Slide 1: Real Assets, Real Earnings, Real Cash
Real Assets, Real Earnings, Real Cash January 17, 2002 Forward looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. The future results and securities values of Kinder Morgan Inc. and Kinder Morgan Energy Partners, L.P. (collectively known as “Kinde
Slide 2: 2002 Analyst Conference
1 2002 Analyst Conference 2001 Results and 2002 Overview Natural Gas Pipelines Products Pipelines Terminals KMP Cash Distribution Math Other Assets Corporate Development Financial Review
Slide 3: Agenda – Rich Kinder
2 Agenda – Rich Kinder Overview 2001 Results 2002 Plan Common Questions – Is Kinder Morgan’s structure complex? – Is Kinder Morgan’s growth dependent on acquisitions? – Where is Kinder Morgan trading relative to its peers?
Slide 4: The Kinder Morgan Structure
3 The Kinder Morgan Structure Mgmt Mgmt Public Public 23% 23% 77% 77% KMI (a) Market Equity $7.0 B Debt 3.0 Enterprise Value $10.0 B 02 EBITDA $850 mm 02 After Tax CF $420 mm GP Interest 19% of total units KMP/KMR (b) Market Equity $6.3 B Debt 2.8 Enterprise Value $9.1 B 02 EBITDA $960 mm 02 DCF $71
Slide 5: 2001 Results
4 2001 Results Promises Made – 2001 Conference Promises Kept KMP KMP – Year end distributions = $2.00-$2.10 – Year end distributions = $2.20 – Average distribution >$1.95 – Average distribution = $2.15 – EPU = $1.42-1.47 – EPU = $1.56 – Maintain 60% equity/40% debt ratio – 46% debt (anticipated KMR
Slide 6: 2001 Results: KMI EPS
5 2001 Results: KMI EPS 2001 vs. 2001 vs. 4Q 2000 2001 2000 KMP $73.0 106% $251.9 122% NGPL 88.6 -2% 346.4 1% Retail 24.1 29% 57.4 15% Power and Other 15.1 99% 63.3 89% KMTP (a) - -100% - -100% Total $200.8 23% $719.0 26% G&A (23.2) 52% (70.2) 21% Interest Expense (49.3) -15% (217.0) -11% Other (3.6
Slide 7: 2001 Results: KMP/KMR Earnings
6 2001 Results: KMP/KMR Earnings 2001 2001 Segment Earnings before DD&A: 4Q vs. 2000 2001 vs. 2000 Products $95.4 30% $380.2 42% Natural Gas 65.5 98% 226.7 67% CO2 28.9 0% 111.4 39% Terminals 41.3 260% 157.0 232% Total $231.1 57% $875.3 65% DD&A (41.6) 66% (151.1) 66% G&A (30.0) 96% (99.0) 65% Net D
Slide 8: The Kinder Morgan Strategy
7 The Kinder Morgan Strategy Same Strategy 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 dro
Slide 9: Management Philosophy
8 Management Philosophy Low Cost Asset Operator – Senior management limited to $200,000/year in salary – No planes, sports tickets, etc. Attention to Detail – Weekly operations and financial assessment – Monthly earnings and accounts receivable review – Quarterly strategic review Risk Management – A
Slide 10: Bill Morgan’s Transition
9 Bill Morgan’s Transition Intends to transition to non-executive role by 60th birthday (April 2003) Will remain as Vice Chairman and active Board member Intends to retain significant KMI position (over $100 million) over the long term Intends to begin a sales program on a portion of stock – Orderly
Slide 11: Strong Historical Growth
10 Strong Historical Growth KMP DCF KMI EPS $3.00 $3.00 2.50 2.55-2.65 2.20 $2.25 1.90 $2.25 1.96 1.45 $1.50 1.30 $1.50 1.29 1.13 0.63 0.73 $0.75 $0.75 $0.00 $0.00 '96 '97 '98 '99 '00 '01 '02E '99 '00 '01 '02E 26% CAGR (b) 52% CAGR (b) (a) KMP DCF reflects year end run rate (i.e. 4Q X 4) (b) Time fr
Slide 12: 2002 Sources of Cash Flow and Growth
