Kinder Morgan Energy Partners First-Quarter Profit Falls

Kinder Morgan Energy Partners LP (KMP), the second-biggest U.S. pipeline operator, said first-quarter profit fell 39 percent because of costs stemming from its parent’s $24.1 billion purchase of El Paso Corp. (EP)

Net income declined to $208 million from $341 million a year earlier, Houston-based Kinder Morgan said in a statement. After payments to its parent company, the company lost 33 cents per partnership unit.

Excluding $326 million in one-time costs, the company’s profit rose 26 percent to $534 million during the quarter, or 61 cents per unit, from $424 million, or 43 cents, in the same quarter of 2011. The company had been expected to earn 65 cents, according to the average of 12 analysts’ estimates compiled by Bloomberg.

“Almost all” of the one-time costs came from a non-cash writedown related to the El Paso transaction, the company said. Kinder Morgan plans to sell some of its pipelines to receive antitrust clearance from the the Federal Trade Commission, and it had to declare some of the discontinued operations this quarter, the company said. The deal is expected to close by the end of May and will create the biggest U.S. pipeline company.

Revenue fell to $1.8 billion from $1.9 billion in the same quarter of 2011. Distributable cash flow, a measure of the company’s ability to pay distributions to its partnership unit holders, rose 21 percent to $462 million during the quarter, from $382 million.

Buyers Sought

The company is talking to prospective buyers for the pipelines it will divest and expects “a spirited bidding contest,” Kinder Morgan Chief Executive Officer Richard Kinder said on a conference call with analysts.

The parent company plans to sell, or “drop down,” some of El Paso’s pipelines to Kinder Morgan Energy Partners at the same time as the divestitures, Kinder said.

“We will make certain that the combination of the drop- downs and the divestitures will be neutral,” in 2012, Kinder said. The drop-downs will increase the partnership’s revenue in 2013, he said.

“Kinder is trying to send a message that he is serious about cranking up growth,” Brad Olsen, an analyst with Tudor Pickering Holt & Co., said in an e-mail. He rates Kinder Morgan Energy Partners at “trim” and owns none of its units.

The earnings were released after the close of regular trading. Kinder Morgan Energy Partners rose 0.7 percent to close at $83.14 in New York.

Enterprise Products Partners LP (EPD) is the biggest U.S. pipeline operator.

To contact the reporter on this story: Mike Lee in Dallas at mlee326@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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