Strong performances from natural gas pipeline, carbon dioxide (CO2) and terminals business segments helped Kinder Morgan Energy Partners (KMP) achieve its best quarter ever in 1Q2008, with earnings hitting $685 million, up 36% from $503 million in 1Q2007, the company said.

“We had an exceptionally strong first quarter…in terms of financial performance it’s the best quarter that we’ve ever had,” CEO Rich Kinder said.

KMP reported net income before certain items of $348.9 million, compared to $219.1 million in 1Q2007. Including certain items, net income for the first quarter was $346.7 million, compared to a loss of $149.5 million for the same period last year.

KMP announced a cash distribution of 96 cents/share, up from 92 cents/share, and said it expects to meet or exceed its previously announced distribution target of $4.02/share for 2008.

“I think it’s fair to say that in the first quarter we began to derive some significant benefit from some of the more than $7 billion in capital expansion projects that we have undertaken — most importantly the Rockies Express [REX] project — and we continue to make pretty good progress on those projects that will drive growth not just in 2008 but in 2009 and beyond,” Kinder said. “There’s no denying that this is a challenging environment. Construction and material costs have increased, but I think we get pretty good marks for managing the process.”

KMP’s natural gas pipelines business produced first quarter earnings before depletion, depreciation and amortization (DD&A) of $188.2 million, up 39% from 1Q2007 and on track to meet its annual budget of 18% growth. The segment was led by KMP’s Texas intrastate pipelines, along with contributions from REX-West and a strong performance by TransColorado, Kinder said. Growth by the intrastates was attributable to increased transportation revenue from long-term contracts, greater value from storage activities and improved processing volumes and margins.

Transport volumes in the segment were up about 22% from 1Q2007, due primarily to the start up of REX-West, and sales volumes were up about 3%.

“While KMP benefited from the start-up of REX-West, this asset produced results below budget for the quarter due primarily to weather-related construction delays,” Kinder said.

The first 328-mile leg of the Rockies Express project, a joint venture of Kinder Morgan Energy Partners, Sempra Pipelines and Storage and ConocoPhillips that runs from the Meeker Hub in Rio Blanco County, CO, to the Wamsutter Hub in Sweetwater County, WY, and then to the Cheyenne Hub, is in service and has a current capacity of 500,000 Dth/d. Part of the second leg, known as REX-West, went into operation in mid-January and the remainder is nearing completion (see NGI, Jan. 21). REX-West will transport gas more than 700 miles from the Cheyenne Hub in Weld County, CO, to its terminus at the Panhandle Eastern Pipe Line interconnect in Missouri.

“We brought most of REX-West online on Jan. 12, but we’re just now, this month, bringing on the last part of REX-West, which will take the [daily] capacity up modestly from 1.4 Bcf to 1.5 Bcf,” Kinder said. “The reason for the delay is that we’ve experienced an almost Noah’s flood-type of wet fall and winter in that portion of the upper Midwest. But we are bringing that online this month, in the next few days.”

KMP’s CO2 segment was “a real star” in the first quarter, delivering earnings before DD&A of $199.8 million, up 59% from the same period last year and on track to exceed its annual budget of 40% growth, Kinder said. The segment is an area where KMP is exposed to commodity price risk, but that risk is mitigated by a long-term hedging strategy intended to generate more stable realized prices, he said.

The company’s terminals segment reported first quarter earnings before DD&A of $125.8 million, up 27% from 1Q2007.

“Our terminals business had a very good quarter, with growth almost equally attributable to organic opportunities and acquisitions,” Kinder said. “A number of internal expansions were completed in the first quarter, which boosted segment earnings before DD&A and increased throughput.”

The products pipelines segment produced first quarter segment earnings before DD&A of about $141 million, down slightly from the same period last year due to the sale of the North System, which closed in October 2007.

Earlier this month FERC issued a favorable final environmental nod for the third and possibly final leg of REX (see NGI, April 14). The REX-East segment would extend 640 miles from Audrain County, MO, to Clarington, OH. The pipeline would have the capability to deliver 1.8 Bcf/d of natural gas, while providing access to an additional 19 interstate and intrastate pipelines through 13 interconnection points. REX-East is expected to be fully operational by June 2009, according to Rockies Express.

Officially the line from Missouri to Ohio is the last leg of the cross-country pipeline, although REX already has held an open season for a Northeast Express extension, going from the REX line at Clarington into New Jersey. Still under negotiation is whether its eastern terminus will be Princeton, NJ, or Linden, NJ (see NGI, Feb. 4; Dec. 17, 2007).

“We expect to complete construction [of REX-East] in June,” Kinder said. “We have a completion date of that pipeline by year-end. We’ll still be adding some compression early next year, so that the pipeline…should be fully operational by June 2009.”

In February Kinder Morgan said finding qualified workers to build REX had pushed the cost of the eastern leg of the project up 11%, or $500 million (see NGI, March 3). In a Securities and Exchange Commission 10-K filing KMP noted that REX “is an approximate $4.9 billion, 1,679-mile natural gas pipeline system…” Previous filings and news releases had indicated that the cost of REX would be $4.4 billion.

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.