Delaware
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76-0380342
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Page
Number
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PART I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements (Unaudited)
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3
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Consolidated Statements of Income - Three and Nine Months Ended September 30, 2011 and 2010
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Consolidated Balance Sheets – September 30, 2011 and December 31, 2010
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Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2011 and 2010
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Notes to Consolidated Financial Statements
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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47
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General and Basis of Presentation
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Critical Accounting Policies and Estimates
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Results of Operations
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Financial Condition
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Recent Accounting Pronouncements
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Information Regarding Forward-Looking Statements
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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Item 4.
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Controls and Procedures
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PART II. OTHER INFORMATION
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Item 1.
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Legal Proceedings
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Item 1A.
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Risk Factors
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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Item 3.
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Defaults Upon Senior Securities
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Item 4.
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(Removed and Reserved)
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Item 5.
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Other Information
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Item 6.
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Exhibits
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Signature
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
Revenues
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||||||||||||||||
Natural gas sales
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$ | 938.9 | $ | 965.7 | $ | 2,594.9 | $ | 2,831.3 | ||||||||
Services
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780.1 | 758.7 | 2,317.6 | 2,248.9 | ||||||||||||
Product sales and other
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476.1 | 335.6 | 1,294.7 | 1,070.9 | ||||||||||||
Total Revenues
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2,195.1 | 2,060.0 | 6,207.2 | 6,151.1 | ||||||||||||
Operating Costs, Expenses and Other
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||||||||||||||||
Gas purchases and other costs of sales
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942.5 | 964.6 | 2,641.5 | 2,829.2 | ||||||||||||
Operations and maintenance
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411.8 | 328.3 | 1,199.9 | 1,098.7 | ||||||||||||
Depreciation, depletion and amortization
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253.4 | 224.1 | 704.6 | 674.6 | ||||||||||||
General and administrative
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100.5 | 93.6 | 387.1 | 288.1 | ||||||||||||
Taxes, other than income taxes
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38.9 | 41.9 | 140.8 | 128.1 | ||||||||||||
Other expense (income)
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(0.9 | ) | 0.2 | (14.9 | ) | (6.4 | ) | |||||||||
Total Operating Costs, Expenses and Other
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1,746.2 | 1,652.7 | 5,059.0 | 5,012.3 | ||||||||||||
Operating Income
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448.9 | 407.3 | 1,148.2 | 1,138.8 | ||||||||||||
Other Income (Expense)
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||||||||||||||||
Earnings from equity investments
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72.6 | 53.7 | 213.9 | 155.6 | ||||||||||||
Amortization of excess cost of equity investments
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(1.8 | ) | (1.4 | ) | (4.9 | ) | (4.3 | ) | ||||||||
Interest expense
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(133.4 | ) | (134.0 | ) | (395.6 | ) | (374.9 | ) | ||||||||
Interest income
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6.3 | 5.0 | 17.4 | 17.5 | ||||||||||||
Loss on remeasurement of previously held equity interest in KinderHawk (Note 2)
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(167.2 | ) | - | (167.2 | ) | - | ||||||||||
Other, net
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3.1 | 5.4 | 11.1 | 9.8 | ||||||||||||
Total Other Income (Expense)
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(220.4 | ) | (71.3 | ) | (325.3 | ) | (196.3 | ) | ||||||||
Income Before Income Taxes
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228.5 | 336.0 | 822.9 | 942.5 | ||||||||||||
Income Tax (Expense) Benefit
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(12.2 | ) | (13.6 | ) | (33.8 | ) | (27.6 | ) | ||||||||
Net Income
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216.3 | 322.4 | 789.1 | 914.9 | ||||||||||||
Net Income Attributable to Noncontrolling Interests
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(1.8 | ) | (1.6 | ) | (6.3 | ) | (7.6 | ) | ||||||||
Net Income Attributable to Kinder Morgan Energy Partners, L.P.
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$ | 214.5 | $ | 320.8 | $ | 782.8 | $ | 907.3 | ||||||||
Calculation of Limited Partners’ Interest in Net Income (Loss)
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||||||||||||||||
Attributable to Kinder Morgan Energy Partners, L.P.:
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||||||||||||||||
Net Income Attributable to Kinder Morgan Energy Partners, L.P.
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$ | 214.5 | $ | 320.8 | $ | 782.8 | $ | 907.3 | ||||||||
Less: General Partner’s Interest
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(298.2 | ) | (267.3 | ) | (871.0 | ) | (609.0 | ) | ||||||||
Limited Partners’ Interest in Net Income (Loss)
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$ | (83.7 | ) | $ | 53.5 | $ | (88.2 | ) | $ | 298.3 | ||||||
Limited Partners’ Net Income (Loss) per Unit
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$ | (0.25 | ) | $ | 0.17 | $ | (0.27 | ) | $ | 0.98 | ||||||
Weighted Average Number of Units Used in Computation of Limited Partners’ Net Income (Loss) per Unit
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331.1 | 310.7 | 323.3 | 304.7 | ||||||||||||
Per Unit Cash Distribution Declared
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$ | 1.16 | $ | 1.11 | $ | 3.45 | $ | 3.27 |
September 30,
2011
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December 31, 2010
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|||||||
(Unaudited)
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||||||||
ASSETS
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||||||||
Current assets
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||||||||
Cash and cash equivalents
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$ | 271.0 | $ | 129.1 | ||||
Restricted deposits
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0.7 | 50.0 | ||||||
Accounts, notes and interest receivable, net
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823.6 | 951.8 | ||||||
Inventories
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101.3 | 92.0 | ||||||
Gas in underground storage
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27.2 | 2.2 | ||||||
Fair value of derivative contracts
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135.2 | 24.0 | ||||||
Other current assets
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47.0 | 37.6 | ||||||
Total current assets
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1,406.0 | 1,286.7 | ||||||
Property, plant and equipment, net
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15,344.1 | 14,603.9 | ||||||
Investments
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3,272.5 | 3,886.0 | ||||||
Notes receivable
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164.0 | 115.0 | ||||||
Goodwill
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1,303.3 | 1,233.6 | ||||||
Other intangibles, net
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1,167.5 | 302.2 | ||||||
Fair value of derivative contracts
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703.4 | 260.7 | ||||||
Deferred charges and other assets
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217.5 | 173.0 | ||||||
Total Assets
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$ | 23,578.3 | $ | 21,861.1 | ||||
LIABILITIES AND PARTNERS’ CAPITAL
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||||||||
Current liabilities
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||||||||
Current portion of debt
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$ | 1,844.4 | $ | 1,262.4 | ||||
Cash book overdrafts
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40.9 | 32.5 | ||||||
Accounts payable
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624.4 | 630.9 | ||||||
Accrued interest
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96.9 | 239.6 | ||||||
Accrued taxes
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100.6 | 44.7 | ||||||
Deferred revenues
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91.9 | 96.6 | ||||||
Fair value of derivative contracts
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71.9 | 281.5 | ||||||
Accrued other current liabilities
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199.3 | 176.0 | ||||||
Total current liabilities
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3,070.3 | 2,764.2 | ||||||
Long-term liabilities and deferred credits
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||||||||
Long-term debt
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||||||||
Outstanding
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10,662.2 | 10,277.4 | ||||||
Value of interest rate swaps
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1,071.2 | 604.9 | ||||||
Total Long-term debt
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11,733.4 | 10,882.3 | ||||||
Deferred income taxes
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243.0 | 248.3 | ||||||
Fair value of derivative contracts
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21.4 | 172.2 | ||||||
Other long-term liabilities and deferred credits
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785.7 | 501.6 | ||||||
Total long-term liabilities and deferred credits
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12,783.5 | 11,804.4 | ||||||
Total Liabilities
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15,853.8 | 14,568.6 | ||||||
Commitments and contingencies (Notes 4 and 10)
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||||||||
Partners’ Capital
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||||||||
Common units
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4,354.7 | 4,282.2 | ||||||
Class B units
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44.9 | 63.1 | ||||||
i-units
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2,807.1 | 2,807.5 | ||||||
General partner
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257.7 | 244.3 | ||||||
Accumulated other comprehensive income (loss)
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172.6 | (186.4 | ) | |||||
Total Kinder Morgan Energy Partners, L.P. partners’ capital
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7,637.0 | 7,210.7 | ||||||
Noncontrolling interests
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87.5 | 81.8 | ||||||
Total Partners’ Capital
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7,724.5 | 7,292.5 | ||||||
Total Liabilities and Partners’ Capital
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$ | 23,578.3 | $ | 21,861.1 |
Nine Months Ended
September 30,
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||||||||
2011
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2010
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|||||||
Cash Flows From Operating Activities
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||||||||
Net Income
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$ | 789.1 | $ | 914.9 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
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||||||||
Depreciation, depletion and amortization
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704.6 | 674.6 | ||||||
Amortization of excess cost of equity investments
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4.9 | 4.3 | ||||||
Loss on remeasurement of previously held equity interest in KinderHawk (Note 2)
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167.2 | - | ||||||
Noncash compensation expense allocated from parent (Note 9)
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89.9 | 3.7 | ||||||
Earnings from equity investments
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(213.9 | ) | (155.6 | ) | ||||
Distributions from equity investments
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200.9 | 154.9 | ||||||
Proceeds from termination of interest rate swap agreements
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73.0 | - | ||||||
Changes in components of working capital:
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||||||||
Accounts receivable
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28.2 | 105.0 | ||||||
Inventories
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9.3 | (12.8 | ) | |||||
Other current assets
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(1.8 | ) | 12.9 | |||||
Accounts payable
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(9.3 | ) | (26.8 | ) | ||||
Accrued interest
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(142.8 | ) | (125.6 | ) | ||||
Accrued taxes
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47.4 | 32.7 | ||||||
Accrued liabilities
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(2.4 | ) | 2.8 | |||||
Rate reparations, refunds and other litigation reserve adjustments
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160.4 | (48.3 | ) | |||||
Other, net
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70.4 | (9.4 | ) | |||||
Net Cash Provided by Operating Activities
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1,975.1 | 1,527.3 | ||||||
Cash Flows From Investing Activities
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||||||||
Acquisitions of investments
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(901.0 | ) | (929.7 | ) | ||||
Acquisitions of assets
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(44.0 | ) | (243.1 | ) | ||||
Capital expenditures
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(837.7 | ) | (722.1 | ) | ||||
Sale or casualty of property, plant and equipment, and other net assets net of removal costs
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29.0 | 21.5 | ||||||
Net proceeds from margin and restricted deposits
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55.7 | 21.7 | ||||||
Contributions to equity investments
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(297.0 | ) | (209.8 | ) | ||||
Distributions from equity investments in excess of cumulative earnings
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165.3 | 153.2 | ||||||
Other, net
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3.0 | - | ||||||
Net Cash Used in Investing Activities
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(1,826.7 | ) | (1,908.3 | ) | ||||
Cash Flows From Financing Activities
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||||||||
Issuance of debt
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6,356.4 | 5,704.2 | ||||||
Payment of debt
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(5,538.1 | ) | (4,601.0 | ) | ||||
Repayments from related party
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29.3 | 1.3 | ||||||
Debt issue costs
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(17.6 | ) | (22.5 | ) | ||||
Increase (Decrease) in cash book overdrafts
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8.4 | (4.4 | ) | |||||
Proceeds from issuance of common units
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813.3 | 636.6 | ||||||
Contributions from noncontrolling interests
|
15.4 | 10.2 | ||||||
Distributions to partners and noncontrolling interests:
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||||||||
Common units
|
(762.1 | ) | (674.2 | ) | ||||
Class B units
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(18.2 | ) | (17.1 | ) | ||||
General Partner
|
(858.5 | ) | (591.4 | ) | ||||
Noncontrolling interests
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(20.5 | ) | (16.7 | ) | ||||
Other, net
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0.5 | - | ||||||
Net Cash Provided by Financing Activities
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8.3 | 425.0 | ||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents
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(14.8 | ) | 1.0 | |||||
Net increase in Cash and Cash Equivalents
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141.9 | 45.0 | ||||||
Cash and Cash Equivalents, beginning of period
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129.1 | 146.6 | ||||||
Cash and Cash Equivalents, end of period
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$ | 271.0 | $ | 191.6 |
Nine Months Ended
September 30,
|
||||||||
2011
|
2010
|
|||||||
Noncash Investing and Financing Activities
|
||||||||
Assets acquired by the assumption or incurrence of liabilities
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$ | 179.5 | $ | 12.5 | ||||
Assets acquired by the issuance of common units
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$ | 23.7 | $ | 81.7 | ||||
Contribution of net assets to investments
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$ | 7.9 | $ | - | ||||
Sale of investment ownership interest in exchange for note
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$ | 4.1 | $ | - | ||||
Supplemental Disclosures of Cash Flow Information
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||||||||
Cash paid during the period for interest (net of capitalized interest)
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$ | 510.2 | $ | 456.6 | ||||
Cash paid during the period for income taxes
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$ | 9.4 | $ | (2.8 | ) |
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▪
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$35.5 million to current assets, primarily consisting of trade receivables and materials and supplies inventory;
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▪
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$641.6 million to property, plant and equipment;
|
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▪
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$93.4 million to our 25% investment in EagleHawk;
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▪
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$883.2 million to a long-term intangible customer contract, representing the contract value of natural gas gathering services to be performed for Petrohawk over an approximate 20-year period; less
|
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▪
|
$92.8 million assigned to assumed liabilities, not including $77.0 million for the 50% of KinderHawk’s borrowings under its bank credit facility that we were previously responsible for.
