Kinder Morgan, Inc. · NYSE:KMI
Kinder Morgan — Investor Day (March 2011)
59 slides from Kinder Morgan's investor day presentation, Mar 24, 2011
Slide 1: Same Song, 15th Verse
Same Song, 15th Verse March 24, 2011
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. In particular, statements, express or implied, concerning future actions, conditions or eve
Slide 3: Use of Non-GAAP Financial Measures
Use of Non-GAAP Financial Measures The non-generally accepted accounting principles ("non-GAAP") financial measures of distributable cash flow before certain items (both in the aggregate and per unit), segment earnings before depreciation, depletion, amortization and amortization of excess cost of e
Slide 4: Use of Non-GAAP Financial Measures – Cont’d
Use of Non-GAAP Financial Measures – Cont’d "Certain items" are items that are required by GAAP to be reflected in net income, but typically either (1) do not have a cash impact, for example, goodwill impairments, allocated compensation for which we will never be responsible, and results from assets
Slide 5: Kinder Morgan 2011 Investor Conference Agenda
Kinder Morgan 2011 Investor Conference Agenda 8:00 – 8:45 Corporate Overview: Vision – Rich Kinder 8:45 – 9:00 Corporate Overview: Financial Excellence – Park Shaper 9:00 – 9:30 Corporate Overview: Operational Excellence – Steve Kean 9:30 – 9:45 Break 9:45 – 10:30 Natural Gas Pipelines – Tom Martin
Slide 6: Vision
Vision Rich Kinder Chief Executive Officer
Slide 7: Stayed the Course
Stayed the Course Focus on stable fee-based assets that are core to North American energy infrastructure — Market leader in each of our business segments Control costs — It’s the investors’ money, not management’s – treat it that way Leverage asset footprint to seek attractive capital investme
Slide 8: Kinder Morgan Past and Present
Kinder Morgan Past and Present Inception (a) Present Market Capitalization (b) $202MM (c) $41.8B (d) Enterprise Value (b) $349MM (c) $56.4B (d) Segment EBDA (e) $36MM $3.8B (f) Total Distributions from KMP $17MM $2.6B (f) KMP Distribution per Unit $0.63 $4.60 (f) # of Business Segments 3 5 Total Ass
Slide 9: Kinder Morgan Asset Footprint
Kinder Morgan Trans Mountain Asset Footprint 2 Cochin Puget Largest independent transporter of petroleum products in the U.S. Pacific Express — Transport ~1.9 MMBbl/d (a) 2nd largest transporter of natural gas in the U.S. Horizon — Own an interest in / operate over 24,000 Trailblazer 2 2 4 4 mil
Slide 10: Kinder Morgan: Three Choices at the Buffet
Kinder Morgan: Three Choices at the Buffet Kinder Morgan Energy Partners, L.P. Kinder Morgan, Inc. Market Equity $22.7B (a) LP & GP Market Equity $21.6B (f) Debt 11.4B (b) Distributions (e) Debt 3.2B (g) Enterprise Value $34.1B $1.3B Enterprise Value $24.8B 2011E LP Distribution per Unit $4.60 (c) 2
Slide 11: Delivering 15 Years of Consistent Growth
Delivering 15 Years of Consistent Growth KMP Total Distributions (GP + LP) ($MM) (a) KMP Annual LP Distribution Per Unit (b) $3,000 $5.00 $4.60 $2,648 $4.40 GP LP $2,420 $4.20 $2,500 $4.02 $4.00 $2,132 $3.48 $1,854 $3.13 $3.26 $2,000 $2.87 $3.00 $2.63 $1,469 $2.44 $1,500 $1,265 $2.15 $1,162 $978 $2.
