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Kinder Morgan Predicts New Pipeline Grid & Builds It

"It's a very good time to be in the natural gas transportation business," Kinder Morgan Chairman Rich Kinder said during an earnings webcast last Wednesday. Besides the increased use of natural gas, "there's a huge shift of supply sources," which means "we need a whole new network." Kinder outlined the company's new natural gas pipeline projects at the same time noting that its interstate Natural Gas Pipeline Co. of America (NGPL), and its Texas intrastates were leading profit centers in the first quarter.

"We had a very strong quarter," and "we're very bullish on earnings and cash flow over the next few years," the chairman said, adding he believes the current stock price at about $91/share undervalues the company and does not reflect future growth. Analysts have estimated its value at closer to $120/share. Kinder listed $8 billion in projects the company has under way, including both natural gas and crude oil and products pipelines.

"In our 10 years of existence this is the best quarter we've had in development and finalizing of new projects." Leading the pack is "the biggest single project we have ever had," the 1,300-mile Rockies Express to carry natural gas to eastern Ohio and beyond (see NGI, March 6). Kinder put the total cost of the project, including the purchase of Entrega Pipeline from Encana, at $4.4 billion. Entrega changed its name earlier this month, Kinder said, becoming part of Rockies Express.

Virtually all the pipe and compression for the project has been ordered "within the project budget," Kinder said. While Kinder Morgan Energy Partners (KMP) currently owns two-thirds of the project, with Sempra owning one-third, producers have options which come due in June to buy up to one-quarter of the project, so KMP could end up with a lesser share.

KMP also has ordered all the pipe (within budget) for its $500 million, 140-mile Kinder Morgan Louisiana Pipeline project, which will transport regasified liquefied natural gas from the Gulf Coast into the country's pipeline network (see NGI, Feb. 6). Kinder said Chevron and Total, which will be bringing LNG into the Sabine Pass terminal, have committed for all the capacity on the pipeline.

Combined, these two projects alone are expected to result in an increase of 50 to 60 cents in earnings per share at KMI once they are fully completed in 2009, Kinder said, and will be substantially accretive prior to that as certain segments of each project come online.

Kinder Morgan Inc. (KMI), general partner of Kinder Morgan Energy Partners, reported first quarter earnings from continuing operations before certain items of $208.6 million, or $1.54 per diluted common share, compared to $148.3 million, or $1.19 per share, for the comparable quarter in 2005, a 29% increase in diluted earnings per share. Income from continuing operations, including the certain items, was $194.5 million, or $1.44 per diluted common share, compared to $145.1 million, or $1.17 per share, for the same period last year.

KMI's earnings attributable to KMP in the first quarter included $147.7 million of pre-tax earnings, up 7% from $137.6 million for the same period a year ago. KMI will receive $157.1 million in total distributions from its investments in KMP for the first quarter versus $141.5 million for the comparable period last year.

"KMP had a very solid first quarter led by strong performances from both the natural gas pipelines and terminals business segments," Kinder said. As KMP's distributions grow, KMI's general partner share of those distributions grows as well, up to 50% of incremental distributions.

NGPL reported first quarter segment earnings of $127.0 million, up 11% from $114.2 million in the same period last year and ahead of budget for the quarter. "NGPL continued its successful track record of re-contracting transportation and storage agreements, increasing transportation and storage margins and expanding infrastructure," Kinder said. "Firm, long-haul transportation capacity is sold out through February 2007 (except for a portion of summer-only capacity on the Gulf Coast line) and storage is fully contracted until April 2007."

Throughput volumes were down primarily due to warmer than normal weather, but that had only a modest impact on earnings because the vast majority of NGPL's transportation and storage revenues come from demand charges for firm service.

In the first quarter, NGPL received certificate approval from the Federal Energy Regulatory Commission for the $63 million expansion at its North Lansing field in East Texas that will add 10 Bcf of storage. Construction is under way and the project is expected to be in service in spring 2007. Additionally, incremental service began this month on the $35 million expansion that increases storage by 10 Bcf at the Sayre facility in Oklahoma, and service is expected to begin May 1 on the $21 million Amarillo cross-haul line expansion that will add 51,000 Dth/day of capacity.

On NGPL's drawing boards are additional pipelines proposed just recently, including:

KMI also has extensive crude and products pipelines and projects along with activities in CO2.

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