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Products
Pipelines
|
Natural Gas
Pipelines
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CO
2
|
Terminals
|
Kinder Morgan
Canada
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Total
|
|||||||||||||||||||
Historical Goodwill.
|
$ | 263.2 | $ | 337.0 | $ | 46.1 | $ | 337.9 | $ | 626.5 | $ | 1,610.7 | ||||||||||||
Accumulated impairment losses(a).
|
- | - | - | - | (377.1 | ) | (377.1 | ) | ||||||||||||||||
Balance as of December 31, 2010
|
263.2 | 337.0 | 46.1 | 337.9 | 249.4 | 1,233.6 | ||||||||||||||||||
Acquisitions(b).
|
- | 94.2 | - | - | - | 94.2 | ||||||||||||||||||
Disposals(c).
|
- | - | - | (11.8 | ) | - | (11.8 | ) | ||||||||||||||||
Impairments
|
- | - | - | - | - | - | ||||||||||||||||||
Currency translation adjustments
|
- | - | - | - | (12.7 | ) | (12.7 | ) | ||||||||||||||||
Balance as of September 30, 2011
|
$ | 263.2 | $ | 431.2 | $ | 46.1 | $ | 326.1 | $ | 236.7 | $ | 1,303.3 |
(a)
|
On April 18, 2007, we announced that we would acquire the Trans Mountain pipeline system from KMI, and we completed this transaction on April 30, 2007. Following the provisions of U.S. generally accepted accounting principles, the consideration of this transaction caused KMI to consider the fair value of the Trans Mountain pipeline system, and to determine whether goodwill related to these assets was impaired. Based on this determination, KMI recorded a goodwill impairment charge of $377.1 million in the first quarter of 2007, and because we have included all of the historical results of Trans Mountain as though the net assets had been transferred to us on January 1, 2006, this impairment is now included in our accumulated impairment losses. We have no other goodwill impairment losses.
|
(b)
|
2011 acquisition amount relates to our July 2011 purchase of the remaining 50% ownership interest in KinderHawk Field Services LLC that we did not already own (discussed further in Note 2).
|
(c)
|
2011 disposal amount consists of (i) $10.6 million related to the sale of our ownership interest in the boat fleeting business we acquired from Megafleet Towing Co., Inc. in April 2009; and (ii) $1.2 million related to the sale of our subsidiary Arrow Terminals B.V. (both discussed further in Note 2).
|
September 30,
2011
|
December 31,
2010
|
|||||||
Customer relationships, contracts and agreements
|
||||||||
Gross carrying amount
|
$ | 1,312.7 | $ | 399.8 | ||||
Accumulated amortization
|
(152.0 | ) | (112.0 | ) | ||||
Net carrying amount
|
1,160.7 | 287.8 | ||||||
Lease value, technology-based assets and other
|
||||||||
Gross carrying amount
|
10.6 | 17.9 | ||||||
Accumulated amortization
|
(3.8 | ) | (3.5 | ) | ||||
Net carrying amount
|
6.8 | 14.4 | ||||||
Total Other intangibles, net
|
$ | 1,167.5 | $ | 302.2 |
|
Kinder Morgan Energy Partners, L.P. Senior Notes
|
|
Subsidiary Debt
|
|
▪
|
an aggregate $80.7 million for our contingent share (50%) of Cortez Pipeline Company’s debt obligations, consisting of (i) $70.0 million for our contingent share of outstanding borrowings under Cortez’s debt facilities (described below); and (ii) $10.7 million for a letter of credit issued on our behalf to secure our indemnification obligations to Shell for 50% of the $21.4 million in principal amount of Cortez’s Series D notes outstanding as of that date. Cortez Pipeline Company is a Texas general partnership that owns and operates a common carrier carbon dioxide pipeline system.
|
|
We are severally liable for our percentage ownership share (50%) of Cortez’s debt, and as of September 30, 2011, Cortez’s debt facilities consisted of (i) $21.4 million aggregate principal amount of Series D notes due May 15, 2013 (interest on the Series D notes is paid annually and based on a fixed interest rate of 7.14% per annum); (ii) $100.0 million of variable rate Series E notes due December 11, 2012 (interest on the Series E notes is paid quarterly and based on an interest rate of three-month LIBOR plus a spread); and (iii) $18.5 million of outstanding borrowings under a $40.0 million committed revolving bank credit facility that is also due December 11, 2012. Accordingly, as of September 30, 2011, our contingent share of Cortez’s debt was $70.0 million (50% of total borrowings).
|
|
With respect to the Series D notes, Shell Oil Company shares our several guaranty obligations jointly and severally; however, we are obligated to indemnify Shell for the liabilities it incurs in connection with such guaranty. Accordingly, as of September 30, 2011, we have a letter of credit in the amount of $10.7 million issued by JPMorgan Chase Bank, in order to secure our indemnification obligations to Shell for 50% of the $21.4 million in principal amount of Series D notes outstanding as of that date.
|
|
Further, pursuant to a Throughput and Deficiency Agreement, the partners of Cortez Pipeline Company are required to contribute capital to Cortez in the event of a cash deficiency. The agreement contractually supports the financings of Cortez Capital Corporation, a wholly-owned subsidiary of Cortez Pipeline Company, by obligating the partners of Cortez Pipeline to fund cash deficiencies at Cortez Pipeline, including anticipated deficiencies and cash deficiencies relating to the repayment of principal and interest on the debt of Cortez Capital Corporation. The partners’ respective parent or other companies further severally guarantee the obligations of the Cortez Pipeline owners under this agreement; and
|
|
▪
|
an $18.3 million letter of credit posted as security for borrowings under Adjustable Demand Revenue Bonds issued by the Nassau County, Florida Ocean Highway and Port Authority. The bonds were issued for the purpose of constructing certain port improvements located in Fernandino Beach, Nassau County, Florida. Our subsidiary, Nassau Terminals LLC is the operator of the marine port facilities. The bond indenture is for 30 years and allows the bonds to remain outstanding until December 1, 2020. Principal payments on the bonds are made on the first of December each year, and corresponding reductions are made to the letter of credit. As of September 30, 2011, this letter of credit had a face amount of $18.3 million.
|
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Common units
|
230,843,095 | 218,880,103 | ||||||
Class B units
|
5,313,400 | 5,313,400 | ||||||
i-units
|
96,807,608 | 91,907,987 | ||||||
Total limited partner units
|
332,964,103 | 316,101,490 |
Three Months Ended September 30,
|
||||||||||||||||||||||||
2011
|
2010
|
|||||||||||||||||||||||
KMP
|
Noncontrolling
Interests
|
Total
|
KMP
|
Noncontrolling interests
|
Total
|
|||||||||||||||||||
Beginning Balance
|
$ | 7,616.2 | $ | 87.7 | $ | 7,703.9 | $ | 7,023.1 | $ | 83.1 | $ | 7,106.2 | ||||||||||||
Units issued for cash
|
107.5 | - | 107.5 | 203.5 | - | 203.5 | ||||||||||||||||||
Distributions paid in cash
|
(566.5 | ) | (7.0 | ) | (573.5 | ) | (333.7 | ) | (4.7 | ) | (338.4 | ) | ||||||||||||
Noncash compensation expense allocated from KMI(a)
|
- | - | - | 1.0 | - | 1.0 | ||||||||||||||||||
Cash contributions
|
- | 2.3 | 2.3 | - | 3.0 | 3.0 | ||||||||||||||||||
Other adjustments
|
(4.1 | ) | - | (4.1 | ) | (0.2 | ) | - | (0.2 | ) | ||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||
Net Income
|
214.5 | 1.8 | 216.3 | 320.8 | 1.6 | 322.4 | ||||||||||||||||||
Other comprehensive income:
|
||||||||||||||||||||||||
Change in fair value of derivatives utilized for hedging purposes
|
382.7 | 3.9 | 386.6 | (82.5 | ) | (0.8 | ) | (83.3 | ) | |||||||||||||||
Reclassification of change in fair value of derivatives to net income
|
48.5 | 0.5 | 49.0 | 47.2 | 0.4 | 47.6 | ||||||||||||||||||
Foreign currency translation adjustments
|
(161.8 | ) | (1.7 | ) | (163.5 | ) | 62.2 | 0.7 | 62.9 | |||||||||||||||
Adjustments to pension and other postretirement benefit plan liabilities
|
- | - | - | 0.3 | - | 0.3 | ||||||||||||||||||
Total other comprehensive income
|
269.4 | 2.7 | 272.1 | 27.2 | 0.3 | 27.5 | ||||||||||||||||||
Comprehensive income
|
483.9 | 4.5 | 488.4 | 348.0 | 1.9 | 349.9 | ||||||||||||||||||
Ending Balance
|
$ | 7,637.0 | $ | 87.5 | $ | 7,724.5 | $ | 7,241.7 | $ | 83.3 | $ | 7,325.0 |
Nine Months Ended September 30,
|
||||||||||||||||||||||||
2011
|
2010
|
|||||||||||||||||||||||
KMP
|
Noncontrolling
Interests
|
Total
|
KMP
|
Noncontrolling interests
|
Total
|
|||||||||||||||||||
Beginning Balance
|
$ | 7,210.7 | $ | 81.8 | $ | 7,292.5 | $ | 6,644.5 | $ | 79.6 | $ | 6,724.1 | ||||||||||||
Units issued as consideration pursuant to common unit compensation plan for non-employee directors
|
0.2 | - | 0.2 | 0.2 | - | 0.2 | ||||||||||||||||||
Units issued as consideration in the acquisition of assets
|
23.7 | - | 23.7 | 81.7 | - | 81.7 | ||||||||||||||||||
Units issued for cash
|
813.3 | - | 813.3 | 636.6 | - | 636.6 | ||||||||||||||||||
Distributions paid in cash
|
(1,638.8 | ) | (20.5 | ) | (1,659.3 | ) | (1,282.7 | ) | (16.7 | ) | (1,299.4 | ) | ||||||||||||
Noncash compensation expense allocated from KMI(a)
|
89.0 | 0.9 | 89.9 | 3.7 | - | 3.7 | ||||||||||||||||||
Cash contributions
|
- | 15.4 | 15.4 | - | 10.2 | 10.2 | ||||||||||||||||||
Other adjustments
|
(2.9 | ) | - | (2.9 | ) | (0.2 | ) | - | (0.2 | ) | ||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||
Net Income
|
782.8 | 6.3 | 789.1 | 907.3 | 7.6 | 914.9 | ||||||||||||||||||
Other comprehensive income:
|
||||||||||||||||||||||||
Change in fair value of derivatives utilized for hedging purposes
|
285.9 | 2.9 | 288.8 | 83.5 | 0.9 | 84.4 | ||||||||||||||||||
Reclassification of change in fair value of derivatives to net income
|
186.9 | 1.9 | 188.8 | 133.3 | 1.3 | 134.6 | ||||||||||||||||||
Foreign currency translation adjustments
|
(100.8 | ) | (1.0 | ) | (101.8 | ) | 35.9 | 0.4 | 36.3 | |||||||||||||||
Adjustments to pension and other postretirement benefit plan liabilities
|
(13.0 | ) | (0.2 | ) | (13.2 | ) | (2.1 | ) | - | (2.1 | ) | |||||||||||||
Total other comprehensive income
|
359.0 | 3.6 | 362.6 | 250.6 | 2.6 | 253.2 | ||||||||||||||||||
Comprehensive income
|
1,141.8 | 9.9 | 1,151.7 | 1,157.9 | 10.2 | 1,168.1 | ||||||||||||||||||
Ending Balance
|
$ | 7,637.0 | $ | 87.5 | $ | 7,724.5 | $ | 7,241.7 | $ | 83.3 | $ | 7,325.0 |
(a)
|
For further information about this expense, see Note 9. We do not have any obligation, nor do we expect to pay any amounts related to this expense.
|
|
▪
|
$65.986, the average of KMR’s shares’ closing market prices from October 13-26, 2011, the ten consecutive trading days preceding the date on which the shares began to trade ex-dividend under the rules of the New York Stock Exchange.
|
Net open position
long/(short)
|
|
Derivatives designated as hedging contracts
|
|
Crude oil
|
(21.8) million barrels
|
Natural gas fixed price
|
(3.6) billion cubic feet
|
Natural gas basis
|
(4.2) billion cubic feet
|
Derivatives not designated as hedging contracts
|
|
Natural gas fixed price
|
0.2 billion cubic feet
|
Natural gas basis
|
2.3 billion cubic feet
|
Fair Value of Derivative Contracts
|
|||||||||||||||||
Asset derivatives
|
Liability derivatives
|
||||||||||||||||
September 30,
|
December 31,
|
September 30,
|
December 31,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||||
Balance sheet location
|
Fair value
|
Fair value
|
Fair value
|
Fair value
|
|||||||||||||
Derivatives designated as hedging contracts
|
|||||||||||||||||
Energy commodity derivative contracts
|
Current
|
$ | 123.7 | $ | 20.1 | $ | (67.0 | ) | $ | (275.9 | ) | ||||||
Non-current
|
133.0 | 43.1 | (21.4 | ) | (103.0 | ) | |||||||||||
Subtotal
|
256.7 | 63.2 | (88.4 | ) | (378.9 | ) | |||||||||||
Interest rate swap agreements
|
Current
|
6.1 | - | - | - | ||||||||||||
Non-current
|
570.4 | 217.6 | - | (69.2 | ) | ||||||||||||
Subtotal
|
576.5 | 217.6 | - | (69.2 | ) | ||||||||||||
Total
|
833.2 | 280.8 | (88.4 | ) | (448.1 | ) | |||||||||||
Derivatives not designated as hedging contracts
|
|||||||||||||||||
Energy commodity derivative contracts
|
Current
|
5.4 | 3.9 | (4.9 | ) | (5.6 | ) | ||||||||||
Total
|
5.4 | 3.9 | (4.9 | ) | (5.6 | ) | |||||||||||
Total derivatives
|
$ | 838.6 | $ | 284.7 | $ | (93.3 | ) | $ | (453.7 | ) |
Derivatives in fair value hedging relationships
|
Location of gain/(loss) recognized in income on derivative
|
Amount of gain/(loss) recognized in income
on derivative(a)
|
|||||||||||||||
Three Months Ended
|
Nine Months Ended
|
||||||||||||||||
September 30,
|
September 30,
|
||||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||||
Interest rate swap agreements
|
Interest, net - income/(expense)
|
$ | 436.8 | $ | 219.9 | $ | 501.1 | $ | 634.1 | ||||||||
Total
|
$ | 436.8 | $ | 219.9 | $ | 501.1 | $ | 634.1 |
Hedged items in fair value hedging relationships
|
Location of gain/(loss) recognized in income on related hedged item
|
Amount of gain/(loss) recognized in income
on related hedged item(a)
|
|||||||||||||||
Three Months Ended
|
Nine Months Ended
|
||||||||||||||||
September 30,
|
September 30,
|
||||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||||
Fixed rate debt
|
Interest, net - income/(expense)
|
$ | (436.8 | ) | $ | (219.9 | ) | $ | (501.1 | ) | $ | (634.1 | ) | ||||
Total
|
$ | (436.8 | ) | $ | (219.9 | ) | $ | (501.1 | ) | $ | (634.1 | ) |
(a)
|
Amounts reflect the change in the fair value of interest rate swap agreements and the change in the fair value of the associated fixed rate debt which exactly offset each other as a result of no hedge ineffectiveness.
