Kinder Morgan Inc : Kinder Morgan Energy Partners Increases Quarterly Distribution to $1.23 Per Unit
07/18/2012| 04:10pm US/Eastern
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Distribution 7% Higher Than Second Quarter 2011
Kinder Morgan Energy Partners, L.P. (NYSE: KMP) today increased its
quarterly cash distribution per common unit to $1.23 ($4.92 annualized)
payable on Aug. 14, 2012, to unitholders of record as of July 31, 2012.
This represents a 7 percent increase over the second quarter 2011 cash
distribution per unit of $1.15 ($4.60 annualized) and is up from $1.20
per unit ($4.80 annualized) for the first quarter of 2012. KMP has
increased the distribution 44 times since current management took over
in February 1997.
Chairman and CEO Richard D. Kinder said, "KMP had a strong second
quarter, as our stable and diversified assets continued to grow and
produce incremental cash flow. Our distributable cash flow increased by
13 percent versus the second quarter of 2011, and our CO2,
Natural Gas Pipelines and Terminals business segments produced robust
results. Looking ahead, we believe there are multiple growth
opportunities across all of our businesses related to the natural gas
shale plays, growing CO2 needs in West Texas for enhanced oil
recovery, increasing demand for export coal, and additional
infrastructure requirements to transport products from the Canadian
oilsands and to move and store natural gas liquids. We are also excited
about the growth opportunities that KMP is expected to realize from
Kinder Morgan, Inc.'s acquisition of El Paso Corporation, which closed
in the second quarter. With our large footprint of assets in North
America, KMP is well positioned for future growth."
KMP reported second quarter distributable cash flow before certain items
of $366 million, up 13 percent from $324 million for the comparable
period in 2011. Distributable cash flow per unit before certain items
was $1.07 compared to $1.01 for the second quarter last year. Second
quarter net income before certain items was $467 million compared to
$393 million for the same period in 2011. Including certain items, net
income was $159 million compared to $232 million for the second quarter
last year. Certain items for the second quarter totaled a net loss of
$308 million versus a net loss of $161 million for the same period last
year.
For the first six months of the year, distributable cash flow before
certain items was $828 million, up 17 percent from $706 million for the
comparable period in 2011. Distributable cash flow per unit before
certain items was $2.44 compared to $2.21 for the same period last year.
Net income before certain items was $1.0 billion compared to $0.8
billion for the first two quarters of 2011. Including certain items, net
income was $367 million versus $573 million for the same period last
year. Certain items for the first six months of the year totaled a net
loss of $634 million versus a net loss of $244 million for the
comparable period in 2011. The loss due to certain items for both the
first and second quarters was primarily attributable to the
re-measurement of discontinued operations to fair value related to the
KMP assets to be divested in order to obtain Federal Trade Commission
(FTC) approval for Kinder Morgan, Inc.'s acquisition of El Paso.
Overview of Business Segments
The Products Pipelines business produced second quarter segment
earnings before DD&A and certain items of $166 million versus $175
million for the comparable period in 2011. This segment currently is
expected to end the year slightly below its published annual budget of
6 percent growth.
"Highlights in the second quarter included improved earnings compared to
the same period last year from Plantation (higher tariffs and an
increase in gasoline and diesel volumes) and Cochin (higher volumes),"
Kinder said. "Products Pipelines also benefited from a 27 percent
increase in NGL volumes on Cochin and Cypress compared to the second
quarter of 2011." The decline in segment earnings compared to the same
period last year was primarily due to lower Federal Regulatory
Commission (FERC) and California Public Utilities Commission rates on
the Pacific system, and lower volumes on both Pacific (high retail
prices and sluggish economic recovery) and CALNEV (competing pipeline).
Total refined products volumes decreased 0.9 percent compared to the
second quarter of 2011. Overall segment gasoline volumes (including
transported ethanol on the Central Florida Pipeline) were flat compared
to the second quarter of 2011, but up 3 percent on Plantation which
benefited from allocations on a competing pipeline. Segment diesel
volumes declined 2.9 percent versus the same period last year with lower
volumes on each pipeline except for Plantation, which was up 2.7 percent
due to recent modifications at the Collins, Miss., terminal that allow
for biodiesel blending services. Segment jet fuel volumes were down
1.4 percent across the system compared to the second quarter of 2011,
due primarily to a shift of volumes from Plantation to a competing
carrier. Jet fuel volumes were up on both Pacific (3.3 percent) and
CALNEV (5 percent) due to increased commercial traffic at the San
Francisco and Las Vegas airports and strong military volumes.
