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Kinder Morgan Energy Partners (NYSE:KMP) is one of the largest energy partnerships trading in the market. It has been performing remarkably well over the past three years. However, the stock price has stagnated in the past twelve months. In fact, we have seen a decline of about 3.49% during the last year. However, like other partnerships, cash distribution is the most attractive factor when it comes to picking KMP, and growth in distributions has been strong for the partnership. The other partnerships have also had mixed year - Enterprise Products Partners (NYSE:EPD) gained over 27% while Enbridge Energy Partners (NYSE:EEP) lost about 3.5%.

KMP Chart

KMP data by YCharts

Analysis of distributable Cash Flow

Distributable cash flow is probably the most important figure when it comes to measure the performance of any partnership. For a partnership to maintain healthy growth in cash distributions; it is vital to have strong growth in distributable cash flows. KMP has shown impressive growth in its distributable cash flow over the past four years - the partnership has grown its distributable cash flow at an average rate of 6% over the past four years. The DCF performance form the last three years is as follows:

2013

2012

2011

2010

Kinder Morgan Energy Partners

$5.39

$5.07

$4.61

$4.40

Enterprise Products Partners

-

$4.1

$3.8

$2.3

Source: SEC Filings

The table above shows a comparison of distributable cash flows over the past four years. Enterprise Products Partners have not announced full year results; as a result, the column for 2013 has been left empty. KMP and Enterprise Products Partners have shown impressive growth in distributable cash flow over the last four years. The increase of 5% observed between years 2010-11 is mainly due to the increase in the CO2 and Terminals business line. KMP realized a $10 million unrealized gain on derivative contracts used to hedge forecasted crude oil sales in the CO2 segment. The acquisition of TGS Development (TGSD) has increased the terminals business revenues. These two segments have increased the net revenue which increased the distributable cash flow.

During 2011-12, the CO2 and pipeline segment performed well and contributed heavily towards the 10% in distributable cash flows. Over the last twelve months, DCF grew by 6% due to major acquisitions of El Paso Pipeline and Copano Energy transaction. These transactions contributed a segmented growth of 70% in the Natural Gas segment. KMP has performed better than Enterprise Energy Partners consecutively for the past 3 years due to increased natural gas pipelines and CO2 business revenues.

Revenue Growth

KMP has shown solid revenue growth over the past three years and this growth has been converted in to cash flows, resulting in continued growth in cash distributions. The table below shows the net revenue and 2012-13 growth rates of the competitors. I have also added Enbridge Energy Partners to the table in order to increase the scope of the analysis. It should give a better picture of the sector.

Average Growth

2013

2012

2011

Kinder Morgan Energy Partners

7.8%

1565

1339

1268

Enterprise Products partners

8.3%

2558

2420

2047

Enbridge Inc.

9.5%

1054

610

820

Source: SEC Filings

KMP has shown steady growth in revenues over the past three years. On average, the revenue growth for KMP has been around 7.8%. However, the future growth is expected to be even stronger due to the integration of El Paso pipeline business and Copano Energy Transaction along with the assets drop down by Kinder Morgan Inc (NYSE:KMI), the general partners of the partnership. KMP competitors have recorded marginally better revenue growth over the past three year; however, the growth in cash distributions for both of these partnerships has been much lower than KMP. Enbridge grew its cash distributions by less than 1% over the past twelve months while Enterprise Products Partners have grown distributions by about 4% during the same period. The growth in Enbridge's revenue is due to the increased transportation rates and new projects entered service in earlier this year, especially Bakken Berthold Rail and pipeline expansion projects.

Positives and Possible Negatives

The acquisitions are now integrating and these acquisitions will likely play a vital role in the future revenue growth. The annual turnover of the natural gas division is $2.34 billion. The rising natural gas demand in the U.S is one of the reasons of profitability of this segment.

However, increased demand for natural gas in the country seems to be temporary according to U.S Energy Information Agency ((NYSEMKT:EIA)), which forecasted the consumption rate to be at mere 1% till year 2040. Based on this low consumption estimates, KMP will need to perform safety measures to retain its growth rates in year 2014 by considering infrastructure development in Shale Gas Plays to attain maximum product yield and exporting natural gas to Mexico. The natural gas imports of Mexico from U.S have increased 92% since 2008.

CO2 is used for enhanced oil recovery from mature oil wells. The CO2 business segment of KMP is facing a capacity constraint in Texas derived from the strong demand in the oil fields. The company will have to tackle the capacity issue in order to further grow this segment.

Conclusion

Kinder Morgan has increased its quarterly distribution for the 50th time since 1997. The partnership has a strong history of growing its cash distributions on consistent basis. The partnership is planning to growth cash distributions by about 6% over the next year. The continued growth in cash distributions makes KMP one of the best picks in the industry. The capital projects and acquisitions should allow the company to continue its impressive growth in revenues and cash flows. As a result, I believe the partnership will continue to increase its cash distributions. As I mentioned above, the increased demand for oil and gas will ensure that the demand for KMP's services remains high over the next few years.

Source: Kinder Morgan Energy Partners Continues To Grow Cash