|
Derivatives in cash flow hedging relationships
|
Amount of gain/(loss) recognized in OCI on derivative (effective portion)
|
Location of gain/(loss) recognized from Accumulated OCI into income (effective portion)
|
Amount of gain/(loss) reclassified from Accumulated OCI into income (effective portion)
|
Location of gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
|
Amount of gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
|
Nine Months Ended
|
Nine Months Ended
|
Nine Months Ended
|
||||||||||||||||||||||||
September 30,
|
September 30,
|
September 30,
|
||||||||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
2011
|
2010
|
|||||||||||||||||||||
Energy commodity
derivative contracts
|
$ | 288.8 | $ | 84.4 |
Revenues–natural
gas sales
|
$ | 1.0 | $ | 5.3 |
Revenues–natural
gas sales
|
$ | - | $ | - | ||||||||||||
Revenues–product
sales and other
|
(202.7 | ) | (142.6 | ) |
Revenues–product
sales and other
|
10.4 | 5.4 | |||||||||||||||||||
Gas purchases and
other costs of sales
|
12.9 | 2.7 |
Gas purchases and
other costs of sales
|
- | (0.8 | ) | ||||||||||||||||||||
Total
|
$ | 288.8 | $ | 84.4 |
Total
|
$ | (188.8 | ) | $ | (134.6 | ) |
Total
|
$ | 10.4 | $ | 4.6 |
Derivatives not designated
as hedging contracts
|
Location of gain/(loss) recognized
in income on derivative
|
Amount of gain/(loss) recognized
in income on derivative
|
|||||||||||||||
Three Months Ended
|
Nine Months Ended
|
||||||||||||||||
September 30,
|
September 30,
|
||||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||||
Energy commodity derivative contracts
|
Gas purchases and other costs of sales
|
$ | (0.1 | ) | $ | 0.2 | $ | 0.1 | $ | 1.0 | |||||||
Total
|
$ | (0.1 | ) | $ | 0.2 | $ | 0.1 | $ | 1.0 |
Asset position
|
||||
Interest rate swap agreements
|
$ | 576.5 | ||
Energy commodity derivative contracts
|
262.1 | |||
Gross exposure
|
838.6 | |||
Netting agreement impact
|
(78.5 | ) | ||
Net exposure
|
$ | 760.1 |
Credit ratings downgraded (a)
|
Incremental obligations
|
Cumulative obligations(b)
|
||||||
One notch to BBB-/Baa3
|
$ | - | $ | - | ||||
Two notches to below BBB-/Baa3 (below investment grade)
|
$ | 12.8 | $ | 12.8 |
(a)
|
If there are split ratings among the independent credit rating agencies, most counterparties use the higher credit rating to determine our incremental collateral obligations, while the remaining use the lower credit rating. Therefore, a two notch downgrade to below BBB-/Baa3 by one agency would not trigger the entire $12.8 million incremental obligation.
|
(b)
|
Includes current posting at current rating.
|
|
▪
|
Level 1 Inputs—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;
|
|
▪
|
Level 2 Inputs—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and
|
|
▪
|
Level 3 Inputs—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).
|
Asset fair value measurements using
|
||||||||||||||||
Total
|
Quoted prices in
active markets
for identical
assets (Level 1)
|
Significant other
observable
inputs (Level 2)
|
Significant
unobservable
inputs (Level 3)
|
|||||||||||||
As of September 30, 2011
|
||||||||||||||||
Energy commodity derivative contracts(a)
|
$ | 262.1 | $ | 25.3 | $ | 172.2 | $ | 64.6 | ||||||||
Interest rate swap agreements
|
$ | 576.5 | $ | - | $ | 576.5 | $ | - | ||||||||
As of December 31, 2010
|
||||||||||||||||
Energy commodity derivative contracts(a)
|
$ | 67.1 | $ | - | $ | 23.5 | $ | 43.6 | ||||||||
Interest rate swap agreements
|
$ | 217.6 | $ | - | $ | 217.6 | $ | - |
Liability fair value measurements using
|
||||||||||||||||
Total
|
Quoted prices in
active
markets
for identical
liabilities
(Level 1)
|
Significant other
observable
inputs (Level 2)
|
Significant
unobservable
inputs (Level 3)
|
|||||||||||||
As of September 30, 2011
|
||||||||||||||||
Energy commodity derivative contracts(a)
|
$ | (93.3 | ) | $ | (12.6 | ) | $ | (60.7 | ) | $ | (20.0 | ) | ||||
Interest rate swap agreements
|
$ | - | $ | - | $ | - | $ | - | ||||||||
As of December 31, 2010
|
||||||||||||||||
Energy commodity derivative contracts(a)
|
$ | (384.5 | ) | $ | - | $ | (359.7 | ) | $ | (24.8 | ) | |||||
Interest rate swap agreements
|
$ | (69.2 | ) | $ | - | $ | (69.2 | ) | $ | - |
(a)
|
Level 1 consists primarily of NYMEX natural gas futures. Level 2 consists primarily of OTC West Texas Intermediate swaps and OTC natural gas swaps that are settled on NYMEX. Level 3 consists primarily of natural gas basis swaps and West Texas Intermediate options.
|
Significant unobservable inputs (Level 3)
|
||||||||||||||||
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Derivatives-net asset (liability)
|
||||||||||||||||
Beginning of Period
|
$ | 6.7 | $ | 46.6 | $ | 18.8 | $ | 13.0 | ||||||||
Transfers into Level 3
|
- | - | - | - | ||||||||||||
Transfers out of Level 3
|
- | - | - | - | ||||||||||||
Total gains or (losses):
|
||||||||||||||||
Included in earnings
|
2.6 | (7.5 | ) | 5.4 | 3.6 | |||||||||||
Included in other comprehensive income
|
37.0 | (3.9 | ) | 21.5 | 11.7 | |||||||||||
Purchases
|
- | - | 4.6 | - | ||||||||||||
Issuances
|
- | - | - | - | ||||||||||||
Sales
|
- | - | - | - | ||||||||||||
Settlements
|
(1.7 | ) | (0.6 | ) | (5.7 | ) | 6.3 | |||||||||
End of Period
|
$ | 44.6 | $ | 34.6 | $ | 44.6 | $ | 34.6 | ||||||||
The amount of total gains or (losses) for the period included
in earnings attributable to the change in unrealized gains or
(losses) relating to assets held at the reporting date
|
$ | 3.2 | $ | (5.8 | ) | $ | 4.4 | $ | 1.3 |
September 30, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying
Value
|
Estimated
Fair value
|
Carrying
Value
|
Estimated
fair value
|
|||||||||||||
Total debt
|
$ | 12,506.6 | $ | 13,873.0 | $ | 11,539.8 | $ | 12,443.4 |
|
▪
|
Products Pipelines— the transportation and terminaling of refined petroleum products, including gasoline, diesel fuel, jet fuel and natural gas liquids;
|
|
▪
|
Natural Gas Pipelines—the sale, transport, processing, treating, storage and gathering of natural gas;
|
|
▪
|
CO
2
—the production and sale of crude oil from fields in the Permian Basin of West Texas and the transportation and marketing of carbon dioxide used as a flooding medium for recovering crude oil from mature oil fields;
|
|
▪
|
Terminals—the transloading and storing of refined petroleum products and dry and liquid bulk products, including coal, petroleum coke, cement, alumina, salt and other bulk chemicals; and
|
|
▪
|
Kinder Morgan Canada—the transportation of crude oil and refined products from Alberta, Canada to marketing terminals and refineries in British Columbia, the state of Washington and the Rocky Mountains and Central regions of the United States.
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenues
|
||||||||||||||||
Products Pipelines
|
||||||||||||||||
Revenues from external customers
|
$ | 241.6 | $ | 227.7 | $ | 694.6 | $ | 661.5 | ||||||||
Natural Gas Pipelines
|
||||||||||||||||
Revenues from external customers
|
1,176.4 | 1,147.6 | 3,240.1 | 3,414.0 | ||||||||||||
CO
2
|
||||||||||||||||
Revenues from external customers
|
372.0 | 296.0 | 1,062.8 | 932.4 | ||||||||||||
Terminals
|
||||||||||||||||
Revenues from external customers
|
327.7 | 321.2 | 979.4 | 945.3 | ||||||||||||
Intersegment revenues
|
0.4 | 0.3 | 0.9 | 0.8 | ||||||||||||
Kinder Morgan Canada
|
||||||||||||||||
Revenues from external customers
|
77.4 | 67.5 | 230.3 | 197.9 | ||||||||||||
Total segment revenues
|
2,195.5 | 2,060.3 | 6,208.1 | 6,151.9 | ||||||||||||
Less: Total intersegment revenues
|
(0.4 | ) | (0.3 | ) | (0.9 | ) | (0.8 | ) | ||||||||
Total consolidated revenues
|
$ | 2,195.1 | $ | 2,060.0 | $ | 6,207.2 | $ | 6,151.1 |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Segment earnings before depreciation, depletion, amortization
And amortization of excess cost of equity investments(a)
|
||||||||||||||||
Products Pipelines(b)
|
$ | 102.7 | $ | 167.5 | $ | 303.9 | $ | 339.1 | ||||||||
Natural Gas Pipelines(c)
|
80.8 | 187.3 | 484.7 | 592.9 | ||||||||||||
CO
2
|
294.8 | 221.5 | 823.2 | 724.1 | ||||||||||||
Terminals
|
179.8 | 159.2 | 524.5 | 475.2 | ||||||||||||
Kinder Morgan Canada
|
48.5 | 44.0 | 150.0 | 132.9 | ||||||||||||
Total segment earnings before DD&A
|
706.6 | 779.5 | 2,286.3 | 2,264.2 | ||||||||||||
Total segment depreciation, depletion and amortization
|
(253.4 | ) | (224.1 | ) | (704.6 | ) | (674.6 | ) | ||||||||
Total segment amortization of excess cost of investments
|
(1.8 | ) | (1.4 | ) | (4.9 | ) | (4.3 | ) | ||||||||
General and administrative expenses(d)
|
(100.5 | ) | (93.6 | ) | (387.1 | ) | (288.1 | ) | ||||||||
Interest expense, net of unallocable interest income
|
(132.5 | ) | (133.8 | ) | (393.8 | ) | (373.9 | ) | ||||||||
Unallocable income tax expense
|
(2.1 | ) | (4.2 | ) | (6.8 | ) | (8.4 | ) | ||||||||
Total consolidated net income
|
$ | 216.3 | $ | 322.4 | $ | 789.1 | $ | 914.9 |
September 30,
2011
|
December 31,
2010
|
|||||||
Assets
|
||||||||
Products Pipelines
|
$ | 4,398.3 | $ | 4,369.1 | ||||
Natural Gas Pipelines
|
9,711.8 | 8,809.7 | ||||||
CO
2
|
2,322.1 | 2,141.2 | ||||||
Terminals
|
4,376.6 | 4,138.6 | ||||||
Kinder Morgan Canada
|
1,804.1 | 1,870.0 | ||||||
Total segment assets
|
22,612.9 | 21,328.6 | ||||||
Corporate assets(e)
|
965.4 | 532.5 | ||||||
Total consolidated assets
|
$ | 23,578.3 | $ | 21,861.1 |
(a)
|
Includes revenues, earnings from equity investments, allocable interest income, and other, net, less operating expenses, allocable income taxes, and other expense (income).
|
(b)
|
Three and nine month 2011 amounts include increases in expense of $69.3 million and $234.3 million, respectively, primarily associated with adjustments to rate case reserves and rights-of-way lease payment obligations. Nine month 2010 amount includes a $158.0 million increase in expense associated with rate case liability adjustments.
|
(c)
|
Three and nine month 2011 amounts include a $167.2 million loss from the remeasurement of our previously held 50% equity interest in KinderHawk Field Services LLC to fair value (discussed further in Note 2).
|
(d)
|
Nine month 2011 amount includes an $87.1 million increase in expense associated with a one-time special cash bonus payment paid to non-senior management employees in May 2011; however, we do not have any obligation, nor do we expect to pay any amounts related to this expense.
|
(e)
|
Includes cash and cash equivalents; margin and restricted deposits; unallocable interest receivable, prepaid assets and deferred charges; and risk management assets related to the fair value of interest rate swaps.
