Driven by its ownership of Kinder Morgan Energy Partners LP (KMP), Kinder Morgan Inc. (KMI) reported record second quarter earnings Wednesday, up 11% over a year ago. Meanwhile, KMP reported an earnings jump of 16% in the quarter.

KMI reported net income of $104.4 million (84 cents/diluted share), compared with $94.2 million (76 cents) in 2Q2003. KMP reported record net income of $195.2 million (51 cents/limited partner unit), up from $169 million (48 cents) in 2Q2003.

CEO Richard Kinder praised both KMI and the energy partnership, which are both based in Houston. He said KMI gained from the partnership, along with a “strong performance” by its Natural Gas Pipeline Company of America (NGPL) segment, which reported earnings of $93.4 million, an 11% increase over $84.3 million for the same period last year. NGPL also is on target to meet its published annual budget of 3% growth, he said.

“Including this year’s estimate, we expect to return over $2 billion to investors from 2000 through year end via dividends (approximately $500 million), stock repurchases (approximately $500 million) and debt reduction (approximately $1 billion),” said Kinder.

KMI’s total debt-to-capital ratio improved to less than 42% at the end of the second quarter, as KMI paid down approximately $60 million of debt through June 30, ahead of the $100 million it budgeted for debt reduction this year. In the first quarter, KMI announced it was expanding its common stock repurchase program, and the company spent approximately $39 million repurchasing shares during the first two quarters, compared to its budgeted target of $60 million for the full year.

KMI’s interest in KMP contributed $114.5 million of pre-tax earnings in the second quarter, up 17% over $97.8 million in 2Q2003, and “on target to meet its published annual budget of 16% growth.” KMI will receive $122 million in total distributions from its investment in KMP for the quarter, up from $103.9 million for the second quarter of 2003.

Another KMI business segment, TransColorado, reported earnings of $5.4 million for the quarter, slightly ahead of $5.3 million a year ago, and also on track to meet its published 13% annual growth. Transport volumes were up about 9%, and natural gas supply development on the western slope of Colorado adjacent to TransColorado is accelerating.

However, there were some disappointments for KMI. Second quarter earnings for the Retail segment were nearly $5 million, down from $6.3 million in 2Q2003. KMI attributed the decline in lower Choice Gas results, and said it was consistent with budget expectations.

“Retail has generated more earnings in the first six months this year than it did in the first two quarters last year and remains on target to meet its published annual budget of 5% growth,” Kinder said. Volumes were up slightly, driven by meter growth in Colorado. Retail expects to add about 3,000 Colorado customers on the Western Slope via the pipeline over the next five years.

Also, KMI’s Power segment generated earnings of $3.9 million, down from $10.8 million for the comparable quarter last year, in which the company booked about $6.8 million in power development fees for the Jackson, MI power plant.

Of KMP’s results, CEO Kinder credited “strong internal growth and modest contributions from acquisitions that have closed since the end of the second quarter of 2003.”

KMP’s Products Pipelines segment delivered an 8% increase to $119.3 million, compared to $110.5 million a year ago. It is on target, said Kinder to grow 9% this year. Total refined products volumes grew 1.7%, and are up 3.7% year-to-date, with gasoline volumes up 3% this year.

The partnership’s Natural Gas Pipelines segment produced quarterly earnings of $95.4 million, up 7% from $88.9 million in 2Q2003. “We are realizing the benefits of combining the former Tejas and KMTP pipelines into one strategic system in the competitive Texas intrastate market,” Kinder said. An increase in segment sales volumes of nearly 7% was offset by a decrease in transport volumes of about 11%. The segment was impacted by a decline in earnings at the Red Cedar gathering system in southwest Colorado and lower rates on Trailblazer that took effect Jan. 1.

KMP’s CO2 segment earnings were up 61% from approximately $47.2 million a year ago, and on target to achieve a 58% growth rate, said Kinder. Meanwhile, the Terminals segment reported a 9% increase in earnings to $65.7 million, up from $60.1 million a year ago, and also on track to grow 7% this year.

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