Other Segments and Corporate Development Mike Morgan

Transcription

1 Other Segments and Corporate Development Mike Morgan

2 Agenda Terminals Retail Power Acquisition Update TransColorado Dropdown Financing Acquisitions KMR vs. KMP Price Distribution Management Policy 2

3 Terminals Segment Overview (a) Natural Gas Pipelines 26% Products Pipelines 33% CO2 Pipelines 24% Terminals 17% Liquids 59% Bulk 41% (a) 2004 budgeted distributable cash flow before allocation of G&A G and interest 3

4 Terminals Overview Liquids 12 terminals Bulk 36.2MM barrels of storage 66% in Houston, NY (a) 42 terminals 59MM total through-put tonnage 49 transload terminals Other 8% Chemical 20% FERTILIZERS 7% Petroleum 72% OTHER 12% ORES/ METALS 12% SALT 5% COAL 51% Houston 38% New York 28% Other 26% Chicago 8% (a) Based on 2004E EBITDA CEMENT (Including Clinker) 1% COKE 12% 4

5 Liquids Terminals Contract Life 2 3 years average contract life Under 1 year 19.1% of total revenue 1 2 years 29.1% of total revenue 2 3 years 16.2% of total revenue 3 + years 35.7% of total revenue 1-2 Years 29% Under 1 Year 19% 2-3 Years 16% 3+ Years 36% 5

6 Terminals Financial Results Financial Results 2003 Earnings before DD&A $240, E Earnings before DD&A $256,726 (7% growth) Macro-Growth Factors Growth Increased Gasoline Demand 1% Increased Distillate Demand 3% Increased Gasoline Imports 809MM BPD 873MM BPD 8% Long Term Trends Average Refinery Utilization 90.6% 92.3% Greater dependence on imported petroleum Increased number of product specs 8,844MM BPD 3,761MM BPD 8,932MM BPD 3,869MM BPD 6

7 2004 Terminals Growth Drivers KMLT KMBT Expanded capacity in the Northeast by 300,000 bbls Full year of new KM to Buckeye Pipeline Full year of new tankage in Houston 300,000 bbls Soda ash on West Coast up 200,000 tons Petroleum coke up by 250,000 tons Increase in imported fertilizer in Southwest due to high cost of natural gas Increased services at in-plant facilities Increased handling of ore products and synfuel 7

8 Retail and Power Segments 2004 Budget NGPL 41% Retail 7% KMP 48% Power 1% Trans- Colorado 3% (a) 2004 budgeted segment earnings before allocation of G&A and interest expense. KMP includes: (i) general partner interest, (ii) earnings from 18 million KMP units and (iii) earnings from 15 million KMR units. 8

9 Retail W Y O M I N G 29% of Meters 21% of Income Kirk Ranch Bunker Hill Oil Springs Huntsman Totals 241,574 Meters $68.7mm 04E Income N E B R A S K A 40% of Meters 23% of Income Note: Colorado totals include Rocky intrastate pipeline C O L O R A D O Wolf Creek Montrose Ouray Pagosa Springs 31% of Meters 56% of Income La Junta EBITDA Op Income Growth 2002 $79.1 $ $81.7 $65.5 2% 2004E $85.5 $68.7 5% 9

10 2004 KMI Retail Segment Key Drivers Completion of Montrose to Ouray pipeline and distribution expansion Colorado meter growth Hedging strategy minimizes weather-related margin fluctuations Operational efficiencies from automated schedule/dispatch system and new technologies such as automated meter reading (AMR) Choice Gas Supply programs available to 165,000 customers of which 135,000 participate (82%) 10

11 Colorado Growth 11

12 Small Power Portfolio, 1% of KMI Plant Capacity (Mw) Type of Contract Owner- ship Counter- Party Contract Expiration 2004E ($mm) Notes Equity Interest: Ft. Lupton % Toll PSCo 2009, 2019 (a) Greeley % PPA PSCo 2011 (b) Sithe % Toll PSCo 2013 (c) Total Colorado 376 $8.7 Preferred Interest: Jackson 541 N/A Toll Williams 2018 $4.8 (d) Wrightsville 550 N/A N/A N/A N/A $0 (e) Total Power 1,467 $13.5 (a) 272 Mwh contracted through 2009, 122 Mwh contracted through (b) PSCo pays a fixed demand charge. Gas supply risk mitigated through long term contract. (c) Kinder Morgan owns a 33.5% royalty interest. (d) 2004E represents fees that KM receives as plant operator. No earnings in 2004E associated with preferred interest. (e) Mirant buys the gas, sells the power and operates the plant. Kinder Morgan owns a preferred interest. Mirant placed plant in bankruptcy in

13 Other Items Turbines To sell at beginning of 2003: 1 7EA 6 LM6000s Associated Equipment Progress Sold 1 LM6000 to 3 rd party No gain or loss recognized on sale Will sell 2 LM6000s at same price to CO 2 (mid year 2004) Pursuing leads on 4 remaining $29.4 million Q4 after-tax tax revaluation Wrightsville = $27.6 E&P Reserves = $1.8 13

14 KMP 2003 Acquisitions Acquisition in Every Business Segment Segment Date Value ($ millions) Red Cedar Natural Gas Q3 $10 CO % Yates, 12.75% SACROC CO 2 Q4, Q2 254 Shell West Coast Terminals Products Q4 28 Mid-Tex Storage Natural Gas Q4 18 Rancho Pipeline Natural Gas Q4 30 Southeast Terminals Products Q Terminals Tampa and NY Terminals Q4 33 Total $387 14

