Morgan Keegan Equity Conference Memphis, TN September 4, Hiland Partners, LP (HLND) Joe Griffin. Matt Harrison. Chief Financial Officer

Transcription

1 Morgan Keegan Equity Conference Memphis, TN September 4, 2008 Hiland Partners, LP (HLND) Hiland Holdings GP, LP (HPGP) Joe Griffin Chief Executive Officer Matt Harrison Chief Financial Officer

2 Risks and Forward-Looking Statements Investment in the common units of Hiland Partners, LP and Hiland Holdings GP, LP (collectively, Hiland or the Partnership ) involves risks associated with the Partnership s business, the Partnership s structure and the tax characteristics of the common units. These risks can significantly impact the market value of Hiland s common units. The statements made by representatives of Hiland during the course of this presentation that are not historical facts are forward-looking statements. Although Hiland believes that the assumptions underlying these statements are reasonable, investors are cautioned that such forward-looking statements are inherently uncertain and necessarily involve risks that may affect Hiland s business prospects and performance, causing actual results to differ from those discussed during this presentation. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements included in Hiland s various filings with the Securities & Exchange Commission ( SEC ) SEC). Any forward-looking statements made are subject to all of the risks and uncertainties, many of which are beyond management s control, involved in gathering, compressing, dehydrating, treating, processing and marketing natural gas, fractionating NGLs and providing air compression and water injection services for oil and gas secondary recovery operations. These risks include the risks described in the Partnership s s Form 10-K and other documents filed from time to time with the SEC. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, Hiland s actual results and plans could differ materially from those expressed in any forward-looking statements. The Partnership undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information or future events. 2

3 Non-GAAP Measures This presentation includes the non-generally accepted accounting principles ( non-gaap ) financial measure of EBITDA. We define EBITDA, a non-gaap financial measure, as net income plus interest expense, provisions for income taxes and depreciation, amortization and accretion expense. EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements such as investors, commercial banks, research analysts and others to assess: (1) the financial performance of our assets without regard to financial methods, capital structure or historical costs basis; (2) the ability of our assets to generate cash sufficient to pay interest costs and support our indebtedness; (3) our operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing and structure; and (4) the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities. EBITDA is also a financial measurement that, with certain negotiated adjustments, is reported to our banks and is used as a gauge for compliance with our financial covenants under our credit facility. EBITDA should not be considered as an alternative to net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP. Our EBITDA may not be comparable to EBITDA of similarly titled measures of other entities, as other entities may not calculate EBITDA in the same manner as we do. 3

4 An Overview of Hiland 100% Hiland Partners GP Holdings, LLC 56.5% LP Interest 0% GP Interest est Harold Hamm & Affiliates (13,220,375 HPGP Common Units) 61.2% LP Interest Hiland Holdings GP, LP (2,321,471 Common Units 3,060,000 Sub Units) 100% Interest Hiland Partners GP, LLC (2% IDR s) 2% GP Interest Hiland Partners, LP 38.8% LP Interest 41.5% LP Interest Public (8,382,625 HPGP Common Units) Public (3,955,364 Common Units) HPGP Market Capitalization: $470 million* HLND Market Capitalization: $415 million* Strong operational and financial attributes Modern, strategically located assets in the Rockies and Mid-Continent Proven track record of executing prudent growth strategy Over $400 million of acquisitions / organic growth projects / systems expansions / announced and closed since IPO Visible inventory of potential unconventional resource organic growth prospects Solid distribution and growth Financial flexibility to fund growth Broad range of midstream services Experienced management team *As of 8/26/08 4

5 Hiland Midstream Natural Gas Services Transmission Lines Hiland Partners Midstream Focus Transmission Lines Wellhead Gathering, Dehydration and Compression Processing, Treating and Fractionation NGL Products Transportation Truck Y-grade line Rail terminal 5

