Seeking Alpha
Recommended for you:
Long only, deep value, growth at reasonable price
Profile| Send Message|
( followers)  

Kinder Morgan Energy Partners (NYSE:KMP) has had a nice run recently. The partnership has been impressively growing its portfolio of assets, which has allowed it to achieve phenomenal growth in unit price and cash distributions. KMP will announce its first-quarter results on April 17, which are expected to be better than expected due to the impressive performance of the oil and gas segment.

As a result of solid and diverse asset base, the partnership is well positioned to enjoy growth in almost all of the segments it operates in. Furthermore, El Paso pipeline and Tennessee Gas Pipeline ((NYSE:TGP)) will also prove to be future growth drivers in the short-term as well as long-term. Let's look at the expected results and future growth prospects of the partnership.

Expected First Quarter Results

KMP has been recording impressive sequential and year-over-year growth, and after the integration of El Paso Pipeline and Tennessee Gas Pipeline, I expect the growth to be even stronger. Furthermore, the oil and gas sector has performed well in the past four months, which will certainly result in better results for KMP. As I mentioned in my previous article about the partnership, its fee-based and diversified business model allows the partnership to stand the volatility in energy markets. For the previous quarter, the partnership recorded year-over-year growth of 43% in the operating income. For the first quarter, results are expected to be better mainly due to the increased revenues from the natural gas pipelines segment.

The natural gas demand experienced a considerable increase in the past four months due to a colder than usual winter. As a result, we saw an increase in the natural gas prices and the companies used the opportunity to bring down their inventories. Natural gas pipelines segment was equally important component over the past year when the segment recorded year-over-year growth of over 60%. Going forward, natural gas prices are expected to go up further due to increased demand from domestic customers as well as utility companies. KMP's network of natural gas pipelines has positioned the company to get better rates for future natural gas supply.

Tennessee gas pipelines is an important addition to the already strong portfolio of natural gas pipelines - the pipeline connects some of the major cities and has access to some of the biggest shale plays. CO2 segment of the company is exposed to commodity prices; however, higher prices during the past quarter will allow this segment to have another impressive year as well. Furthermore, terminals and crude business is also expected to show considerable growth. Overall, first-quarter earnings should be impressive for KMP.

Future Growth Prospects

Future growth for Kinder Morgan will mainly come from natural gas pipelines segment, in my opinion. Natural gas is in excess supply in the U.S. at the moment; as a result, the country is looking to export a portion of its natural gas production. There are two options to export natural gas: liquefied Natural Gas (LNG) and export to neighbors through pipelines - second option is in favor of KMP. Natural gas exports to Mexico have been rising in the recent past. Mexico's demand for natural gas is increasing due to the shift from utility companies to natural gas, and expansion in electricity generation capacity of the country.

KMP has an advantage over its peers as the partnership already has pipelines supplying natural gas to Mexico. The partnership's already present infrastructure puts it in brilliant position to exploit this growth opportunity. At the moment, the KMP is expanding the capacity of its pipelines exporting gas into Mexico, which will help it increase revenues and cash flows substantially. Taking into account the future growth prospects of the partnership and its ability to increase its cash distributions on consistent basis has prompted the analysts at Deutsche Bank to raise the price target to $102 per unit from $98. At the moment, KMP's units are trading at $88.76 per unit, which suggests there is substantial upside potential along with the healthy income.

Conclusion

KMP is one of the best performing energy partnerships - it has been able to return substantial cash to its unit holders, and future growth prospects should take its unit price further up. Increased demand for natural gas, stabilizing oil prices and increased production levels will drive revenues for the partnership. Unit holders of KMP as well as shareholders of Kinder Morgan Management (NYSE:KMR) and Kinder Morgan Inc (NYSE:KMI) will benefit heavily from the strong performance in the short-term as well as long-term. KMP's vast infrastructure gives it access to some of the biggest shale plays in the country, and makes it a preferred choice for drillers to transport their products.

Source: Kinder Morgan Energy Partners Is Set To Have Another Successful Quarter