Morgan Stanley Houston Energy Theme Days. May 12, 2005

Transcription

1 Morgan Stanley Houston Energy Theme Days May 12, 2005

2 Forward Looking Statements This presentation contains forward looking statements, including these, within the meaning of Section 27A of the Securities Act of 1933, as amended and Section n 21E of the Exchange Act of 1934, as amended. Forward looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. The future results s and securities values of Kinder Morgan Inc., Kinder Morgan Energy Partners, L.P. and Kinder Morgan Management, LLC (collectively known as Kinder Morgan ) ) may differ materially from those expressed in the forward-looking statements contained throughout this presentation and in documents filed with the SEC. Many of the factors that will determine these results and values are beyond Kinder Morgan's ability to control or predict. These statements are necessarily based upon various assumptions involving judgments with respect to the future, including, among others, the ability to achieve synergies and revenue growth; national, international, i regional and local economic, competitive and regulatory conditions and developments; ; technological developments; capital markets conditions; inflation rates; interest est rates; the political and economic stability of oil producing nations; energy markets; weather conditions; environmental conditions; business and regulatory or legal decisions; ions; the pace of deregulation of retail natural gas and electricity and certain agricultural a products; the timing and success of business development efforts; terrorism; and other r uncertainties. You are cautioned not to put undue reliance on any forward-looking statement. 2

3 Kinder Morgan System Map 2 PACIFIC COCHIN 2 PACIFIC CALNEV 2 3 KMIGT NORTH KMP CO 2 Pipelines 4 PACIFIC KMCO 2 NGPL 2 CO 2 Field Terminals Products Pipelines Products Pipeline Terminals Transmix Facilities Natural Gas Pipelines KMI NGPL KMTP NGPL Storage 2 Natural Gas Pipelines KM TEJAS PLANTATION 4 CFPL Natural Gas Storage Natural Gas Storage MONTERREY (2,3,8) Natural Gas Plants Indicates # of Facilities Gas-Fired Power Plants Retail Natural Gas Division Kinder Morgan Headquarters Houston, Texas 3

4 Kinder Morgan: Three Securities Kinder Morgan Energy Partners Market Equity (a) $9.7 Debt (a) 4.9 Enterprise Value $14.6 Incentive Distribution Kinder Morgan, Inc Market Equity (b) $9.6 Debt (b) 2.7 Enterprise Value $ E EBITDA 2005E Dist. CF $1,581 mm $1,178 mm 2005E EBITDA 2005E Dist. CF $1,142 mm $623 mm Additional Shares KMR (LLC) 56 million i-units i (a) KMP Cash Distribution (Partnership) 153 million units (a,c) KMI (Inc) 123 million shares 15 mm 41 mm 133 mm 20 mm 95 mm 28 mm KMI Public Float KMI Public Float Mgmt (a) KMEP market cap based on 153 million common units at a price of $47.06 and 56 million KMR i-units at a price of $43.81 as of May 6, Debt balance, as of March 31, 2005, excluding the fair value of interest rate swaps, net of cash. (b) KMI market cap based on 123 million shares at a price of $75.83 as of May 6, Market equity also includes $284 million of capital trust securities (TRUPS). Debt balance as of March 31, 2005, excluding fair value of interest rate swaps. (c) Includes 5.3 million Class B units owned by KMI. Class B units are unlisted KMP common units. 4

5 Consistent Track Record Total Distributions (GP + LP) ($mm) KMP Distribution / Unit (a) $1,200 $1,000 $800 $600 $400 $200 $0 $17 GP LP $30 $153 $198 CAGR = 60% $333 $548 $701 $827 $978 $1, E $3.00 $2.00 $1.00 $0.00 $0.63 $1.13 $1.30 $1.45 $2.72 $2.50 $2.20 $1.90 CAGR = 20% $2.96 $ E KMI Earnings Per Share Debt to Total Capital (b) $5.00 $4.00 $3.00 $2.00 $1.00 $0.74 $1.28 CAGR = 34% $1.96 $2.84 $3.33 $3.81 $ % 80% 60% 40% 20% KMP KMI 67% 61% 49% 46% 51% 48% 54% 52% 51% 31% 39% 46% 47% 43% 39% 39% $ E 0% E (a) (b) Declared 4Q distribution annualized (i.e. multiplied by four) Excludes loss/gains in Other Comprehensive Income related to hedges; KMI 2004 excludes cash on hand from TransColorado sale 5