The Products Pipelines segment handled 8.2 million barrels of biofuels
(ethanol and biodiesel) in the second quarter, up 4.6 percent from the
same period a year ago. Once again this segment realized significant
growth in biodiesel barrels stored and blended, and continues to make
investments in assets across its operations to accommodate more biofuels.
The Natural Gas Pipelines business produced second quarter
segment earnings before DD&A and certain items of $238 million, up 25
percent from $191 million for the comparable period in 2011, and is
currently expected to exceed its published annual budget of 19 percent
growth due to the drop downs, as described below.
"Growth in the second quarter compared to the same period last year was
driven by our purchase of Petrohawk's 50 percent interest in KinderHawk
(effective July 1, 2011), improved earnings at the Fayetteville Express
Pipeline (while full service began Jan. 1, 2011, contracts were still
ramping up during the first half of last year) and good results at
Kinder Morgan Treating, which benefited from the SouthTex acquisition in
December 2011 and subsequent strong plant sales," Kinder said. EagleHawk
and Eagle Ford Gathering also contributed to growth in the quarter. The
Texas intrastate pipeline system was impacted by lower sales margins,
most of which was offset by strong transport volumes and higher storage
revenues.
Overall segment transport volumes were up 6 percent in the second
quarter versus the same period last year attributable to higher volumes
on Fayetteville Express and solid transport volumes on the Texas
intrastate pipeline system, due in part to Eagle Ford Gathering volumes.
Sales volumes on the Texas intrastates were up 12 percent compared to
the second quarter of 2011.
The CO2 business produced second quarter
segment earnings before DD&A and certain items of $320 million, up 19
percent from $268 million for the same period in 2011. Given the decline
in NGL prices, this segment currently is expected to finish the year
modestly below its published annual budget of 26 percent growth.
"Growth in the second quarter compared to the same period last year was
attributable primarily to higher oil prices, increased production at the
Katz Field and another record NGL production quarter at the Snyder
Gasoline Plant," Kinder said. "This segment's results were impacted by
significantly lower NGL prices, which are now projected to be about 23
percent lower for the full year than was assumed when the 2012 budget
was developed." CO2 production was slightly lower than in the
second quarter of 2011, but as has been noted previously, strong demand
for CO2 has created significant expansion opportunities for
this segment, some of which are detailed in the other news section of
this release.
The Snyder Gasoline Plant set a fourth consecutive quarterly NGL
production record, producing gross volumes of 19 thousand barrels per
day (MBbl/d), up 8 percent from 17.6 MBbl/d for the second quarter of
2011. May was also a record month at the facility, with NGL production
of 19.8 MBbl/d.
Oil production was flat at the SACROC Unit compared to the second
quarter of 2011 at 28.4 MBbl/d, but significantly higher than in the
first quarter this year, increasing by 1.6 MBbl/d, and above plan.
SACROC production is expected to be slightly ahead of plan for the rest
of the year. Production continued to be relatively stable at the Yates
Field during the second quarter versus the same period last year
(20.8 MBbl/d versus 21.8 MBbl/d), although slightly below plan. At the
Katz Field, production continued to ramp up substantially in the second
quarter versus the comparable period a year ago (1.8 MBbl/d versus
0.3 MBbl/d), but remains below plan. The average West Texas Intermediate
(WTI) crude oil price for the second quarter was $93.08 per barrel
compared to the approximately $93.75 per barrel that was assumed when
the company developed its 2012 budget.
This segment is an area where KMP is exposed to commodity price risk,
but that risk is partially mitigated by a long-term hedging strategy
intended to generate more stable realized prices. The realized weighted
average oil price per barrel for the quarter, with all hedges allocated
to oil, was $85.96 versus $69.37 for the second quarter of 2011. The
realized weighted average NGL price per barrel for the second quarter,
allocating none of the hedges to NGLs, was $49.44 compared to $66.67 for
the same period last year.
