Kinder Morgan Energy Partners (KMP) is the largest independent owner and operator of petroleum product pipelines in the U.S. Its pipelines transport natural gas, refined petroleum products, crude oil, carbon dioxide (CO2) and other products, while its terminals store petroleum products and chemicals and handle bulk materials such as coal and petroleum coke.
Kinder owns or operates more than 28,000 miles of pipeline and approximately 180 terminals. The terminals store petroleum products and chemicals, besides handling bulk materials such as coal and petroleum coke. The partnership is also the largest carbon dioxide marketer and transporter in the country.
Kinder divides its operations in five business segments -
- Natural Gas Pipelines (26% of 2012 EBITDA)
- CO2 Pipelines (30%)
- Products Pipelines (19%)
- Terminals (19%)
- Kinder Morgan Canada (6%)
Key figures ($ in millions)
Market and Multiples
Share price (May 20th)
EV to EBITDA
EV to EBITDA (2013)
Shares sold short / Days to cover
3.74 / 4.2
Return on equity
Distributable cash flow per unit yield
· May 16th - Tennessee Gas, Mitsubishi Corporation sign agreement for transportation to proposed Cameron LNG facility
· May 13th - Land purchase announced along with plans to construct dock and expand terminal capacity on Houston ship channel
· May 1st - KMP completed acquisition of Copano Energy (see outlook note below)
· Recent earnings announcement had mixed operational results; EBITDA came in below expectations, but distributable cash flow per unit was $1.64 which provides 1.13x coverage of the quarterly distribution of $1.30
· Acquisitions: Kinder Morgan's recent acquisition of Copano Energy will require substantial proof of cost savings in order to be accretive. Growth by acquisition is a great way for midstream MLPs to grow, but acquisitions have to be analyzed and executed properly. This move does not seem to be well executed thus far, but hopefully it proves to be a good use of funds.
· LNG: With the planned expansion of Houston ship terminal and the impending push to export LNGs, I like Kinder Morgan's position to capitalize on this opportunity. The shale boom in the U.S. seemed to have hurt companies due to low prices, but we should see an uptick in prices as the LNG exporting picture becomes clearer.
· Midstream: Natural gas and oil production in the U.S. is going to be increasing every year with the support of major plays like the Eagle Ford, Bakken, and up and coming plays like the Marcellus and Utica shales. Kinder Morgan's midstream segment will be able to leverage their assets and be a key part of this domestic production growth.
· CO2: CO2-EOR projects project to be a critical element to the "depleted" older oil fields of the U.S. (see Denbury Resources (DNR)). Kinder has a great presence in the Permian and we expect the company to keep a strong hold on this while growing into other regions of the US as these projects become more common in the next five years.
The partnership's cash distribution per unit was upped to $1.30 quarterly, which is 8% year over year growth. Kinder Morgan has increased the quarterly distribution forty-seven times since the current management team took over in February of 1997.
2013, according to the company, is expected to be another big year of capital spending ($3.0b in expansions and $1.5 in additional dropdowns). We don't foresee the company making any unexpected moves in the coming months, but their dividend yield of 6%, with good organic growth rates and a solid return on equity makes Kinder Morgan a solid play. Be sure to compare distributable cash flow per unit (DCFPU) amongst their peers (Plains All American (PAA), Tesoro (TSO), Genesis (GEL), Enbridge (ENB), etc.) to see if the company is trading at a premium or discount before entering this stock.