6 Overview Vision Find tsunamis Create opportunities Operational Excellence Safety Environmental Efficiency Financial Excellence Cost control Disciplined capital allocation Bottom line performance Transparency 6

7 The Kinder Morgan Strategy Same Strategy Since Inception Focus on stable, fee-based based assets which are core to the energy infrastructure of growing markets Increase utilization of assets while controlling costs Classic fixed cost businesses with little variable costs Improve productivity to drop all top-line line growth to bottom line Leverage economies of scale from incremental acquisitions and expansions Reduce needless overhead Apply best practices to core operations Maximize benefit of a unique financial structure which fits with strategy MLP avoids double taxation, increasing distributions from high cash c flow businesses Strong balance sheet allows flexibility when raising capital for acquisitions / expansions 7

8 Solid Asset Base Generates Stable Fee Income Terminals 55% Liquids, 45% Bulk Geographic and product diversity 3-44 year average contract life CO 2 25% CO 2 transport and sales 75% oil production related Expected production hedged: 2005=95%; 2006=72%; 2007=58% KMP 2005 DCF (a) Terminals 16% CO 2 28% Product Pipelines 30% Natural Gas Pipelines 26% Products Pipelines Refinery hub to population center strategy 64% Pipelines 31% Associated Terminals (b) 5% Transmix No commodity price risk Natural Gas Pipelines 51% Texas Intrastate 49% Rockies Little incidental commodity risk (a) (b) Budgeted 2005 distributable cash flow before G&A and interest Terminals are not FERC regulated except portion of CALNEV 8

9 Approximately $9 Billion in Capital Invested at KMP ($ millions) $8,000 Total Invested by Type Total Invested by Year $6,000 $2,000 $1,618 $1,893 Expansion Acquisition $4,000 $6,976 $1,600 $1,200 $1,065 $1,020 $1,261 $873 $1,232 $2,000 $0 Acquisitions $1,986 Expansions $800 $400 $4,000 $3,000 Total Invested by Segment $3,191 $2,948 $ $2,000 $1,545 $1,278 $1,000 Note: Investment is defined as Gross PP&E plus Investments and Intangibles, less cumulative sustaining capex, minority interest (KMI), deferred taxes and assumed liabilities $0 Products Natural Gas CO2 Terminals 9

10 Solid Asset Base Generates Stable Fee Income Investment in KMP (a) General partner interest earns incentive distributions Owns 17% of total limited partner units KMI 2005 Segment Income (b) NGPL FERC regulated with 3 year average contract life Primary customers are Chicago local distribution companies Little incidental commodity risk KMP 53% NGPL 39% Retail Power Equity interest in five plants Power 1% Retail 7% Natural gas distribution service Serve Colorado, Wyoming and Nebraska 240,000 customers (a) (b) Includes: (i) general partner interest, (ii) earnings from 20 million KMP units and (iii) earnings from 15 million KMR shares. Budgeted 2005 segment earnings before G&A and interest. 10

11 Over $2.7 billion returned to investors $2,800 $2,766 $2, E (a) $565 $1,800 $1,300 $800 $839 $778 $343 $222 $1,149 $2,201 $300 $496 $556 -$200 Dividends Share Repurchase Change in Net Debt Total (a) 2005E numbers include $118 million in share repurchase from TransColorado sale. 11