Slide 12: Significant Historical Returns
Significant Historical Returns (a) KMP: 26% CAGR Since ‘96 (b) KMR: 14% CAGR Since ‘01 (c) Dollars Dollars $3,000 $450 AMZ (d) KMP = $2,781 = $404 $2,500 $375 KMR = $376 $2,000 $300 $1,500 $225 AMZ (d) = $938 $1,000 $150 $500 $75 S&P 500 = $128 S&P 500 = $230 ⇐ IPO 5/14/2001 $0 $0 Dec-96 Dec-98 Dec-
Slide 13: Promises Made, Promises Kept
Promises Made, Promises Kept Promises Made Promises Kept KMP Budgeted KMP Actual Distribution per unit: Distribution per unit: 2000: $1.60 2000: $1.71 2001: $1.95 2001: $2.15 2002: $2.40 2002: $2.435 2003: $2.63 2003: $2.63 2004: $2.84 2004: $2.87 2005: $3.13 2005: $3.13 2006: $3.28 2006: $3.26 2007
Slide 14: Kinder Morgan 2011 Goals
Kinder Morgan 2011 Goals KMP KMI Distribution Target Dividend Target — $4.60 per unit (4.5% growth) — $1.16 per share (a) — Excess coverage of ~$37MM — $820MM in total 2011 dividends Maintain Solid Balance Sheet Maintain Solid Balance Sheet — Yr-end 2011 debt / EBITDA = 3.6x — Yr-end 2011 de
Slide 15: KMP
KINDER/MORGAN KMP
Slide 16: Well-Diversified Cash Flow
Well-Diversified Cash Flow KMP Segment Earnings before DD&A CO2 2011E = $3.8 billion (a,d) Natural Gas Pipelines $1,098MM segment EBDA (a) $1,079MM segment EBDA (a,d) — 28% CO2 transport and sales — 50% Interstate — 72% oil production related — 50% Intrastate (e) — Production hedged (b): 2011=82
Slide 17: Stable Asset Base
Stable Asset Base Natural Gas Products Kinder Morgan CO2 Terminals Pipelines Pipelines Canada – Interstate: virtually all – Liquids: take or pay – S&T: primarily take or pay – Bulk: minimum Volume Security – Volume based minimum volume – No volume risk – Intrastate: ~75% volume guarantee, guarante
Slide 18: $1.4 Billion 2011 Growth Expenditures Budgeted
$1.4 Billion 2011 Growth Expenditures Budgeted KMP Growth Expenditures 2011E = $1.4 billion (a,b,c) CO2 Natural Gas Pipelines (a) 34% 31% 11% 24% Products Pipelines (b,c) Terminals (b) __________________________ (a) Includes equity contributions to joint ventures (b) Includes acquisitions; $174 mill
Slide 19: Natural Gas Pipelines Growth Drivers
Natural Gas Pipelines Growth Drivers Well-positioned in the Rockies, shales and in Texas 2011 Growth Drivers: Fayetteville Express (FEP) pipeline in- service Eagle Ford shale development (under JV Trailblazer with Copano, and on standalone basis) REX KinderHawk full year plus volume growth S
Slide 20: Products Pipelines Growth Drivers
Products Pipelines Growth Drivers Well-located with origin in refinery / port hubs and terminus in population centers 2011 Growth Drivers: PPI tariff escalator (PPI + 2.65 = ~6.8% (a)) Organic volume growth Full year of 2010 acquisitions (Chevron, Cochin Shell, High Sierra) and expansion proje
Slide 21: Terminals Growth Drivers
Terminals Growth Drivers Well-located in refinery / port hubs and inland waterways 2011 Growth Drivers: Increase in rates on existing contracts Higher coal and ethanol throughput Full year of 2010 acquisitions (Slay, USD, Watco) and expansion projects (Carteret and Pier IX) Partial benefit f
Slide 22: CO2 Growth Drivers
CO2 Growth Drivers Own and operate best source of CO2 for EOR 2011 Growth Drivers: Over 1,000 Bbl/d production increase at Katz Higher overall oil / NGL prices CO2 S&T price increases Relatively flat production at SACROC and Yates KMCO2 Katz Longer-term Growth Drivers: SACROC Billions of b
Slide 23: Kinder Morgan Canada Growth Drivers
Kinder Morgan Canada Growth Drivers Sole oil pipeline from oilsands to West Coast / export markets Trans Mountain 2011 Growth Drivers: 2 New toll settlement pending on Trans Puget Mountain pipeline (TMPL) Express Longer-term Growth Drivers: Expand oilsands export capacity to West Coast and China
