Thanks to strong growth in all five of its business segments, Kinder Morgan Energy Partners (KMP) reported 4Q2010 net income of $413 million, a 29% jump over the $320 million recorded for 4Q2009.

CEO Richard D. Kinder noted that all five business segments -- Products Pipelines, Natural Gas Pipelines, CO2, Terminals and Kinder Morgan Canada -- "produced stronger results in the fourth quarter and for the full year of 2010 than in the comparable periods of 2009."

During a conference call with financial analysts to discuss fourth quarter earnings, Kinder outlined just how successful the quarter and 2010 were. "We increased the distribution per unit for the fourth quarter to $1.13, which is 8% above the distribution for the fourth quarter of 2009," he said. "It works out to $4.40 for full-year 2010, versus $4.20 for 2009...an increase of about 5%."

KMP attributed much of its growth in its Natural Gas Pipelines segment to its successful KinderHawk joint venture in the Haynesville Shale, as well as strong results from its pipeline portfolio.

The natural gas pipelines business produced fourth quarter segment earnings before depletion, depreciation and amortization (DD&A) and certain items of $242.6 million, up 7% from $226 million for the comparable period of 2009. For the year, segment earnings before DD&A and certain items were $835.9 million, a 6% increase over $787.5 million for 2009 and above its annual forecast of 5% growth.

Last April Petrohawk Energy Corp. agreed to create KinderHawk by selling a half interest in its Haynesville Shale gathering and processing business in northwest Louisiana to KMP for $875 million in a transaction that created one of the largest Haynesville gathering and midstream businesses (see Shale Daily, Oct. 25, 2010).

"Growth in the fourth quarter was driven by contributions from the KinderHawk joint venture in the Haynesville Shale that was formed early in 2010, and good results from the Rockies Express, Midcontinent Express and Texas Intrastate pipelines, and the Casper-Douglas processing assets," Kinder said. "A significant highlight in the fourth quarter was the completion of the Fayetteville Express Pipeline, which began firm contract service to shippers on Jan. 1, 2011. With the completion of this pipeline and the formation of Eagle Ford Gathering (our joint venture with Copano in the Eagle Ford Shale) and KinderHawk Field Services (our joint venture in the Haynesville Shale), we have taken significant steps to position this segment for future growth."

KMP's plans going forward are also heavily shale-weighted. Earlier this month, the company and Copano Energy LLC announced plan to expand their Eagle Ford Gathering LLC joint venture (JV) (see Shale Daily, Jan. 10). Interest in the JV has grown along with enthusiasm for the liquids-rich Eagle Ford Shale. The partners plan to provide more than 200,000 MMBtu/d of incremental gathering and processing capacity to Eagle Ford Shale producers with additional pipeline facilities and a long-term agreement with Formosa Hydrocarbons Co. for additional processing and fractionation services.

For the year, KMP said the gas pipelines segment's growth was attributable to a full year of contributions from Kinder Morgan treating and the Midcontinent Express and Kinder Morgan Louisiana pipelines, the benefit of the KinderHawk joint venture and good results at Casper Douglas. However, 2010 earnings were negatively affected by lower results at Texas intrastate pipelines (reduced sales margins and lower storage spreads due to unfavorable market conditions), Kinder Morgan Interstate Gas Transmission (lower margins on transportation, operational gas sales and fuel recoveries) and Rockies Express (a force majeure in the first quarter and a higher than expected property tax assessment in Ohio).

Looking at the Natural Gas Pipelines business as a whole, overall segment transport volumes were up 9% in the fourth quarter and 13% for the year compared to the same periods in 2009, due primarily to the Midcontinent Express and Kinder Morgan Louisiana pipelines being in service for the full year. At the Texas intrastates, sales volumes were up 2% in the fourth quarter and 0.4% for the year compared to the same periods in 2009, while transport volumes on the intrastates were up for the quarter but down for the year.

KMP reiterated it expects to declare cash distributions of $4.60/unit for 2011, a 4.5% increase over the $4.40/unit for 2010. "Our stable and diversified assets continue to grow and increase cash flow, even during weak economic times," Kinder said. "In 2011, we anticipate that our business segments will generate over $3.6 billion in segment earnings before DD&A, an increase of approximately $325 million over 2010."

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