Kinder Morgan Energy Partners LP (KMP)

Q3 2011 Earnings Call

October 19, 2011 4:30 pm ET

Executives

Kimberly A. Dang - Chief Financial Officer of Kinder Morgan G P Inc, Principal Accounting Officer of Kinder Morgan G P Inc and Vice President of Kinder Morgan G P Inc

Richard D. Kinder - Chairman of Kinder Morgan G P Inc and Chief Executive Officer of Kinder Morgan G P Inc

Richard Tim Bradley - President of CO2 Pipelines for Kinder Morgan G P Inc and Vice President of Kinder Morgan G P Inc

Jeffrey R. Armstrong - President of Terminals for Kinder Morgan G P Inc and Vice President of Kinder Morgan G P Inc

Thomas A. Martin - President of Natural Gas Pipelines for Kinder Morgan G P Inc and Vice President of Kinder Morgan GP Inc

Analysts

Brian Zarahn - Barclays Capital

Brian J. Zarahn - Barclays Capital, Research Division

Unknown Analyst -

Presentation

Operator

Welcome to the quarterly earnings conference call. [Operator Instructions] Today's conference is being recorded. If there are any objections, please disconnect at this time. I'd now like to turn the call over to Mr. Rich Kinder, Chairman and CEO of Kinder Morgan.

Richard D. Kinder

Okay. Thank you, Dory, and welcome to the Kinder Morgan's Third Quarter Earnings Call. We'll be covering results for the quarter at KMP, which is one of America's largest MLPs; and also at KMI, which owns the general partner of KMP and is also an owner of significant units at KMP, and also the 20% interest in natural gas pipeline of America.

As usual, we'll be making statements within the meaning of Securities Act of 1933 and the Securities Exchange Act of 1934. I'll give an overview of the quarter. Kim Dang, our Chief Financial Officer, will give details on the numbers, and then we'll take any and all questions that you may have.

If the format of this call seems a little different or discombobulated, it's because as a result of the El Paso announcement, Kim and I are actually in Boston. Park, who's on the phone is in Los Angeles and Steve Kean and the rest of the management team are in Houston. All 3 locations have access to the phones. So we will try to answer any questions that you may have, and you'll have everybody's expertise or lack thereof.

But first, let me turn to KMI. We declared a quarterly dividend of $0.30 or $1.20 annualized run rate. That means we're on track to pay $1.18 for 2011, and I'll remind you that's first the target of $1.16 that we announced during the IPO roadshow back in February. As we announced Sunday afternoon, KMI and El Paso Corp. have entered into a definitive agreement, whereby KMI will acquire all the outstanding shares of El Paso. This transaction will create the largest midstream and the fourth largest energy company in North America.

As we've said in our conference call on Monday morning, assuming that, that merger closes on January 1, 2012, we would expect dividends per share for 2012 at KMI to be about $1.45. And that will increase from $1.18 in 2011 results from strong internal growth that we would get regardless of the El Paso merger and from the impact of the merger.

Since we don't expect the merger to close until the second quarter, the actual dividend payment for 2012 will likely be a few cents smaller than the $1.45 I described. With that, let me turn to KMP.

At KMP, the board increased the quarterly cash distribution to common unit -- per common unit to $1.16 or $4.64 annualized. That distribution represents a 5% increase over the third quarter of 2010 cash distribution.

In my judgment, KMP had a very good third quarter, with all 5 of our business segments producing higher segment earnings before DD&A than during the same period last year. We now expect to exceed our previously announced 2011 budget at KMP for cash distributions of $4.60 per unit.

We're seeing really good growth opportunities in the midstream energy sector, particularly in the natural gas shale plays and in the coal export business over in our Terminals segment. Distributable cash flow per unit at KMP before certain items was $1.19 compared to $1.2 for the third quarter last year, and also above our plan for the third quarter of this year.

Now let me turn to the segments. I'll start with the Products Pipeline segment. The growth there was driven by higher volumes on the Cochin pipeline system, due to increased demand for both terminal and storage deliveries. Plantation pipeline also had higher revenues and increased gas and jet fuel volumes and the Southeast and West Coast Terminals also produced better results than in the comparable period last year. That said, total refined products volumes on our systems decreased by 0.4 of 1% for the third quarter versus the same period last year.

Pipeline volumes were up on CALNEV and Plantation, but down on Pacific and Central Florida. To put that in perspective as we always do, we compare that to the EIA national figures, which for the third quarter of 2011 showed a decline of 2%. So we showed a 0.4% and they showed a 2%. So we were a bit better than the national average, but still somewhat disappointing that the absolute volumes of refined products deteriorated from a year ago in the third quarter.

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