Kinder Morgan Predicts Rapid Growth in 2001

Strong energy demand and numerous "fee-based" service transactions led to significant financial earnings growth for Kinder Morgan Inc. (KMI) and solid distribution growth for Kinder Morgan Energy Partners (KMP). CEO Richard D. Kinder forecasts 40% growth this year in earnings per share for KMI and raised the distribution targets set for KMP, which already hit its year-end distribution target in the first quarter.

KMI reported a 23% increase in first quarter earnings. Income was $56.8 million, or $0.47 per diluted common share, before an extraordinary item for the early extinguishment of debt, compared to $46.3 million, or $0.41 per diluted common share, in the first quarter of 2000. After the extraordinary loss, net income was $44.7 million or $0.37/share.

"Earnings were principally driven by our ownership of the general partner of Kinder Morgan Energy Partners LP, as earnings from KMP more than doubled compared to the first quarter a year ago," Kinder said. "Additionally, all of our other business segments produced increased earnings. We have assembled a premier, fee-based portfolio of midstream assets capable of delivering strong financial results even in a slowing economy."

KMI will receive $57.5 million in total cash distributions from KMP for the first quarter, up 83% from $31.4 million during the same period last year. "As KMP's cash flow grows, KMI's general partner share of that cash flow grows dramatically," Kinder said. "KMI's cash flow from KMP increased dramatically due to internal growth in KMP's pipeline and terminal segments and the strong performance of recent KMP acquisitions." KMP is the largest pipeline master limited partnership in America.

Natural Gas Pipeline Company of America (NGPL) had segment earnings of $93.9 million, slightly higher than the $92.0 million it reported in the first quarter of 2000. To date, NGPL has entered into long-term transportation agreements to serve 20 power plants capable of generating more than 11,500 MW of electricity, Kinder said. NGPL is expected to realize more than $11 million in annual transportation revenue from these contracts beginning in 2001, with revenues growing each year as more plants come on-line. In addition, NGPL sold out virtually all of its winter-only capacity during the first quarter.

Segment earnings in retail (for former KN Energy, Rocky Mountain Natural Gas and Northern Gas Co. operations in Nebraska, Wyoming and Colorado) were up 19% to $23.5 million. Power and other operations recorded segment earnings of $8.9 million, about 50% higher than the $5.9 million recorded in the first quarter of 2000. KMI and a unit of Williams also announced plans to build 3,300 MW of natural gas-fired generation. Kinder Morgan will build six plants, including facilities in Michigan, Chicago and St. Louis, and through a 16-year tolling agreement, Williams will supply fuel to and market electricity from the plants, virtually eliminating KMI's commodity price risk.

Kinder said that because of the transfer of Kinder Morgan Texas Pipeline to KMP, KMI's earnings in 2001 are expected to be more evenly distributed from quarter to quarter than in the past. "We expect 50% to 60% growth in our second quarter diluted earnings per share ($0.32 to $0.34) versus the second quarter of 2000 ($0.21)."

KMP announced an increase in its first quarter distribution to $1.05 (an annualized rate of $4.20) per unit. The distribution increase is 35% higher than the distribution of $0.775 per unit paid for the first quarter of 2000, and 11% higher than the $0.95 per unit paid in February 2001. KMP has increased the distribution 10 times in the 17 quarters since its formation in February 1997. KMP reported a 71% increase in first quarter net income to $101.7 million, or $0.89 per unit.

The product pipelines segment --- comprised of more than 10,000 miles of pipe that transport gasoline, jet fuel, diesel fuel and natural gas liquids --- delivered a 32% increase in earnings. The natural gas pipelines segment, which now includes an additional $300 million in assets that KMP acquired at year-end from KMI, had segment income of $66.3 million, an 84% increase from 1Q2000. The addition of Kinder Morgan Texas Pipeline significantly boosted earnings. Additionally, Kinder Morgan Interstate Gas Transmission, Trailblazer Pipeline, and Red Cedar Gathering all demonstrated improved performance.

"Looking ahead, we expect additional growth during the year, both internally and through acquisitions," Kinder said. "As a result, we have raised our annualized distribution target to between $4.30 and $4.40 per unit by year-end. Although KMP is more focused on cash flow than earnings, we expect $3.00 to $3.10 of earnings per unit in 2001."

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