All amounts in U.S. dollars unless otherwise noted. Kinder Morgan and Terasen August 2005 The enclosed materials are provided for information purposes only, and are not intended to be proxy solicitation materials.
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 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 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, completion of the proposed transaction and realization of the benefits there from, the ability to achieve synergies and revenue growth; national, international, regional and local economic, competitive and regulatory conditions and developments; technological developments; capital markets conditions; inflation rates; interest rates; the political and economic stability of oil producing nations; energy markets; weather conditions; environmental conditions; business and regulatory or legal decisions; the pace of deregulation of retail natural gas and electricity and certain agricultural products; the timing and success of business development efforts; terrorism; and other uncertainties. You are cautioned not to put undue reliance on any forward-looking statement. 2
Overview of Transaction (a) $5.6 billion total purchase price $3.1 billion in equity $2.5 billion in assumed debt KMI will purchase all of TER s outstanding stock Equity consideration will be financed ~ 65% in cash and ~ 35% in stock (b) 0.1165 KMI shares for each TER share: $10.35 (C$12.66)/share Cash consideration of $19.01 (C$23.25)/share Totaling approximately $29.36 (C$35.91)/TER share Represents a 20% premium on 20 day average price Headquartered in Houston, with Rich Kinder as Chairman and CEO TER Gas Headquarters remain in Vancouver, Pipeline in Calgary Note: All amounts in U.S. dollars unless otherwise noted. (a) Presentation assumes USD/CAD exchange ratio of 0.8175, KMI price = $88.86/share unless otherwise noted. (b) On average. Terasen shareholders will be able to elect, for each TER share held, either (i) C$35.75 in cash, (ii) 0.3331 shares of KMI common stock, or (iii) C$23.25 in cash plus 0.1165 shares of KMI common stock. All elections will be subject to proration in the event total cash elections exceed approximately 65 percent of the total consideration to be paid or total stock elections exceed approximately 35 percent. 3 3
Strategic Rationale Stable, regulated, low risk assets Solid earnings accretion ~ $5.00/share KMI pro-forma 2006E earnings ~ 6-8% accretion to KMI 2006E stand alone EPS Strong cash flow generation Almost $800 million in 2006E cash flow (a) $3.50/share 2006 expected dividend Represents 58% increase in TER dividend, 17% increase in KMI Substantial expansion opportunities from Canadian oilsands Production expected to double in next 5-7 years Pipeline, Terminals and CO 2 EPS and Dividend growth rate expected to be 10% Solid credit Expect to maintain BBB 56% debt to total cap at close, declining thereafter Note: (a) All amounts in U.S. dollars unless otherwise noted. Cash flow is defined as pre-tax income before depletion, depreciation, and amortization, less cash paid for income taxes and sustaining capital expenditures. 4
Combined Company Operations 5
Segment Overview Kinder Morgan NGPL Terasen KMP Other Petroleum Pipelines 6% 29% 50% 41% 7% Retail Gas Distribution 2% Other 2006E EBITDA = $1.3 billion (a) 65% Retail Gas Distribution 2006E EBITDA = $0.5 billion (a) Pro Forma of Combined Companies KMP NGPL 36% 3% Other 30% 8% 23% Petroleum Pipelines 2006E EBITDA = $1.8 billion (a) Retail Gas Distribution Note: All amounts in U.S. dollars unless otherwise noted. *Other includes Power at KMI and Water/Utility Services at Terasen. (a) Excludes corporate G&A and is before any cost savings. KMP equity income net of KMR minority interest. Petroleum pipelines includes equity income from Express pipeline. 6
