Kinder Morgan profit, cash flow rise on Gulf Coast Express pipeline strength

U.S. pipeline operator Kinder Morgan Inc reported a 26% rise in quarterly profit on Wednesday, benefiting from higher gas takeaway from the Permian Basin through its Gulf Coast Express pipeline.

The pipeline, which can transport 2 billion cubic feet per day (bcfd), came into service in September when drillers were burning off natural gas at record rates due to lack of transportation capacity from the shale-rich Permian Basin.

Earnings from natural gas transport volumes rose 14% and from NGL transport volumes jumped 23% from a year earlier.

The pipeline operator generated $1.35 billion, or 59 cents per share, in distributable cash flow (DCF) in the fourth quarter, higher than $1.14 billion, or 50 cents per share, in the prior quarter. On a year-over-year basis, DCF rose 6%.

Investors have been pushing U.S. oil and gas pipeline operators to deliver positive free cash flow as low energy prices and idle shale rigs pressure earnings.

The Houston-based company, whose business includes storage terminals as well as pipelines, said net income attributable to shareholders rose to $610 million, or 27 cents per share, in the quarter ended Dec. 31, from $483 million, or 21 cents per share, a year earlier.

However, the company's weighted average natural gas liquids (NGL) price for the quarter fell 19% to $5.34 a barrel, and the realized weighted average crude oil price fell 10% to $49.90 a barrel.

It said profit was partly hurt by weakness in its CO2 segment, which ships carbon dioxide to oilfields where it is used to extract crude, due to lower production and volatile oil prices.

Kinder Morgan continues to speak with potential partners to develop a third natural gas pipeline, Permian Pass, but market demand has cooled after U.S. oil producers began to tighten spending last year, Chief Executive Steven Kean told investors.

The company could have made a final investment decision on the third pipeline of 2 billion cubic feet per day last year had the oil industry not eased spending and output projections, he said.

Still, with crude oil flowing now freely on new lines from West Texas to the U.S. Gulf Coast, demand for natural gas transport capacity could rise eventually, Kean added. "People do recognize additional gas takeaway is going to be needed," he said.

Excluding one-time items, Kinder Morgan earned 26 cents, missing the Street's view by a cent, according to Refinitiv IBES data.

(Reporting by Arunima Kumar in Bengaluru and Collin Eaton in Houston; Editing by Arun Koyyur and Leslie Adler)