6 Business Strategy Engage in construction of organic growth projects and system expansion opportunities Unique relationship with Continental Resources, Inc. Opportunity to gain insight regarding production growth and reserve potential in emerging unconventional resource plays Expand systems to meet growing demand Increase volumes on existing assets while controlling costs Pursue complementary acquisitions Target opportunities that t expand our presence in existing service territories, offer operational efficiencies and increase utilization Reduce exposure to commodity price risk Grow distributions to unitholders 6

7 Distribution Growth Since IPO HLND - 92% Growth Since IPO HPGP - 65% Growth Since IPO $3.50 $3.0 0 $2.50 $3.18 $2.93 $3.0 2 $2.8 0 $2.8 5 $2.85 $2.70 $2.6 0 $2.50 $3.4 5 $3.3 1 $1.25 $1.0 0 $0.81 $0.83 $0.83 $0.8 8 $0.9 2 $1.02 $1.12 $1.22 $2.0 0 $1.8 5 $1.8 0 $2.05 $0.75 $0.74 $1.50 $0.50 $1.00 $0.50 $0.25 $0.0 0 IPO 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 $ IPO 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 7

8 Unique Relationship with Continental Resources, Inc. Hiland s predecessor formed in 1990 to support Continental Resources, Inc. s ( CLR ) E&P activities CLR is a publicly-traded E&P company with an active drilling program $8.5 billion equity market capitalization (IPO May 2007) $883 million capex budget EBITDAX of $427 million for the first 6 months of 2008 ($854 million annualized) Significant reserve and production growth potential Organic growth strategy focused on unconventional resource plays Approximately 1 million net undeveloped acres in unconventional plays and growing Define new shale plays Take large acreage positions in new and defined shale plays Embrace and execute horizontal drilling, high psi fracturing and complex drilling and completion of high organic content shale wells React to and perfect drilling and completion techniques to make each shale well commercial HLND, HPGP and CLR are separate entities with Harold Hamm as the controlling equity holder. His more notable recent accomplishments are: Ernst & Young Master Entrepreneur of the Year Southwest Area-North June 2007 Ernst & Young National Entrepreneur of the Year Award in the Energy, Chemical & Mining Category November 2007 Hiland s relationship with CLR has enabled it to significantly expand its asset base Recently announced North Dakota Bakken organic growth project Montana Bakken acquisition Badlands system expansion Woodford Shale organic growth project 8

9 Overview of Continental Resources, Inc. CAPEX ($MM) $1,000 $883 $900 $800 $700 $600 $483 $500 $400 $325 $300 $200 $134 $73 $100 $ ,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Production (boepd) 31,623 29,099 24,707 19,751 14, H2008 Source: Continental Resources, Inc. Company Presentation 8/11/2008 EBITDAX ($MM) $500 $470 $450 $427 $400 $372 $350 $285 $300 $250 $200 $150 $116 $100 $50 $ H Capex ($MM) $13 $184 $207 Red River Units Bakken Other Rockies Woodford $21 $53 $245 $130 $30 Other Mid-Con Gulf Coast Land & Seismic Other 9

10 CLR s Key Drilling Projects Development (36% 2008 D&C capex) Red River Units: 50% proved reserves and MT ND 43% production Bakken Bakken Montana Bakken Shale: 20% proved reserves and 20% production Impact plays (48% 2008 D&C capex) North Dakota Bakken Shale: 376,000 net acres Oklahoma Woodford Shale: 46,000 net acres Red River Units Arkoma Woodford Estimated exit rate 43,000 boepd (36% increase over 2Q 2008) 13 operated drilling rigs at Jan operated drillings currently, with 35 planned by year end Source: Continental Resources, Inc. Company Presentation 8/11/2008 Headquarters Regional office Counties with acreage holdings are highlighted g Development Impact Plays 10

11 CLR Unconventional Resource Plays ~1,000,000 net acres in unconventional plays and growing Bakken 529,000 Red River 77,000 Lewis 27,000 Anadarko Woodford 95,000 Atoka 32,000 Arkoma Woodford 46,000 Marcellus, Rhinestreet, Huron 88,000 New Albany 46,000 Marfa Woodford/ Barnett 67,000 Haynesville 20,000 Shale Basin Overthrust Belt Source: Continental Resources, Inc. Company Presentation 8/11/