12 Risks Regulatory Pacific Products Pipeline FERC/CPUC case Periodic rate reviews Unexpected FERC policy changes Environmental Terrorism Interest Rates 50% of debt is floating rate Budget assumes approximately 100 bps increase in floating rates over the year The full-year year impact of a 100-bp increase in rates equates to an approximate $24 million increase in expense at KMP and $15 million at KMI 12

13 Long-Term Growth Drivers Business Segment Products Pipelines Natural Gas Pipelines CO 2 Growth Drivers Gasoline demand tracks demographic growth Serve 8 of 10 fastest growing metropolitan areas Price escalator = PPI Advantage to existing assets Natural gas demand growth = 1.5%/year (a) US is infrastructure constrained LNG requires new infrastructure Advantage to existing assets Production at SACROC and Yates Additional Permian Basin Opportunities Opportunities in new basins CO 2 Expertise (a) Terminals Source: Energy Information Administration (EIA) 2005 Annual Energy Outlook Increasing product specifications Changing regulations Advantage to existing assets 13

14 Natural Gas Pipelines

15 Rocky Mountain Natural Gas Wyoming Natural Gas Production 3Q 2004 vs. 3Q 2003 MMcf/d Salt Lake City Utah Big Horn 63 (+1) Wind River 683 (+153) Green River 2,832 (+112) Opal Uinta 654 (+33) Paradox 133 (+1) Sand Wash 57 (+4) Powder River 989 (-67) Hanna Wamsutter Greasewood Piceance 689(+160) TransColorado San Juan Basin KMIGT Trailblazer Cheyenne Denver Nebraska Colorado Source: Lippman Consulting, Inc. Arizona Blanco New Mexico 15

16 Rockies Continued Growth Expected 2004 Projected 2008 Rockies Production (MMcf/d) 6,754 8,541 (a) (includes: Colorado, Montana, Utah & Wyoming) Rocky mountain natural gas production is projected to grow more than 25% (1,787 MMcf/d) in the next 4 years Estimated expansion capability of existing Rockies infrastructure is ~1,400 MMcf/d (b) Need other outlets besides Mid-continent Sources: Platt s (a), KM estimates (b) 16

17 LNG on the Gulf Coast #* #*!! Calhoun LNG 1 Bcf/day Oxy Ingleside 1 Bcf/day ExxonMobil Vista Del Sol 1 Bcf/day kj Katy &- kj! kj #* #* Freeport LNG 1.5 Bcf/day BP Pelican Isl. 1.2 Bcf/day Sempra Port Arthur Bcf/day ExxonMobil Golden Pass 1 2 Bcf/day SU Trunkline 300 MMcf/day expansion!! Cheniere Sabine Pass 2.6 Bcf/day!! Sempra Cameron 1.5 Bcf/day Henry Cheniere Creole Trail 2.6 Bcf/day ExxonMobil Pearl Crossing 1.0 Bcf/day Shell Gulf Landing 1 Bcf/day! &- ChevronTexaco Port Pelican 1.6 Bcf/day Excelerate Energy Energy Bridge 0.5 Bcf/day! Cheniere Corpus Christi 2.6 Bcf/day Cheniere under consideration LNG Plant (existing) LNG Plant (proposed) Natural Gas Pipeline Co. of America KM Tejas Pipeline KM Texas Pipeline KM Mier-Monterrey Pipeline 17

18 Perspective on LNG LNG on the Texas Gulf Coast KM Texas well positioned to provide services header system (intrastate) downstream services: swing management (storage) LNG terminals will be controlled by the majors But.. downstream services (e.g. to smooth out deliveries) have potential 18

19 CO2

20 Permian Basin CO 2 Purch. & Oil Production 200 Permian Oil Production MBbl/d Permian CO 2 Deliveries MMcf/d 1,600 1,400 1,200 Val Verde 1,000 Sheep Mtn BravoDome McElmo Dome Cum: 847 MMBbls CO 2 Floods - % of Permian Sources: KM estimates, Oil and Gas Journal, EIA 20