11 2002 Sources of Cash Flow and Growth (a) Maturation of Increased refinery utilization, on-shore oil product specifications, use of low basins sulfur coals Power & Retail Other Terminals 7% 6% 18% Products CO2 Pipelines KMP Pipelines 38% 46% 11% Natural NGPL Gas 41% Pipelines 33% 80%+ in areas 50%
Slide 13: 2002 Goals
12 2002 Goals KMP/KMR KMI Distribution Target (no acquisitions): EPS Targets: – $2.40 – annual average (12% growth) – $2.55 – no acquisitions (30% growth) – $2.50 – year end run rate – $2.65 – modest acquisitions (35% growth) Segment DCF Growth (a): – $2.58 – bonus target – Products: +11% – Natural
Slide 14: KMP DCF Per Unit
13 KMP DCF Per Unit $0.05 $2.40 $0.15 $0.01 $2.15 $0.04 CO2 Terminals $0.14 Pipes Gas $0.04 Products Pipes $0.12 Pipes $0.14 Terminals CO2 $1.71 Gas Pipes Pipes Products Pipes Without Additional Acquisitions 2000 2001 2002 Plan Allocates DCF growth to segments based on change in earnings before DD&A
Slide 15: KMI Earnings Per Share
14 KMI Earnings Per Share $2.55 – $0.08 $0.18 ($0.09) $2.65 $0.53 ($0.07) Other NGPL Power Debt / $0.13 ($0.19) Retail & Other Rate $0.20 $1.96 Redux $0.68 Debt / Other KMP Rate NGPL (w/out add. Redux Retail Acquisitions) $1.29 ($0.15) Power KMTP KMP Sold to KMP 2000 2001 2002 Plan
Slide 16: 2002 Plan: Upsides
15 2002 Plan: Upsides Additional accretive acquisitions by KMP Natural Gas: more rapid realization of Tejas synergies CO2: increased SACROC production volumes Product Pipelines: faster demand growth due to economic recovery
Slide 17: 2002 Plan: Risks
16 2002 Plan: Risks Regulatory/Legal Environmental/Terrorism Interest Rates
Slide 18: Common Questions
17 Common Questions Is Kinder Morgan’s structure complex? Is Kinder Morgan’s growth dependent on acquisitions? Where is Kinder Morgan trading relative to its peers?
Slide 19: Structure is Common and Public
18 Structure is Common and Public Partnership – 10 years old Similar to approximately 25 other publicly traded MLPs Widely disclosed and publicly documented Widely followed by analysts Majority of independent board members Detailed cash flow tracking presentation at lunch
Slide 20: The Kinder Morgan Structure
19 The Kinder Morgan Structure Mgmt Mgmt Public Public KMP KMP 23% 23% 77% 77% Public Public Float Float 111 mm KMI (a) Market Equity $7.0 B Debt 3.0 KMP (Partnership) Enterprise Value $10.0 B 24 mm 166 million units (c) 02 EBITDA $850 mm 02 After Tax CF $420 mm Owned 31 mm i-units Ownedbyby KMI KMI
Slide 21: Structure is Focused on Cash
20 Structure is Focused on Cash KMP Total Cash Distributions KMI GP Interest (a) $282 $711 L.P. Share G.P. Share $206.6 $546.2 $333.3 Cash $113.4 $198.3 40% $152.9 38% $58.4 $38.0 $30.1 34% $16.8 29% $4.5 15% 25% $0.4 2% 1996 1997 1998 1999 2000 2001 2002E 1996 1997 1998 1999 2000 2001 2002E (a) Inc
Slide 22: Modest Top Line Growth = Significant Bottom Line Growth
21 Modest Top Line Growth = Significant Bottom Line Growth Illustrative Year 1 Year 2 Growth Comments Gross Margin $100 $104 4% Price and volume Operating Expenses 50 50 Efficiency savings compensate for small increase in variable cost. Operating Income $50 $54 8% G&A 6 6 No increase associated with
Slide 23: Excess Capacity Available for Growth