12 CLR s Rocky Mountain Operations ND Bakken Source: Continental Resources, Inc. Company Presentation 8/11/

13 Bakken Shale Outline of potential Bakken production Williston Basin North Nort th Dakota Dakota Mont tana Mon ntana Williston Basin Largest unconventional oil resource play in the lower 48 ~4B boe technologically recoverable reserves (USGS) Play is being developed through horizontal drilling and advanced fracture stimulation CLR is the largest leaseholder with 529,000 net acres Currently have 13 operated rigs drilling, increasing to 16 by year end 8,445 net boepd in 2Q rigs operating ConocoPhillips EOG Resources Hess Marathon CLR acreage Horizontal Bakken producer Source: Continental Resources, Inc. Company Presentation 8/11/

14 CLR North Dakota Bakken Recent Activity Gross wells completed Net wells completed Gross 7-day avg. IP rate 1Q boepd 2Q boepd First and second Three Forks/Sanish wells completed in 2Q08 Bice 1-29H (44% WI) in Dunn Co. (693 gross boepd) Mathistad 1-35H (40% WI) in McKenzie Co. (1,260 gross boepd) Drilling program now targeting TFS Expect to increase operated rig count from 10 currently to 12 by year end in ND THREE FORKS HORIZONTAL CLR OPERATED CLR NON-OPERATED OPERATED NO CLR INTEREST Source: Continental Resources, Inc. Company Presentation 8/11/

15 Interval -- Three Forks/Sanish to Top of Middle Bakken Northern 2/3s of ND Bakken acreage has 50 or more separation Given the low porosity/perm of the rock, CLR s theory is that the TFS is a separate reservoir from the Middle Bakken Exception: Areas where the interval thins Exception: Areas where there is significant vertical fracturing due to t t i Ronholdt 1-16H Oscar 1-25H Glasoe 1-18H Elveida 1-33H Arvid 1-34H Viola 1-7H Omar 1-1H Malcolm 1-29H Omlid 1-7H Maryann 1-15H tectonics Kirkland 1-33H Croff 1-2H Mathistad t 1-35H 1,260 boepd CLR-operated Three Forks/Sanish wells being drilled or completed. CLR-operated Three Forks/Sanish wells in production. Morris 1-23H Gale 1-32H Skachenko 1-31H Sloan 1-17H Bice 1-29H 693 boepd Source: Continental Resources, Inc. Company Presentation 8/11/

16 CLR s Montana Bakken Shale Richland Co., MT Bakken Outline of potential Bakken production Williston Basin Mon tana Nort Dako th ota Significant unconventional oil resource play Represents ½ of Montana s oil production ~50,000 boepd 6,363 net boepd in 2Q 2008 Developed through horizontal drilling and advanced fracture stimulation 2008 Plans $55MM capex 2 to 3 drilling rigs 13 net wells Opportunities 320-acre infill drilling Expansion of field with tri-lateral 640-acre wells Enhanced recovery CLR acreage Horizontal Bakken producer Vertical Bakken producer Source: Continental Resources, Inc. Company Presentation dated 4/10/2008 and 2Q 08 earnings press release. 16

17 CLR s - Red River Enhanced Recovery Units 67.9 MMBoe proved reserves 13,551 net boepd in 2Q 2008 Cedar Hills discovered in 1995, developed with horizontal drilling, began enhanced recovery operations in Plans $184MM 2008E capex 5 to 6 drilling rigs Infield horizontal drilling and re-entry drilling program to accelerate production and enhance sweep efficiency Develop Cedar Hills on 320 acre / producer Badlands Plant began in August 2007 Forecast late 2009 peak at ~21 net Mboe/d Haley Prospect 77,000 net acres Extension of Red River B 95 square miles of 3D being acquired Medicine Pole Hills West Unit Medicine Pole Hills South Unit 25 Miles Cedar Hills West Unit Cedar Hills North Unit Buffalo Units Medicine Pole Hills Unit Haley Source: Continental Resources, Inc. Company Presentation 8/11/