The Kinder Morgan Strategy The Same Since Inception Focus on stable, fee-based assets which are core to the energy infrastructure of growing markets Increase utilization of assets while controlling costs Classic fixed cost businesses with little variable costs Improve productivity to drop all top-line growth to bottom line Leverage economies of scale from incremental acquisitions and expansions Reduce overhead Apply best practices to core operations Maximize benefit of a unique financial structure which fits with strategy GP promote turns modest growth into exceptional growth Strong balance sheet allows flexibility when raising capital for acquisitions / expansions 7
Management Philosophy Low Cost Asset Operator Attention to Detail Disciplined Capital Allocation Risk Management Transparency Cash is King Alignment of Incentives Business Unit Autonomy 8
Consistent Track Record Total Distributions from KMP ($mm) KMP Distribution / Unit (a) $1,200 $1,000 $800 $600 $400 $200 $0 $1,139 GP $978 LP $827 $701 CAGR = 60% $548 $333 $153 $198 $17 $30 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E $3.00 $2.00 $1.00 $0.00 $3.20 $2.96 $2.72 $2.50 $2.20 $1.90 CAGR = 20% $1.45 $1.30 $1.13 $0.63 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005E 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 $4.22 100% 80% 60% 40% 20% KMP KMI 67% 61% 49% 46% 51% 48% 54% 52% 51% 31% 39% 46% 47% 43% 39% 39% $0.00 1999 2000 2001 2002 2003 2004 2005E 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005E Note: (a) (b) All amounts in U.S. dollars unless otherwise noted. 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 9
Significant Historical Returns KMI: 40% annualized return (a) KMP: 35% annualized return (a) Total Return (a) 800 700 Total Return (a) 1400 658% 1200 1193% 600 500 KMI 400 300 200 UTY Index 69% 100 (6%) 0 S&P 500 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 1000 800 600 400 200 0 Dec- 96 Dec- 97 Dec- 98 Dec- 99 Dec- 00 MLP Index Dec- 01 KMP Dec- 02 S&P 500 Dec- 03 Dec- 04 377% 83% Sources: Bloomberg, Citigroup Smith Barney (a) Through Jun-30-2005. Returns calculated on a daily basis assuming dividends/distributions reinvested in index/stock/unit, except MLP Index calculated on a monthly basis. KMI start date: Jul-8-1999 (KN Energy merger announced). KMP start date: Dec-31-1996. 10
Terasen Asset Overview Stable, Regulated, Low-Risk Assets Over 95% regulated (a) Stable regulatory environment; focused on expanding infrastructure Strategic Location Utility serves high growth areas in Western Canada Pipelines sourced from the prolific Canadian oilsands One of largest utilities in Canada Large backlog of regulated expansion/growth opportunities (a) Based on 2006E EBITDA. 11
Terasen Retail Gas Distribution Largest LDC in British Columbia, with 875,000 meters Steady organic growth = ~2% Low risk rate structure 50/50 sharing of certain savings Separate O&M and volume trackers Potential expansion/ growth projects Long history of negotiating/ renewing incentive regulatory settlements Regulated by British Columbia Utilities Commission 12
Terasen Petroleum Pipelines Owns and operates several major crude oil and products pipeline systems Assets regulated by National Energy Board (NEB), FERC and the Wyoming Public Service Commission Growing demand for oil pipeline infrastructure due to large amount of Canadian oilsands reserves Existing capacity substantially utilized with long-term contracts Over $2.5 billion of potential expansion/growth projects Note: All amounts in U.S. dollars unless otherwise noted. 13
