Kinder Morgan Energy Partners reports record earnings

HOUSTON, Jan. 15, 2003 — Kinder Morgan Energy Partners, L.P. on Wednesday announced record earnings with 2002 net income of $608.4 million, or $1.96 per common unit, up 38 percent over 2001 net income of $442.3 million, or $1.56 per unit.

Fourth quarter net income was $164.2 million, or $0.50 per common unit, compared to $120.7 million, or $0.40 per unit, during the same period the previous year.

KMP’s board of directors increased the fourth quarter cash distribution per common unit to $0.625 ($2.50 annualized), payable on Feb. 14, 2003, to unitholders of record as of Jan. 31, 2003, from $0.61 ($2.44 annualized) in the third quarter. This is a 14 percent increase over the fourth quarter 2001 cash distribution per unit of $0.55 ($2.20 annualized). In total, KMP declared cash distributions of $2.435 per unit in 2002, up 13 percent from $2.15 in 2001.

“KMP had an outstanding year in 2002, reporting its most profitable annual earnings in the company’s history and increasing the distribution to unitholders for the 14th time since KMP was formed six years ago,” said Chairman and CEO Richard D. Kinder.

“While many companies have dramatically altered their business models to adapt to various market conditions, KMP continues to successfully execute the same strategy upon which this company was founded. Our focus on fee-based assets that are core to the energy infrastructure of growing markets, and our efforts to increase utilization of those assets while controlling costs, continue to produce superb results.”

Kinder noted that KMP’s record earnings can be attributed to solid internal growth, as well as contributions from acquired assets. “Our stable assets, which have minimal exposure to commodity price variations, continued to produce strong, reliable cash flow to support distributions of about $700 million in 2002,” Kinder said. “Each of our business segments reported increased earnings over 2001.”

Overview of Business Segments

The Products Pipelines segment delivered an 11 percent increase in 2002 earnings before DD&A to $427.3 million, compared to $383.9 million for 2001. Fourth quarter earnings before DD&A were $108.7 million, compared to $96.4 million for the same period the previous year.

“Earnings in this segment significantly surpassed our published 2002 budget target of $413.8 million, with internal growth driving improved performance,” Kinder said. “Excluding acquisitions and a one-time item, products pipelines assets that KMP owned in both 2002 and 2001 accounted for an 8.4 percent increase in segment earnings.”

KMP’s gasoline volumes were up 4.5 percent for 2002, compared to just 2.6 percent nationally, while total refined petroleum products volumes were up 1.2 percent for the full year, more than double the national average. “This demonstrates that our products pipes serve rapidly growing markets across the country,” Kinder explained.

Jet fuel volumes were down 3.8 percent for 2002 following 9/11, but improved steadily throughout the year and were up in the fourth quarter compared to the same period the previous year. Specific asset highlights included Plantation Pipe Line Company, which reported record volumes of 637,000 barrels per day for 2002, a 3 percent increase over 2001. KMP owns 51 percent of Plantation and operates the 3,100-mile refined petroleum products pipeline that serves the southeastern United Sates.

The Natural Gas Pipelines segment produced 2002 earnings before DD&A of $325.5 million, up 44 percent from $226.8 million in 2001. Fourth quarter earnings before DD&A were $89.5 million, compared to $65.5 million for the same period the previous year.

The nearly $100 million annual increase is primarily attributable to contributions from Kinder Morgan Tejas, which was acquired in the first quarter of 2002, and improved results on the expanded Trailblazer pipeline system.

“Achievements in this segment during 2002 included attracting incremental business at our existing facilities and expanding our natural gas pipeline system,” Kinder said. “For example, Kinder Morgan Tejas entered into long-term transportation, storage and sales contracts with BP that are expected to make significant contributions to KMP’s earnings in 2003, and Kinder Morgan Texas Pipeline (KMTP) entered into new and extended existing contracts with several large customers including Southern Union.”

In the fourth quarter, KMP began construction on the Mier-Monterrey pipeline that will stretch from south Texas to Monterrey, Mexico — one of that country’s fastest growing industrial areas.

Pemex has entered into a 15-year contract with KMP for all of the capacity on the natural gas pipeline, up to 375 million cubic feet per day. Construction is expected to be completed in the second quarter of 2003. Additionally, Kinder Morgan Interstate Gas Transmission (KMIGT) — an interstate pipeline with access to Rocky Mountain natural gas supply basins — sold out all 6 billion cubic feet of its proposed Cheyenne Market Hub storage project in Wyoming and plans to file for Federal Energy Regulatory Commission (FERC) approval this month.

The CO2 Pipelines segment delivered 2002 earnings before DD&A of $132.2 million, up 18 percent from $111.7 million in 2001, and significantly exceeding KMP’s published 2002 budget target of $112.7 million.

