Houston-based Kinder Morgan Energy Partners (KMP) announced an increase in its first quarter cash distribution per common unit to 69 cents ($2.76/year), which is the 19th increase since the company’s inception in February 1997. The distribution represents an 8% increase over 1Q2003’s 64 cents a unit ($2.56/year). KMP also reported net income up almost 13% quarter-over-quarter to $191.8 million, or 52 cents/limited partner unit.

The Products Pipelines segment delivered a 5% increase to $114.3 million, compared to $108.7 million for 1Q2003. Products is expected to produce about 33% of KMP’s budgeted distributable cash flow in 2004. Strong volumes system-wide drove earnings in the segment, according to CEO Kinder. Total refined petroleum pipeline volumes increased by approximately 6%.

The Natural Gas Pipelines segment produced first quarter earnings of $103.1 million, up nearly 13% from $91.6 million in 1Q2003. The Pipelines segment is expected to produce approximately 26% of KMP’s 2004 budgeted distributable cash flow.

“Growth in this segment was driven by the strong performance of the Texas intrastate pipelines, together with a full quarter of contributions from the Mier-Monterrey and North Texas pipelines,” Kinder said. Sales volumes increased by approximately 18%, and transport volumes increased by about 5% quarter-over-quarter. This segment was impacted by a decline in earnings from its Rocky Mountain assets, attributed to lower rates on Trailblazer that became effective Jan. 1, following a rate case settlement.

“Moving forward, we will continue to focus on investing in natural gas infrastructure that will be needed to help meet growing demand in the U.S.,” Kinder said. Over the past three years, the Kinder Morgan companies have invested approximately $2.2 billion in natural gas pipeline infrastructure — $500 million for expansion projects, $1.45 billion for acquisitions of natural gas assets and $250 million in maintenance capital.

The CO2 segment delivered earnings of $77.7 million, up 85% from approximately $42 million in the first quarter of 2003. This year, CO2 is expected to be KMP’s fastest growing segment, and should generate about 24% of distributed cash flow, said the CEO.

Meanwhile, the Terminals segment reported a 6% percent increase in earnings to $63.2 million, up from $59.4 million in the first quarter last year. Results were driven by internal growth at bulk terminals, solid performance by liquids terminals and contributions from acquisitions, Kinder said. Capital expansion projects, increased imports in the Northeast and a boost in refinery production in the Gulf Coast increased volumes at the Carteret, NJ, and Houston liquids terminals.

In its guidance, Kinder Morgan Inc. (KMI) expects to declare cash distributions of at least $2.84/unit this year, with an increase in annualized cash distribution per common unit of about $2.90 to $2.94 by year end. “These expectations reflect contributions from assets currently owned by KMP and do not include any benefits from future acquisitions,” the company said.

Also Wednesday, KMI announced that President Michael C. Morgan “intends to transition” by mid-July but will remain a director. Morgan plans to become president of Portcullis Partners LP, a private equity and investment management firm based in Houston and controlled by the Morgan family. In addition, Morgan will become president of the Morgan Foundation, a private foundation focused on educational philanthropy.

“While I have made the difficult decision to reduce my role at Kinder Morgan, I am delighted to have the opportunity to remain a member of KMI’s board of directors,” Morgan said. “In that capacity, I will continue to serve as an advocate for KMI’s shareholders, employees and other stakeholders. Kinder Morgan has a highly capable management team, and I am confident that team will continue to produce outstanding results in the future.”

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