Kinder Morgan, Inc. Reports Record Earnings; Increases Dividend By 17% to $3.50 Annually

HOUSTON, Jan. 18 /PRNewswire-FirstCall/ -- Kinder Morgan, Inc. today reported record annual earnings in 2005 and its board of directors declared a 17 percent increase in its quarterly dividend to $0.875 ($3.50 annualized) from $0.75 per common share ($3.00 annualized). KMI's dividend has been increased seven times since July 2002 and is now more than 17 times greater than it was at that time.

Diluted earnings per share from continuing operations in 2005 before certain items were $4.45, up 17 percent from comparable earnings per share of $3.81 in 2004. Diluted earnings per share from continuing operations before certain items for the fourth quarter were $1.29, up 25 percent from comparable earnings per share of $1.03 for the fourth quarter of 2004. As noted in the table below, total results for 2005 were affected by certain items, including: hedge ineffectiveness (which has been separated from Natural Gas Pipeline Company of America's (NGPL) results as was detailed in the third quarter earnings release), gains from the sale of Kinder Morgan Management shares, the impact of certain items at Kinder Morgan Energy Partners on KMI, a reduction in the carrying value of the company's interest in a power plant in Colorado, a contribution to the Kinder Morgan Foundation, and the net impact of two items related to the financing of the Terasen acquisition.

Income from continuing operations, including the impact of certain items, was $552.2 million for 2005, or $4.43 per diluted share, compared to $528.5 million, or $4.23 per diluted share for 2004. For the fourth quarter, income from continuing operations was $176.3 million, or $1.39 per diluted share, compared to $185.1 million, or $1.48 per diluted share, for the same period in 2004.

4Q '05 4Q '04 2005 2004 Diluted EPS From Cont. Ops. Before Certain Items $1.29 $1.03 $4.45 $3.81 Impairment of Power Investments, Net (0.03) (0.07) (0.03) (0.07) Hedge ineffectiveness 0.11 (0.01) KMR sales 0.18 0.25 Foundation contribution (0.07) (0.07) KMP certain items impact on KMI (0.10) (0.14) Financing charges 0.01 0.01 Income Tax Adjustments 0.55 0.52 Loss on Early Extinguishment of Debt (0.02) (0.02) Other (0.01) (0.03) (0.01) Diluted EPS From Continuing Operations $1.39 $1.48 $4.43 $4.23

Chairman and CEO Richard D. Kinder said its ownership of the general partner of KMP, a strong performance by NGPL and one month of contributions from the completed Terasen acquisition combined to produce outstanding financial results for 2005. "We exceeded our published annual budget for recurring earnings per share of $4.22 and, excluding Terasen, generated approximately $687 million in cash flow, ahead of our full-year forecast of approximately $620 million." (Cash flow is defined as pre-tax income before DD&A, less cash paid for income taxes and sustaining capital expenditures.)

The $5.9 billion Terasen acquisition closed Nov. 30, 2005, and contributed earnings from continuing operations of approximately $0.14 per diluted share for the fourth quarter. The impact of Terasen on continuing operations includes earnings from Terasen Gas, which is the largest regulated natural gas distribution company in British Columbia, and Kinder Morgan Canada (formerly Terasen Pipelines), but excludes Terasen Water and Utility Services, the results of which are reflected in discontinued operations and which is the subject of a sale agreement announced Jan. 17. "Our acquisition model is right on target and the integration of Terasen into Kinder Morgan is going very well," Kinder said. "We believe that Kinder Morgan Canada will provide us with even more growth opportunities than we initially thought, as our expectation of a growing need for both pipelines and other energy infrastructure to support the oilsands production in Alberta is being confirmed."

