Kinder Morgan Energy Partners, L.P. (KMP)

Q4 2012 Earnings Call

January 16, 2013 4:30 pm ET

Executives

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

C. Park Shaper - President of Kinder Morgan GP Inc and Director of Kinder Morgan GP Inc

Kimberly Allen Dang - Chief Financial Officer of Kinder Morgan GP Inc, Principal Accounting Officer of Kinder Morgan GP Inc and Vice President of Kinder Morgan GP Inc

Richard Tim Bradley - President of Co2 Pipelines for Kinder Morgan GP Inc and Vice President of Kinder Morgan GP Inc

Steven J. Kean - Chief Operating Officer of Kinder Morgan GP Inc and Executive Vice President of Kinder Morgan GP Inc

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

Analysts

Brian J. Zarahn - Barclays Capital, Research Division

Gabriel P. Moreen - BofA Merrill Lynch, Research Division

Bradley Olsen

Paul Jacob

Theodore Durbin - Goldman Sachs Group Inc., Research Division

John Edwards - Crédit Suisse AG, Research Division

Presentation

Operator

Welcome to the quarterly earnings conference call. [Operator Instructions] This conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the call over to Mr. Rich Kinder, Chairman and CEO of Kinder Morgan. Go ahead, sir. You may begin.

Richard D. Kinder

All right. Thank you, Sharon, and welcome to the Kinder Morgan Investor Call. Today, we'll be discussing results for Kinder Morgan, Inc., which I'll refer to as KMI; for Kinder Morgan Energy Partners, which I'll refer to as KMP; and for El Paso Pipeline Partners, which I'll refer to as EPB. I'll give an overview, then Kim Dang, our Chief Financial Officer, will give you a detailed financial numbers discussion, and then we'll take any and all questions that you might have. As usual, we'll be making statements within the meaning of the Securities Act of 1933 and the Securities and Exchange Act of 1934.

Let me start by reminding all of you that the focus of all the Kinder Morgan companies is on producing cash in increasing amounts and distributing that cash to our shareholders or unitholders.

2012 was another very successful year at Kinder Morgan. And reflecting that success, all 3 of the companies declared increased distributions or dividends for the fourth quarter, and all equaled or exceeded their annual budget target in terms of distribution or dividends per unit or share for the full year 2012.

Let me start with KMI. There, we increased our dividend to $0.37 a share, that's up 19% from the dividend in Q4 of 2011. For the full year 2012, we declared $1.40 in dividends versus $1.35, which was our original budget target for 2012, and $1.20, which was the declared distribution for 2011. That's an increase of 17% year-over-year. And in 2012, we generated over $1.4 billion at KMI in cash available to pay dividends, and that's up 62% from 2011.

Now as you can see on the sheets attached to the earnings release, that resulted in $1.55 cash available for dividends per average share. But in an effort to be fully open about this, I think the better way to look at it is to use the record date shares because if you remember, we require -- we acquired El Paso during the middle of the third quarter. And if you do that, the actual cash available for dividends per share is $1.46 per share, that's a 20% increase over 2011, and results in $62 million of excess coverage above the actual dividends declared for 2012.

The growth at KMI was driven by strong performance at both KMP and EPB, and by the former El Paso Pipeline assets, which still are at KMI before being dropped down to KMP or EPB. We achieved more than $400 million in annualized cost savings as a result of the El Paso merger. That's well above our initial target of $350 million per year.

Looking ahead at KMI, as we previously stated, we expect to declare dividends of $1.57 per share in 2013, that's up 16% from the 2012 budget target and up 12% from the 2012 declared dividends per share of $1.40.

In 2013, we expect to sell our 50% interest in Gulf LNG to EPB and our 50% stakes in EPNG pipeline and midstream assets to KMP.

The future growth looks very good as we currently identified over $12 billion in expansion projects and JVs across the Kinder Morgan companies, which we believe we will construct. And we have many more projects to which we continue to pursue customer commitments and believe we will be able to expand in high order on these additional projects. In short, our enormous footprint of pipelines and terminals is providing us with a tremendous opportunity for sustained, profitable growth, which we expect to last for years to come.

So that's KMI. Let me turn to KMP.

At KMP, we increased the quarterly dividend to $1.29 per unit, that's $5.16 annualized, and we will distribute $4.98 for the full year 2012, that's consistent with our budget, and up 8% over the 2011 distribution of $4.61 per unit. Our DCF per unit at KMP was $5.07, that's up 8% also from the $4.68 in 2011. All 5 of our business segments at KMP recorded higher results than in the prior year, and segment earnings before DD&A and certain items increased by 20% in 2012 to almost $4.4 billion.

Now turning to the segments. At our Products Pipeline segment, refined products volumes were down by about 1.5% for the full year 2012 compared to 2011, but NGL volumes were up about 22% and our ethanol and biofuels volumes were up by 11%. We're making good progress on all of the roughly $700 million in new projects that we have in this segment as we detailed in the earnings release.

Turning to our Natural Gas segment there, the growth is driven primarily by the drop downs of TGP and half of EPNG, which were made during 2012. We also benefited from good performance of the Texas Intrastates and from increasing volumes on our Eagle Ford assets.

As a result of all this, transportation volumes across our natural gas network was up by 11% for the full year. Some of this was driven by electric generation load and, for example at TGP, at the Tennessee Gas Pipeline, electric generation load was up by 12% for the year.

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