The Terminals business produced second quarter segment earnings
before DD&A and certain items of $183 million, up 11 percent from
$166 million for the comparable period in 2011, and is currently
expected to meet or exceed its published annual budget of 8 percent
growth.
Approximately 80 percent of the second quarter growth in this segment
was driven by organic sources compared to the same period last year,
with the remainder coming from acquisitions. "Internal growth was led
again by strong export coal volumes across our network and another
record quarter for throughput at Pier IX in Virginia," Kinder said.
"Total tonnage was up nearly 12 percent compared to the second quarter
of 2011 at our coal handling facilities due to strong export demand,
which was offset somewhat by the continuing decline in domestic
volumes." Increased liquids volumes at our facilities on the Gulf Coast
and in the Northeast, attributable to incremental tank capacity and
throughput, along with higher petcoke volumes, also contributed to this
segment's growth.
Acquisitions that contributed to growth versus the second quarter last
year included the purchase of the Port Arthur, Texas, terminal in June
2011 that handles petcoke for the Total refinery, and an additional
equity investment in December of 2011 in Watco Companies, which owns the
largest privately held short line railroad business in the United States.
In the second quarter, this segment handled 16.3 million barrels of
ethanol, up 20 percent compared to the same period last year. Combined,
the terminals and products pipelines business segments handled about
24.1 million barrels of ethanol compared to 21.3 million barrels in the
second quarter of 2011. KMP continues to handle approximately 30 percent
of the ethanol used in the United States.
Kinder Morgan Canada produced second quarter segment earnings
before DD&A and certain items of $52 million (unchanged from the same
period in 2011) and currently is expected to slightly exceed its
published annual budget of 1 percent growth.
"Highlights in the second quarter compared to the same period last year
included the new toll agreement on the Trans Mountain pipeline system,
strong throughput on Trans Mountain and at the Westridge Terminal, and
good results from the Express-Platte Pipeline," Kinder said. Trans
Mountain volumes increased compared to second quarter last year due to a
regulator imposed pressure restriction in 2011 that has now been lifted.
2012 Outlook
As previously announced, KMP expects to declare cash distributions of
$4.98 per unit for 2012, an 8 percent increase over the $4.61 it
distributed for 2011. Due to deteriorating NGL prices, KMP now expects
to generate distributable cash flow essentially equivalent to its
distributions. Excluding the drop down transactions discussed below, and
expansion projects associated with those assets, KMP now expects to
invest approximately $2.2 billion in expansions (including contributions
to joint ventures) and acquisitions for 2012. Over $490 million of the
equity required for this investment program is expected to be funded by
Kinder Morgan Management, LLC (NYSE: KMR) dividends.
KMP's budget assumed an average WTI crude oil price of approximately
$93.75 per barrel in 2012, which approximated the forward curve at the
time the budget was prepared. The overwhelming majority of cash
generated by KMP's assets is fee based and is not sensitive to commodity
prices. In its CO2 segment, the company hedges the majority
of its oil production, but does have exposure to unhedged volumes, a
significant portion of which are natural gas liquids. For 2012, the
company expects that every $1 change in the average WTI crude oil price
per barrel will impact the CO2 segment by approximately
$6 million, or slightly over 0.1 percent of KMP's combined business
segments' anticipated segment earnings before DD&A.
KMR also expects to declare distributions of $4.98 per share for 2012.
Impact of El Paso Corporation Acquisition on KMP
KMI reached an agreement with Federal Trade Commission (FTC) staff to
divest certain KMP assets in order to receive regulatory approval of its
acquisition of El Paso. KMI has agreed to sell Kinder Morgan Interstate
Gas Transmission, Trailblazer Pipeline Company, its Casper-Douglas
natural gas processing and West Frenchie Draw treating facilities in
Wyoming, and the company's 50 percent interest in the Rockies Express
Pipeline. As previously announced, KMI will offer to sell (drop down)
all of Tennessee Gas Pipeline and 50 percent of the El Paso Natural Gas
pipeline to KMP to replace the divested assets. The company expects the
divestitures and the drop downs to close in the third quarter this year.
It is expected that the combination of the divestitures and the
dropdowns will be slightly accretive to KMP's distributable cash flow in
2012 and nicely accretive thereafter.
