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Kinder Morgan Fourth-Quarter Profit Rises on Gas Shipping

Jan. 16 (Bloomberg) -- Kinder Morgan Energy Partners LP, the biggest U.S. pipeline company, said fourth-quarter profit rose as it shipped more gas in its interstate pipelines and expanded its network.

Net income increased to $614 million from $475 million in the same quarter of 2011, Houston-based Kinder Morgan said in a statement today. After payments to Kinder Morgan Inc., its parent company, Kinder Morgan earned 64 cents per unit, 13 cents more than a year ago.

Distributable cash flow, a measure of the company’s ability to make payments to its unit-holders, rose 16 percent to $495 million. Excluding damage to its East Coast terminals from Hurricane Sandy and other one-time costs, Kinder Morgan earned 75 cents per common unit, 12 cents more than the average of 14 analysts’ estimates compiled by Bloomberg.

Kinder Morgan’s gas throughput increased after it bought some of El Paso Corp.’s pipelines from Kinder Morgan Inc. in August. The parent corporation bought El Paso Corp. in May for $22.8 billion, creating a 75,000-mile (120,700-kilometer) pipeline network, and has been selling its assets to Kinder Morgan Energy Partners.

Those transactions bolstered Kinder Morgan Energy Partners’ earnings, Brian Watson, who helps manage $3.5 billion in assets at Steelpath Capital Management LLC in Dallas, Texas, said in an interview.

Expanding Pipelines

The company is expanding and converting its pipelines around North America. A $450 million addition to its Tennessee Gas system in Pennsylvania and New Jersey is scheduled to open in November, and Kinder Morgan is seeking regulatory approval for a $200 million project to increase natural gas exports to Mexico via the Sierrita pipeline, which would run near Sasabe, Arizona.

“The advantage of this massive footprint that we’ve now assembled across the whole midstream spectrum, but particularly in the natural gas segment, is just irreplaceable,” Chief Executive Officer Richard Kinder said on a conference call with analysts.

Kinder Morgan will make a decision by April on converting part of the El Paso Natural Gas system to carry oil from Texas to California. A price for the project, dubbed the Freedom pipeline, hasn’t been established, Richard Kinder said on a conference call. The company said in October that the project could cost $2 billion and carry up to 400,000 barrels a day. Oil produced in the Permian Basin in West Texas has traded at a discount to other grades for about two months because production has outstripped the capacity to ship it, Richard Kinder said.

FERC Approval

The U.S. Federal Energy Regulatory Commission will have to approve Kinder’s plan to convert the gas pipeline.

“We will make the case that this is the cheapest and best way to get Permian oil production to California,” compared to building a new line, Kinder said.

Four of Kinder Morgan’s executives will resign around March 31, the company said, including Park Shaper, president of both Kinder Morgan Inc. and the partnership. He will be succeeded by Steve Kean, who is currently chief operating officer.

General Counsel Joe Listengart will be succeeded by Dave DeVeau, the company said.

The departing executives were among about 80 managers who received payouts of Kinder Morgan Inc. shares in December as part of an incentive program, Richard Kinder said. That was shortly after Goldman Sachs Group Inc. and other financial backers sold the last of the shares they acquired during Kinder Morgan’s 2007 leveraged buyout and its 2011 initial public offering.

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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