In addition to the Terasen acquisition in 2005, the Kinder Morgan companies invested more than $700 million in expansion projects, and at KMP made 10 acquisitions totaling approximately $470 million (includes expansion upgrades and assumed liabilities), most of which were in the Terminals segment. "We also completed a successful open season on the Rockies Express Pipeline and made significant progress toward bringing this project to fruition, and we entered into contracts with major shippers for all of the capacity on the Kinder Morgan Louisiana Line, which is expected to begin service in early 2009," Kinder said. Rockies Express will move natural gas eastward out of the Rockies and is expected to become the largest pipeline built in the United States in over 20 years. The Kinder Morgan Louisiana Line will move gas from liquefied natural gas (LNG) terminals along the Gulf Coast into the country's pipeline network.

KMI intends to continue to return cash to its shareholders in an economic and tax-efficient manner by evaluating the dividend on at least an annual basis, repurchasing stock when appropriate and maintaining a strong balance sheet. KMI repurchased approximately $314 million in KMI shares in 2005. Since inception of its stock repurchase program in August 2001, KMI has used cash to repurchase approximately $875 million of its own shares. Excluding the Terasen acquisition, KMI would have reduced net debt by approximately $100 million during 2005. Its debt-to-capital ratio rose to approximately 56 percent at year-end following the Terasen deal.

The quarterly dividend of $0.875 per common share ($3.50 annualized) will be payable on Feb. 14, 2006, to shareholders of record as of Jan. 31, 2006. This compares to a dividend of $0.70 per common share ($2.80 annualized) declared in January 2005.

Overview of Business Segments

KMI's investments in KMP contributed $567.5 million of pre-tax earnings (before certain items) to KMI in 2005, up 19 percent from $477 million in 2004. For the fourth quarter, KMI's investments in KMP contributed $148 million compared to $129.8 million in the same period last year. KMI will receive $593.5 million in total distributions from its investment in KMP for 2005, compared to $501.8 million in 2004, and will receive $153.9 million for the fourth quarter compared to $135.7 million for the fourth quarter a year ago.

"KMP had another strong year in 2005 and its cash flow continued to increase due to both internal growth and contributions from acquisitions," Kinder said. As KMP's distributions grow, KMI's general partner share of those distributions grows as well, up to 50 percent of incremental distributions.

NGPL reported 2005 segment earnings of $436.9 million, an 11 percent increase from $392.8 million in 2004, exceeding its published annual budget of 5 percent growth. For the fourth quarter, NGPL segment earnings increased by 12 percent to $110 million, compared to $97.9 million for the same period the previous year. These segment earnings exclude the timing impact from accounting for hedge ineffectiveness, which resulted in a loss in the third quarter that was offset in the fourth quarter.

"NGPL had a terrific year, successfully re-contracting and entering into new firm transportation and storage capacity agreements, increasing transportation margins and expanding infrastructure," Kinder said. In 2005, NGPL entered into long-term firm transportation and storage contracts with such companies as MidAmerican, Peoples, ONEOK, Nicor, NIPSCO and BP. Firm, long-haul transportation capacity on NGPL is sold out through February 2007 (except for a portion of summer only capacity available on the Gulf Coast Line) and storage is fully contracted until April 2007. "At this time last year, 51 percent of the long-haul capacity NGPL had under contract was scheduled to expire in 2006. However, through successful re-contracting efforts, only 2.5 percent of that capacity remains to be contracted this year," Kinder said. He noted NGPL also benefited from facility expansions increasing storage and cross-haul service on its system.

Throughput volumes were up 11 percent in the fourth quarter primarily due to strong demand on the Gulf Coast and Louisiana pipelines and continued high utilization on the Amarillo and the cross-haul pipelines. The level of throughput has only a modest impact on earnings, however, because the vast majority of NGPL's transportation and storage revenues come from contractually-secured demand charges that customers pay regardless of the amount of natural gas they ship through the pipeline.

