The Good and The Bad from Kinder Morgan Energy Partner’s Earnings

Kinder Morgan Energy Partners (NYSE: KMP  ) reported fourth quarter and full-year earnings on Wednesday. As the partnership continues to grow, so too does the information that management packs into every press release. Today we're taking a closer look at what drove earnings in each segment, and what is expected to drive growth going forward.

We'll begin our evaluation of Kinder Morgan's year looking solely at the numbers. The partnership pursued growth in 2013 with its acquisition of Copano Energy, as well as dropdowns to KMP leftover from 2012's acquisition of El Paso. That growth is evident in the natural gas pipelines segment, and you can see that quite clearly from the chart below:

Source: Company release. Dollar figures in billions .

Right off the bat, the only segment in decline on an annual basis is Kinder Morgan Canada, and that is by and large because of the sale of the Express-Platte system, completed in March . Going forward, the future of this segment rides on the successful approval and execution of the TransMountain expansion. The target date for that start-up is 2017. Kinder Morgan officially submitted its application for the project to Canada's National Energy Board in December. The partnership now awaits a 15-month review process before approval can be granted.

The natural gas pipeline segment is clearly the driving force behind the partnership's success, and again, this growth was due to acquisitions. One thing to note is that transport volumes were actually down on an annual basis, both for the fourth quarter and the full year. One of the major contributors to this was record volume attributed to power generation in 2012. Natural gas used in power generation fell from their 2012 high across the country in 2013 .

Growth in the other segments looks pretty anemic on a year over year basis when compared to the natural gas segment. Let's begin with the CO2 segment. First, the segment did meet management's guidance for 5% growth on the year. Second, in the fourth quarter the segment was up 16% over 2012's number, largely because natural gas liquids prices are starting to recover. Looking ahead, Kinder Morgan has two major projects ongoing to drive growth here. The first is an expansion at the McElmo Dome to boost CO2 production, and the second is an expansion to its Wink crude oil pipeline system.

The products pipeline segment was budgeted to reach 13% growth in 2013, but only managed 12%. The miss was largely due to a tax ruling in California. The primary growth drivers for the segment were higher volumes on the Cochin system, higher transmix volumes and margins, and a full year's contribution from the Kinder Morgan Crude and Condensate pipeline. Looking ahead, there is a lot of activity in this segment. Key drivers for future earnings will have a lot to do with natural gas liquids, as the partnership pursues an NGL fractionator project with Targa Resources Partners, an NGL pipeline project with NOVA Chemicals, and several expansions of the KMCC pipeline system.

The Terminals segment fell far short of its budgeted goal of 12% growth, coming in at 6% growth on an annual basis. The problems here came at the hands of lower bulk tonnage. The good news in this segment comes from higher rates and volumes at Kinder Morgan's liquids terminals, as well as a slight increase in coal export tonnage. Looking ahead, growth in this segment will be driven by expansion on the Houston Ship Channel, as well as the partnership's hub in Edmonton, Alberta.

Bottom line
CEO Rich Kinder feels like his stock is undervalued and has pledged to be better at communicating the story to investors . The first real test for this will be the information that comes out of Kinder Morgan's analyst day is at the end of January. After the event, investors will be able to read through the partnership's detailed presentations and decide for themselves what opportunity exists at Kinder Morgan in 2014, and beyond.

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