Kinder Morgan Energy Partners (NYSE:KMP), one of North America’s largest midstream energy companies, is scheduled to release its Q4 2013 earnings on January 15. The company has been doing reasonably well over the last few quarters, bolstered by recent acquisitions in its natural gas pipelines division, higher oil production as well as growth in its products pipelines and terminals businesses. In this note, we take a look at some of the factors to watch and what to expect from the company’s largest business segments when it releases earnings Wednesday.
Trefis has a price estimate of around $92 for Kinder Morgan Partners, which is about 15% ahead of the market price.
Natural Gas Pipelines: Higher Gas Prices Could Impact Transport Volumes
Natural gas prices have seen an increase over the last year, rising from levels of under $3.50 per million metric British thermal units (MMBtu) during Q4 2012 to close to $4.50 per MMBtu currently. This has had an impact on natural gas consumption across the United States, particularly for electricity generation, since many power producers have been shifting back to coal from natural gas. According to the U.S. Energy Information Administration, total natural gas consumption in October (the most recent data available) fell from around 1,901 billion cubic feet in 2012 to around 1,859 billion cubic feet.  During the third quarter, KMP saw its overall natural gas transport volumes decline to around 1,412 billion cubic feet (Bcf) from around 1,498 Bcf in 2012. We expect that volumes could decline once again on a year-over-year basis in the fourth quarter.
Co2 :Watching Oil Production Volumes From SACROC and Yates Fields
KMP’s CO2 business produces oil and gas and also produces, transports and markets carbon dioxide for enhanced oil recovery (EOR) operations. While the CO2 supply business is expected to remain flat due to capacity constraints, we believe that the oil production business should do better given higher oil prices. Although KMP’s oil production growth has been commendable, with volumes growing by close to 7% year-over-year through the first nine months of 2013, there was some sluggishness during Q3 when production from the company’s two largest fields, the SACROC and Yates, declined slightly sequentially. We will be closely watching the company’s production from these fields in Q4.
Terminals Business: Liquids Terminals, BOSTCO Should Drive Results
The terminals business is one of Kinder Morgan’s most stable business segments, thanks to its largely diversified and fee-based business model. We expect the company’s liquids terminals to continue to perform well on the back of restructured contracts with higher rates as well as strong utilization levels. During the first nine months of the year, KMP’s liquids terminals recorded a utilization rate of close to 95%.  However, things could remain challenging on the bulk terminals front given that U.S. coal exports have been on the decline.
Additionally, the segment’s quarterly results could benefit from the commencement of operations on the first phase of the BOSTCO (Battleground Oil Specialty Terminal Company) terminal in which KMP holds a 55% stake. The project, which is located on the Houston Ship Channel is expected to see a lot of activity given the growth in oil production from shale plays.
Products Pipelines: Crude And Condensate Pipeline Volumes
KMP’s products pipelines business primarily transports refined petroleum products such as gasoline, diesel fuel, jet fuel and natural gas liquids from refineries to terminals, distribution centers and airports across the United States. While overall U.S. liquids fuels consumption has been relatively sluggish of late (consumption declined by about 2% in 2012 and is expected to have grown by just about 1.1% in 2013), KMP’s products pipelines recorded strong refined products transportation volumes growth in the third quarter, rising by close to 6.5% year-over-year driven by new capacity additions as well as a stronger performance on the Cochin and Pacific operations. For this quarter, we will be watching the performance of the company’s crude and condensate pipeline. The pipeline, which commenced operation in mid 2012 could prove a long term growth driver for the business segment since it originates from the liquids rich Eagle Ford Shale.Notes: