Kinder Morgan Energy Partners Earnings Call Insights: Ramp in Crude Oil, FEP Performance

On Wednesday, Kinder Morgan Energy Partners LP (NYSE:KMP) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Ramp in Crude Oil

Darren Horowitz – Raymond James: Two quick questions for me. The first is on the ramp in crude oil and condensate volumes that were detailed in your prepared commentary. How do you think about leveraging that $200 million investment in that condensate processing facility because you’ve got ample storage capacity at Galena Park and obviously it looks like volumes in crude and condensate from the Eagle Ford are going to be moving through a lot of those new pipes that you’ve detailed. So, is this the type of project where you could become more vertically integrated to the extent that capacity even exceeds that 100,000 barrel a day upsize that you’ve outlined?

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Richard D. Kinder – Chairman and CEO: Well, that’s possible, but I think the most likely thing is we do that this whole collection of assets and already as you can see as we detailed in this our Terminals Group has a contract also with BP to provide pretty significant storage, which BP is using as part of the operation of the condensate processor. So, I think that’s one way obviously. We believe we will upsize that condensate processing unit and we’re looking for other ways to maximize the utilization. Of course, as we pointed out last quarter, another very strange hook-up to this whole thing is the reversal of Cochin which is actually in the end we believe going to be used to move really what processed out of the condensate coming out of the Eagle Ford and moved all the way back up into Alberta. So, there is a lot of things here we’re continuing to explore and I think we have a tremendous position, a great footprint here and we’re going to use it to every extent we can.

Darren Horowitz – Raymond James: I appreciate the color. And last question, just, I know you’re in the process of ramping this up, but any sort of preliminary thoughts on how prolific you think that same St. John’s CO2 source filed could prove to be and the expected timing of when that source field could come online?

Richard D. Kinder – Chairman and CEO: I’ll ask Tim Bradley, the head of our CO2 segment to talk about that.

R. Tim Bradley – President, CO2: Our base case development plan at present is to develop a source that’s on the order of 400 million or so cubic feet a day of CO2 supply and the timing, and the critical path isn’t going to be the field development activities of drilling of the wells and such and the construction of facilities. The timing that’s on a critical path is the construction of a pipeline from the state line Arizona and New Mexico over to the Permian basis. We anticipate that that could be a three year process, but it’s still early in the game and that timing will likely shift somewhat. Hopefully that addresses your question.

Darren Horowitz – Raymond James: The associated cost on that Tim?

R. Tim Bradley – President, CO2: Order of magnitude of this investment of the pipeline and the field development could be on the order of $1 billion, but it’s still early in the game to sharpen that pencil too much better than that.

FEP Performance

Brian Zarahn – Barclays Capital: Rich, can you provide a little more color on FEP’s performance in the quarter, what’s driving the volume ramp and what you expect going forward?

Richard D. Kinder – Chairman and CEO: Tom, you want to just do that?

Tom Martin – President, Natural Gas Pipelines: FEP?

Richard D. Kinder – Chairman and CEO: Yeah.

Tom Martin – President, Natural Gas Pipelines: Basically its contractual ramp-up of the commitments that we have on the pipeline up to near capacity on the pipe, I think it were about 1.85.

Richard D. Kinder – Chairman and CEO: Capacity of about 2 Bcf and now it’s fully ramped up to 1.85. We still have 150 million a day on that that is not being utilized, not being sold.

Brian Zarahn – Barclays Capital: Then on the TGP and EPNG, are they – just have the assets recently but are they performing in line with the guidance you’ve provided and anything you can – any color you can provide on performance and contribution you think you expect for 2013?

Richard D. Kinder – Chairman and CEO: Yeah I think, well we can’t get into specifics on 2013 yet. We’re starting our budget process. We are getting next Monday, everybody around here is waiting for that (indiscernible). But I can give you some color on how things are going. Clearly on TGP obviously the ability to access production from the Marcellus and the Utica is a tremendous plus. We’re seeing all kinds of opportunities for expansions, some of which we’ve detailed in the earnings release and some of which are not quite to that stage yet to be released. But we’re seeing very good demand on the eastern part or downstream part of that system, so we’re pleased with it and it is performing a bit better than we expected. On EPNG the drop there is actually now 50%, at the KMP it’s still 50% and KMI will drop another 50% I’m sure sometime next year. On that, again we have made no secret of the fact that fact that the great upside there is not to California demand but the ability to drop off volumes along the way particularly into Mexico and we talked about the Sasabe project which is $200 million plus project which would hook into additional volumes that would be picked up on the brand new pipeline being built by other parties down in Mexico. We would hook up at the border near Sasabe, Arizona. So just a lot of potential to drop more volumes off and when you do that we believe we will end up with more than one lateral going down there and when that happens, you have two things. You earn on the money you have spent on those laterals plus you are refilling some of the capacity that is now not being utilized to ship gas to California The other thing is that we continue to look at the potential to use portions of that system to convert it to other uses perhaps moving crude oil less from the Permian Basin. That’s very speculative at this point but there are a lot of opportunities that could be very exciting there. So we are very pleased with the way both of these are performing so far and look forward to a lot of upside opportunities in 2013 and beyond.

A Closer Look: Kinder Morgan Earnings Cheat Sheet>>