|
September 30,
2011
|
December 31,
2010
|
|||||||
Derivatives – asset/(liability)
|
||||||||
Current assets
|
$ | 36.7 | $ | - | ||||
Noncurrent assets
|
$ | 49.7 | $ | 12.7 | ||||
Current liabilities
|
$ | (41.3 | ) | $ | (221.4 | ) | ||
Noncurrent liabilities
|
$ | (11.3 | ) | $ | (57.5 | ) |
|
SFPP
|
|
The following FERC dockets are currently pending:
|
|
▪
|
FERC Docket No. IS08-390 (West Line Rates) (Opinion 511)—Protestants: BP, ExxonMobil, ConocoPhillips, Valero Marketing, Chevron, the Airlines—Status: FERC order issued on February 17, 2011. While the order made certain findings that were adverse to SFPP, it ruled in favor of SFPP on many significant issues. Subsequently, SFPP made a compliance filing which estimates approximately $16.0 million in refunds. However, SFPP also filed a rehearing request on certain adverse rulings in the FERC order. It is not possible to predict the outcome of the FERC review of the rehearing request or appellate review of this order;
|
|
▪
|
FERC Docket No. IS09-437 (East Line Rates)—Protestants: BP, ExxonMobil, ConocoPhillips, Valero Marketing, Chevron, Western Refining, Navajo, Holly, and Southwest Airlines—Status: Initial decision issued on February 10, 2011. A FERC administrative law judge generally made findings adverse to SFPP, found that East Line rates should have been lower, and recommended that SFPP pay refunds for alleged over-collections. SFPP has filed a brief with the FERC taking exception to these and other portions of the initial decision. The FERC will review the initial decision, and while the initial decision is inconsistent with a number of the issues ruled on in FERC’s Opinion 511, it is not possible to predict the outcome of FERC or appellate review;
|
|
▪
|
FERC Docket No. IS11-444 (2011 Index Rate Increases)—Protestants: BP, ExxonMobil, ConocoPhillips, Valero Marketing, Chevron, the Airlines, Tesoro, Western Refining, Navajo, and Holly—Status: SFPP withdrew all index rate increases except those that pertain to the West Line. As to the West Line, the index rate increases are currently accepted and suspended, subject to refund, and the case is before a FERC hearing judge;
|
|
▪
|
FERC Docket No. IS11-585 (Withdrawal of 2011 Index Rate Increases)—Protestants: BP, ConocoPhillips, Valero Marketing, Chevron, the Airlines, Tesoro, Western Refining, Navajo, and Holly—Status: SFPP withdrew all index rate increases except those that pertain to the West Line. The Protestants have challenged the index ceiling levels for lines other than the West Line. The protests and SFPP’s answer are currently pending before the FERC;
|
|
▪
|
FERC Docket No. OR11-13 (SFPP Base Rates)—Complainant: ConocoPhillips—Status: SFPP to provide further data within 90 days of the issuance of a final order in Docket No. IS08-390. ConocoPhillips permitted to amend its complaint based on additional data;
|
|
▪
|
FERC Docket No. OR11-14 (SFPP Indexed Rates)—Complainant: ConocoPhillips—Status: Complaint dismissed;
|
|
▪
|
FERC Docket No. OR11-15 (SFPP Base Rates)—Complainant: Chevron—Status: SFPP to provide further data within 90 days of the issuance of a final order in Docket No. IS08-390. Chevron permitted to amend its complaint based on additional data;
|
|
▪
|
FERC Docket No. OR11-16 (SFPP Indexed Rates)—Complainant: Chevron—Status: Complaint dismissed;
|
|
▪
|
FERC Docket No. OR11-18 (SFPP Base Rates)—Complainant: Tesoro—Status: SFPP to provide further data within 90 days of the issuance of a final order in Docket No. IS08-390. Tesoro permitted to amend its complaint based on additional data; and
|
|
▪
|
FERC Docket No. OR11-19 (SFPP Indexed Rates)—Complainant: Tesoro—Status: Complaint dismissed.
|
|
▪
|
FERC Docket No. OR11-20 (SFPP North Line Base Rates)—Complainant: Tesoro—Status: Complaint was filed August 2, 2011. SFPP answered on September 1, 2011. Matter is currently pending before the FERC.
|
|
▪
|
FERC Docket No. OR12-1 (SFPP Index Ceiling Levels)—Complainant: Chevron—Status: Complaint was filed October 5, 2011. SFPP answered on October 26, 2011. Matter is currently pending before the FERC.
|
|
▪
|
FERC Docket No. OR12-2 (SFPP Index Ceiling Levels)—Complainant: Tesoro—Status: Complaint was filed October 5, 2011. SFPP answered on October 26, 2011. Matter is currently pending before the FERC.
|
|
▪
|
FERC Docket No. OR12-3 (SFPP Index Ceiling Levels)—Complainant: ConocoPhillips—Status: Complaint was filed October 5, 2011. SFPP answered on October 26, 2011. Matter is currently pending before the FERC.
|
|
Calnev
|
|
▪
|
FERC Docket Nos. OR07-7, OR07-18, OR07-19, OR07-22, OR09-15, and OR09-20 (consolidated) (Calnev Rates)—Complainants: Tesoro, Airlines, BP, Chevron, ConocoPhillips and Valero Marketing—Status: Before a FERC settlement judge.
|
|
Trailblazer Pipeline Company LLC
|
|
Kinder Morgan Interstate Gas Transmission LLC Section 5 Proceeding
|
Three Months Ended
September 30,
|
Earnings
|
|||||||||||||||
2011
|
2010
|
increase/(decrease)
|
||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
Earnings before depreciation, depletion and amortization expense and amortization of excess cost of equity investments(a)
|
||||||||||||||||
Products Pipelines(b)
|
$ | 102.7 | $ | 167.5 | $ | (64.8 | ) | (39 | )% | |||||||
Natural Gas Pipelines(c)
|
80.8 | 187.3 | (106.5 | ) | (57 | )% | ||||||||||
CO
2
(d)
|
294.8 | 221.5 | 73.3 | 33 | % | |||||||||||
Terminals(e)
|
179.8 | 159.2 | 20.6 | 13 | % | |||||||||||
Kinder Morgan Canada
|
48.5 | 44.0 | 4.5 | 10 | % | |||||||||||
Segment earnings before depreciation, depletion and amortization expense and amortization of excess cost of equity investments
|
706.6 | 779.5 | (72.9 | ) | (9 | )% | ||||||||||
Depreciation, depletion and amortization expense
|
(253.4 | ) | (224.1 | ) | (29.3 | ) | (13 | )% | ||||||||
Amortization of excess cost of equity investments
|
(1.8 | ) | (1.4 | ) | (0.4 | ) | (29 | )% | ||||||||
General and administrative expense(f)
|
(100.5 | ) | (93.6 | ) | (6.9 | ) | (7 | )% | ||||||||
Interest expense, net of unallocable interest income(g)
|
(132.5 | ) | (133.8 | ) | 1.3 | 1 | % | |||||||||
Unallocable income tax expense
|
(2.1 | ) | (4.2 | ) | 2.1 | 50 | % | |||||||||
Net income
|
216.3 | 322.4 | (106.1 | ) | (33 | )% | ||||||||||
Net income attributable to noncontrolling interests(h)
|
(1.8 | ) | (1.6 | ) | (0.2 | ) | (13 | )% | ||||||||
Net income attributable to Kinder Morgan Energy Partners, L.P.
|
$ | 214.5 | $ | 320.8 | $ | (106.3 | ) | (33 | )% |
Nine Months Ended
September 30,
|
Earnings
|
|||||||||||||||
2011
|
2010
|
increase/(decrease)
|
||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
Earnings before depreciation, depletion and amortization expense and amortization of excess cost of equity investments(a)
|
||||||||||||||||
Products Pipelines(i)
|
$ | 303.9 | $ | 339.1 | $ | (35.2 | ) | (10 | )% | |||||||
Natural Gas Pipelines(j)
|
484.7 | 592.9 | (108.2 | ) | (18 | )% | ||||||||||
CO
2
(k)
|
823.2 | 724.1 | 99.1 | 14 | % | |||||||||||
Terminals(l)
|
524.5 | 475.2 | 49.3 | 10 | % | |||||||||||
Kinder Morgan Canada(m)
|
150.0 | 132.9 | 17.1 | 13 | % | |||||||||||
Segment earnings before depreciation, depletion and amortization expense and amortization of excess cost of equity investments
|
2,286.3 | 2,264.2 | 22.1 | 1 | % | |||||||||||
Depreciation, depletion and amortization expense
|
(704.6 | ) | (674.6 | ) | (30.0 | ) | (4 | )% | ||||||||
Amortization of excess cost of equity investments
|
(4.9 | ) | (4.3 | ) | (0.6 | ) | (14 | )% | ||||||||
General and administrative expense(n)
|
(387.1 | ) | (288.1 | ) | (99.0 | ) | (34 | )% | ||||||||
Interest expense, net of unallocable interest income(o)
|
(393.8 | ) | (373.9 | ) | (19.9 | ) | (5 | )% | ||||||||
Unallocable income tax expense
|
(6.8 | ) | (8.4 | ) | 1.6 | 19 | % | |||||||||
Net income
|
789.1 | 914.9 | (125.8 | ) | (14 | )% | ||||||||||
Net income attributable to noncontrolling interests(p)
|
(6.3 | ) | (7.6 | ) | 1.3 | 17 | % | |||||||||
Net income attributable to Kinder Morgan Energy Partners, L.P.
|
$ | 782.8 | $ | 907.3 | $ | (124.5 | ) | (14 | )% |
(a)
|
Includes revenues, earnings from equity investments, allocable interest income and other, net, less operating expenses, allocable income taxes, and other expense (income). Operating expenses include natural gas purchases and other costs of sales, operations and maintenance expenses, and taxes, other than income taxes.
|
(b)
|
2011 amount includes a $69.3 million increase in expense primarily related to an adverse tentative court decision on the amount of rights-of-way lease payment obligations (amounts included in the $69.3 million relate to periods prior to 2011), and a $5.6 million increase in expense associated with environmental liability adjustments. 2010 amount includes a $2.5 million increase in expense associated with environmental liability adjustments, and a $1.9 million increase in property environmental expense related to the retirement of our Gaffey Street, California land. 2011 and 2010 amounts also include a $0.3 million decrease in income and a $0.3 million increase in income, respectively, from unrealized foreign currency gains and losses on long-term debt transactions.
|
(c)
|
2011 amount includes a $167.2 million loss from the remeasurement of our previously held 50% equity interest in KinderHawk Field Services LLC to fair value. 2010 amount includes a $1.6 million decrease in income from unrealized losses on derivative contracts used to hedge forecasted natural gas sales.
|
(d)
|
2011 and 2010 amounts include an $8.5 million increase in income and a $7.9 million decrease in income, respectively, from unrealized gains and losses on derivative contracts used to hedge forecasted crude oil sales.
|
(e)
|
2011 amount includes (i) a $1.2 million increase in expense from casualty insurance deductibles; (ii) a combined $0.5 million decrease in income from property write-offs and expenses associated with the dissolution of our partnership interest in Globalplex Handling; (iii) a $0.2 million decrease in income from adjustments associated with the sale of our ownership interest in the boat fleeting business we acquired from Megafleet Towing Co., Inc. in April 2009; and (iv) a $1.3 million increase in income from the sale of our ownership interest in Arrow Terminals B.V. 2010 amount includes a $5.0 million increase in expense from casualty insurance deductibles, and a $0.2 million decrease in expense from certain measurement period adjustments related to our March 5, 2010 Slay Industries terminal acquisition.
|
(f)
|
2011 amount includes a $0.2 million decrease in unallocated payroll tax expense (related to the $87.1 million special non-cash bonus expense to non-senior management employees allocated to us from KMI in the first quarter of 2011 (however, we do not have any obligation, nor do we expect to pay any amounts related to this expense), a $0.1 million decrease in expense related to capitalized overhead costs associated with the 2008 hurricane season, and a $0.3 million increase in expense for certain legal expenses associated with business acquisitions. 2010 amount includes a $1.0 million increase in non-cash compensation expense allocated to us from KMI (we do not have any obligation, nor do we expect to pay any amounts related to this expense). 2011 and 2010 amounts also include increases in expense of $0.1 million and $1.1 million, respectively, for certain asset and business acquisition costs.
|
(g)
|
2011 and 2010 amounts include increases in imputed interest expense of $0.1 million and $0.2 million, respectively, related to our January 1, 2007 Cochin Pipeline acquisition.
|
(h)
|
2011 and 2010 amounts include decreases of $3.0 million and $1.9 million, respectively, in net income attributable to our noncontrolling interests, related to the combined effect from all of the three month 2011 and 2010 items previously disclosed in these footnotes.
|
(i)
|
2011 amount includes (i) a $234.3 million increase in expense primarily associated with adjustments to rate case reserves and rights-of-way lease payment obligations; (ii) a $5.6 million increase in expense associated with environmental liability adjustments; (iii) a $10.8 million increase in income from the sale of a portion of our Gaffey Street, California land; and (iv) a $0.1 million decrease in expense (reflecting tax savings) related to non-cash compensation expense allocated to us from KMI (we do not have any obligation, nor do we expect to pay any amounts or realize any direct benefits related to this expense). 2010 amount includes a $158.0 million increase in expense associated with rate case liability adjustments, a $17.4 million decrease in income associated with combined property environmental expenses and disposal losses related to the demolition of physical assets in preparation for the sale of our Gaffey Street, California land, and a $2.5 million increase in expense associated with environmental liability adjustments. 2011 and 2010 amounts also include a $0.1 million decrease in income and a $0.4 million increase in income, respectively, from unrealized foreign currency gains and losses on long-term debt transactions.
|
(j)
|
2011 amount includes a $167.2 million loss from the remeasurement of our previously held 50% equity interest in KinderHawk Field Services LLC to fair value, and a $9.7 million increase in expense from the write-off of a receivable for fuel under-collected prior to 2011. 2010 amount includes a $0.8 million decrease in income from unrealized losses on derivative contracts used to hedge forecasted natural gas sales, and a $0.4 million increase in income from certain measurement period adjustments related to our October 1, 2009 natural gas treating business acquisition.
|
(k)
|
2011 and 2010 amounts include increases in income of $10.4 million and $5.4 million, respectively, from unrealized gains on derivative contracts used to hedge forecasted crude oil sales.