21 Kinder Morgan Crude Oil Production SACROC Daily Oil Production 1980 to 2010 MBbl/d Pre Cumulative oil prod. 1.25B Bbls, 44.5% OOIP, Production ~8,500 Bbl/d (time of purchase) Daily Oil Production 1976 to Present MBbl/d Yates Average oil production 34 35,000 Bbl/d -Average CO 2 injection 611 MMcf/d - SACROC EBITDA* $253 MM Depending upon pace & extent of development: - Oil Rate may increase to 36 50,000 Bbl/d - EBITDA $ MM - at $30/Bbl unhedged oil price *CO 2 Margin has not been eliminated Pre Cumulative oil prod. 1.4B Bbls, 27.4% of OOIP, Production ~18,000 Bbl/d (time of purchase) Average Oil production 22-23,000 Bbl/d - Commence N 2 rejection April - Drill 97 HDH wells - Increase gas sales to 3.7 MMcf/d - Yates EBITDA $53.3 MM Oil rate should remain flat or even increase slightly for many years dependent on impact of CO 2 on gravity drainage, and timing of N 2 rejection 21

22 CO 2 Long-Term Outlook / Goals Domestic oil reserve replacement costs are increasing CO 2 flooding provides an attractive cost structure and a proven track record to add new reserves Kinder Morgan will leverage infrastructure in Permian Basin Lowest cost CO 2 supply combined with largest reserves, infrastructure Own significant interest in and operate two world class reservoirs rs Remain patient and poised to selectively acquire strategic EOR target t fields and only at the right price Use CO 2 assets and technology to maintain leadership in emerging U.S. CO 2 market Lowest cost CO 2 supply combined with largest reserves, infrastructure 22

23 Terminals

24 Petroleum Products Imports are Increasing Imports as Percent of Demand 1,800 1,700 Jet Fuel (MBbl/d) , Gasoline 9.1% 9.8% 10.2% 1, Distillate 7.1% 8.5% 7.9% Jet 6.6% 6.9% 7.0% 1,400 1,300 1, , E2006E Net Imports, right axis Demand Domestic Refinery Production 0 9,600 9,200 8,800 8,400 8,000 7,600 7,200 6,800 6,400 Gasoline (MBbl/d) 1,600 1,400 1,200 1, E 2006E Net Imports, right axis (inc. Blendstock) Demand Domestic Refinery Production Source: EIA 4,400 4,000 3,600 3,200 2,800 2,400 2,000 Distillate (MBbl/d) E2006E Net Imports, right axis Demand Domestic Refinery Production 24

25 Additives: Ethanol Increasing, MTBE Decreasing U.S. Average Daily Production, MBbl/d Ethanol MTBE Source: EIA 25

26 KM Ethanol Terminals 2,090M Fuel Grade Ethanol Combined Capacity 440M Fuel Grade Ethanol 578M Fuel Grade Ethanol 647M Fuel Grade Ethanol (2) (2) (4) (3) (2) Ethanol capacity shown in barrels Legend 425.7M Fuel Grade Ethanol Liquid Locations Product Pipelines Locations 26

27 Increasing Coal Imports (million short tons) Projected Projected 24% 24% Average Average Annual Annual Growth Growth E 2006E Source: EIA 27

28 KM Potential Coal Import Locations East Coast 11 million tpy currently received by water served utilities Fairless Hills Fairless Hills, PA Chesapeake Bulk Baltimore, MD Pier IX Newport News, VA Shipyard River Charleston, SC Rapid Rail turnaround required Import potential as high as 43 million tons Some infrastructure upgrade required Over 234 million tons of coal consumed by Electric Utilities in East Coast States in 2003 Over 60 power plant locations to service Tampaplex Tampa, FL KMT Import Coal Strategic Locations 28

29 Growing Petcoke Supply U.S. Petcoke Production, MM tons Source: EIA 29

30 Summary Stable company Disciplined capital allocation Focused on growth opportunities Natural Gas Rockies LNG CO 2 Yates and SACROC Other Permian basin Terminals Imported petroleum products Coal imports Petcoke 30

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