Slide 1: Second Quarter Results: Real Assets, Real Earnings, Real Cash
Second Quarter Results Real Assets, Real Earnings, Real Cash August 2003
Slide 2: Forward Looking Statements
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 i
Slide 3: Kinder Morgan System Map
Kinder Morgan System Map 2 PACIFIC COCHIN 2 2 2 KMIGT 2 2 PACIFIC NORTH 2 3 CALNEV 2 4 PACIFIC NGPL KMP KMCO2 CO2 Pipelines Terminals PLANTATION KMI KM TEJAS Products Pipelines 8 Products Pipeline Terminals NGPL 2 KMTP 2 Transmix Facilities NGPL Storage 2 CFPL 2 2 Natural Gas Pipelines Natural Gas P
Slide 4: Kinder Morgan: Two Companies, Three Securities
Kinder Morgan: Two Companies, Three Securities Kinder Morgan Energy Partners Kinder Morgan, Inc Market Equity (a) $7.3 Incentive Market Equity (b) $6.7 Debt 3.7 Distribution Debt 3.0 Enterprise Value $11.0 Enterprise Value $9.7 2003E EBITDA $1,102 mm 2003E EBITDA $939 mm 2003E Dist. CF $809 mm 2003E
Slide 5: Consistent Track Record
Consistent Track Record Total Distributions (GP + LP) ($mm) KMP Distribution / Unit (a) 900 $809 $2.72 3% $2.50 $800 $701 2.50 CAG R=2 $2.20 700 % $1.90 74 $548 2.00 Net Income 600 = GR $1.45 CA $/LP Unit 500 1.50 $1.30 $333 $1.13 400 $198 1.00 $0.63 300 $153 200 $30 0.50 100 $17 0 0.00 1996 1997 19
Slide 6: KMP Q2 Results Driven by Internal Growth
KMP Q2 Results Driven by Internal Growth Three Months Ended, June 30 YTD – % % of 2003 2002 Change Budget Comments Products Pipelines $110.5 $110.2 0% 49% Refinery problems, propane Natural Gas Pipelines 88.9 73.9 20% 49% Texas Intra- Intra-states, Trailblazer CO2 Pipelines 47.2 30.0 57% 51% SACROC
Slide 7: KMI Q2 Driven by KMP, TransColorado
KMI Q2 Driven by KMP, TransColorado Three Months Ended, Jun 30 YTD – % % of 2003 2002 Change Budget Comments KMP $113.7 $93.4 22% 49% Internal growth NGPL 84.3 84.0 0% 49% Re- Re-contracting TransColorado 5.3 2.1 153% 78% New contracts Retail 6.3 6.1 4% 58% Lower expenses Power and Other 10.8 5.9 82
Slide 8: Attractive Value Proposition
Attractive Value Proposition KMP/KMR (a) KMI (a) Stable Cash Flow ~ 6.5% / 7.0% yield ~ 3.0% yield Add: Internal Growth 8-10% 12%+ Internal Growth - Total Return Potential 15-17% 15%+ Acquisition Upside - Total Return Potential >15-17% >15+% (a) Returns calculated from 2002 to 2007. 8
Slide 9: Structure offers Two Risk Reward Profiles
Structure offers Two Risk Reward Profiles Limited Partner General Partner KMP/KMR KMI Yield ~ 6.5% - 7.0% ~ 3.0% Distributions Share in all distributions from Only entitled to incentive Available Cash distribution on Cash from Operations Current Split of Cash 59% 41% Distributions Upside/Downside 50
Slide 10: The Kinder Morgan Strategy
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 drop a
Slide 11: Management Philosophy
Management Philosophy Low Cost Asset Operator Senior management limited to $200,000 per year in base salary No planes, sports tickets, etc. Attention to Detail Weekly operations and financial assessment Monthly earnings and accounts receivable review Quarterly strategic review Risk Managem
Slide 12: Solid Asset Base Generates Stable Fee Income
Solid Asset Base Generates Stable Fee Income Terminals Products Pipelines KMP Largest independent terminal 2003 DCF (a) Largest independent refined operator in U.S. products pipeline system in U.S. 65% Liquids, 35% Bulk Refinery hub to population Geographic and product center strategy Terminals dive
Slide 13: Targeted KMP Internal Segment Growth
