Kinder Morgan Inc. (KMI) and Kinder Morgan Energy Partners (KMP), in which KMI owns a general partnership share, reported record growth from internal pipeline and terminal operations for the first quarter and expect substantial increases for the year, according to CEO Richard Kinder, who raised KMI’s earnings guidance for the year by 5-10 cents/share.

KMI reported a 27% increase in first quarter diluted earnings per share to $0.90. Net income also rose 26% to $111.1 million, and cash flow in the first quarter was $157.7 million, consistent with KMI’s annual budget target of $468.6 million.

“As a result of our strong first quarter performance, we are raising KMI’s annual earnings guidance for 2003 to between $3.23 and $3.28 per share, up from our published 2003 budget target of $3.18,” said Kinder. “The high end of that range would equal a 15% increase in earnings per share for 2003 over a particularly strong 2002, based on internal growth alone. Additionally, we reduced KMI’s debt in the first quarter by about $160 million, thereby lowering our debt-to-capital ratio from 48% to 46%.”

Among KMI’s highlights were the earnings of Natural Gas Pipeline Company of America (NGPL), which were up 5%. NGPL’s capacity was sold out and throughput was up 13% due in part to the Horizon Pipeline and an extension to St. Louis. NGPL also has started a 10.7 Bcf expansion at its existing North Lansing storage facility in East Texas. Although construction on the $35.6 million project won’t be completed until early in 2004, natural gas injection services have already started.

KMI’s retail utility division posted results of $31.5 million, up about $6.6 million. Its power segment showed an earnings decline to $2.9 million from $9.7 million, but KMI has stopped investing in new power plants. It retains an interest in five natural gas-fired power plants.

Helping KMI’s bottom line were strong results from TransColorado pipeline, which was full this winter for the first time. TransColorado reported segment earnings of $7.3 million for the first quarter, compared to $93,000 for the same period a year ago. The pipe also is planning an expansion project to serve Rockies’ production growth and potentially markets as far away as Phoenix (see Daily GPI, March 17).

Strong performance from Rocky Mountain and Texas natural gas pipelines also helped increase KMP earnings. KMP increased its distribution to unitholders by 8% during the quarter to $0.64 ($2.56 annualized) from $0.625 ($2.50 annualized) and reported record quarterly net income of $170.5 million, or $0.52 per unit, compared to $141.4 million, or $0.48 per unit, a year earlier. Before the effect of a change in accounting principles related to asset retirement obligations, KMP’s first quarter net income was $167 million, or $0.50 per common unit.

KMP’s gas pipelines segment showed 16% earnings growth and is on target for 12% annual growth mainly because of solid performances by the recently expanded Trailblazer pipeline system and Kinder Morgan Interstate Gas Transmission. Earnings from Kinder Morgan’s Texas intrastate pipelines were up slightly quarter over quarter, principally due to contributions from the addition of the North Texas and Mier-Monterrey pipelines. The Mier-Monterrey pipeline, which stretches from south Texas to Monterrey, Mexico, began service in March. Pemex has secured all of the capacity on the new pipeline, up to 375 MMcf/d, through a 15-year contract. Total segment volumes for the first quarter were up 7% compared to the same period a year ago.

KMI’s interest in KMP contributed $94.7 million of pre-tax earnings to KMI in the first quarter, up 21%. The results were consistent with KMI’s published budget target of 16% annual growth from its interest in KMP, which is expected to generate about 45% of KMI’s overall earnings in 2003.

“KMP’s cash flow continued to increase in the first quarter, overwhelmingly due to internal growth on its pipeline and terminal assets,” Kinder said. As KMP’s cash flow grows, KMI’s general partner share of that cash flow grows as well, up to 50% of incremental cash flow.

“KMP had a terrific first quarter, as all four of our business segments reported increased earnings over the same period a year ago,” he said. “We have increased the distribution 15 times in just over six years, and we are now distributing more cash to our unitholders in one quarter ($0.64 per unit) than was distributed in all of 1996 ($0.63 per unit), the year before the partnership became Kinder Morgan.”

The products pipelines segment delivered a 9% increase in earnings and the CO2 pipelines segment delivered 45% earnings growth. The terminals segment reported a 21% increase in first quarter earnings.

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