Kinder Morgan Inc. (KMI) and its master limited partnerships added to their backlog of capital projects in 4Q2013 and also made in-roads along several fronts -- especially in the Marcellus, Utica and Eagle Ford shales -- while the natural gas segment drew impressive earnings for the quarter.

According to KMI, the natural gas pipeline segment of Kinder Morgan Energy Partners (KMP) produced earnings before depreciation, depletion and amortization (DD&A) of $665 million during the quarter, a 40% increase from the $474 earned in 4Q2012. For the full-year 2013, the segment had earnings before DD&A and certain items of $2.37 billion, a 70% over the $1.37 billion made in 2012.

During a conference call Wednesday to discuss 4Q2013, COO Steven Kean said the increase was largely attributed to dropdowns from KMI associated with the acquisitions of El Paso Pipeline Partners LP (EPB) and, particularly, Copano Energy LLC (see Daily GPI, Jan. 31, 2013; May 25, 2012).

"Those acquisitions more than offset the decline year-over-year associated with having divested certain assets in the Rockies associated with our El Paso acquisition," Kean said. "This segment also successfully integrated the Copano assets, and we exceeded the economics in our acquisition model for the year.

"We continue to be very bullish on the opportunities presented by our natural gas pipelines, storage and processing network. We continue to add projects and overall continue to identify and capture opportunities and expansions that are driven by...exports to Mexico, LNG, and even Canada...the demand from electric generation and industrial and [petrochemical] uses, and the need to transport gas out of the shale plays, primarily [the] Eagle Ford and Marcellus."

Kean said that even though $900 million worth of capital projects had come online during the fourth quarter -- including the Northeast Upgrade and Marcellus Pooling Point projects (see Shale Daily, Nov. 1, 2013) -- the project backlog for KMP and EPB, combined, had increased from $14.4 billion to $14.8 billion.

"It's made up of those projects that we are highly confident will get done," Kean said of the backlog. "Not guaranteed, but highly confident, high probability. We would expect to actually do more projects and invest more capital than what we have in the backlog, but until we consider [a] project highly probable, we don't add it in."

Not included in the backlog, according to Kean, is the proposed $2 billion y-grade natural gas liquid (NGL) processing and transportation combo project, a joint venture (JV) between KMP and MarkWest Utica EMG LLC announced last summer (see Shale Daily, Aug. 9, 2013).

"We believe that project is very attractive as a solution for producers in the Utica and Marcellus," Kean said. "We're actively marketing it, but we won't put it in the backlog until we see strong indications of commitments coming through."

Despite the increased backlog overall, Kean said the portion attributed to the company's natural gas group actually declined during 4Q2013, from $2.9 billion to $2.7 billion. "We had over $500 million worth of expansions come online in the gas group during the quarter, and that was partially offset by additional expansions, primarily to EPB associated with our liquefaction JV with Shell at Elba Island and the associated pipeline expansions," he said (see Daily GPI, Jan. 29, 2013).

Kean said the backlog at the company's terminals and products groups also increased slightly -- to $2.3 billion and $1.1 billion, respectively -- during the quarter, the latter attributed largely to projects that would expand crude and condensate networks in the Eagle Ford Shale.

Kinder Morgan's proposed $5.4 billion Trans Mountain Pipeline, which would carry 890,000 b/d from Edmonton to Vancouver, remains the company's biggest project in Canada (see Daily GPI, June 7, 2013). "We did cross a key milestone in the quarter," Kean said. "We got our voluminous facilities application on file with [Canada's] National Energy Board, which starts that process under a defined time frame by the federal authorities and as we seek approval for that project."

During the Q&A session, CEO Richard Kinder said KMP was continuing to extend its Kinder Morgan Crude and Condensate pipeline system (KMCC) deeper into the Eagle Ford and would be able to connect it to the Double Eagle Pipeline in Karnes County, TX, thanks in part to the Copano acquisition (see Shale Daily, Dec. 20, 2013; June 5, 2013).

"We can now provide a producer with optionality," Kinder said. "He can connect and either go all the way to the Houston Ship Channel on KMCC, or if he's in the right place, go down Double Eagle to Corpus [Christi]. So that's our initial contribution to moving the condensate around.

"The export of refined products is increasingly in vogue. We're handling a fair percentage now...and we will continue to expand that by more connectivity, by more berths that we are building and by more storage capabilities...I think we're pretty much on top of it, given all the connectivity we have. And I think we'll be able to continue to benefit from what we see as a significant trend."

Bifurcating TGP

Also during the Q&A, Kean revealed that KMP was "talking to the market right now about another potential expansion" of the Tennessee Gas Pipeline Co. LLC (TGP) system. Last month, KMP completed a binding open season for incremental, north-to-south gas transportation capacity totaling 500,000 Dth/d (see Shale Daily, Dec. 20, 2013).

"I'm sure other [pipelines are discussing expansions] as well," Kean said. "It may have as much to do with how much [infrastructure] gets expanded into New England, so how much of the gas ends up going that direction or into the Northeast, generally.

"It was a very strong open season and it has prompted us to start very quickly on the next round...We have to see if the customers are there for a higher price point. And they may not be immediately. It may take some time and some build up and some ramp-up in production in the Utica for people to really get a sense of what they have. But we expect there's more to come."

Kinder concurred. "The production of Marcellus and Utica is so huge that while there is need for more connectivity into the Northeast -- particularly New England -- the amount of production there some respects, swamped the demand that can be sucked up by the Northeast. And so lines like Tennessee are obviously going to become, in some respects, bifurcated lines; they're going to move a huge chunk of gas downstream from the producing areas of Marcellus and Utica into the north.

"And then, as we found in this open season, we're going to move a lot of gas south, to where we think the huge demand is going to be, down here along the Gulf Coast, with all the new downstream facilities being built. So I think it's a very good opportunity for us...We're working to see what the next level of demand is, and I think we'll capture some of it. Certainly, others will capture some, too."

KMI reported net income of $338 million (33 cents/share) for 4Q2013, up 53.6% from $220 million (21 cents/share) for 4Q2012. Full-year net income for KMI was $1.19 billion ($1.15/share) for 2013, compared to $315 million (35 cents/share) for 2012. Total revenue for the full-year 2013 at KMI was $14.07 billion, compared to $9.97 billion in 2012.

Meanwhile, net income attributable to KMP was $809 million in 4Q2013 (up 26.4% from $640 million in the preceding fourth quarter), and $3.28 billion for the full-year 2013 (up 137% from $1.38 billion for all of 2012). Excluding certain items, earnings were 77 cents/unit at KMP for 4Q2013, and $2.42/unit for the full-year 2013. By comparison, earnings were 75 cents/unit in 4Q2012 and $2.31/unit for all of 2012.