Fourth quarter earnings before DD&A were $39.4 million, compared to $29 million for the same period the previous year. Approximately 90 percent of the increase in earnings in this segment was driven by internal growth. CO2 pipeline delivery volumes increased by 11 percent in 2002, and oil production at the SACROC Unit in the Permian Basin of west Texas increased by 43 percent compared to 2001 levels.

SACROC, one of the largest and oldest oil fields in the U.S. using CO2 injection technology, continues to perform better than expected. SACROC oil production increased to nearly 16,000 barrels per day in December 2002, nearly double what the field was producing when KMP purchased it in 2000. “As previously announced, we are investing in additional development at SACROC, which we expect will result in CO2 being our single fastest growing business in 2003,” Kinder said. He noted that CO2 is expected to generate about 15 percent of KMP’s cash flow in 2003. CO2 is one of the only areas 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.

The Terminals segment reported a 26 percent increase in 2002 earnings before DD&A to $205.6 million, up from $163.3 million in 2001. Fourth quarter earnings before DD&A were $54.3 million, compared to $43.1 million for the same period the previous year. Results for 2002 were driven by internal growth at terminals that KMP already owned, as well as strong performances by a number of smaller acquisitions.

Excluding acquisitions, terminal assets that KMP owned in both 2002 and 2001 accounted for an 8 percent increase in segment earnings for the year. Internal growth was spearheaded by expansion projects at the Carteret, Pasadena and Delta liquids terminals located on New York Harbor, the Houston Ship Channel and the Port of New Orleans, respectively.

These projects resulted in increased throughput, utilization and leasable capacity. Purchases that contributed to an increase in earnings included an interest in the International Marine Terminals Partnership (IMT), a terminal in Louisiana that handles about 7 million tons of coal, petroleum coke and iron ore a year, and Laser Materials Services LLC, which is comprised of over 60 transload facilities across the country.

“We will continue to explore opportunities to grow our terminals business through both internal growth and acquisitions, as we see strong demand for additional liquids storage tanks and dry-bulk handling facilities,” Kinder said.

Outlook

In December, KMP announced its 2003 expectations for cash distributions of $2.63 per unit. Additionally, KMP expects to increase its quarterly cash distribution to $0.68 per unit ($2.72 annualized) by the fourth quarter of 2003. These expectations include contributions only from assets currently owned by KMP and do not include the benefit of future acquisitions. It should be noted, however, that the company is optimistic about its chances for making accretive acquisitions in 2003.

“Like last year, we will detail KMP’s 2003 financial plan at next week’s annual analyst conference in Houston and post it on our web site so that investors may follow our progress throughout the year,” Kinder said. “Our 2003 budget will be the standard by which we measure our success this year. We remain committed to transparency, and we will continue to review and explain any variances to the plan during our quarterly earnings calls.”

Other News

— As announced one year ago, Vice Chairman William V. Morgan has retired, effective with today’s board meeting. “Bill has spent the past year working within the company to ensure a smooth transition,” Kinder said.

“He obviously has been a key component of Kinder Morgan’s success, and we are delighted that he has agreed to continue to be available to the company as an unpaid advisor.

Chief Financial Officer C. Park Shaper has replaced Bill on KMP’s and Kinder Morgan Management, LLC’s (NYSE: KMR – News) boards of directors.” Kinder noted that only two seats on each company’s board of directors are held by officers of the company.

— Kinder Morgan’s three-person Office of the Chairman is now comprised of Chairman and CEO Richard D. Kinder, President Michael C. Morgan and Chief Financial Officer C. Park Shaper.

Shareholders of Kinder Morgan Management, LLC will also receive a $0.625 distribution, payable on Feb. 14, 2003, to shareholders of record as of Jan. 31, 2003. The distribution to KMR shareholders, equal to the amount of the cash distribution payable to KMP unitholders, will be paid in the form of additional KMR shares, valued at KMR’s average closing price for the 10 trading days prior to KMR’s ex-dividend date.

Kinder Morgan Energy Partners, L.P. is the largest publicly traded pipeline limited partnership in the U.S. in terms of market capitalization and the largest independent refined petroleum products pipeline system in the U.S. in terms of volumes delivered. KMP owns or operates more than 25,000 miles of pipelines and over 70 terminals. Its pipelines transport more than two million barrels per day of gasoline and other petroleum products and up to 7.8 billion cubic feet per day of natural gas.

Its terminals handle over 60 million tons of coal and other dry-bulk materials annually and have a liquids storage capacity of approximately 55 million barrels for petroleum products and chemicals. KMP is also the leading provider in the U.S. of CO2, which is used in enhanced oil recovery projects.

The general partner of KMP is owned by Kinder Morgan, Inc. (NYSE: KMI – News), one of the largest energy transportation and storage companies in America. Combined, the two companies have an enterprise value of approximately $19 billion.


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