Retail reported 2005 segment earnings of $58.2 million, down 16 percent from $69.3 million in 2004. For the fourth quarter, segment earnings were $21.3 million versus $25.8 million for the comparable period in 2004. Factors in the segment earnings decline included lower residential and commercial volumes in Wyoming and Nebraska due to a combination of conservation efforts and warmer than normal temperatures. In addition, agricultural loads, primarily in Nebraska, were impacted by both warm weather and customers switching from higher priced gas to alternative energy sources. In Colorado, growth continued in both 2005 and the fourth quarter, as the company added meters and load growth primarily on the Western Slope where several expansion projects continue. More than 3,700 new meters were connected in Colorado during 2005.

Power generated 2005 segment earnings of $19.7 million, up significantly from $15.3 million in 2004 and ahead of its published annual budget. Segment earnings for the fourth quarter were $6.3 million, compared to $3.5 million in the same period a year ago. Power benefited from a strong performance at the Ft. Lupton, Colo. power plant and from providing operating and maintenance management services at a new 103-megawatt combined-cycle natural gas-fired power plant in Snyder, Texas, which began generating electricity for KMP's SACROC operations late in the second quarter.

Outlook

KMI currently expects 2006 recurring earnings of $5.00 per share and cash flow of approximately $760 million. "It is important to note that although we are optimistic about our chances for making accretive acquisitions in 2006, we have not included any benefits from unidentified acquisitions in these expectations, which are based solely on assets currently owned by the company," Kinder explained.

Kinder Morgan will detail its 2006 financial plan at its annual investor conference in Houston on Tuesday, Jan. 24, which will be webcast live. As in previous years, both KMI and KMP will post their budgets on http://www.kindermorgan.com/ to enable investors to follow the company's progress throughout the year. "We remain committed to transparency, and we will continue to review and explain any variances to the budgets during our quarterly earnings calls," Kinder said.

Other News * As announced yesterday, KMI has entered into a definitive agreement to sell Terasen Water and Utility Services and its affiliated businesses for C$125 million to a consortium including CAI Capital Management Co. and the existing management team of Terasen Water and Utility Services. The transaction is expected to close by the end of April 2006. * Kinder Morgan Canada is making progress in its efforts to add pipeline capacity to move oilsands production within and out of Alberta. It is close to finalizing terms of an agreement with shippers on its Trans Mountain Pipeline that will provide for a pump station expansion (to be completed in 2007) and a looping expansion (to be completed in 2009) that will increase capacity of the pipeline from 225,000 barrels per day to 300,000 barrels per day. The capital investment for these two expansions totals approximately C$600 million. * NGPL executed long-term contracts in December with shippers to fully support an additional expansion of a portion of its Amarillo cross- haul line. The $16 million project will add 139,000 dekatherms per day of capacity to provide producers in the growing Barnett Shale supply basin with greater access to attractive markets via the NGPL system. The expansion is expected to be completed in the fourth quarter of 2006. * KMI sold 5.67 million KMR shares in 2005, generating $255 million in proceeds. Approximately 50 percent of the proceeds were used to reduce debt, with the other 50 percent used to repurchase KMI shares (a portion of which will be completed in 2006). As previously discussed, KMI sold these shares in order to utilize carryover tax losses that were scheduled to expire during 2005. This completes the KMR sales that KMI expected to make.

Kinder Morgan, Inc. is one of the largest energy transportation, storage and distribution companies in North America with approximately 40,000 miles of natural gas and products pipelines, 1.1 million natural gas distribution customers and 150 terminals. Kinder Morgan, Inc. owns the general partner interest of Kinder Morgan Energy Partners, L.P., one of the largest publicly traded pipeline limited partnerships in the United States. Combined, the two companies have an enterprise value of over $35 billion. (Enterprise value is market value of the equity securities plus net debt, excluding interest rate swaps.)

Please join KMI at 4:30 p.m. Eastern Time on Wednesday, Jan. 18, at http://www.kindermorgan.com/ for a LIVE webcast conference call on the company's 2005 and fourth quarter earnings.