Other News
Products Pipelines
KMP placed its crude and condensate pipeline in service in June and
the pipeline is now available to transport volumes from the Eagle Ford
Shale to the Houston Ship Channel. The approximately $213 million
pipeline, which has a capacity of 300,000 barrels per day (bpd), was
completed on time and under budget and is supported by long-term
contractual commitments. The pipeline, which is comprised of 65 miles
of new-build construction and 109 miles of converted natural gas
pipeline, delivers product to multiple terminaling facilities that
provide access to local refineries, petrochemical plants and docks on
the Texas Gulf Coast.
The Cochin Pipeline began transporting an ethane-propane (E/P) mix
from Iowa City, Iowa, to the International Boundary near Detroit,
Mich., in June. From Detroit, Cochin transports the mix to Windsor,
Ontario, for delivery to storage facilities in Sarnia, Ontario. The
company currently has the capability to deliver up to 30,000 bpd of
the E/P mix and expects to increase the line's capacity for E/P to
50,000 bpd this month.
Upon issuance of a federal permit, which is expected this month, the
approximately $220 million Parkway Pipeline will begin construction as
planned in August. A joint venture with Valero, the 141-mile,
16-inch-diameter pipeline will transport gasoline and diesel fuel from
Valero's refinery in Norco, La., to an existing petroleum
transportation hub in Collins, Miss., which is owned by Plantation
Pipe Line Company. The pipeline will have an initial capacity of
110,000 bpd (expandable to 200,000 bpd) and is projected to be in
service by mid-2013.
KMP completed a successful binding open season for its Cochin Pipeline
Reversal Project, which will allow the company to offer a new service
to move light condensate from Kankakee County, Ill., to existing
terminal facilities near Fort Saskatchewan, Alberta. The company
received more than 100,000 bpd of binding commitments for a minimum
10-year term. The approximately $260 million project involves
modifying the western leg of the Cochin Pipeline to reverse the
direction of product flow to Fort Saskatchewan from a point of
interconnection with Explorer Pipeline Company's pipeline in Kankakee
County, where Cochin will build a 1 million barrel tank farm and
associated piping. Subject to the timely receipt of necessary
regulatory approvals, light condensate shipments could begin as early
as July 1, 2014.
KMP is building a petroleum condensate processing facility near its
Galena Park terminal on the Houston Ship Channel. The approximately
$200 million facility will split condensate into various components
such as light and heavy naphthas, kerosene and gas oil. Supported by a
long-term, fee-based contract with BP North America, the plant will
have an initial throughput capacity of 50,000 bpd, which can be
expanded up to 100,000 bpd. The facility is expected to be in service
in the first quarter of 2014.
KMP entered into a purchase and sales agreement with Lincoln Energy
Solutions to acquire a biofuels transload terminal in Belton, S.C. The
terminal, which currently handles only ethanol unit train operations,
will also begin biodiesel handling operations when the transaction
closes in August. The 38-acre facility has 45,000 barrels of storage
capacity, a three bay truck rack, rail receipt capabilities for more
than 200 cars, and is adjacent to both Belton terminals and the
Plantation and Colonial pipelines.
Natural Gas Pipelines
In June, KMP purchased a 50 percent interest in a joint venture that
owns the Altamont gathering, processing and treating assets (Uinta
Basin in Utah) and the Camino Real Gathering System (Eagle Ford Shale
in Texas) from Kohlberg Kravis Roberts & Co. (KKR) for $300 million in
KMP common units. The other 50 percent interest in the joint venture
is now owned by KMI as a result of the El Paso acquisition. It is
anticipated that KMI's 50 percent interest will be offered to KMP in a
future drop down transaction.
Eagle Ford Gathering, a joint venture between KMP and Copano Energy in
south Texas, executed a gas service agreement with Swift Energy for
20,000 MMBtu/d effective June 1, 2012. The firm volume ramps up to
48,000 MMBtu/d, then gradually back to 20,000 MMBtu/d over the term of
the agreement.
As noted earlier in this release and previously announced, Tennessee Gas
Pipeline (TGP) and a portion of El Paso Natural Gas (EPNG) are expected
to be dropped down to KMP in the third quarter. These assets currently
reside at KMI, but since they will be dropped down to KMP soon, their
projects are shown in this release.