|
(l)
|
2011 amount includes (i) a $4.7 million decrease in expense (reflecting tax savings) related to non-cash compensation expense allocated to us from KMI (we do not have any obligation, nor do we expect to pay any amounts or realize any direct benefits related to this expense); (ii) a $4.3 million casualty indemnification gain related to a 2008 fire at our Pasadena, Texas liquids terminal; (iii) a $2.2 million increase in income associated with the sale of a 51% ownership interest in two of our subsidiaries: River Consulting LLC and Devco USA L.L.C.; (iv) a $2.0 million increase in income from adjustments associated with the sale of our ownership interest in the boat fleeting business we acquired from Megafleet Towing Co., Inc. in April 2009; (v) a $1.3 million increase in income from the sale of our ownership interest in Arrow Terminals B.V.; (vi) a $4.4 million decrease in income from casualty insurance deductibles and the write-off of assets related to casualty losses; (vii) a $1.2 million increase in expense associated with environmental liability adjustments; (viii) a $0.6 million increase in expense associated with the settlement of a litigation matter at our Carteret, New Jersey liquids terminal; and (ix) a combined $0.5 million decrease in income from property write-offs and expenses associated with the dissolution of our partnership interest in Globalplex Handling. 2010 amount includes (i) a $6.7 million casualty indemnification gain related to a 2008 fire at our Pasadena, Texas liquids terminal; (ii) a $0.2 million decrease in expense from certain measurement period adjustments related to our March 5, 2010 Slay Industries terminal acquisition; (iii) a $5.0 million increase in expense from casualty insurance deductibles; and (iv) a $0.6 million increase in expense related to storm and flood clean-up and repair activities.
|
(m)
|
2011 amount includes a $2.2 million decrease in expense (reflecting tax savings) related to non-cash compensation expense allocated to us from KMI (we do not have any obligation, nor do we expect to pay any amounts or realize any direct benefits related to this expense).
|
(n)
|
2011 amount includes (i) a combined $89.9 million increase in non-cash compensation expense (including $87.1 million related to a special bonus expense to non-senior management employees), allocated to us from KMI; however, we do not have any obligation, nor do we expect to pay any amounts related to this expense; (ii) a $1.2 million increase in expense for certain asset and business acquisition costs; (iii) a $1.2 million increase in unallocated payroll tax expense (related to the $87.1 million special bonus expense allocated to us from KMI); (iv) a $0.3 million increase in expense for certain legal expenses associated with business acquisitions; and (v) a $0.2 million decrease in expense related to capitalized overhead costs associated with the 2008 hurricane season. 2010 amount includes (i) a $3.7 million increase in non-cash compensation expense allocated to us from KMI (we do not have any obligation, nor do we expect to pay any amounts related to this expense); (ii) a $3.5 million increase in expense for certain asset and business acquisition costs; (iii) a $1.6 million increase in legal expense associated with items disclosed in these footnotes such as legal settlements and pipeline failures; and (iv) a $0.2 million decrease in expense related to capitalized overhead costs associated with the 2008 hurricane season.
|
(o)
|
2011 and 2010 amounts include increases in imputed interest expense of $0.5 million and $0.8 million, respectively, related to our January 1, 2007 Cochin Pipeline acquisition.
|
(p)
|
2011 and 2010 amounts include decreases of $6.5 million and $4.3 million, respectively, in net income attributable to our noncontrolling interests, related to the combined effect from all of the nine month 2011 and 2010 items previously disclosed in these footnotes.
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In millions, except operating statistics)
|
||||||||||||||||
Revenues
|
$ | 241.6 | $ | 227.7 | $ | 694.6 | $ | 661.5 | ||||||||
Operating expenses(a)
|
(146.8 | ) | (67.8 | ) | (425.8 | ) | (341.7 | ) | ||||||||
Other income (expense)(b)
|
(0.2 | ) | (0.1 | ) | 10.4 | (4.0 | ) | |||||||||
Earnings from equity investments
|
12.6 | 7.6 | 35.4 | 22.2 | ||||||||||||
Interest income and Other, net(c)
|
0.4 | 2.1 | 3.9 | 6.0 | ||||||||||||
Income tax expense(d)
|
(4.9 | ) | (2.0 | ) | (14.6 | ) | (4.9 | ) | ||||||||
Earnings before depreciation, depletion and amortization expense and amortization of excess cost of equity investments
|
$ | 102.7 | $ | 167.5 | $ | 303.9 | $ | 339.1 | ||||||||
Gasoline (MMBbl)(e)
|
101.7 | 102.2 | 297.2 | 299.4 | ||||||||||||
Diesel fuel (MMBbl)
|
37.2 | 38.4 | 110.7 | 109.5 | ||||||||||||
Jet fuel (MMBbl)
|
28.1 | 27.1 | 82.9 | 78.1 | ||||||||||||
Total refined product volumes (MMBbl)
|
167.0 | 167.7 | 490.8 | 487.0 | ||||||||||||
Natural gas liquids (MMBbl)
|
7.6 | 6.7 | 19.8 | 18.3 | ||||||||||||
Total delivery volumes (MMBbl)(f)
|
174.6 | 174.4 | 510.6 | 505.3 | ||||||||||||
Ethanol (MMBbl)(g)
|
8.0 | 7.6 | 23.0 | 22.4 |
(a)
|
Three and nine month 2011 amounts include increases in expense of $69.3 million and $234.3 million, respectively, primarily associated with adjustments to rate case reserves and rights-of-way lease payment obligations, and a $5.6 million increase in expense associated with environmental liability adjustments. Three and nine month 2010 amounts include increases in expense of $2.5 million associated with environmental liability adjustments, and increases in expense of $1.9 million and $13.5 million, respectively, associated with environmental clean-up expenses and the demolition of physical assets in preparation for the sale of our Gaffey Street, California land. Nine month 2010 amount also includes a $158.0 million increase in expense associated with rate case liability adjustments.
|
(b)
|
Nine month 2011 amount includes a $10.8 million increase in income from the sale of a portion of our Gaffey Street, California land. Nine month 2010 amount includes property disposal losses of $3.9 million related to the demolition of physical assets in preparation for the sale of our Gaffey Street, California land.
|
(c)
|
Three and nine month 2011 amounts include decreases in income of $0.3 million and $0.1 million, respectively, and three and nine month 2010 amounts include increases in income of $0.3 million and $0.4 million, respectively, all resulting from unrealized foreign currency gains and losses on long-term debt transactions.
|
(d)
|
Nine month 2011 amount includes a $0.1 million decrease in expense (reflecting tax savings) related to non-cash compensation expense allocated to us from KMI (we do not have any obligation, nor do we expect to pay any amounts or realize any direct benefits related to this expense).
|
(e)
|
Volumes include ethanol pipeline volumes.
|
(f)
|
Includes Pacific, Plantation, Calnev, Central Florida, Cochin and Cypress pipeline volumes.
|
(g)
|
Represents total ethanol volumes, including ethanol pipeline volumes included in gasoline volumes above.
|
EBDA
increase/(decrease)
|
Revenues
increase/(decrease)
|
|||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
Cochin Pipeline
|
$ | 8.0 | 77 | % | $ | 14.2 | 108 | % | ||||||||
Plantation Pipeline
|
3.4 | 31 | % | 0.4 | 7 | % | ||||||||||
Southeast Terminals
|
2.5 | 18 | % | 4.8 | 24 | % | ||||||||||
West Coast Terminals
|
1.9 | 10 | % | 1.9 | 7 | % | ||||||||||
Central Florida Pipeline
|
0.5 | 4 | % | (0.8 | ) | (5 | )% | |||||||||
Pacific operations
|
(8.5 | ) | (11 | )% | (4.2 | ) | (4 | )% | ||||||||
Calnev Pipeline
|
(0.6 | ) | (4 | )% | - | - | % | |||||||||
All others (including eliminations)
|
(0.9 | ) | (9 | )% | (2.4 | ) | (17 | )% | ||||||||
Total Products Pipelines
|
$ | 6.3 | 4 | % | $ | 13.9 | 6 | % |
EBDA
increase/(decrease)
|
Revenues
increase/(decrease)
|
|||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
Cochin Pipeline
|
$ | 18.1 | 77 | % | $ | 26.1 | 79 | % | ||||||||
Plantation Pipeline
|
6.7 | 20 | % | 0.7 | 5 | % | ||||||||||
West Coast Terminals
|
5.8 | 10 | % | 8.0 | 11 | % | ||||||||||
Southeast Terminals
|
0.5 | 1 | % | 8.3 | 12 | % | ||||||||||
Pacific operations
|
(4.1 | ) | (2 | )% | (3.4 | ) | (1 | )% | ||||||||
Central Florida Pipeline
|
(3.9 | ) | (9 | )% | (1.6 | ) | (3 | )% | ||||||||
Calnev Pipeline
|
(3.8 | ) | (9 | )% | (3.2 | ) | (6 | )% | ||||||||
All others (including eliminations)
|
(2.9 | ) | (9 | )% | (1.8 | ) | (5 | )% | ||||||||
Total Products Pipelines
|
$ | 16.4 | 3 | % | $ | 33.1 | 5 | % |
|
▪
|
increases of $8.0 million (77%) and $18.1 million (77%), respectively, due to higher earnings from our Cochin natural gas liquids pipeline system. The earnings increases were driven by system-wide increases in throughput volumes of 53% and 48%, respectively,
due to increased demand for both terminal and storage deliveries on the pipeline’s West leg (U.S.), higher customer demand on the pipeline’s East leg (Canadian), and for the comparable nine month periods, to the exercise of a certain shipper incentive tariff offered in the first quarter of 2011
;
|
|
▪
|
increases of $3.4 million (31%) and $6.7 million (20%), respectively, from our 51%-owned Plantation pipeline system. Plantation benefitted from higher oil loss allowance revenues and higher mainline transportation revenues, and for the comparable nine month periods, the
absence of an expense from the write-off of an uncollectible receivable in the first quarter of 2010;
|
|
▪
|
increases of $2.5 million (18%) and $0.5 million (1%), respectively, from our Southeast terminal operations. The increases were due to strong third quarter 2011 results, driven by higher product inventory gains and higher revenues from ethanol and other blending services, relative to the third quarter of 2010;
|
|
▪
|
increases of $1.9 million (10%) and $5.8 million (10%), respectively, from our West Coast terminal operations. The increases in terminal earnings were mainly due to the completion of various terminal expansion projects that increased liquids tank capacity since the end of the third quarter of 2010 and to higher rates on existing storage;
|
|
▪
|
an increase of $0.5 million (4%) and a decrease of $3.9 million (9%), respectively, from our Central Florida Pipeline. Earnings from our Central Florida pipeline system were flat across both comparable quarterly periods, but decreased in the comparable nine month periods largely due to a 12% drop in pipeline delivery volumes, due primarily to weaker demand and to the incremental business of a competing terminal in Florida;
|
|
▪
|
decreases of $8.5 million (11%) and $4.1 million (2%), respectively, from our Pacific operations. The decrease in earnings for the comparable third quarter periods was largely due to a $7.6 million increase in operating expense related to an adverse tentative court decision on the amount of 2011 rights-of-way lease payment obligations. The decrease in earnings for the comparable nine month periods was primarily due to a drop in mainline delivery revenues, partially offset by an increase in fee-based terminal revenues. The decrease in delivery revenues was primarily due to lower average tariffs, due both to lower rates on the system’s East Line deliveries as a result of rate case settlements since the end of the third quarter of 2010 and to lower military tenders. The increase in terminal revenues was largely attributable to a 12% increase in ethanol handling volumes;
|
|
▪
|
decreases of $0.6 million (4%) and $3.8 million (9%), respectively, from our Calnev Pipeline. Earnings from Calnev were essentially unchanged across the comparable three month periods, but decreased across the comparable nine month periods due largely to a 21% drop in ethanol handling volumes in the first nine months of 2011, due both to lower deliveries to the Las Vegas market, and to incremental ethanol blending services offered by a competing terminal.