18 Arkoma Woodford Shale Unconventional gas resource play 40+ industry-operated rigs (Newfield, Antero, Devon) in the Arkoma Woodford SALT CREEK exploratory 2-well Simulfracs Scheduled 3Q08 2-well Simul-frac Avg. 6.8 MMcfd/well CLR: 46,000 net acres Significant reserve and production growth potential $130MM in 2008 capex Increasing from 5 operated drilling rigs currently to 7 by year end Acquired 26 square miles of 3D in Salt Creek and acquiring 55 square miles in E. McAlester Caney Shale upside ASHLAND development 4-well Simul-frac Avg. 3.5 MMcfd/well EAST MCALESTER exploratory 12 miles CLR Operated WOC Source: Continental Resources, Inc. Company Presentation 8/11/2008 CLR Operated Producer Woodford Producer CLR Acreage Inset: CLR 2008 Completed Wells CLR 2008 Wells to be drilled Inset: CLR 2008 Wells to be drilled 18

19 Hiland Cash Flow Growth Supported by High Quality Asset Base Bakken Gathering System Badlands Gathering System Worland Gathering System ND Bakken Gathering System (Construction Phase) W. Oklahoma Growth Project (Construction Phase) Enid, OK Corporate Headquarters Enid Pipeline Cedar Hills Compression Facility Hiland Partners is a growth-oriented midstream MLP 2,079 miles of pipelines 14 gathering systems 5 processing plants 7 treating facilities Eagle Chief Gathering System 3 fractionation facilities 2 air compression facilities Water injection plant Three months ended June 30, 2008: Stovall Kinta Gathering System 246,339 Mcf/d of inlet natural gas 86,203 MMBtu/d of natural gas sales 5,979 Bbls/d of NGL sales Matli Gathering System Woodford Shale Gathering System Driscoll 19

20 Execution of Business Strategy ND Bakken Gathering System Organic Growth Project 129,000 gross acres dedicated $10 million capex in 2008; additional $17 million over next three years 10 year agreement with Continental Resources Install field gathering, compression, treating and processing facilities Expected start up of Phase I should occur no later than second quarter of

21 Execution of Business Strategy MT Bakken Gathering System - Acquisition Operating Highlights 365 miles of pipelines 273 wells connected 25,000 Mcf/d processing plant capacity 6,500 Bbl/d Fractionation facility 34% of total segment margin in 2007 Expansion of NGL fractionation facilities Increased volumes from Bakken and Badlands Plants Potential 3 rd party volume Major Gas Suppliers: Enerplus Continental Resources ConocoPhillips 21

22 Execution of Business Strategy Badlands Gathering System Significant System Expansion Start up of 40,000 Mcf/d Solid Volume Growth nitrogen rejection plant and Inlet System Mcf/d treating facilities in August 2007 Recently announced plans to September 07 13,219 expand gathering system December 07 17,727 Continental Resources March 08 21,979 Cedar Hills Looping and Compression Project June 08 26,315 Continental Resources Haley Prospect in South Dakota Encore Operating Cedar Creek Field in North Dakota Major Gas Suppliers: Continental Resources Luff Encore Operating 22

23 Execution of Business Strategy Woodford d Shale Gathering System Organic Growth Project 35,000 gross acres dedicated from Continental Resources Start up of Phase I in April ,000 Mcf/d capacity as of March 2008 Solid Volume Growth Recently announced plans to Inlet System Mcf/d expand capacity to over 65,000 Mcf/d by the end of 3 rd Quarter 2008 June 07 2,304 Mid-May ,000 September 07 8,247 Mcf/d December 07 12,358 June ,000 March 08 18,371 Mcf/d June 08 24,078 Early August ,000 Mcf/d 23

