Earnings Up, Kinder Morgan To Announce Acquisitions Soon

With plans to announce "significant, accretive acquisitions" in the next one to two months, Kinder Morgan Inc. (KMI) predicted last week that it will meet or beat the consensus 2001 estimates for the second quarter and the rest of the year, expecting to do 40% better in earnings per share (EPS) over 2000 because of strong internal growth.

CEO Richard D. Kinder said the acquisitions would come through affiliate Kinder Morgan Energy Partners LP (KMP), a pipeline master limited partnership. Although CEO Kinder did not disclose any details, the KMP affiliate has been busy.

In May, KMP and independent power producer Calpine Corp. announced they would build the Sonoran Pipeline, a 1,160-mile, 1.75-2.25 Bcf/d pipeline, which would begin in the San Juan Basin and transport gas to the California border and then to the San Francisco Bay Area (see NGI, May 14 and June 11). If approved by the Federal Energy Regulatory Commission, it would become only the third interstate pipeline allowed inside the California border. Kern River and Mojave currently are the only other interstate pipes with in-state access.

The Houston-based integrated energy company expects to hit the consensus target of $1.82 in EPS this year, up from $1.28 for 2000. Management also reiterated its expectation that second quarter EPS would also meet or beat the consensus estimate of $0.36, and that 2002 EPS would be in the expected range of $4.25 to $2.35.

CEO Kinder attributed the positive outlook to the "strong internal growth" the company has experienced. "For example, volumes on our Pacific System--which transports gasoline, jet fuel and diesel fuel--have increased by over 4% and revenues have increased by nearly 8% during the first half of this year. In addition, our management team at Natural Gas Pipeline Company of America (NGLP) has done a tremendous job of re-contracting rollover capacity to be fully subscribed for the rest of the year." He said NGLP also expects to add more electric generation load than previously expected.

"We also continue to see strong opportunities on the acquisition front," he said. Through its ownership of the general partner, KMI operates KMP and receives approximately 36% of the total cash distributions and more than 50% of any incremental distributions.

Another plus for KMI is its limited exposure in the California market.

"We have no receivables from California utilities, nor do we generate power or sell natural gas in the California market," Kinder said. The CEO said that KMI has assembled a "solid portfolio of assets that has virtually no exposure to increases or decreases" in commodity prices. "We never take ownership of the commodity, but simply receive a fee for transporting the products."

Last week, analysts at Credit Suisse First Boston noted that of the majors, KMI, with no California risk, would show a 64% increase in EPS growth in the second quarter (see NGI, July 2).

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