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Kinder Morgan Earnings Rise 13% in Part on Solid Gas Pipeline Results

Strong gas pipeline results and the performance of the other business segments at Kinder Morgan Energy Partners (KMP) produced a 13% increase in Kinder Morgan Inc.'s (KMI) earnings per share from continuing operations before certain items to 95 cents (or $116.9 million). Through the first six months of the year, Kinder Morgan Inc. reported a 17% increase in earnings per share from continuing operations.

"Our ownership of the general partner of Kinder Morgan Energy Partners LP and another solid performance by Natural Gas Pipeline Company of America (NGPL) enabled us to report strong second quarter earnings and increase the dividend for the second time this year," said CEO Richard Kinder. "We have increased the amount of the dividend to 15 times the dividend paid in the second quarter of 2002 (from $0.05 per quarter/$0.20 annualized to $0.75 per quarter/$3 annualized). We expect to be able to continue to grow the dividend at a rate consistent with our anticipated earnings growth of 10-12%."

KMI generated $316 million in cash flow through the first six months of the year, which is consistent with its budget of more than $620 million in cash flow. "We intend to continue to return cash to our shareholders in an economic and tax-efficient manner by further increasing the dividend and through our stock repurchase program, while at the same time maintaining a strong balance sheet," Kinder said.

KMI's investments in KMP contributed $134.4 million of pre-tax earnings to KMI in the second quarter, up 17% from $114.5 million in the second quarter of 2004 and on target to meet its published annual budget of 17% growth.

"Cash flow continued to increase at KMP in the second quarter due to both strong internal growth and contributions from acquisitions," Kinder said. "All four of KMP's businesses reported increased segment earnings compared to the second quarter last year."

NGPL reported second quarter segment earnings of $99.4 million, a 6% increase. "NGPL's results were driven by an increase in transportation margins and storage revenues," Kinder said. "We also continue to benefit from successful contract negotiations, as firm, long-haul transportation capacity on NGPL is 96% sold out through 2005 and storage is fully contracted until April 2006."

NGPL's throughput volumes were up 10% due to warmer than normal weather and high utilization of the Amarillo and Louisiana lines. However, the vast majority of its transportation and storage revenues come from demand charges that customers pay regardless of the amount of natural gas they ship through the pipeline.

In June, NGPL received a FERC certificate for its Amarillo-Gulf Coast cross-haul expansion. The $16.5 million project will add 61,000 Dth/d of capacity and is expected to be in service in April 2006. In addition, the company will begin drilling storage injection/withdrawal wells this month to expand its Sayre storage field in Oklahoma by 10 Bcf. The $35 million project is expected to begin service in the spring of 2006. KMP announced an increase in its quarterly cash distribution per common unit to $0.78 ($3.12 annualized) from $0.76 per unit. The distribution represents a 10% increase over the second quarter 2004. KMP reported record second quarter earnings with a 14% increase in net income. Net income for the first half of the year was up 15%.

KMP's gas pipelines segment produced second quarter earnings before DD&A of $115 million, up 21% and on track to exceed its published annual budget of 7% growth. "Growth in this segment was driven by contributions from the acquired TransColorado pipeline and solid earnings from Red Cedar and the Kinder Morgan Interstate Gas Transmission pipeline," Kinder said. TransColorado, which KMP acquired in the fourth quarter of 2004, contributed $9.4 million in earnings in the second quarter. Additionally, the Texas Intrastate Pipeline Group had a strong second quarter, exceeding projections and producing about 47% of the segment's earnings. Overall intrastate throughput was down, but margins were improved.

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