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Kinder Morgan Energy Profit Falls on Acquisition Cost

Kinder Morgan Energy Partners LP, whose parent is buying El Paso Corp., said third-quarter profit fell on costs related to an acquisition in July.

Net income declined to $216.3 million from $322.4 million a year earlier, Houston-based Kinder Morgan said today in a statement. The company’s income fell due to a net loss of $234.7 million related to the acquisition of a pipeline system and a legal judgment in California.

Excluding those items, Kinder Morgan’s distributable cash flow, a measure of the partnership’s ability to make payments to its unitholders, rose 24 percent to $394 million, or $1.19 a unit, from a year earlier.

“No real surprises,” Dan Spears, a fund manager at Swank Capital LLC in Dallas, which manages $1.5 billion and owns units in Kinder Morgan Energy, said in an e-mail.

Kinder Morgan Energy’s parent, Kinder Morgan Inc., announced Oct. 16 that it’s buying El Paso for $21.1 billion. Once the deal closes, the parent company will sell some of El Paso’s pipelines to Kinder Morgan Energy, which is structured as a master-limited partnership and pays no corporate income tax.

The El Paso deal will shore up earnings at both companies for the foreseeable future, said Bradley Olsen, a Houston-based analyst at Tudor, Pickering, Holt & Co.

The parent company’s stock price has fallen since it held an initial public offering in February on concern its subsidiary partnership wasn’t growing fast enough to support the parent.

Dividend Set

“Growing a company that’s that large every year requires billions of dollars in investment,” Olsen, who rates the partnership at “hold” and owns none of its units, said in an interview before the earnings were released.

The parent company, Kinder Morgan Inc., will pay a dividend of 30 cents a unit for the quarter, according to a statement.

Kinder Morgan Energy, which owns most of Kinder Morgan’s assets, expects to increase its distributions to $4.60 per unit for all of 2011, a gain of 4.5 percent over 2010.

Earnings at the partnership’s gas pipeline unit increased 31 percent to $248 million. Kinder Morgan shipped 738.5 billion cubic feet during the quarter, up 12 percent from the previous year.

At its CO2 unit, which sells the gas and also produces crude oil, earnings grew 25 percent to $286.3 million. Benchmark U.S. crude oil futures rose 17 percent to average $89.54 a barrel on the New York Mercantile Exchange, from $76.21 a year earlier, according to data compiled by Bloomberg.

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