Distributions Flounder at El Paso Pipeline Partners

Earlier today, Kinder Morgan (NYSE: KMI  ) , Kinder Morgan Energy Partners (NYSE: KMP  ) , and El Paso Pipeline Partners (NYSE: EPB  ) released their respective financial projections for next year. In a year when the Alerian Index returned more than 15%, our trio posted a collectively miserable market performance. Now many investors are asking, what will Kinder Morgan do in 2014, and will it be enough to boost its shares?

Distribution targets
For the full year 2014, Kinder Morgan expects the distribution story to play out as so:

  • KMI-$1.72 per share, 8% growth year over year
  • KMP-$5.58 per unit, 5% growth YOY
  • EPB-$2.60 per unit, 2% growth YOY

For once, the story here seems to be El Paso Pipeline Partners. EPB is the oft-overlooked stepchild that Kinder Morgan picked up when it closed on its acquisition of El Paso Corp. in 2012. Unfortunately, the story is not that great for the near term.

Though Kinder Morgan plans to drop down the remaining 50% stake in its Ruby Pipeline, its 50% stake in Gulf LNG, and its 47.5% stake in Young Gas Storage next year, the added revenue will not be enough to offset lower contract renewals on El Paso's Wyoming Interstate system, and the effects of losing two rate cases. If you look way ahead to 2016, EPB's $1 billion project backlog could right the ship once more.

Project pipeline
Management has identified $14.4 billion in expansion and joint venture projects for the Kinder Morgan family, and it has given KMP its blessing to spend $3.6 billion of that next year. More than half of the funds will be allocated to the Terminals and Products Pipeline segments, totaling some $2.0 billion.

Of course, in its most recent investor presentation the partnership was quick to note that the $14.4 billion backlog does not include a handful of important growth areas including acquisitions that have not presented themselves yet, further expansion of its Mexican natural gas business, and development of its coal and natural resources business.

Bottom line
Investors have already begun to show signs of their disappointment by abandoning units of El Paso Pipeline Partners in droves. And while 5% distribution growth at KMP may not be enough to entice investors to buy, it isn't the greatest sell thesis either. It looks like we'll see the status quo at Kinder Morgan, and with so many other options available to MLP investors, unit prices may continue to languish next year. Only time will tell.

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