Home » Kinder Morgan Energy Partners (KMP) CEO Rich Kinder on Q3 2014 Results – Earnings Call Transcript

Kinder Morgan Energy Partners (KMP) CEO Rich Kinder on Q3 2014 Results – Earnings Call Transcript

Lastly Kinder Morgan Canada and the big story here continues to be the Trans Mountain Expansion. Just a remainder here, this is fully under contract. We’ve got NEB approval of the commercial and economic terms of those contracts. Our development costs are almost entirely covered on this project and we do have good cost protection on the most difficult parts of the built.

Last quarter when we had this call we had just received word of a six month, three-week delay in the deadline for an NEB decision. So they moved it from July of 2015 to January of 2016, but at that time we had not yet assessed the full impact of that to the schedule. Other than to note that we would be moving from late 2017 to a 2018 in service date, we’ve spent the intervening time assessing the routs, alternatives in Burnaby. We’ve looked at our construction schedules very closely and can tell you that we expect now a Q3 and frankly a late Q3 of 2018 in the service for Trans Mountain now.

The main thing that’s going on there is a separate proceeding for the NEB to assess the alternative routes between Burnaby Mountain and the dock, where our terminal facility is down to the dock. We are in the middle of that process and in the middle of a dispute with Burnaby over how to assess that. We had to examine our construction schedule closely, looking at things like the effect on clearing schedules as fish and wildlife considerations etc., and that pushed us to a Q3, 2018 in service.

Not withstanding the local disputes, we continue to make good progress to the application process and we still expect to get our permit on this project and build this expansion. So that’s the run down on the business units and the major projects.

And with that, I’ll turn it over to Kim for a more detailed look at the numbers.

Kim Dang – Chief Financial Officer, Vice President of Kinder Morgan G.P., Inc.

Thanks Steve. So starting with KMP and the GAAP income statement, you could see there today the KMP Board declared a distribution per unit of $1.40; that’s a $0.05 increase or 4% from the three months in 2013. As a result, we will declare distribution over nine months of $4.17 or an increase of 5%.

Now you can see on income from continuing operations that we’re up 40%. If you want to look at it on a per share number, we are up 78%. We don’t think that these are the right numbers to focus on, because we don’t think it gives you an accurate picture of what’s going on at KMP.

So if you turn to the second page and numbers, you can see that we – DCF per unit for the quarter is $1.31. That compares to the declared distribution of $1.40. So we have about 0.9, 4 times coverage about $42 million short of coverage.

As we told you last quarter and we told you on almost every quarter, that we expect negative coverage in the second and the third quarter, positive coverage in the first and the fourth and for the year to have positive coverage.

Now, in terms of net income per unit, when you strip out the certain items, we are at $0.57. I’ve seen a couple of notes out there that we’ve missed the consensus earnings. Let me point out that even though we don’t think earnings is the right thing, earnings per unit is the right thing to focus on. We do give you a budget every year of earnings per unit. We also provide a distribution of how that number breaks out across the year.

So if you take our number of $2.57 and multiply by the percentage, you would get $0.57 per unit. So we are right on top of our budget at KMP and if you look at the other two companies, those which I still know that we missed the consensus, EPB is $0.001 short of that calculation as for our publish numbers, budget publish budget numbers and KMI is $0.001 above. So I can’t really comment on where the consensus earnings are coming from, but they are obviously not consistent with the budget that we put out, which we have been very consistent in achieving over time.

DCF in total for KMP is $607 million, up $53 million or 10% in the quarter, so nice growth in total DCF in the quarter for the nine months $1.861 billion, up $252 million or 16%. And so let me reconcile for you the $53 million that were up for the quarter and the $252 million that were up for the nine months.

If you look at segment earnings before DD&A, we are up $141 million or 10%. About 72% of that is coming from two segments, Natural Gas and Terminals. But we also had nice increases coming out of CO2 and products. Our Natural Gas is up about $53 million and Terminals was up about $48 million. Steve took you through all the reasons for that, so I won’t reiterate that, but nice growth coming out of the segments.

Then you focus on the expense side of the equation. G&A is actually – there was an expense of $129 million on the quarter that’s a reduction. So G&A expense is lower than it was in the third quarter of ’13 by about $8 million and that’s the result of higher capitalized overhead as a result of our capital expansion program.

Interest was an expense of $238 million in the quarter. That’s about an increase of $17 million over the third quarter of 2013 and that is the result of higher average balances as a result of acquisitions and expansion capital, slightly offset so by some lower rate.

Then sustaining CapEx was increased $29 million in the third quarter of this year versus the third quarter 2013. That’s within about 2% of our budget and it’s actually about $3 million higher than our budget, but as I’ll tell you in a minute, year-to-date we are slightly behind our budget, so it’s largely timing.

So if you take the segment’s up 141, G&A is a positive $8 million, interest expense negative $17 million, sustaining CapEx $29 million, the GP incentive is up $37 million as a result of higher distributions per unit and more units outstanding and then we have some other items that are a negative $13 million and that’s largely just in our calculation at DCF we make some adjustments for things that are not cash that are in earnings and so $13 million there that gets you to the $53 million.

If you look at the nine months, the $252 million, our segments are up $575 million or 14%. 83% of that growth again is coming out of Natural Gas and Terminals, with gas being up $355 million, Terminals being up $125 million, but we also saw nice growth coming out of CO2 and products.

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