24 Execution of Business Strategy Western Oklahoma - Anadarko Basin Organic Growth Project Growth project announced in August 2008 Natural gas gathering pipelines, pp compression and related facilities 18,560 gross acres dedicated to Hiland from a 3 rd party producer Initial capex of $7.4 million in 2008; and totaling up to over $14.4 million over next three years 24

25 HLND Operational and Financial Highlights Inlet Volumes (Mcf/d) Natural Gas Sales (MMBtu/d) 250, , , ,000 50,000 52,592 54,410 57, , , ,339 90,000 75,000 60,000 45,000 30,000 15,000 41,457 44,063 47,096 66,947 80,731 86, Q Q08 NGL Sales (Bbls/d) EBITDA (1) 6,000 5,000 4, ,000 2,000 1, ,177 1,437 1,965 3,347 4,696 5, Q08 90,000 80,000 70,000 60,000 50,000 40, ,000 20,000 10, ,446 17,402 23,875 42,751 52,395 $79, Q08 Ann (2) Note: Historical data reflects the combined results of Hiland s predecessor and Hiland Partners, LLC. 1. EBITDA is defined as a net income (loss) plus interest expense, provision for income taxes and depreciation, amortization and accretion expense. 2. Adjusted for $10.0 million of forgone EBITDA as a result of the SemGroup bad debt expense of $8.1 million, non-cash compensation expense of $0.4 million and non-cash loss on derivative transactions of $1.5 million. 25

26 2008 Guidance and Key Assumptions 2008 Financial Guidance Adjusted EBITDA of $75 to $83 million Maintenance capex of $5.5 to $6.5 million Growth capex of $55 to $60 million Distribution growth targets of 18% to 20% 26

27 Financial Flexibility to Fund Growth HLND had $59.9 million of available capacity under its existing $300 million credit facility at June 30, 2008 $50 million accordion feature in credit facility can be used to fund organic growth projects and acquisitions Projected Total Debt to EBITDA to decline throughout 2008 as cash flows continue to ramp as a result of organic growth and system expansion projects started up in the second half of 2007 (Badlands and Woodford) 27

28 Impact of HLND Distribution Growth HPGP derives significant benefit from distribution growth at HLND 60% on to HPGP Growth in To otal Distributi 50% 40% 30% 20% 10% 9.1% 18.3% 27.4% 36.5% 45.7% 54.8% 0% (1) 0% 5% 10% 15% 20% 25% 30% HLND Distribution Growth Note: This graph illustrates the impact to HPGP of HLND raising its per unit distribution from its most recent quarterly distribution of $ per unit, or $3.45 per unit on an annualized basis. This information is based upon HLND s 6,276,835 common and 3,060,000 subordinated units outstanding and HPGP's ownership of a 2% general partner interest in HLND, all the incentive distribution rights in HLND and 2,321,471 common and 3,060,000 subordinated units of HLND. This information is presented for illustrative purposes only, is not intended to be a prediction of future performance and does not attempt to illustrate the impact of changes in conditions, the impact of future acquisitions or expansion projects or the issuance of additional units by HLND. 1. Represents HLND s most recent quarterly distribution of $ per unit, or $3.45 per unit on an annualized basis. 28

29 Comparable MLPs HLND has demonstrated strong distribution growth in the past and has significant potential to grow in the future relative to peers Relative Equity Market Capitalization (1) Distribution Growth - Last 24 Months (2) 15,000 12,905 35% 33% 32% 12,000 30% 28% 25% 23% 9,000 20% 19% 6,817 17% 6,000 15% 15% 14% 13% 13% 11% 10% 3,000 2,517 2,507 2,026 1,731 1,565 1,288 1,265 1,261 5% EPD ETP NS MMP BPL ARLP APL NRGY XTEX PVR HLND 0% ETP ARLP HLND PVR MMP XTEX NRGY EPD BPL APL NS 1. Market capitalization based on closing unit prices as of August 26, Last 24 months as of August 26,

30 Questions and Answers