Kinder Morgan Energy Partners, L.P. Management Discusses Q3 2012 Results - Earnings Call Transcript
October 17, 2012 8:40 PM ET
Kinder Morgan Energy Partners, L.P. (KMP)
Q3 2012 Earnings Call
October 17, 2012 4:30 pm ET
Richard D. Kinder - Chairman of Kinder Morgan GP Inc and Chief Executive Officer 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
R. Tim Bradley
Thomas A. Martin - President of Natural Gas Pipelines for Kinder Morgan GP Inc and Vice President of Kinder Morgan GP Inc
C. Park Shaper - President of Kinder Morgan GP Inc and Director 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
Darren Horowitz - Raymond James & Associates, Inc., Research Division
Brian J. Zarahn - Barclays Capital, Research Division
Craig Shere - Tuohy Brothers Investment Research, Inc.
Theodore Durbin - Goldman Sachs Group Inc., Research Division
John Edwards - Crédit Suisse AG, Research Division
John K. Tysseland - Citigroup Inc, Research Division
Welcome to the quarterly earnings conference call. [Operator Instructions] Today's 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 Rich Kinder, Chairman and CEO of Kinder Morgan. You may begin.
Richard D. Kinder
Okay. Thank you, Craig. And welcome to the Kinder Morgan third quarter analyst call. As usual, we'll be making statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.
We'll be talking about Kinder Morgan, Inc., which I'll refer to as KMI; Kinder Morgan Energy Partners, which I'll refer to as KMP; and El Paso Pipeline Partners, which I'll refer to as EPB. Together, these 3 companies make up the Kinder Morgan family of companies. We own and operate pipelines and terminals. We are the largest midstream energy company in North America and the third largest energy company of any kind in North America with an enterprise -- combined enterprise value of about $100 billion.
I'll give an overview of the quarter, and then I'll turn it over to Kim Dang, our Chief Financial Officer, who will go through the detailed financials; and then, we'll throw it open for questions, and we've got our senior management team here, ready to answer any questions you may have.
I'm going to try to be briefer than normal, so we have more time for question and answer. I know, particularly in the East, it gets a little late when these calls gets going.
Post the El Paso merger, we've noticed in each call, we have additional participants on the line. So I think it's important that I sort of remind you of the philosophy of Kinder Morgan and the way we operate. We own and operate assets, about 75,000 miles of pipelines and 180-plus terminals around North America. These assets produce large amounts of cash flow, and our primary goal is to grow that cash flow and distribute it to our unitholders at KMP and EPB and to our shareholders at KMI. At our 2 MLPs, we view the key measurement as being distributable cash flow per unit. And at KMI, it's cash available per dividends per share.
Post the El Paso acquisition, we said that between 2011, using that as the base year, and 2015, we could grow dividends per share at KMI by about 12.5% per year. We could grow distributions per unit at KMP and its sister security, KMR, by about 7% a year, and we could grow distributions at EPB by about 9% a year. And we still expect to achieve those goals.
Consistent with our philosophy and goals, all 3 of our entities raised their distributions, and all 3 improved the cash available per share or unit by measurable amounts during this past quarter.
Let me start with KMI. We raised the dividend to $0.36 per share. That's up 20% from the dividend rate a year ago and represents $1.44 on an annualized basis. Our cash available for dividends increased by 93% from the third quarter of '11 and year-to-date, it increased to $972 million from $623 million during the first 9 months of '11. That's an increase of 56%.
We expect to generate cash available for dividends well in excess of $1.325 billion for the full year 2012 and declare dividends -- and to declare dividends of at least $1.40. $1.40 would be an increase of 17% from the $1.20 that we declared in 2011.
On a per share basis, which, as I said, is the most relevant measure, the cash available increased from the third quarter a year ago by 30%. It went from $0.27 to $0.35. And if you looked at the 3 quarters in the year-to-date, the increase was 28% from $0.88 in 2011 to $1.13 in 2012 for the first 3 quarters. Driving this performance, KMI benefited from strong performance by KMP and EPB and from the assets acquired from El Paso that are still housed at KMI prior to being dropped down to KMP and EPB. We continue to be pleased with the El Paso assets and their integration in the Kinder Morgan family. And we're on our way to achieving annual cost savings of more than $400 million compared to our original estimate of $350 million.
Now there are some other significant developments at KMI during the quarter. First, in August, KMI completed the drop-down of 100% interest in Tennessee Gas Pipeline and the 50% interest in El Paso Natural Gas pipeline to KMP for $6.22 billion, including assumed debt. Secondly, we expect the FTC mandated sale of certain of KMP's Rocky Mountain assets, which we had to sell to close the merger with El Paso. We expect that divestiture to be closed during November of this year. And third, just last week, on October 11, Goldman Sachs, The Carlyle Group and Riverstone Holdings sold the remaining portion of their KMI stock. As you probably know, neither KMI nor any of KMI management sold any shares, and that leaves now only Highstar from the original investor group, and they have about 8% of the shares outstanding at KMI.
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