Inside Kinder Morgan Inc (KMI): CO2

The segment generated the second-highest earnings for Kinder Morgan in the fourth quarter, growing 20% to reach $337 million, bringing in $1.3 billion for the full year. While many expected this segment to decline, it did no such thing, and management expects to grow distributable cash flow again in 2013.

A look ahead
It’s no secret that oil production in Texas is climbing again, and that will really benefit Kinder Morgan Inc (NYSE:KMI) going forward. The partnership plans to spend $632 million building up the CO2 segment in 2013, including overhead and CO2 purchases. The majority of the funds will be allocated to SACROC (40%) and S&T (42%).

SACROC and Katz remain the assets most susceptible to commodity risk. This is something investors can monitor, and there should be no reason for surprises come earnings time. All told, Kinder Morgan expects to generate $1.38 billion in distributable cash flow from this segment for the full year, which would be about $65 million more than its performance in 2012.

The future of this segment really is all about demand. Obviously, if demand remains strong, the segment has a bright long-term outlook. But increased demand also improves contract terms for Kinder Morgan, which brightens the short-term outlook as well. High oil prices have encouraged producers to get more bang for their buck, increasing purchases of CO2. Demand is growing in the Permian Basin, but the partnership has identified opportunities long-term in regions outside this traditional hotbed, including the Gulf Coast, California, the mid-continent region, and Canada.

Foolish takeaway
Kinder Morgan Inc (NYSE:KMI)’s CO2 business unit once again demonstrates how multifaceted this midstream operation really is. What makes the partnership such a compelling investment is that in the end, you really are buying into one of the most diversified energy companies on the market.

The article Inside Kinder Morgan: CO2 originally appeared on

Fool contributor Aimee Duffy has no position in any stocks mentioned. Click here to see her holdings and a short bio. If you have the energy, follow her on Twitter, where she goes by @TMFDuffy. The Motley Fool recommends Kinder Morgan and owns shares of Denbury Resources and Kinder Morgan.

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