TGP executed 15-year transportation agreements with two major
producers for a total of 310,000 dekatherms per day to begin in
mid-2013. A new interconnect for volumes associated with this
transaction will be built and located near the Carroll/Columbiana
County border in Ohio.
TGP's Northeast Supply Diversification Project will provide a
bi-direction meter on the Niagra Spur with about 6 miles of looping on
TGP's system to create an additional 250,000 MMBtu/d of capacity. This
project has received its FERC certificate and has a projected
in-service date of Nov. 1, 2012. The approximately $57 million project
is fully subscribed.
TGP's Northeast Upgrade Project has received its FERC certificate and
will boost capacity by 636,000 MMBtu/d. This approximately $440
million project will provide for additional capacity out of the
prolific Marcellus Shale area of the United States. The project is
fully subscribed and has a targeted in-service date of Nov. 1, 2013.
The Marcellus Pooling Project will include 7.9 miles of 30-inch loop
and piping modifications to provide 240,000 MMBtu/d of capacity from
the Marcellus Shale, backhauling down TGP's system to serve markets
along the path. TGP has received its environmental assessment and is
awaiting FERC authority, which is anticipated by September 2012. This
approximately $88 million project is fully subscribed and expected to
be in service in November 2013.
In May, EPNG received its FERC determination on the remaining
unsettled issues from its 2008 rate case. Because EPNG had already
settled the rate levels from the 2008 case, the FERC determination had
limited effect on historical rates. In June, EPNG received an
Administrative Law Judge's decision related to the 2010 rate case.
While the decision dealt with dozens of issues, EPNG's position was
upheld on several large matters. EPNG does not have to change rates
based on the judge's decision and, instead, will wait for final action
from FERC. EPNG is in the process of filing a response to the law
judge's findings and expects the FERC to act upon the judge's decision
in mid to late 2013. EPNG is fully reserved for the impact of the
judge's decision.
EPNG plans to invest approximately $22 million to modify its existing
pipeline system and install new facilities in Cochise County, Ariz.
The project will expand the capacity of the Willcox Lateral by 185,000
MMBtu/d and provide natural gas to new power plants being built in
Mexico. EPNG anticipates an in-service date of April 2013.
CO2
To help meet increasing CO2 demand, KMP continues to make
progress on its previously announced $255 million expansion of its Doe
Canyon Unit CO2 source field in southwestern Colorado,
which will increase capacity from 105 MMcf/d to 170 MMcf/d. In June,
the company began construction on both primary and booster
compression. The primary compression is expected to be in service in
the fourth quarter of 2013 and the booster compression is targeted to
be completed in the second quarter of 2014. KMP also plans to drill 19
more wells during the next 10 years, which will increase production
from 105 MMcf/d to 170 MMcf/d.
Kinder Morgan increased its quarterly oil production at its Katz Field
in the Permian Basin from 1.5 MBbl/d in the first quarter to 1.8
MBbl/d in the second quarter, aided by the activation of three
additional patterns. The new patterns are part of the company's $230
million project to unlock an incremental 25 million barrels of oil to
be produced over the next 15 to 20 years at the Katz field.
In January, Kinder Morgan closed on a transaction to acquire the St.
Johns CO2 source field and related assets in Apache County,
Ariz., and Catron County, N.M. Expected CO2 production from
St. Johns would be transported to the Permian Basin for use by
customers in tertiary recovery. Well testing and predevelopment
activities are underway for this potential new source field.
Terminals
KMP is experiencing strong demand for liquids storage capacity and coal
exports in its terminal business. The company currently has more than
$1.3 billion of approved major projects in this segment. Almost $800
million will be spent on three liquids projects (BOSTCO, Edmonton South
and Galena Park) and over $400 million will be invested to expand coal
facilities along the Gulf and East coasts.
KMP has entered into a new long-term contract with Peabody Energy and
a previously announced long-term throughput agreement with Arch Coal.
Under the new agreement, Peabody will gain additional access to export
coal at the company's Houston Bulk and Deepwater terminals near
Houston, and at its International Marine Terminal in Myrtle Grove, La.
Following completion of these projects, Kinder Morgan's Gulf Coast
terminal network will have export coal capacity of approximately 27
million short-tons per year.