15 TransColorado: Asset has been Stabilized 450, , , , , , , ,000 50,000 0 Long-Term Contracts in Place Contracted (a) Not Contracted Extension Under Negotiation Reduced Exposure to Differentials Customer Customer A Customer B Total Capacity mmcf/d 10,000 25,000 35,000 Contract Exp. Date 3/05 12/07 Min. Rate $.07 $.05 Represents only 2.8% of 2004E revenues ~ 6-year 6 average contract life compares favorably to KMP average (a) Includes ROFR capacity 15

16 TransColorado: Potential Dropdown in 2004 KMI 2004E Segment Income Post expansion EBITDA FERC Approval Expected Expansion Completion Estimated Dropdown Timing Process: $26.1 mm > $32 mm 2Q Q Q-3Q 2004 (1) KMI and KMR boards hire independent counsel, banks, etc (2) Approval by both KMI and KMR boards (3) FERC Approval for Expansion 16

17 GP Participation has Increased with Success L.P. Share G.P. Share (a) $940 $827 $701 $548 Tier I KMP Distribution Per LP Unit (b) $0.00 to $0.605 General Partner 2% Limited Partner 98% $17 $30 2% $198 $153 15% $333 25% 29% 34% 38% 40% 41% 41% Tier II Tier III Tier IV $0.605 to $0.715 $0.715 to $0.935 > $ % 25% 50% 85% 75% 50% E (a) Includes only the 2% GP Interest - does not include limited partner units owned by GP/KMI (b) Annual calculation. Actual calculations are made quarterly at 25% of distribution target shown 17

18 Cost of Capital Substantially Below Acquisition Multiples Cost of Equity Cost of Debt Nominal Yield 6.0% 10-year Fixed (50%) 6.5% GP Gross-Up 4.2% 10-year Floating (50%) 4.5% Pre-Tax Cost of Equity 10.2% Pre-Tax Cost of Debt 5.5% 60% 40% Weighted Average Cost of Capital = 8.3% Acquisition multiples of: VS. 6.0X 16.7% 7.0X 14.3% 8.0X 12.5% 2003 ROI = 13.1% 18

19 KMP Acquisition Success More Than Cost of Capital G&A Cost Reductions Tejas: 87 employees GATX: 121 employees Santa Fe: 104 employees Synergies with Existing Asset Base Tejas interconnections with KMTP Shell Terminals on SFPP Cross-over over Customers (e.g. liquids and bulk terminals) Financing Risk Have won auctions although not highest bid Excellent track record on deals over $1 billion Post-acquisition allocation of capital to expansion projects 19

20 Financing Risk is Low $3.6 billion in Equity Raised (a) Investors Have Done Well (b) $1,000 $750 $500 $250 $0 Private Public $1,020 $1,047 $180 $420 $343 $13 $258 $163 $ % 40% 30% 20% 10% 0% -10% 26% 3% 3% KMP SPX UTY 27% -1% -1% 35% -8% 5% 15% -4% -7% 48% 15% 9% 29% 19% 97 KMP 98 KMP 00 KMP 01 KMR 02 KMR 03 KMP 6% 17% 15% 14% 8% 10% 7% Current Yield on Offer Price a) Does not include KMR distributions, totaling approximately $260 million. b) Source: Bloomberg. With the exception of 2003, all returns are calculated on a daily basis from date of offering through 12/31/2003 assuming dividends reinvested returns are calculated the same way but are not annualized in order to be more conservative (i.e. total return over 7 months). 20

21 KMR Discount/Premium to KMP 10% 5% 0% -5% May-01 Jul-01 Sep-01 4/11/2002, 0% File Initial Proxy to Remove Exchange Nov-01 Jan-02 Mar-02 6/25/2002, -1% File Final 7/24/2002, -3% Proxy Begin KMR Roadshow May-02 Jul-02 Sep-02 Nov-02 Jan-03 Mar-03 May-03 Jul-03 Sep-03 Nov-03-10% -15% -20% 7/31/2002, -7% KMR Pricing 10/10/2002, -7% EEQ Pricing 12/31/2003, -13% Source: Bloomberg 21

22 Nov-03 Dec-03 EEQ Discount/Premium to EEP 2% -3% -8% 10/10/02-7% -13% -18% 12/4/02-16% Source: Bloomberg Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 12/31/03-3% 22

23 KMR is a Tax Efficient Way to Own KMP Higher Current Yield When KMR Trades at a Discount KMP Cash Distribution / KMR Price (10 days prior to ex-dividend) Same or Better Terminal Value guarantee upon mandatory purchase events of higher of KMP or KMR value Same Voting Rights as KMP Taxes Share distributions are not taxed and reduce per share basis One year after purchase, all gains (including most recent share distribution) are long term capital gains Frictional costs to liquidate share dividend and replicate KMP are a minimal. 23

24 KMP Distribution Management MLP unit holders want a stable and growing distribution Oil production will ultimately begin to decline ( ) 2013) KMP Distribution Management Policy Grow coverage Reinvest retained capital in accretive projects to offset decline Viewed in a vacuum, decline may look significant However, in context of overall MLP, the distribution is not expected to decline Will reassess overall coverage each year 24

25 CO 2 Oil Production as a Stand-Alone Business $300 $250 $200 $150 $100 $50 $0 SACROC and Yates DCF from Oil Production ($ millions) $300 $250 $200 $150 $100 $50 $0 Reserves SACROC and Yates after Reserves

26 Oil Production Impact on Total KMP is Modest $2,000 $1,500 $1,000 $500 $0 SACROC and Yates All Other KMP Total KMP DCF ($ millions) Assumes that KMP DCF, excluding SACROC and Yates, grows at 5%. $2,000 $1,500 $1,000 $500 $0 $2,000 $1,500 $1,000 $500 $0 Reserves Total KMP Afer Reserves KMP (including SACROC and Yates) Cash Flow from Investment of

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