In this release, we present a measure of cash flow that differs from cash flow measures prepared under Generally Accepted Accounting Principles (GAAP). In this release, we have defined cash flow to be pre-tax income from continuing operations before depletion, depreciation and amortization (DD&A), less cash paid for income taxes and less sustaining capital expenditures. In each case, the amounts included in the calculation of these measures are computed in accordance with GAAP, with the exception of sustaining capital expenditures, which is not a defined term under GAAP. Sustaining capital expenditures are defined as capital expenditures (determined in accordance with GAAP) which do not increase the capacity of an asset. We routinely calculate and communicate this measure to investors. We believe that continuing to provide this information results in consistency in our financial reporting. In addition, we believe that this measure is useful to investors because it provides investors with a quick, simple and reasonable estimate of our cash flow available for expansion projects, debt repayment, dividends and share repurchases.

We believe the most directly comparable cash flow measure computed under GAAP is "cash flows provided by continuing operations." This GAAP measure differs from the cash flow measure used in this release in that (1) it is not reduced for sustaining capital expenditures, and (2) it is affected by a number of items that are not taken into account in the cash flow measure used in this release, including (i) adjustments for equity in earnings, (ii) distributions from equity investments, (iii) minority interests in income of consolidated subsidiaries, (iv) deferred purchased gas costs, (v) changes in gas in underground storage, (vi) changes in other working capital items, (vii) net gains or losses on sales of assets other than KMR shares, (viii) payment to terminate an interest rate swap, (ix) pension contributions in excess of expense, (x) hedge ineffectiveness, (xi) changes in rate stabilization accounts, and (xii) other, net. We have attached a reconciliation of cash flow to preliminary cash provided by continuing operations for actual results. Cash flow should be considered in conjunction with cash provided by continuing operations, as defined by GAAP.

This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although Kinder Morgan believes that its expectations are based on reasonable assumptions, it can give no assurance that such assumptions will materialize. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein are enumerated in Kinder Morgan's Forms 10-K and 10-Q as filed with the Securities and Exchange Commission.

