Kinder Morgan Energy Partners (KMP) reported its third quarter results of 40 cents per limited partner unit versus the Zacks Consensus Estimate of 38 cents and year-earlier earnings of 54 cents. All the business segments experienced year over year growth except for the CO2 business, which was negatively impacted by significantly lower crude oil prices.

Importantly, the partnership increased its quarterly distribution by 3% to $1.05 per unit ($4.20 annualized) from $1.02 per unit ($4.08 annualized) in the year-ago quarter. The new distribution is payable on Nov 13 to unitholders of record on Oct 30, 2009.

Kinder Morgan’s distributable cash flow for the quarter before one-time items was $320 million, up 14% year over year. Distributable cash flow per unit was $1.12, up nearly 3% year over year.

The Product Pipeline segment registered earnings before depreciation, depletion and amortization (DD&A) of $166.7 million, up 19% from the year-ago period, mainly driven by improved warehousing margins at West Coast terminal facilities, higher tariffs on the Pacific system and higher ethanol revenues on the Central Florida Pipeline as well as at Southeast Terminals.

Earnings before DD&A in the Natural Gas Pipelines segment were up 10% from the year-earlier level to $194.8 million, primarily driven by the outstanding performance of new pipeline projects. In the Carbon Dioxide segment, earnings before DD&A decreased more than 2% from the year-earlier level to $198.6 million, due to significantly lower crude oil prices.

The Terminals segment’s earnings before DD&A were $144 million, up 9% year-over-year, with higher liquids capacity at Houston Ship Channel operations and contributions from its Geismar , Louisiana , drumming facility which came online in the first quarter of 2009. The Kinder Morgan Canada segment produced earnings before DD&A of $47.7 million, up 20% year over year. This growth was mainly driven by higher throughput on the Trans Mountain pipeline system.

We believe Kinder Morgan’s stable, fee-based, well-diversified asset base is likely to continue leading to additional growth opportunities and also provide earnings and cash flow visibility. We expect a sound cash flow growth in the next year from full-year contribution of three large natural gas pipeline projects such as REX, MEP and Louisiana . In addition, the partnership’s recent acquisition of natural gas treating facilities of Crosstex possesses significant growth potential to add numbers to the bottom line.

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