Significant Growth Potential in Oilsands Oil reserves (billions of barrels) Daily liquids production (mbbl/d) 400 300 200 100 Oil and Bitumen Reserves 1 (billions of Bbls, 2003) 0 4,500 3,000 1,500 345 Venezuela 315 Canada 270 Sau di Arabia 130 115 Russia Oil Iraq UAE Bitumen 100 100 93 Kuwait Canadian Crude Production by Type Iran 40 32 0 2000 2005 2010 2015 2020 2025 Conventional (WCSB) Oil Sands East Coast USA Libya Total cost ~ $16-18/Bbl 10 oilsands projects now on-stream Significant Growth Current production ~ 1 mm Bbl/d Numerous new projects and expansions under development 2010-12 production ~ 2 mm Bbl/d Estimated $50 billion in E&P investment over next 5-10 years All amounts in U.S. dollars unless otherwise noted. Source: UBS, NEB, Canada s Energy Future Scenarios for Supply and Demand to 2025 (2003) Note 1: Total discovered recoverable reserves of crude oil and bitumen (Saudi Arabian values represent proven reserves, implying a higher degree of certainty) 14
Terasen Pipeline Growth Opportunities Trans Mountain expansions: Phase I: Additional compression Estimated cost: C$210mm Incremental capacity: 35 MBbl/d In-service: late-2006 Status: in discussion with shippers for expedited approval Phase II: Loop existing pipeline Estimated cost: C$365mm Incremental capacity: 40 MBbl/d In-service: 2008 Status: open season summer 2005 Potential competition from Enbridge s proposed Gateway project 15
Terasen Pipeline Growth Opportunities Corridor expansions Phase 1 additional compression Estimated cost: C$8.4mm Incremental capacity: 35 MBbl/d In-service: Fall-2005 Phase 2 loop existing pipeline Estimated cost: C$800mm Incremental capacity: 400 MBbl/d In-service: 2009 16
Access to capital KMI Provides: More than $10 billion in debt/equity capital raised under current management Pipeline Experience More than $9 billion invested in energy infrastructure Over $2B in total expansion projects Pipeline expansions ($MM): East Line $210 Horizon $80 Monterrey $85 North Line $80 North Texas $70 Rancho $73 Trailblazer - $50 TransColorado - $45 Size One of the largest integrated pipeline companies in North America Pro forma enterprise value of KMI-TER in combination with KMP is $35 billion Kinder Morgan, Inc. (KMI: NYSE) ($B) Market Equity (a) $11.2 Debt 2.7 Enterprise Value $13.9 Pro Forma of Combined (d) ($B) Market Equity $12.0 Debt 7.2 Enterprise Value $19.2 KMP E.V. (c) 15.9 E.V. with KMP $35.1 KMI/TER 2006E EBITDA $1.8 KMI/TER 2006E Cash Flow $0.8 Terasen, Inc. (TER: TSX) ($B) Market Equity (b) $2.7 Debt 2.4 Enterprise Value $5.1 Note: All amounts in U.S. dollars unless otherwise noted. (a) KMI market cap based on 123mm diluted shares at a price of $88.86 as of Jul-29-05, includes $284mm capital trust securities. Debt net of cash as of Jun-30-05 and excludes fair value of interest rate 17 swaps. (b) TER market cap based on 105mm diluted shares at a price of C$31.40, or US$25.67, as of Jul-29-05 at an exchange ratio of 0.8175. (c) KMP market cap based on 154mm units at a price of $52.41 and 56mm KMR i-units at a price of $47.46 as of Jul-29-05. Debt is net of cash as of Jun-30-05 and excludes fair value of interest rate swaps. (d) Pro-forma assumes acquisition is 65% cash and 35%KMI stock (0.1165 KMI shares per TER share). 17
Transaction Timeline Next 4-6 months: Regulatory Approvals British Columbia Utilities Commission Canadian Competition Act Investment Canada Other October 2005: Terasen Shareholder vote Q4 2005: Close transaction 18
Transaction Summary Stable, regulated, low-risk assets Solid earnings accretion $5.00/share KMI pro-forma 2006E earnings Strong cash flow generation Annual dividend of $3.50/share expected in 2006 Represents 58% increase in TER dividend, 17% increase in KMI Expansion opportunities from oilsands Pipelines, Terminals, CO 2 Long-term EPS and dividend growth of 10% Strong balance sheet expect to maintain BBB credit rating All amounts in U.S. dollars unless otherwise noted. 19
Kinder Morgan and Terasen August 2005