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In millions, except operating statistics)
|
||||||||||||||||
Revenues(a)
|
$ | 1,176.4 | $ | 1,147.6 | $ | 3,240.1 | $ | 3,414.0 | ||||||||
Operating expenses(b)
|
(981.8 | ) | (1,001.8 | ) | (2,744.9 | ) | (2,938.1 | ) | ||||||||
Earnings from equity investments
|
50.8 | 42.0 | 154.6 | 115.9 | ||||||||||||
Interest income and Other, net(c)
|
(164.1 | ) | 0.6 | (161.7 | ) | 2.9 | ||||||||||
Income tax expense
|
(0.5 | ) | (1.1 | ) | (3.4 | ) | (1.8 | ) | ||||||||
Earnings before depreciation, depletion and amortization expense and amortization of excess cost of equity investments
|
$ | 80.8 | $ | 187.3 | $ | 484.7 | $ | 592.9 | ||||||||
Natural gas transport volumes (Bcf)(d)
|
738.5 | 658.6 | 2,167.5 | 1,925.6 | ||||||||||||
Natural gas sales volumes (Bcf)(e)
|
215.1 | 214.1 | 598.7 | 602.1 |
(a)
|
Nine month 2010 amount includes a $0.4 million increase in revenues from certain measurement period adjustments related to our October 1, 2009 natural gas treating business acquisition.
|
(b)
|
Nine month 2011 amount includes a $9.7 million increase in expense from the write-off of a receivable for fuel under-collected prior to 2011. Three and nine month 2010 amounts include unrealized losses of $1.6 million and $0.8 million, respectively, on derivative contracts used to hedge forecasted natural gas sales.
|
(c)
|
Three and nine month 2011 amounts include a $167.2 million loss from the remeasurement of our previously held 50% equity interest in KinderHawk Field Services LLC to fair value.
|
(d)
|
Includes Kinder Morgan Interstate Gas Transmission LLC, Trailblazer Pipeline Company LLC, TransColorado Gas Transmission Company LLC, Rockies Express Pipeline LLC, Midcontinent Express Pipeline LLC, Kinder Morgan Louisiana Pipeline LLC and Texas intrastate natural gas pipeline group, and for 2011 only, Fayetteville Express Pipeline LLC.
|
(e)
|
Represents Texas intrastate natural gas pipeline group volumes.
|
EBDA
increase/(decrease)
|
Revenues
increase/(decrease)
|
|||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
KinderHawk Field Services(a)
|
$ | 40.2 | n/a | $ | 49.3 | n/a | ||||||||||
Texas Intrastate Natural Gas Pipeline Group
|
6.7 | 10 | % | (15.5 | ) | (2 | )% | |||||||||
Fayetteville Express Pipeline(b)
|
6.1 | n/a | n/a | n/a | ||||||||||||
Kinder Morgan Interstate Gas Transmission
|
3.1 | 13 | % | (6.9 | ) | (13 | )% | |||||||||
Midcontinent Express Pipeline(b)
|
2.8 | 35 | % | n/a | n/a | |||||||||||
Casper and Douglas Natural Gas Processing
|
1.7 | 40 | % | 5.3 | 23 | % | ||||||||||
Rockies Express Pipeline(b)
|
0.6 | 3 | % | n/a | n/a | |||||||||||
Trailblazer Pipeline
|
(2.0 | ) | (19 | )% | (1.8 | ) | (13 | )% | ||||||||
All others (including eliminations)
|
(0.1 | ) | - | (1.6 | ) | (3 | )% | |||||||||
Total Natural Gas Pipelines
|
$ | 59.1 | 31 | % | $ | 28.8 | 3 | % |
EBDA
increase/(decrease)
|
Revenues
increase/(decrease)
|
|||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
KinderHawk Field Services(a)
|
$ | 60.8 | n/a | $ | 49.3 | n/a | ||||||||||
Fayetteville Express Pipeline(b)
|
11.7 | n/a | n/a | n/a | ||||||||||||
Midcontinent Express Pipeline(b)
|
10.3 | 49 | % | n/a | n/a | |||||||||||
Casper and Douglas Natural Gas Processing
|
8.9 | 67 | % | 18.8 | 25 | % | ||||||||||
Texas Intrastate Natural Gas Pipeline Group
|
5.9 | 3 | % | (214.9 | ) | (7 | )% | |||||||||
Kinder Morgan Interstate Gas Transmission
|
(12.6 | ) | (16 | )% | (20.1 | ) | (15 | )% | ||||||||
Trailblazer Pipeline
|
(8.0 | ) | (24 | )% | (3.2 | ) | (8 | )% | ||||||||
Rockies Express Pipeline(b)
|
(5.7 | ) | (9 | )% | n/a | n/a | ||||||||||
All others (including eliminations)
|
(3.0 | ) | (2 | )% | (3.4 | ) | (2 | )% | ||||||||
Total Natural Gas Pipelines
|
$ | 68.3 | 12 | % | $ | (173.5 | ) | (5 | )% |
(a)
|
Equity investment until July 1, 2011. See Note (b).
|
(b)
|
Equity investment. We record earnings under the equity method of accounting, but we receive distributions in amounts essentially equal to equity earnings plus depreciation and amortization expenses less sustaining capital expenditures.
|
|
▪
|
increases of $40.2 million and $60.8 million, respectively, from incremental earnings from our now wholly-owned KinderHawk Field Services LLC. We acquired an initial 50% ownership interest in KinderHawk on May 21, 2010 and we accounted for this investment under the equity method of accounting. On July 1, 2011, we acquired the remaining 50% ownership interest in KinderHawk and we now account for our investment under the full consolidation method. For more information about our July 2011 KinderHawk acquisition, see Note 2 “Acquisitions and Divestitures—Acquisitions— KinderHawk Field Services LLC and EagleHawk Field Services LLC” to our consolidated financial statements included elsewhere in this report;
|
|
▪
|
increases of $6.7 million (10%) and $5.9 million (3%), respectively, from our Texas intrastate natural gas pipeline group. The increase in earnings for the comparable third quarter periods was due to (i) higher earnings from natural gas processing activities (due largely to higher average natural gas liquids prices); (ii) a favorable settlement related to the natural gas drilling and gathering operations of GMX, the original owner and now remaining 60% owner of our 40%-owned Endeavor Gathering LLC; and (iii) higher natural gas transportation margins (due largely to an 18% increase in delivery volumes). The overall increase was partially offset, however, by lower margins from natural gas sales, mainly attributable to higher costs of natural gas supplies relative to sales price. For the comparable nine month periods, the increase in earnings was primarily due to (i) higher margins from both natural gas storage and transportation services (due to favorable storage price spreads and a 12% increase in transportation volumes); (ii) higher earnings from natural gas processing activities; and (iii) incremental equity earnings from both Endeavor and our 50%-owned Eagle Ford Gathering LLC. The overall increase was partially offset by lower natural gas sales margins and higher pipeline integrity expenses;
|
|
▪
|
increases of $6.1 million and $11.7 million, respectively, from incremental equity earnings from our 50% interest in the Fayetteville Express pipeline system. The Fayetteville Express system began firm contract transportation service on January 1, 2011;
|
|
▪
|
an increase of $3.1 million (13%) and a decrease of $12.6 million (16%), respectively, from our Kinder Morgan Interstate Gas Transmission pipeline system. The increase in earnings for the comparable three month periods was driven by higher margins on operational gas sales in the third quarter of 2011. The decrease in earnings for the comparable nine month periods was driven by lower net fuel recoveries and lower
transportation revenues, due both to a 14
% drop in transportation volumes and to the regulatory settlement discussed in Note 10 “Litigation, Environmental and Other Contingencies—Federal Energy Regulatory Commission Proceedings— Kinder Morgan Interstate Gas Transmission LLC Section 5 Proceeding” to our consolidated financial statements included elsewhere in this report;
|
|
▪
|
increases of $2.8 million (35%) and $10.3 million (49%), respectively, from our 50% interest in the Midcontinent Express pipeline system. The increases were driven by higher transportation revenues, and for the comparable nine month periods, by the June 2010 completion of an expansion project that increased the system’s Zone 1 transportation capacity from 1.5 billion to 1.8 billion cubic feet per day, and Zone 2 capacity from 1.0 billion to 1.2 billion cubic feet per day;
|
|
▪
|
increases of $1.7 million (40%) and $8.9 million (67%), respectively, from our Casper Douglas gas processing operations, primarily attributable to both higher processing spreads and higher sales volumes. The increases in sales volumes were due largely to increased drilling activity in the Douglas, Wyoming plant area;
|
|
▪
|
an increase of $0.6 million (3%) and a decrease of $5.7 million (9%), respectively, in equity earnings from our 50% ownership interest in the Rockies Express pipeline system. For the comparable nine month periods, equity earnings decreased due primarily to
higher interest expenses
and higher operating expenses
. Rockies Express issued
$1.7 billion aggregate principal amount of fixed rate senior notes in a private offering in March 2010 to secure permanent financing for the Rockies Express pipeline construction costs. The increase in operating expenses was due in part to the write-off of certain transportation fuel recovery receivables pursuant to a contractual agreement. The overall decrease in net income was partially offset by higher firm reservation fees in the first nine months of 2011, due in part to a portion of the Rockies Express-East pipeline segment being shutdown for 26 days in the first quarter of 2010 due to a pipeline girth weld failure that occurred in November 2009; and
|
|
▪
|
decreases of $2.0 million (19%) and $8.0 million (24%), respectively, from our Trailblazer pipeline system, mainly attributable to lower transportation base rates (as a result of rate case settlements since the end of the third quarter of 2010), lower backhaul transportation services, and for the comparable nine month periods, a $4.3 million increase in expense from the write-off of receivables for under-collected fuel (incremental to the $9.7 million increase in expense that is described in footnote (b) to the results of operations table above and which relates to periods prior to 2011).
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In millions, except operating statistics)
|
||||||||||||||||
Revenues(a)
|
$ | 372.0 | $ | 296.0 | $ | 1,062.8 | $ | 932.4 | ||||||||
Operating expenses
|
(83.1 | ) | (78.2 | ) | (256.0 | ) | (229.9 | ) | ||||||||
Earnings from equity investments
|
6.1 | 4.7 | 17.7 | 17.7 | ||||||||||||
Interest income and Other, net
|
1.0 | - | 2.1 | 1.9 | ||||||||||||
Income tax (expense) benefit
|
(1.2 | ) | (1.0 | ) | (3.4 | ) | 2.0 | |||||||||
Earnings before depreciation, depletion and amortization expense and amortization of excess cost of equity investments
|
$ | 294.8 | $ | 221.5 | $ | 823.2 | $ | 724.1 | ||||||||
Southwest Colorado carbon dioxide production (gross) (Bcf/d)(b)
|
1.2 | 1.2 | 1.2 | 1.2 | ||||||||||||
Southwest Colorado carbon dioxide production (net) (Bcf/d)(b)
|
0.5 | 0.5 | 0.5 | 0.5 | ||||||||||||
SACROC oil production (gross)(MBbl/d)(c)
|
29.4 | 29.0 | 28.9 | 29.4 | ||||||||||||
SACROC oil production (net)(MBbl/d)(d)
|
24.5 | 24.2 | 24.1 | 24.5 | ||||||||||||
Yates oil production (gross)(MBbl/d)(c)
|
21.5 | 23.2 | 21.7 | 24.4 | ||||||||||||
Yates oil production (net)(MBbl/d)(d)
|
9.5 | 10.3 | 9.6 | 10.8 | ||||||||||||
Katz oil production (gross)(MBbl/d)(c)
|
0.5 | 0.3 | 0.3 | 0.3 | ||||||||||||
Katz oil production (net)(MBbl/d)(d)
|
0.4 | 0.2 | 0.3 | 0.3 | ||||||||||||
Natural gas liquids sales volumes (net)(MBbl/d)(d)
|
8.4 | 10.0 | 8.4 | 9.9 | ||||||||||||
Realized weighted average oil price per Bbl(e)
|
$ | 70.43 | $ | 59.54 | $ | 69.54 | $ | 59.88 | ||||||||
Realized weighted average natural gas liquids price per Bbl(f)
|
$ | 68.86 | $ | 46.73 | $ | 65.53 | $ | 50.06 |
(a)
|
Three and nine month 2011 amounts include unrealized gains of $8.5 million and $10.4 million, respectively, and three and nine month 2010 amounts include unrealized losses of $7.9 million and unrealized gains of $5.4 million, respectively, all relating to derivative contracts used to hedge forecasted crude oil sales.
|
(b)
|
Includes McElmo Dome and Doe Canyon sales volumes.
|
(c)
|
Represents 100% of the production from the field. We own an approximately 97% working interest in the SACROC unit and an approximately 50% working interest in the Yates unit.
|
(d)
|
Net to us, after royalties and outside working interests.
|
(e)
|
Includes all of our crude oil production properties.
|
(f)
|
Includes production attributable to leasehold ownership and production attributable to our ownership in processing plants and third party processing agreements.
|
EBDA
increase/(decrease)
|
Revenues
increase/(decrease)
|
|||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
Oil and Gas Producing Activities
|
$ | 46.0 | 28 | % | $ | 47.8 | 20 | % | ||||||||
Sales and Transportation Activities
|
10.9 | 18 | % | 15.7 | 22 | % | ||||||||||
Intrasegment eliminations
|
- | - | (3.9 | ) | (30 | )% | ||||||||||
Total CO
2
|
$ | 56.9 | 25 | % | $ | 59.6 | 20 | % |
EBDA
increase/(decrease)
|
Revenues
increase/(decrease)
|
|||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
Oil and Gas Producing Activities
|
$ | 66.0 | 13 | % | $ | 91.0 | 12 | % | ||||||||
Sales and Transportation Activities
|
28.1 | 14 | % | 46.8 | 21 | % | ||||||||||
Intrasegment eliminations
|
- | - | (12.4 | ) | (32 | )% | ||||||||||
Total CO
2
|
$ | 94.1 | 13 | % | $ | 125.4 | 14 | % |
|
▪
|
increases of $33.2 million (17%) and $65.0 million (11%), respectively, in crude oil sales revenues—due to higher average realized sales prices for U.S. crude oil. Our realized weighted average price per barrel of crude oil increased 18% in the third quarter of 2011 and 16% in the first nine months of 2011, when compared to the same periods in 2010. The overall increases in crude oil sales revenues were partially offset by small decreases in oil production volumes at the SACROC and Yates field units (volumes presented in the results of operations table above);
|
|
▪
|
increases of $10.1 million (23%) and $13.9 million (10%), respectively, in natural gas plant products sales revenues, due to increases of 47% and 31%, respectively, in our realized weighted average price per barrel of natural gas liquids. The increases in revenues from higher realized sales prices were partially offset by decreases in liquids sales volumes of 16% and 15%, respectively. The decreases in volumes were mainly related to the contractual reduction in our net interest in liquids production from the SACROC field (described following);
|
|
▪
|
increases of $4.6 million (118%) and $13.2 million (119%), respectively, in net profits interest revenues from our 28% net profits interest in the Snyder, Texas natural gas processing plant. The increases in net profits interest revenues from the Snyder plant were driven by higher natural gas liquids prices in the first nine months of 2011, record producing volumes in the third quarter of 2011, and the favorable impact from the restructuring of certain liquids processing contracts that became effective at the beginning of 2011; and
|
|
▪
|
decreases of $2.7 million (3%) and $23.9 million (10%), respectively, due to higher combined operating expenses, driven primarily by higher carbon dioxide supply expenses that related to both initiating carbon dioxide injections into the Katz field and higher carbon dioxide prices. The overall increases in expense were partially offset by a $14.0 million reduction in severance tax expense recognized in the third quarter of 2011.
|
|
▪
|
increases of $13.9 million (27%) and $37.4 million (24%), respectively, in carbon dioxide sales revenues, primarily due to higher average sales prices. The segment’s average price received for all carbon dioxide sales in the third quarter and first nine months of 2011 increased 23% and 22%, respectively, due largely to the fact that a portion of its carbon dioxide sales contracts are indexed to oil prices. Overall carbon dioxide sales volumes increased by 3% in the third quarter of 2011 and by 2% in the first nine months of 2011, versus the same prior year periods;
|
|
▪
|
increases of $1.9 million (10%) and $5.6 million (10%), respectively, in carbon dioxide and crude oil pipeline transportation revenues, due mainly to incremental transportation service on our Eastern Shelf carbon dioxide pipeline. We completed construction of the pipeline in December 2010;
|
|
▪
|
decreases of $6.3 million (45%) and $14.6 million (35%), respectively, due to higher combined operating expenses. The increases were driven by higher severance tax expenses and higher carbon dioxide supply expenses, both related to higher commodity prices in the first nine months of 2011;
|
|
▪
|
for the comparable nine month periods, an increase of $3.8 million (75%) in other revenues, due mainly to incremental earnings from third-party reimbursement and construction agreements; and
|
|
▪
|
for the comparable nine month periods, a $5.3 million (271%) decrease due to higher income tax expenses, resulting primarily from decreases in tax expense in the first nine months of 2010 due to the expensing of previously capitalized carbon dioxide costs.
