Houston-based Kinder Morgan Inc. (KMI) on Monday upped its third quarter per unit cash distribution of Kinder Morgan Energy Partners LP (KMP) by 29% to an annualized rate of $2.20 ($.55 per quarter) from its current $2.10 ($.525). The distribution, coming a quarter sooner than the company anticipated, will be paid Nov. 14 to unitholders of record as of Oct. 31. The payout, up from $.425 paid in the third quarter of 2000, is the 11th distribution increase since the unit was formed 18 quarters ago.

To add to the good fortunes of KMI’s partner, CEO Richard Kinder said KMP will announce additional acquisitions in the next 30 days, and added that on Tuesday, the company will detail a $70 million expansion of a KMP pipeline in Texas that has been fully subscribed for 20 years. CEO Kinder said the pipe would be in service next year.

“KMP’s strong financial performance is enabling us to raise the distribution a quarter sooner than we had anticipated,” Richard Kinder said. “We remain confident in our ability to generate significant growth from our unique portfolio of fee-based assets.” He said the company’s growth is coming in several ways.

“The overwhelming majority of revenues on Kinder Morgan’s natural gas pipelines, CO2 pipelines and terminals are derived from long-term contracts with substantial minimum payments,” he said. Also, despite the downturn in the economy, volumes on products pipes, natural gas pipe and terminals “have remained very strong in the third quarter, including the last three weeks of September.”

Even though the company is forecasting a 20% decrease in its substantial commercial jet fuel volumes in the fourth quarter — which includes the closing of Reagan International in Washington, DC for the entire quarter — CEO Kinder said KMP’s cash flow will be reduced by less than $2 million, offset by lower borrowing costs. He said the estimates did not include what could be a gain if military fuel grows in volumes.

There also has been “absolutely no lessening of volumes in terminal services,” CEO Kinder said, partly because its services are not dependent on commodity pricing, and now that prices were low, many of its customers were building up their storage. “While there is no question (recent events have led to a ) downturn in jet fuel, it is having positives on product side,” he said.

CEO Kinder said another plus in the company’s favor was that neither KMI nor KMP had “significant” financial needs, and both were generating “substantial” cash flow. A stock repurchase program, announced before Sept. 11, also is expected to be “more accretive than previously announced” because of lower borrowing costs and lower average share prices.

“I’m delighted to say I’ve never sold a share or intend to sell a share,” he said, “and I’m delighted to have shares back. We are bullish on future prospects.” KMI senior management owns about 25% of the company, “representing one of the highest levels of inside ownership in the energy industry.” He said the repurchase program was halfway completed and that the company intended to continue to repurchase at current price levels.

The CEO also reiterated guidance for 2002, noting that KMI is expected to earn at least $2.40 to $2.50 per share. KMP is projected to increase its per unit cash distribution to more than $2.50 annualized by the fourth quarter of 2002. “Our 2002 guidance represents 30% growth in KMI earnings per share and growth of approximately 14% in KMP’s cash distribution unit.”

When asked about heightened security costs for keeping the company’s pipelines and terminals safe, the CEO said the company is adding security at all of its facilities, and believes the costs “will be significant,” but required. He said the company had been monitoring the news like everyone else, and that the security costs would be factored into fourth quarter estimates. “We are very concerned about the security of our facilities,” he said.

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