Targeted KMP Internal Segment Growth DCF DCF 2002 2003 Business Segments Actual Budget Change Growth Drivers Products Pipelines $399.1 $418.7 $19.6 Demographics in West and Southeast U.S. Natural Gas Pipelines 307.6 341.1 33.5 Expansions and extensions CO2 Pipelines 128.6 171.9 43.3 SACROC growth Te
Slide 14: Modest Top Line Growth Leads to Significant Bottom Line Growth
Modest Top Line Growth Leads to 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 w
Slide 15: High Return Internal Expansions Add Growth
High Return Internal Expansions Add Growth KMP 2003 Expansion Capital Budget Cost – 2003 Major Completion Business Segment Budget Major Projects Projects Date Product Pipelines $66 Sacramento, Ethanol $88 2003-2005 Natural Gas Pipelines $67 Cheyenne, Monterrey $118 2003-2004 CO2 Pipelines $233 SACRO
Slide 16: KMP is conservatively capitalized
KMP is conservatively capitalized Rating Baa1/BBB+ CP Capacity: Current Net Debt / Total Capital 51% Total Revolver $1,050 2003 Budget Estimates: Outstanding CP (6/30/03) 347 Debt / EBITDA 3.6x EBITDA / Interest 6.0x Excess Capacity $703 Market Capitalization and Credit Ratings (a): Maturities: $ (i
Slide 17: KMR Reduces KMP's Need to Access Market
KMR Reduces KMP’s Need to Access Market $1,200 $1,100 $1,000 $300 Paid in shares, cash reinvested $800 $600 $480 $400 $120 $320 $200 $120 $0 2003 EBITDA Interest, LP KMR GP Reinvested in Sustaining Distribution Distribution Distribution Business Cap Ex, Taxes 17
Slide 18: KMR is a Tax Efficient Way to Own KMP
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 d
Slide 19: KMR has Produced Attractive Returns
KMR has Produced Attractive Returns Price at Price at Total Annualized Offering 6/30 Return Return (c) KMR IPO (a) $35.205 $37.46 22% 10% KMR Secondary (b) $27.50 $37.46 44% 49% (a) Offering date was May 15, 2001. (b) Offering date was July 31, 2002. (c) Annual return calculated on a daily basis ass
Slide 20: KMP, KMR Price Differential Presents Opportunity
$27 $32 $37 $42 May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 KMP Feb-03 Mar-03 Apr-03 KMR May-03 Jun-03 KMP, KMR Price Differential Presents Opportunity 20
Slide 21: Solid Asset Base Generates Stable Fee Income
Solid Asset Base Generates Stable Fee Income KMP (a) KMI NGPL 2003 Segment Income (b) General partner interest FERC regulated with 3 year provides incentive distributions average contract life Own 18% of total limited partner Primary customers are Chicago units local distribution companies Little in
Slide 22: Targeted KMI Internal Growth
Targeted KMI Internal Growth Three Assumptions: 1. KMP 8 - 10% LP distribution growth plus resulting GP incentive 2. NGPL / Other Assets 3 - 5% segment earnings growth 3. Cash Available after 50% Dividends/ Repurchase Shares sustaining and modest 50% Reduce Debt expansion CAPEX Consistent with 12% I
Slide 23: KMI vs. SPX: Higher Return, Lower Risk, Trading at a Discount
KMI vs. SPX: Higher Return, Lower Risk, Trading at a Discount Total 2003 Projected Dividend Projected EPS Growth (a) Yield Return (b) Beta Multiple KMI 12.0% 3.0% 15.0% .69 16X SPX 7.0% 1.7% 8.7% 1.0 19X (a) Source: KMI = Company Estimates; SPX = First Call Consensus (b) Projected Growth plus Divide
Slide 24: Risks
Risks Regulatory Pacific Products Pipeline FERC/CPUC case Trailblazer rate case Affiliate rule change 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 A full
Slide 25: Stable Platform, Attractive Growth
Stable Platform, Attractive Growth Stable cash flow from essential infrastructure Low cost discipline Conservative capital structure Management team with significant equity stake Outstanding track record Attractive internal growth from favorable demographics and expansion opportunities Acquisition u