have a lot of exposure there and I think we're going to increase our ability to move product or natural gas out of that area.

Another project, we completed our North Dayton storage facility, that's a $100 million facility and it adds about 7.25 Bcf of working gas capacity for us. In the Hayneville Shale play KinderHawk signed a significant long term agreement with a major third party producer for gathering and treating services on a long term basis. The reason that's important is I think it indicates our belief that we will be able to attract additional third party volumes to that system and as a matter of fact that's part of the third party volumes are running above our acquisition plan. So I think that's an encouraging development for our KinderHawk joint venture.

Turning to our CO2 segment, CO2 is up nicely for the third quarter and year-to-date both on a DCF and earnings before DD&A basis but somewhat below plan is part that we will talk about.

Several moving parts in the quarter in this segment just going down the list, our Sac Rock oil production at 29,000 barrels per day for the quarter was pretty close to the third quarter of 2009 and pretty close to the plant for 2010. Our Sac Rock NGL volumes were actually up 5% over the third quarter of 2009 making this the second best quarter ever for NGL production there and the improvement in NGL volumes basically they raised any shortfall on the Sac Rock total production picture.

Yates was a different picture, the Yates oil volumes entered the quarter or averaged during the quarter about 23,200 barrels per day that was down 8% from a year ago and that certainly the may make it even the CO2 segment that probably the major negative the whole company during the quarter and year-to-date. There is some good news here our current analyses this shows the spinning of the oil column that we talked about last time has stabilized, that's a good sign. Although I will caution you it's clearly the more time that expires without any further thinning, the more comfortable we will be. That's a very positive sign because as long as the oil column doesn't bend that means this level of 23,000 plus barrels per a day should be sort of a bottom indicator or a bottom number that we can work off at Yates and we will continue to work on efforts to increase our overall Yates production.

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