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A must-know overview of Kinder Morgan Energy Partners

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Nov. 20 2020, Updated 11:21 a.m. ET

Kinder Morgan Energy Partners

Kinder Morgan Energy Partners (KMP) is one of the largest master limited partnerships (or MLPs) operating in the U.S. midstream energy space.

 

Since it started trading in 1992, an investor would have received a ~13 times return from investing in KMP compared to a ~6 times return from the S&P 500.

A brief history

KMP is a limited partnership that formed in 1992. Its common units represent limited partner (or LP) units. To date, Kinder Morgan Inc. (KMI) owns the entire general partner (or GP) interest and 8% limited partner interest in KMP.

Overview of business segments

KMP owns an interest in or operates approximately 52,000 miles of pipelines and 180 terminals. KMP has five reportable business segments.

KMP is one of the largest independent transporters of petroleum products in the U.S., transporting about 1.9 million barrels of product per day.

KMP distributions

KMP’s distributable cash flow (or DCF) for 2Q14—its latest quarter—was $561 million. This was an 11% increase over the $505 million recorded in 2Q13. Year-to-date, it generated $1.25 billion in DCF. This is 19% higher than the first six months of 2013.

Recent M&A

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KMP was expected to exceed its target distributable cash flow per unit of ~$5.6 in 2014 as a result of the positive impact of a recent acquisition of marine tankers, TGP’s incremental north-to-south firm transportation contracts (which began service in April 2014), and additional long-term contracts on its EPNG pipeline system.

In January 2014, KMP acquired American Petroleum Tankers (APT) and State Class Tankers (SCT).

Huge capital investments to drive growth

KMP has invested a total of ~46.5 billion (including $5 billion projected for 2014) since 1998. More than 52% of this was targeted to acquisition and ~48% into “organic” growth.

The natural gas pipeline segment garnered the bulk of the capital (more than 50%) followed by the products segment (~9%).

Growing backlog

KMP currently has a backlog of $17 billion in capital expenditures, which consists of projects for which commercial contracts have been either secured or are at an advanced stage of negotiations.

The natural gas pipelines segment alone accounts for ~60% of the backlog. This is due to its strong presence in the Marcellus and Utica—the two most prolific gas-rich basins in the U.S. This is also due to LNG (liquefied natural gas) export opportunities, increasing use of natural gas by power generation facilities across the U.S. as an alternative to coal, as well as the use of gas in various petrochemical projects.

Fee-based natural gas pipelines and terminals account for ~88% of the backlog. This gives KMP’s cash flow solid stability from rates or volume fluctuations.

Major growth projects

Some of KMP’s peers operating in the midstream energy sector include Williams Partners L.P. (WPZ), Energy Transfer Equity (ETE), and Plains All American (PAA). These companies are components of the S&P Alerian MLP ETF (AMLP).

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