KINDER MORGAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Three Months Ended Twelve Months Ended December 31, December 31, 2005 2004 2005 2004 Operating Revenues: Transportation and Storage $249,564 $189,082 $821,127 $731,289 Natural Gas Sales 379,636 104,673 657,670 336,550 Other 33,892 32,083 106,975 97,094 Total Operating Revenues 663,092 325,838 1,585,772 1,164,933 Operating Costs and Expenses: Purchases and Other Costs of Sales 337,786 108,062 662,962 349,564 Operations and Maintenance 61,670 41,578 192,641 158,356 General and Administrative 30,093 17,340 82,274 77,841 Depreciation and Amortization 41,757 29,605 131,640 118,742 Taxes, Other Than Income Taxes 11,998 5,190 37,490 28,975 Impairment of Power Investments 6,492 33,527 6,492 33,527 Total Operating Costs and Expenses 489,796 235,302 1,113,499 767,005 Operating Income 173,296 90,536 472,273 397,928 Other Income and (Expenses): Equity in Earnings of Kinder Morgan Energy Partners 125,000 152,530 605,399 558,078 Equity in Earnings of Other Equity Investments 5,983 1,685 16,242 10,152 Interest Expense, Net (63,843) (34,434) (177,913) (133,219) Interest Expense - Deferrable Interest Debentures (5,478) (5,478) (21,912) (21,912) Minority Interests 4,565 (10,909) (50,457) (56,420) Other, Net 39,641 (2,663) 69,411 614 Total Other Income and (Expenses) 105,868 100,731 440,770 357,293 Income From Continuing Operations Before Income Taxes 279,164 191,267 913,043 755,221 Income Taxes 102,822 6,125 360,873 226,717 Income From Continuing Operations 176,342 185,142 552,170 528,504 Gain (Loss) From Discontinued Operations, Net of Tax 3,838 (6,424) 2,449 (6,424) Net Income $180,180 $178,718 $554,619 $522,080 Basic Earnings (Loss) Per Common Share: Income From Continuing Operations $1.40 $1.49 $4.47 $4.27 Gain (Loss) From Discontinued Operations 0.03 (0.05) 0.02 (0.05) Total Basic Earnings Per Common Share $1.43 $1.44 $4.49 $4.22 Number of Shares Used in Computing Basic Earnings Per Common Share 126,128 123,844 123,465 123,778 Diluted Earnings (Loss) Per Common Share: Income From Continuing Operations $1.39 $1.48 $4.43 $4.23 Gain (Loss) From Discontinued Operations 0.03 (0.05) 0.02 (0.05) Total Diluted Earnings Per Common Share $1.42 $1.43 $4.45 $4.18 Number of Shares Used in Computing Diluted Earnings Per Common Share 127,249 125,021 124,642 124,938 Dividends Per Common Share $0.7500 $0.5625 $2.9000 $2.2500 KINDER MORGAN, INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Three Months Ended Twelve Months Ended December 31, December 31, 2005 2004 2005 2004 Equity in Earnings of Kinder Morgan Energy Partners Before Certain Items $175,100 $152,530 $668,706 $558,078 Segment Earnings (Loss): (A) NGPL 110,018 97,858 436,866 392,806 Retail 21,297 25,773 58,240 69,264 Terasen Gas 45,187 --- 45,187 --- Kinder Morgan Canada 12,549 --- 12,549 --- TransColorado (B) --- 2,116 --- 20,255 Power 6,277 3,511 19,693 15,255 370,428 281,788 1,241,241 1,055,658 General and Administrative Expenses (30,093) (17,340) (82,274) (77,841) Interest Expense, Net (63,843) (34,434) (177,913) (133,219) Interest Expense, Deferrable Interest Debentures (5,478) (5,478) (21,912) (21,912) Other (16,068) (12,764) (55,355) (46,960) Income From Continuing Operations Before Income Taxes and Certain Items 254,946 211,772 903,787 775,726 Income Taxes, Excluding Certain Items 91,204 82,946 349,199 299,945 Income From Continuing Operations Before Certain Items 163,742 128,826 554,588 475,781 Certain Items, Net of Tax 12,600 56,316 (2,418) 52,723 Income From Continuing Operations $176,342 $185,142 $552,170 $528,504 Diluted Earnings Per Share From Continuing Operations Before Certain Items $1.29 $1.03 $4.45 $3.81 Certain Items 0.10 0.45 (0.02) 0.42 Diluted Earnings Per Share From Continuing Operations $1.39 $1.48 $4.43 $4.23 Earnings Attributable to Investments in KMP Before Certain Items Three Months Ended Twelve Months Ended December 31, December 31, 2005 2004 2005 2004 General Partner Interest, Including Minority Interest in the OLPs $129,578 $109,573 $489,401 $403,535 Limited Partner Units (KMP) 11,586 11,381 46,278 41,061 Limited Partner i-units (KMR) 33,936 31,576 133,027 113,482 175,100 152,530 668,706 558,078 Pre-tax Minority Interest in KMR (C) (27,081) (22,683) (101,255) (81,082) Pre-tax