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Kinder Morgan Second-Quarter Profit Falls on Writedowns

Kinder Morgan Energy Partners LP, the biggest U.S. pipeline operator since its parent company bought El Paso Corp. in May, said second-quarter profit fell as it reduced the value of some pipeline assets that it agreed to sell to obtain approval for the acquisition.

Net income fell to $153 million from $230 million a year earlier, Houston-based Kinder Morgan said in a statement today. The company had $308 million in one-time costs during the quarter, mostly related to non-cash writedowns of pipelines and gas-processing plants it’s selling as part of the El Paso deal.

After payments to Kinder Morgan Inc., its parent company, Kinder Morgan’s loss widened to 53 cents per partnership unit, from 19 cents a year earlier.

The company increased its distribution to holders of its partnership units by 7 percent to $1.23. Distributable cash flow, a measure of the company’s ability to pay distributions, rose to $366 million from $324 million.

Revenue fell to $1.85 billion from $1.94 billion a year earlier, according to the statement.

Much of the drop in revenue was due to declines in natural-gas liquids prices, said Darren Horowitz, an analyst with Raymond James & Associates Inc. in Houston. Kinder tends to process and transport “heavier” gas liquids such as butane and isobutane, whose price is more closely linked to crude oil, he said.

Economic Microcosm

“As crude oil prices fell, the heavier end of the NGL barrel followed suit,” Horowitz said in an interview. He rates Kinder Morgan Energy Partners a market perform and doesn’t own any of its units.

Chairman and Chief Executive Officer Richard Kinder said demand was lower for gasoline and other fuels.

“We’re kind of a microcosm of the economy,” he said during a call with analysts.

Kinder Morgan Inc. bought El Paso May 24 for $22.8 billion, creating a company with about 75,000 miles (121,000 kilometers) of oil, gas and refined-product pipelines.

Kinder Morgan Energy agreed to sell about 7,200 miles of pipelines to gain approval from the U.S. Federal Trade Commission. The sale price of those transactions will determine how Kinder proceeds with other proposals, including its plan to purchase some of El Paso’s pipelines from its parent, Horowitz said.

“If they don’t get the proceeds they hoped to get, they’re going to have to find another lever,” such as issuing more equity or taking on more debt, Horowitz said.

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