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In millions, except operating statistics)
|
||||||||||||||||
Revenues
|
$ | 328.1 | $ | 321.5 | $ | 980.3 | $ | 946.1 | ||||||||
Operating expenses(a)
|
(155.5 | ) | (163.7 | ) | (479.6 | ) | (480.3 | ) | ||||||||
Other income (expense)(b)
|
1.1 | (0.1 | ) | 4.5 | 10.4 | |||||||||||
Earnings from equity investments
|
2.9 | 0.7 | 7.8 | 1.3 | ||||||||||||
Interest income and Other, net(c)
|
0.4 | 2.8 | 4.9 | 3.2 | ||||||||||||
Income tax benefit (expense)(d)
|
2.8 | (2.0 | ) | 6.6 | (5.5 | ) | ||||||||||
Earnings before depreciation, depletion and amortization expense and amortization of excess cost of equity investments
|
$ | 179.8 | $ | 159.2 | $ | 524.5 | $ | 475.2 | ||||||||
Bulk transload tonnage (MMtons)(e)
|
26.6 | 24.1 | 75.5 | 71.4 | ||||||||||||
Ethanol (MMBbl)
|
15.5 | 14.1 | 44.9 | 44.2 | ||||||||||||
Liquids leaseable capacity (MMBbl)
|
59.5 | 58.2 | 59.5 | 58.2 | ||||||||||||
Liquids utilization %
|
93.2 | % | 96.2 | % | 93.2 | % | 96.2 | % |
(a)
|
Three and nine month 2011 amounts include (i) increases in expense of $1.2 million and $2.8 million, respectively, from casualty insurance deductibles and the repair of assets related to casualty losses; (ii) increases in expense of $0.1 million and $0.7 million, respectively, associated with the sale of our ownership interest in the boat fleeting business we acquired from Megafleet Towing Co., Inc. in April 2009; and (iii) increases in expense of $0.1 million associated with the dissolution of our partnership interest in Globalplex Handling. Nine month 2011 amount also includes a $1.2 million increase in expense associated with environmental liability adjustments, and a $0.6 million increase in expense associated with the settlement of a litigation matter at our Carteret, New Jersey liquids terminal. Three and nine month 2010 amounts include a $5.0 million increase in expense from casualty insurance deductibles, and a $0.2 million decrease in expense from certain measurement period adjustments related to our March 5, 2010 Slay Industries terminal acquisition. Nine month 2010 amount also includes a $0.6 million increase in expense related to storm and flood clean-up and repair activities.
|
(b)
|
Three and nine month 2011 amounts include (i) a $1.3 million increase in income from the sale of our ownership interest in Arrow Terminals B.V.; (ii) a $0.4 million decrease in income from property write-offs associated with the dissolution of our partnership interest in Globalplex Handling; and (iii) a $0.1 million decrease in income and a $0.8 million increase in income, respectively, from adjustments associated with the sale of our ownership interest in the boat fleeting business we acquired from Megafleet Towing Co., Inc. in April 2009. Nine month 2011 amount also includes a $4.3 million casualty indemnification gain related to a 2008 fire at our Pasadena, Texas liquids terminal, and a $1.6 million decrease in income from the write-off of assets related to casualty losses. Nine month 2010 amount includes a $6.7 million casualty indemnification gain related to a 2008 fire at our Pasadena, Texas liquids terminal.
|
(c)
|
Nine month 2011 amount includes a combined $3.6 million gain from the sale of a 51% ownership interest in two of our subsidiaries: River Consulting LLC and Devco USA L.L.C.
|
(d)
|
Nine month 2011 amount includes (i) a $4.7 million decrease in expense (reflecting tax savings) related to non-cash compensation expense allocated to us from KMI (we do not have any obligation, nor do we expect to pay any amounts or realize any direct benefits related to this expense); (ii) a $1.9 million decrease in expense (reflecting tax savings) related to the net decrease in income from the sale of our ownership interest in the boat fleeting business described in both footnotes (a) and (b) and in Note 3 to our consolidated financial statements in our 2010 Form 10-K/A; and (iii) a $1.4 million increase in expense related to the gain associated with the sale of a 51% ownership interest in two of our subsidiaries described in footnote (c).
|
(e)
|
Volumes for acquired terminals are included for all periods.
|
EBDA
increase/(decrease)
|
Revenues
increase/(decrease)
|
|||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
Mid-Atlantic
|
$ | 5.1 | 63 | % | $ | 9.6 | 48 | % | ||||||||
Northeast
|
4.2 | 23 | % | 2.6 | 8 | % | ||||||||||
Gulf Bulk
|
3.5 | 19 | % | 3.3 | 10 | % | ||||||||||
Gulf Liquids
|
(2.6 | ) | (6 | )% | 1.4 | 3 | % | |||||||||
Southeast
|
(0.2 | ) | (1 | )% | (0.3 | ) | (1 | )% | ||||||||
All others (including intrasegment eliminations and unallocated income tax expenses)
|
2.5 | 4 | % | (12.8 | ) | (8 | )% | |||||||||
Total Terminals
|
$ | 12.5 | 8 | % | $ | 3.8 | 1 | % |
EBDA
increase/(decrease)
|
Revenues
increase/(decrease)
|
|||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
Mid-Atlantic
|
$ | 13.5 | 46 | % | $ | 19.7 | 28 | % | ||||||||
Gulf Liquids
|
10.4 | 9 | % | 18.6 | 12 | % | ||||||||||
Northeast
|
4.3 | 7 | % | 8.2 | 8 | % | ||||||||||
Southeast
|
3.5 | 10 | % | 2.1 | 3 | % | ||||||||||
Gulf Bulk
|
(1.4 | ) | (3 | )% | 3.4 | 3 | % | |||||||||
All others (including intrasegment eliminations and unallocated income tax expenses)
|
1.0 | 1 | % | (27.3 | ) | (6 | )% | |||||||||
Total Terminals
|
$ | 31.3 | 7 | % | $ | 24.7 | 3 | % |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In millions, except operating statistics)
|
||||||||||||||||
Revenues
|
$ | 77.4 | $ | 67.5 | $ | 230.3 | $ | 197.9 | ||||||||
Operating expenses
|
(26.4 | ) | (23.6 | ) | (76.8 | ) | (66.8 | ) | ||||||||
Earnings (losses) from equity investments
|
0.2 | (1.3 | ) | (1.6 | ) | (1.5 | ) | |||||||||
Interest income and Other, net
|
3.6 | 4.7 | 10.3 | 12.3 | ||||||||||||
Income tax expense(a)
|
(6.3 | ) | (3.3 | ) | (12.2 | ) | (9.0 | ) | ||||||||
Earnings before depreciation, depletion and amortization expense and amortization of excess cost of equity investments
|
$ | 48.5 | $ | 44.0 | $ | 150.0 | $ | 132.9 | ||||||||
Transport volumes (MMBbl)(b)
|
25.6 | 27.2 | 75.2 | 79.3 |
(a)
|
Nine month 2011 amount includes a $2.2 million decrease in expense (reflecting tax savings) related to non-cash compensation expense allocated to us from KMI (we do not have any obligation, nor do we expect to pay any amounts or realize any direct benefits related to this expense).
|
(b)
|
Represents Trans Mountain pipeline system volumes.
|
EBDA
increase/(decrease)
|
Revenues
increase/(decrease)
|
|||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
Trans Mountain Pipeline
|
$ | 3.5 | 9 | % | $ | 9.8 | 15 | % | ||||||||
Jet Fuel Pipeline
|
(0.1 | ) | (9 | )% | 0.1 | 6 | % | |||||||||
Express Pipeline(a)
|
1.1 | 54 | % | n/a | n/a | |||||||||||
Total Kinder Morgan Canada
|
$ | 4.5 | 10 | % | $ | 9.9 | 15 | % |
EBDA
increase/(decrease)
|
Revenues
increase/(decrease)
|
|||||||||||||||
(In millions, except percentages)
|
||||||||||||||||
Trans Mountain Pipeline
|
$ | 14.7 | 12 | % | $ | 32.1 | 17 | % | ||||||||
Jet Fuel Pipeline
|
0.3 | 10 | % | 0.3 | 6 | % | ||||||||||
Express Pipeline(a)
|
(0.1 | ) | (1 | )% | n/a | n/a | ||||||||||
Total Kinder Morgan Canada
|
$ | 14.9 | 11 | % | $ | 32.4 | 16 | % |
(a)
|
Equity investment. We record earnings under the equity method of accounting.
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In millions)
|
||||||||||||||||
General and administrative expenses(a)
|
$ | 100.5 | $ | 93.6 | $ | 387.1 | $ | 288.1 | ||||||||
Interest expense, net of unallocable interest income(b)
|
$ | 132.5 | $ | 133.8 | $ | 393.8 | $ | 373.9 | ||||||||
Unallocable income tax expense
|
$ | 2.1 | $ | 4.2 | $ | 6.8 | $ | 8.4 | ||||||||
Net income attributable to noncontrolling interests(c)
|
$ | 1.8 | $ | 1.6 | $ | 6.3 | $ | 7.6 |
(a)
|
Three and nine month 2011 amounts include (i) increases in expense of $0.3 million for certain legal expenses associated with business acquisitions; (ii) increases in expense of $0.1 million and $1.2 million, respectively, for certain asset and business acquisition costs; (iii) a $0.2 million decrease in unallocated payroll tax expense and a $1.2 million increase in unallocated payroll tax expense, respectively, all related to the $87.1 million special non-cash bonus expense to non-senior management employees allocated to us from KMI in the first quarter of 2011 (however, we do not have any obligation, nor do we expect to pay any amounts related to this expense); and (iv) decreases in expense of $0.1 million and $0.2 million, respectively, related to capitalized overhead costs associated with the 2008 hurricane season. Nine month 2011 amount also includes a combined $89.9 million increase in non-cash compensation expense (including $87.1 million related to a special non-cash bonus expense to non-senior management employees), allocated to us from KMI; however, we do not have any obligation, nor do we expect to pay any amounts related to this expense. Three and nine month 2010 amounts include (i) increases in expense of $1.0 million and $3.7 million, respectively, from non-cash compensation expense allocated to us from KMI (we do not have any obligation, nor do we expect to pay any amounts related to these expenses); and (ii) increases in expense of $1.1 million and $3.5 million, respectively, for certain asset and business acquisition costs. Nine month 2010 amount also includes a $1.6 million increase in legal expense associated with certain items such as legal settlements and pipeline failures, and a $0.2 million decrease in expense related to capitalized overhead costs associated with the 2008 hurricane season.
|
(b)
|
Three and nine month 2011 amounts include increases in imputed interest expense of $0.1 million and $0.5 million, respectively, and three and nine month 2010 amounts include increases in imputed interest expense of $0.2 million and $0.8 million, respectively, all related to our January 1, 2007 Cochin Pipeline acquisition.
|
(c)
|
Three and nine month 2011 amounts include decreases of $3.0 million and $6.5 million, respectively, in net income attributable to our noncontrolling interests, and the three and nine month 2010 amounts include decreases of $1.9 million and $4.3 million, respectively, in net income attributable to our noncontrolling interests, all related to the combined effect of the three and nine month 2011 and 2010 items previously disclosed in the footnotes to the tables included above in “—Results of Operations.”
|
|
▪
|
cash distributions and sustaining capital expenditures with existing cash and cash flows from operating activities;
|
|
▪
|
expansion capital expenditures and working capital deficits with retained cash (which may result from including i-units in the determination of cash distributions per unit but paying quarterly distributions on i-units in additional i-units rather than cash), additional borrowings (including commercial paper issuances), and the issuance of additional common units or the proceeds from purchases of additional i-units by KMR;
|
|
▪
|
interest payments with cash flows from operating activities; and
|
|
▪
|
debt principal payments with additional borrowings, as such debt principal payments become due, or by the issuance of additional common units or the proceeds from purchases of additional i-units by KMR.