KMP has entered into a long-term commercial agreement with BP North
America for 750,000 barrels per day of refined products capacity at
its Galena Park Terminal on the Houston Ship Channel. KMP will invest
approximately $75 million to construct five new tanks, which will
provide storage for BP's product that will be processed at the
condensate splitter that KMP's Products Pipelines business segment is
currently building near the Galena Park facility.
Construction continues on the approximately $430 million Battleground
Oil Specialty Terminal (BOSTCO) located on the Houston Ship Channel.
The first phase of the project includes construction of 52 storage
tanks that will have a capacity of 6.6 million barrels for handling
residual fuels and other black oil terminal services. Terminal service
agreements or letters of intent have been executed with customers for
almost all of the capacity. Commercial operations are expected to
begin in the third quarter of 2013.
In April, construction began on Trans Mountain pipeline's Edmonton
terminal expansion in Strathcona County, Alberta. The approximately
$284 million project entails building 3.6 million barrels of new
merchant and system tank storage and is expected to be fully completed
in December 2013. The project is underpinned by long-term commercial
agreements with major Canadian producers. Kinder Morgan is currently
in discussions with other companies for further expansion that would
ultimately allow for over 6 million barrels of dedicated storage at
the terminal.
Kinder Morgan Canada
In the second quarter, KMP confirmed binding commercial support for
its proposed expansion of the Trans Mountain pipeline system. Nine
companies in the Canadian producing and oil marketing business signed
20-year contracts following an open season for approximately 10,000
bpd of capacity in support of the expansion. Trans Mountain has filed
an application seeking National Energy Board (NEB) approval of the
contract terms and toll structure that would be implemented under the
expansion. The proposed $4.1 billion expansion would increase capacity
on Trans Mountain from 300,000 bpd to 750,000 bpd. The company expects
to file a "Facilities Application" with the NEB in late 2013, which
will ask for authorization to build and operate the necessary
facilities for the expansion. This filing will initiate a
comprehensive regulatory and public review of the proposed expansion.
If the application is approved, construction is currently forecast to
commence in 2015 or 2016 with the proposed project operating in 2017.
Beginning this summer, Kinder Morgan Canada is committed to an 18 to
24 month inclusive, extensive and thorough engagement on all aspects
of the project with local communities along the proposed route and
marine corridor, including First Nations and Aboriginal groups,
environmental organizations and all other interested parties.
Financings
KMP sold common units valued at approximately $154 million under its
at-the-market program during the second quarter, bringing the total to
about $278 million through the first six months of the year. In
addition, the company issued approximately $300 million in KMP units
in its acquisition of midstream assets from KKR in June.
Kinder Morgan Management, LLC
Shareholders of KMR will also receive a $1.23 distribution ($4.92
annualized) payable on Aug. 14, 2012, to shareholders of record as of
July 31, 2012. The distribution to KMR shareholders will be paid in the
form of additional KMR shares. The distribution 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 29,000 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 fourth
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, CO2 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, Kinder
Morgan Management, LLC (NYSE: KMR) and EPB. For more information please
visit www.kindermorgan.com.
Please join Kinder Morgan at 4:30 p.m. Eastern Time on Wednesday,
July 18, at www.kindermorgan.com