22 Excess Capacity Available for Growth KMP/KMR Products Pacific: approximately 70% utilization on average Plantation: approximately 80%; 5-8 years of excess capacity CFPL: approximately 65% Natural Gas Texas systems (which compose approximately 50% of total natural gas pipelines) have 25% excess ca
Slide 24: Internal Expansions add Additional Growth
23 Internal Expansions add Additional Growth Number 2001 Announced of Capital Completion Expansions Projects Committed Date Comments Products Pipelines 1 $9 2002 CALNEV Natural Gas Pipelines 5 $200 2002-2003 Trailblazer, FPC, Horizon, St. Louis CO2 Pipelines 1 $29 2002 SACROC Terminals 4 $80 2002-20
Slide 25: Targeted KMP Internal Growth
24 Targeted KMP Internal Growth Total Annual Change Internal 2001-2002 Target Variance Comments Products $39.6 $30-35 CALNEV partial period Natural Gas 113.4 20-25 Tejas, Occidental partial period CO2 1.9 20-25 SACROC growth in 2003 Terminals 33.3 10-15 Partial period acquisitions G&A, Interest , Ot
Slide 26: Internal Growth Only
25 Internal Growth Only Hypothetical KMI Four Year Internal EPS Growth (2001-2005) (a) KMI Other Asset Growth (b) 2% 4% 6% 8% 6% 15% 16% 17% 19% KMP Internal 8% 17% 18% 19% 20% DPU Growth 10% 19% 20% 21% 22% 12% 21% 22% 23% 24% (a) Assumes 50% of cash flow after tax is used to pay down debt and 50%
Slide 27: To Whom Do You Compare KM Entities?
26 To Whom Do You Compare KM Entities? KMP/KMR KMI Feels Like Stable Cash Flow 6% yield Share buyback Utility Strong Balance Sheet 40% debt/cap 50% debt/cap Add: Internal Growth 8-10% 15-20% Unregulated Business Add: Acquisitions 15% 20-30% Growth stock; Leading company in sector
Slide 28: Stable Cash Flow Streams
27 Stable Cash Flow Streams Revenues – Products Pipelines – connects major supply hubs to stable end user demand – Natural Gas Pipelines – long term take or pay contracts – CO2 –long term contracts; low marginal cost to produce – Terminals – long term contracts; product and geographic diversity Comm
Slide 29: Strong Balance Sheet
28 Strong Balance Sheet Debt – Conservative Leverage – 47% KMI – 46% KMP – 50% Fixed Rate Insignificant off-balance sheet financing – Primarily related to Plantation and CO2 (GAAP rules) – All significant leases have been moved on balance sheet post KN
Slide 30: Augment Internal Growth with Acquisitions
29 Augment Internal Growth with Acquisitions Disciplined Strategy Purchase DCF Target Segment Price DCF Multiple Multiples Comments Natural Gas Pipelines $1,178 $137 8.6 6-8X Oxy lease effect, Tejas Products Pipelines $19 4 4.3 6-8X Cochin, Transmix CO2 Pipelines $12 3 4.4 5-7X SACROC Terminals $202
Slide 31: KMI Long Term Outlook
30 KMI Long Term Outlook Hypothetical KMI: Four Year Compounded Annual Growth Rate (2001-2005) Acquisitions Per Year @ KMP $0 $500 $1,000 $1,500 KMP 6% 16% 21% 25% 28% Internal DPU 8% 18% 22% 26% 30% Growth 10% 20% 24% 28% 31% 12% 22% 26% 30% 33% Assumptions: (i) NGPL, retail and power grow at 4%, (
Slide 32: Unique Combination of Stability and Growth
31 Unique Combination of Stability and Growth LT 2002 Price EPS EPS P/E to Stable cash flow P/E CAGR (c) Growth Growth Growth + KMI (a) 21.6X 78% 64% 25% .86 S&P 24.2 (6%) (12%) 7-8% (d) 3.2 Strong balance sheet + Comparables? Solid internal growth Total EPS/ LT Current Price Annual DCF EPS/DCF Yiel