|
|
▪
|
a $183.7 million increase in cash from overall higher partnership income—after adjusting our period-to-period $125.8 million decrease in net income for the following five non-cash items: (i) a $167.2 million increase relating to the non-cash loss from the remeasurement of our previous 50% equity interest in KinderHawk Field Services LLC (as discussed in Note 2 “Acquisitions and Divestitures” to our consolidated financial statements included elsewhere in this report); (ii) an $86.2 million increase due to certain higher non-cash compensation expenses allocated to us from KMI (as discussed in Note 9 “Related Party Transactions” to our consolidated financial statements included elsewhere in this report, we do not have any obligation, nor do we expect to pay any amounts related to these allocated expenses); (iii) an $83.8 million increase in expense from adjustments made to our rate case and other legal liabilities; (iv) a $30.6 million increase due to higher non-cash depreciation, depletion and amortization expenses (including amortization of excess cost of equity investments); and (v) a $58.3 million decrease due to higher earnings from equity investees. The period-to-period change in partnership income in 2011 versus 2010 is discussed above in “—Results of Operations” (including all of the certain items disclosed in the associated table footnotes);
|
|
▪
|
a $124.9 million increase in cash attributable to lower payments made in 2011 to various shippers on our Pacific operations’ refined products pipelines. In the first nine months of 2011 and 2010, we paid legal settlements of $81.4 million and $206.3 million, respectively, to settle various interstate and California intrastate transportation rate challenges filed by shippers with the FERC and the CPUC, respectively, dating back as early as 1992;
|
|
▪
|
a $79.8 million increase in cash related to net changes in both non-current assets and liabilities and other non-cash income and expense items, primarily driven by (i) a $124.2 million increase in cash due to higher net dock premiums and toll collections received from our Trans Mountain pipeline system customers; and (ii) a net $39.2 million decrease in cash attributable to lower non-cash earnings adjustments in the first nine months of 2011, including, among other items, income from the sale or casualty of net assets, amortization of debt-related discounts and premiums, and deferred tax expenses;
|
|
▪
|
a $73.0 million increase in cash from interest rate swap termination payments received in August 2011, when we terminated two separate fixed-to-variable interest rate swap agreements having a combined notional principal amount of $200.0 million;
|
|
▪
|
a $46.0 million increase in cash from higher distributions of earnings from equity investees. The increase was chiefly due to incremental distributions of (i) $15.3 million received from KinderHawk Field Services LLC (for the periods prior to our July 1, 2011 acquisition of the remaining 50% interest in KinderHawk that we did not already own); (ii) $11.6 million received from our 50%-owned Fayetteville Express Pipeline LLC; and (iii) $10.3 million received from our 50%-owned Midcontinent Express Pipeline LLC; and
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|
▪
|
a $59.6 million decrease in cash relative to net changes in working capital items, primarily due to a $55.6 million decrease in cash from the collection and payment of trade and related party receivables and payables (including collections and payments on natural gas transportation and exchange imbalance receivables and payables), due primarily to the timing of invoices received from customers and paid to vendors and suppliers.
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▪
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a $227.8 million increase in cash due to lower acquisitions of assets and investments. In the first nine months of 2011, we paid $945.0 million for strategic acquisitions, including (i) $835.1 million for both our remaining 50% ownership interest in KinderHawk Field Services LLC and our 25% interest in EagleHawk Field Services LLC; (ii) $50.0 million for our preferred equity interest in Watco Companies, LLC; and (iii) $42.9 million for terminal assets acquired from TGS Development, L.P. (our 2011 acquisitions are discussed further in Note 2 to our consolidated financial statements included elsewhere in this report). In the first nine months of 2010, we spent $1,172.8 million for strategic business acquisitions, primarily consisting of the following: (i) $921.4 million for our initial 50% ownership interest in KinderHawk in May 2010; (ii) $114.3 million for three unit train ethanol handling terminals acquired from US Development Group LLC in January 2010; and (iii) $97.0 million for terminal assets and investments acquired from Slay Industries in March 2010;
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▪
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a $34.0 million increase in cash from higher proceeds received for combined margin and restricted deposits, primarily due to a $50.0 million increase due to the release of restricted cash. As of December 31, 2010, we placed the $50.0 million cash we paid in January 2011 for our equity investment in Watco Companies, LLC in a cash escrow account, and we reported this amount as “Restricted deposits” on our year-end balance sheet;
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▪
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a $12.1 million increase in cash due to higher capital distributions (distributions in excess of cumulative earnings) received from equity investments in the first nine months of 2011—chiefly due to incremental capital distributions received from Fayetteville Express Pipeline LLC;
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|
▪
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a $115.6 million decrease in cash due to higher capital expenditures, as described above in “—Capital Expenditures;” and
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▪
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an $87.2 million decrease in cash due to higher contributions to equity investees. During the first nine months of 2011, we contributed $297.0 million to our equity investees, including payments of $195.0 million to Fayetteville Express Pipeline LLC and $73.5 million to our 50%-owned Eagle Ford Gathering LLC. Fayetteville Express used the contributions to repay borrowings under its previous $1.1 billion bank credit facility, and subsequently, entered into new borrowing facilities. Eagle Ford Gathering used the contributions as partial funding for natural gas gathering infrastructure expansions. In the first nine months of 2010, we contributed an aggregate amount of $209.8 million, including $130.5 million to Rockies Express Pipeline LLC and $39.0 million to Midcontinent Express Pipeline LLC to partially fund our respective share of Rockies Express and Midcontinent Express natural gas pipeline system construction costs.
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▪
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a $359.9 million decrease in cash due to higher partnership distributions. Distributions to all partners, consisting of our common and Class B unitholders, our general partner and our noncontrolling interests, totaled $1,659.3 million in the first nine months of 2011. In the first nine months of 2010, we distributed $1,299.4 million to our partners. Further information regarding our distributions is discussed following in “—Partnership Distributions;”
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▪
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a $252.0 million decrease in cash from overall debt financing activities—which include our issuances and payments of debt and our debt issuance costs. The decrease in cash was primarily due to (i) a $283.8 million decrease due to lower net short-term borrowings (consisting of borrowings and repayments under both our commercial paper program and our revolving credit facility); (ii) a $154.0 million decrease due to the repayment of all of the outstanding borrowings under KinderHawk Field Services LLC’s bank credit facility that we assumed on our July 1, 2011 acquisition date; (iii) a $142.9 million increase due to higher net issuances and repayments of our senior notes (in the first nine months of 2011, we generated net proceeds of $1,136.0 million from issuing and repaying senior notes, and in May 2010, we received net proceeds of $993.1 million from the public offering of $1.0 billion aggregate principal amount of senior notes); and (iv) a $30.9 million increase in cash due to higher repayments received in the first nine months of 2011 on a related party loan we made in July 2004 to Plantation Pipe Line Company.
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▪
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a $176.7 million increase in cash due to higher partnership equity issuances. The increase reflects the $813.3 million we received, after commissions and underwriting expenses, from the sales of additional common units in the first nine months of 2011 (discussed in Note 5 “Partners’ Capital—Equity Issuances” to our consolidated financial statements included elsewhere in this report), versus the $636.6 million we received from the sales of additional common units in the same nine month period a year ago. We used the proceeds from our 2011 equity issuances to reduce the borrowings under our commercial paper program, and in 2010, to reduce the borrowings under both our commercial paper program and our credit facility; and
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▪
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a $12.8 million increase in cash from net changes in cash book overdrafts, resulting from timing differences on checks issued but not yet presented for payment.
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▪
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price trends and overall demand for natural gas liquids, refined petroleum products, oil, carbon dioxide, natural gas, electricity, coal, steel and other bulk materials and chemicals in North America;
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▪
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economic activity, weather, alternative energy sources, conservation and technological advances that may affect price trends and demand;
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▪
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changes in our tariff rates implemented by the Federal Energy Regulatory Commission, California Public Utilities Commission, Canada’s National Energy Board or another regulatory agency;
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▪
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our ability to acquire new businesses and assets and integrate those operations into our existing operations, as well as our ability to expand our facilities;
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▪
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difficulties or delays experienced by railroads, barges, trucks, ships or pipelines in delivering products to or from our terminals or pipelines;
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▪
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our ability to successfully identify and close acquisitions and make cost-saving changes in operations;
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▪
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shut-downs or cutbacks at major refineries, petrochemical or chemical plants, ports, utilities, military bases or other businesses that use our services or provide services or products to us;
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▪
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changes in crude oil and natural gas production from exploration and production areas that we serve, such as the Permian Basin area of West Texas, the U.S. Rocky Mountains, areas of shale gas formation and the Alberta oil sands;
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▪
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changes in laws or regulations, third-party relations and approvals, and decisions of courts, regulators and governmental bodies that may adversely affect our business or our ability to compete;
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▪
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changes in accounting standards that impact the measurement of our results of operations, the timing of when such measurements are to be made and recorded, and the disclosures surrounding these activities;
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▪
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our ability to offer and sell equity securities and debt securities or obtain debt financing in sufficient amounts to implement that portion of our business plan that contemplates growth through acquisitions of operating businesses and assets and expansions of our facilities;
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▪
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our indebtedness, which could make us vulnerable to general adverse economic and industry conditions, limit our ability to borrow additional funds, and/or place us at competitive disadvantages compared to our competitors that have less debt or have other adverse consequences;
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▪
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interruptions of electric power supply to our facilities due to natural disasters, power shortages, strikes, riots, terrorism, war or other causes;
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▪
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our ability to obtain insurance coverage without significant levels of self-retention of risk;
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▪
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acts of nature, accidents, sabotage, terrorism or other similar acts causing damage greater than our insurance coverage limits;
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▪
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capital and credit markets conditions, inflation and interest rates;
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▪
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the political and economic stability of the oil producing nations of the world;
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▪
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national, international, regional and local economic, competitive and regulatory conditions and developments;
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▪
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our ability to achieve cost savings and revenue growth;
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▪
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foreign exchange fluctuations;
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▪
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the timing and extent of changes in commodity prices for oil, natural gas, electricity and certain agricultural products;
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▪
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the extent of our success in discovering, developing and producing oil and gas reserves, including the risks inherent in exploration and development drilling, well completion and other development activities;
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▪
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engineering and mechanical or technological difficulties that we may experience with operational equipment, in well completions and workovers, and in drilling new wells;
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▪
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the uncertainty inherent in estimating future oil and natural gas production or reserves that we may experience;
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▪
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the ability to complete expansion projects on time and on budget;
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▪
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the timing and success of our business development efforts; and
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▪
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unfavorable results of litigation and the fruition of contingencies referred to in Note 10 to our consolidated financial statements included elsewhere in this report.
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|
KINDER MORGAN ENERGY PARTNERS, L.P.
|
||
|
Registrant (A Delaware limited partnership)
|
|
By:
|
KINDER MORGAN G.P., INC.,
|
|
|
its sole General Partner
|
|
By:
|
KINDER MORGAN MANAGEMENT, LLC,
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||
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the Delegate of Kinder Morgan G.P., Inc.
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Date: October 28, 2011
|
By:
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/s/ Kimberly A. Dang
|
||||
Kimberly A. Dang
Vice President and Chief Financial Officer
(principal financial and accounting officer)
|
|
(1)
|
the sum of the present values, calculated as of the Redemption Date, of:
|
|
•
|
each interest payment that, but for the redemption, would have been payable on the Note, or portion of a Note, being redeemed on each interest payment date occurring after the Redemption Date, excluding any accrued interest for the period prior to the Redemption Date; and
|
|
•
|
the principal amount that, but for the redemption, would have been payable at the stated maturity of the Note, or portion of a Note, being redeemed;
|
|
(2)
|
the principal amount of the Note, or portion of a Note, being redeemed.
|
|
the sum of the present values, calculated as of the Redemption Date, of:
|
·
|
each interest payment that, but for the redemption, would have been payable on the Security, or portion of a Security, being redeemed on each Interest Payment Date occurring after the Redemption Date, excluding any accrued interest for the period prior to the Redemption Date; and
|
·
|
the principal amount that, but for the redemption, would have been payable at the Stated Maturity of the Security, or portion of a Security, being redeemed;
|
|
the principal amount of the Security, or portion of a Security, being redeemed.
|
Nine Months Ended September 30,
|
||||||||
|
2011
|
2010
|
||||||
Weighted Average Number of Limited Partners’ Units on which Limited Partners’ Net Income (Loss) per Unit is Based
|
323.3 | 304.7 | ||||||
Calculation of Limited Partners’ interest in Net Income (Loss)
|
||||||||
Amounts Attributable to Kinder Morgan Energy Partners, L.P.:
|
||||||||
Net Income
|
$ | 782.8 | $ | 907.3 | ||||
Less: General Partner’s interest in Net Income
|
(871.0 | ) | (609.0 | ) | ||||
Limited Partners’ interest in Net Income (Loss)
|
$ | (88.2 | ) | $ | 298.3 | |||
Limited Partners’ Net Income (Loss) per Unit
|
$ | (0.27 | ) | $ | 0.98 |
Nine Months Ended
|
Nine Months Ended
|
|||||||
|
September 30, 2011
|
September 30, 2010
|
||||||
Earnings:
Pre-tax income from continuing operations before adjustment for noncontrolling interests and equity earnings (including amortization of excess cost of equity investments) per statements of income
|
$ | 613.9 | $ | 791.2 | ||||
Add:
|
||||||||
Fixed charges
|
447.3 | 400.9 | ||||||
Amortization of capitalized interest
|
3.2 | 3.0 | ||||||
Distributed income of equity investees
|
200.9 | 154.9 | ||||||
Less:
|
||||||||
Interest capitalized from continuing operations
|
(9.7 | ) | (9.8 | ) | ||||
Noncontrolling interests in pre-tax income of subsidiaries
with no fixed charges
|
(0.4 | ) | (0.2 | ) | ||||
Income as adjusted
|
$ | 1,255.2 | $ | 1,340.0 | ||||
Fixed charges:
Interest and debt expense, net per statements of income (includes amortization of debt discount, premium, and debt issuance costs; excludes capitalized interest)
|
$ | 405.3 | $ | 384.8 | ||||
Add:
|
||||||||
Portion of rents representative of the interest factor
|
42.0 | 16.1 | ||||||
Fixed charges
|
$ | 447.3 | $ | 400.9 | ||||
Ratio of earnings to fixed charges
|
2.81 | 3.34 | ||||||
1.
|
I have reviewed this quarterly report on Form 10-Q of Kinder Morgan Energy Partners, L.P.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States;
|
c)
|
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Kinder Morgan Energy Partners, L.P.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States;
|
c)
|
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|