for a LIVE webcast conference call on the company's second 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 cashdistributions 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, 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.Distributablecash 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 June 30,
Six Months Ended June 30,
2012
2011
2012
2011
Revenues
$
1,852
$
1,938
$
3,700
$
3,855
Costs, expenses and other
Operating expenses
960
1,311
1,846
2,400
Depreciation, depletion and amortization
248
223
487
438
General and administrative
98
98
205
287
Taxes, other than income taxes
51
50
101
96
Other expense (income)
(20
)
(14
)
(20
)
(14
)
1,337
1,668
2,619
3,207
Operating income
515
270
1,081
648
Other income (expense)
Earnings from equity investments
67
56
132
103
Amortization of excess cost of equity investments
(2
)
(2
)
(4
)
(3
)
Interest, net
(137
)
(124
)
(272
)
(252
)
Other, net
9
7
10
8
Income before income taxes
452
207
947
504
Income taxes
(14
)
(15
)
(29
)
(21
)
Income from continuing operations
438
192
918
483
Income from discontinued operations
48
40
98
90
Loss on remeasurement of discontinued operations to fair value
(327
)
-
(649
)
-
(Loss) income from discontinued operations
(279
)
40
(551
)
90
Net income
159
232
367
573
Net income attributable to Noncontrolling Interests
(6
)
(2
)
(8
)
(5
)
Net income attributable to KMP
$
153
$
230
$
359
$
568
Calculation of Limited Partners' interest
in net income (loss) attributable to KMP
Income from continuing operations attributable to KMP
$
429
$
191
$
904
$
479
Less: General Partner's interest
(336
)
(292
)
(657
)
(572
)
Limited Partners' interest
93
(101
)
247
(93
)
Add: Limited Partners' interest in discontinued operations
(274
)
39
(540
)
88
Limited Partners' interest in net income
$
(181
)
$
(62
)
$
(293
)
$
(5
)
Limited Partners' net income (loss) per
unit:
Income from continuing operations
$
0.27
$
(0.31
)
$
0.73
$
(0.29
)
Income (loss) from discontinued operations
(0.80
)
0.12
(1.59
)
0.27
Net income (loss)
$
(0.53
)
$
(0.19
)
$
(0.86
)
$
(0.02
)
Weighted average units outstanding
342
321
340
319
Declared distribution / unit
$
1.23
$
1.15
$
2.43
$
2.29
Three Months Ended June 30,
Six Months Ended June 30,
2012
2011
2012
2011
Segment earnings before DD&A and amortization of excess
investments
Products Pipelines
$
166
$
21
$
342
$
201
Natural Gas Pipelines
190
135
412
301
CO2
327
266
661
528
Terminals
195
171
382
345
Kinder Morgan Canada
52
54
102
102
$
930
$
647
$
1,899
$
1,477
Kinder Morgan Energy Partners, L.P. and Subsidiaries
Preliminary Earnings Contribution by Business Segment
(Unaudited)
(in millions except per unit amounts)
Three Months Ended June 30,
Six Months Ended June 30,
2012
2011
2012
2011
Segment earnings before DD&A and amort. of excess investments (1)
Products Pipelines
$
166
$
175
$
342
$
355
Natural Gas Pipelines (2)
238
191
517
414
CO2
320
268
657
526
Terminals
183
166
370
336
Kinder Morgan Canada
52
52
102
100
Total
959
852
1,988
1,731
Segment DD&A and amortization of excess investments
Products Pipelines
$
29
$
27
$
58
$
54
Natural Gas Pipelines (3)
44
32
94
64
CO2
112
110
216
213
Terminals
51
48
102
95
Kinder Morgan Canada
14
14
28
28
Total
250
231
498
454
Segment earnings contribution
Products Pipelines (1)
$
137
$
148
$
284
$
301
Natural Gas Pipelines (1)
194
159
423
350
CO2 (1)
208
158
441
313
Terminals (1)
132
118
268
241
Kinder Morgan Canada (1)
38
38
74
72
General and administrative (1) (4)
(101
)
(99
)
(209
)
(199
)
Interest, net (1) (5)
(141
)
(129
)
(280
)
(261
)
Net income before certain items
467
393
1,001
817
Certain items
Loss on remeasurement of discontinued operations to fair value
(327
)
-
(649
)
-
Allocated non-cash compensation
-
-
-
(85
)
Acquisition costs (6)
-
-
-
(1
)
Legal expenses (7)
-
(1
)
-
(2
)
Legal reserves (8)
-
(165
)
-
(165
)
Mark to market and ineffectiveness of certain hedges (9)
-
(2
)
(3
)
2
Insurance deductible, casualty losses and reimbursements (10)
12
4
12
2
Gain (loss) on sale of assets and asset disposition expenses (11)
7
13
7
15
Prior period asset write-off (12)
-
(10
)
-
(10
)
Other (13)
-
-
(1
)
-
Sub-total certain items
(308
)
(161
)