KMI Earnings from Investments in KMP Before Certain Items $148,019 $129,847 $567,451 $476,996 Additional Information Three Months Ended Twelve Months Ended December 31, December 31, 2005 2004 2005 2004 (Units and Shares in Millions) Average KMP Units Owned by KMI 19.7 19.3 19.7 18.5 KMP Earnings per Unit Before Certain Items $0.59 $0.59 $2.37 $2.22 Average KMR Shares Owned by KMI 11.7 15.1 13.4 14.6 Average Total KMR Shares Outstanding 57.5 53.2 56.1 51.2 Volume Highlights Three Months Ended Twelve Months Ended December 31, December 31, 2005 2004 2005 2004 Systems Throughput (Trillion Btus): NGPL (D) 462.7 415.9 1,664.8 1,539.6 Retail (E) 15.8 17.0 41.5 44.1 Btus = British thermal units (A) Operating income before corporate costs plus gains and losses on incidental sales of assets plus earnings from equity method investments. (B) Our investment in TransColorado Gas Transmission Company was contributed to Kinder Morgan Energy Partners, effective November 1, 2004. (C) Minority interest, net of tax, as reported in supplemental information was $17,245 and $13,537 for the three months ended December 31, 2005 and 2004, respectively, and $64,480 and $50,271 for the twelve months ended December 31, 2005 and 2004, respectively. (D) Excludes transport for Kinder Morgan Texas and Kinder Morgan Tejas intrastate pipelines. (E) Excludes transport volumes of intrastate pipelines. KINDER MORGAN, INC. AND SUBSIDIARIES PRELIMINARY SUMMARIZED BALANCE SHEET INFORMATION (UNAUDITED) (DOLLARS IN MILLIONS) December 31, December 31, 2005 2004 Assets: Cash and Cash Equivalents $116 $177 Other Current Assets 1,114 293 Other Assets 16,146 9,647 Total Assets $17,376 $10,117 Liabilities and Stockholders' Equity: Notes Payable and Current Maturities of Long-term Debt $958 $505 Other Current Liabilities 1,012 334 Other Liabilities and Deferred Credits 3,507 2,678 Long-term Debt: Outstanding Notes and Debentures 6,280 2,258 Deferrable Interest Debentures 391 284 Value of Interest Rate Swaps 52 88 6,723 2,630 Minority Interests in Equity of Subsidiaries 1,250 1,105 Stockholders' Equity: Accumulated Other Comprehensive Loss (128) (55) Other Stockholders' Equity 4,054 2,920 Total Stockholders' Equity 3,926 2,865 Total Liabilities and Stockholders' Equity $17,376 $10,117 Total Debt (A) $7,122 $2,586 Total Capital (B) $12,817 $6,895 Ratio of Total Debt to Total Capital 55.6% 37.5% (A) Notes payable and current maturities of long-term debt plus outstanding notes and debentures, less cash and cash equivalents. (B) Total debt plus deferrable interest debentures plus minority interests in equity of subsidiaries plus stockholders' equity less accumulated other comprehensive loss. KINDER MORGAN, INC. AND SUBSIDIARIES RECONCILIATION OF PRELIMINARY CASH FLOW (UNAUDITED) (DOLLARS IN MILLIONS) Twelve Months Ended December 31, 2005 2004 Simplified Calculation of Cash Flow Per Press Release Income From Continuing Operations Before Income Taxes and Certain Items $903.8 $775.7 Add: Depreciation and Amortization 131.6 118.7 Less: Sustaining Capital Expenditures (121.3) (82.2) Less: Cash Paid for Income Taxes (200.5) (144.1) Simplified Calculation of Cash Flow Per Press Release (A) $713.6 $668.1 Reconciliation of Simplified Calculation to Preliminary Statement of Cash Flow Simplified Calculation of Cash Flow Per Press Release $713.6 $668.1 Add Back: Sustaining Capital Expenditures 121.3 82.2 Subtotal 834.9 750.3 Other Adjustments (B) (236.5) (100.8) Net Cash Flows Provided by Continuing Operations (C) $598.4 $649.5 (A) Simplified Cash Flow Per Press Release for 2005, exclusive of the impact of Terasen, is approximately $687. (B) Adjustments for equity in earnings, distributions from equity investments, minority interests in income of consolidated subsidiaries, deferred purchased gas costs, changes in gas in underground storage, changes in other working capital items, net gains or losses on sales of assets other than KMR shares, pension contributions in excess of expense, payment to terminate interest rate swap, hedge ineffectiveness, changes in rate stabilization accounts and other, net. (C) Preliminary estimate. Final statement of cash flows will be provided on Form 10-Q.

FCMN Contact: maureen_bulkley@kindermorgan.com