(634
)
(244
)
Net income
$
159
$
232
$
367
$
573
Less: General Partner's interest in net income (14)
(334
)
(292
)
(652
)
(573
)
Less: Noncontrolling Interests in net income
(6
)
(2
)
(8
)
(5
)
Limited Partners' net income (loss)
$
(181
)
$
(62
)
$
(293
)
$
(5
)
Net income before certain items
$
467
$
393
$
1,001
$
817
Less: Noncontrolling Interest before certain items
(5
)
(4
)
(11
)
(9
)
Net income attributable to KMP before certain items
462
389
990
808
Less: General Partner's interest in net income before certain
items (14)
(337
)
(294
)
(658
)
(575
)
Limited Partners' net income before certain items
125
95
332
233
Depreciation, depletion and amortization (15)
292
275
582
542
Book (cash) taxes - net
(2
)
-
7
10
Express & Endeavor contribution
3
3
3
6
Sustaining capital expenditures (16)
(52
)
(49
)
(96
)
(85
)
DCF before certain items
$
366
$
324
$
828
$
706
Net income / unit before certain items
$
0.37
$
0.30
$
0.98
$
0.73
DCF / unit before certain items
$
1.07
$
1.01
$
2.44
$
2.21
Weighted average units outstanding
342
321
340
319
Notes ($ million)
(1)
Excludes certain items:
2Q 2011 - Products Pipelines $(154), Natural Gas Pipelines $(10),
CO2 $(2), Terminals $5, KMC $2, general and administrative expense
$(2)
YTD 2011 - Products Pipelines $(154), Natural Gas Pipelines
$(10), CO2 $2, Terminals $9, KMC $2, general and administrative
expense $(93)
2Q 2012 - CO2 $7, Terminals $12
YTD 2012 - CO2 $4, Terminals $12, general and administrative
expense $(1)
(2)
Includes $46 in 2Q 2011 and $103 YTD 2011, and $48 in 2Q 2012
and $105 YTD 2012 related to assets classified for GAAP purposes
as discontinued operations.
(3)
Includes $6 in 2Q 2011 and $13 YTD 2011, and $7 in 2Q 2012 and
$7 YTD 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: 2Q 2011 - $2, YTD 2011 - $5, 2Q
2012 - $3, YTD 2012 - $5
(5)
Interest expense excludes interest income that is allocable to
the segments: 2Q 2011 - $5, YTD 2011 - $9, 2Q 2012 - $4, YTD 2012
- $8
(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 litigation
of west coast Products Pipelines.
(9)
Actual gain or loss will continue to be taken into account in
earnings before DD&A at time of physical transaction.
(10)
Insurance deductible, write-off of assets, expenses and
insurance reimbursements related to casualty losses.
(11)
Gain or loss on sale of assets and expenses related to the
preparation of assets for sale.
(12)
Natural Gas Pipelines write-off of receivable for fuel
under-collected prior to 2011.
(13)
Imputed interest on Cochin acquisition, FX gain on Cochin note
payable, Terminals severance and overhead credit on certain items
capex.
(14)
General Partner's interest in net income reflects a reduction
for the KinderHawk acquisition GP incentive giveback of $7 in 2Q
and $14 YTD 2011, and $7 in 2Q and $13 YTD 2012.
(15)
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),
Midstream (2012), and Red Cedar DD&A: 2Q 2011 - $44, YTD 2011 -
$88, and 2Q 2012 - $42, YTD 2012 - $84.
(16)
Includes KMP share of REX, MEP, FEP, Cypress, EagleHawk, Eagle
Ford, and Red Cedar sustaining capital expenditures: 2Q 2011 - $2,
YTD 2011 - $3, and 2Q 2012 - $3, YTD 2012 - $5.
Notes payable and current maturities of long-term debt
$
979
$
1,638
Other current liabilities (1)
1,502
1,481
Long-term debt
12,154
11,159
Debt fair value adjustments
1,136
1,079
Other
1,076
1,142
Total liabilities
16,847
16,499
Partners' capital
Accumulated other comprehensive income
207
3
Other partners' capital
7,248
7,505
Total KMP partners' capital
7,455
7,508
Noncontrolling interests
112
96
Total partners' capital
7,567
7,604
TOTAL LIABILITIES AND PARTNERS' CAPITAL
$
24,414
$
24,103
Total Debt, net of cash and cash equivalents, and excluding
the debt fair value adjustments
$
12,611
$
12,388
Segment earnings before DD&A and certain items
$
4,064
$
3,810
G&A
(398
)
(388
)
Income taxes
55
55
EBITDA (2) (3)
$
3,721
$
3,477
Debt to EBITDA
3.4
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), Red Cedar, and Midstream (beginning 2Q 2012)
DD&A.
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