Slide 24: KMI
KINDER/MORGAN KMI
Slide 25: Overview
Overview KMI Total Cash Receipts Interests in KMP (b) 2011E = $1.36 billion (a) NGPL General Partner interest receives A major interstate natural gas incentive distributions from KMP pipeline and one of the largest GP natural gas storage operators in KMI owns ~11% of total limited Interest the
Slide 26: Growth in KMP Distributions Leads to KMI Growth
Growth in KMP Distributions Leads to KMI Growth Hypothetical KMP Distributions of Cash from Operations Received LP Interests $1,369 with incremental GP Interest 14MM units outstanding (+$53MM) Additional 14MM units $1,316 $1,500 $1,453 $1,384 Total Hypothetical Distributions $1,248 $53 $1,250 $1,179
Slide 27: KMI, KMP & KMR: Attractive Value Proposition
KMI, KMP & KMR: Attractive Value Proposition Unparalleled asset footprint Established track record Industry leader in all business segments Experienced management team Supportive general partner Transparency to investors Attractive returns driven by combination of yield plus growth 22
Slide 28: Financial Excellence
Financial Excellence Park Shaper President
Slide 29: Over $22B of Growth Capital Invested at KMP
Over $22B of Growth Capital Invested at KMP (a,b) ($ in billions) Total Invested by Type (a,b) Total Invested by Year (a,b) $15 $12 $3.5 $2.7 JV Contributions $3.3 $9 Expansion $3.0 $2.8 $6 Acquisition $9.3 $10.4 $2.5 $3 $2.5 $2.4 $- $2.0 Expansions Acquisitions $2.0 $1.6 $1.5 $1.4 Total Invested by
Slide 30: How We Have Done: KMP Returns on Capital
How We Have Done: KMP Returns on Capital 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Segment ROI (a): Products Pipelines 11.9% 11.8% 12.8% 12.9% 12.4% 11.6% 11.8% 13.2% 12.5% 13.4% 13.7% Natural Gas Pipelines 13.3 15.5 12.9 13.5 14.0 15.5 16.7 17.5 16.9 14.0 11.9 CO2 27.5 24.6 22.0 21.9 2
Slide 31: KMP Cost of Capital
KMP Cost of Capital Operated in “50/50 splits” since 1997 Cost of capital varies over time: — Current ~8.0% (a) — 2010 analyst conf 8.8% — 2009 analyst conf 9.8% — 2008 analyst conf 9.0% — 2004 analyst conf 8.3% — 2003 analyst conf 9.1% — 2002 analyst conf 8.2% Long-term cost of capital ~9%
Slide 32: KMP Access to Capital
KMP Access to Capital Issued ~$22.5 billion of capital at KMP in the public markets since inception (a) — ~$10.5 billion in equity raised (a) — ~$12.1 billion in KMP long-term debt (~$10.9B net of refinancing) Accessed in difficult markets — Sep’01 to Sep’02 ~$430 million in equity issued (a) ~$
Slide 33: KMR 101
KMR 101 (a) KMR is KMP KMR Discount to KMP KMR shares are pari passu with KMP units 10% KMR dividend equal to KMP cash distribution, but paid in 5% additional shares; effectively a dividend reinvestment 0% program (b) -5% Like KMP units, KMR shares are tax efficient — but with -10% simplified
Slide 34: Net Equity Production – CO2 Oil Production Hedge Profile
KMP CO2 Oil Production Hedge Profile Avoid businesses with direct Net Oil Production (a) commodity exposure Avg Hedge Px Hedge CO2 BOE equivalent WTI & WTS $70.39 $87.95 $92.58 $92.53 $97.95 ($/Bbl) (b) 40 — Targeted minimum Net Equity Production hedge amounts: 30 82% Current Year: 75% (Mboe/d)
Slide 35: KMP Risks
KMP Risks Regulatory — Pacific Products Pipeline FERC/CPUC cases — Periodic rate reviews — Unexpected policy changes Crude Oil Production Volumes Crude Oil Prices — 2011 budget assumes $89/Bbl realized price on unhedged barrels — 2011 sensitivity is ~$5.0 million DCF per $1/Bbl change in crude
Slide 36: KMP Focused on Distribution Growth
KMP Focused on Distribution Growth Annual LP Distribution Per Unit (b) History of Delivering Distribution $4.60 $4.40 Growth (a): $4.02 $4.20 $3.48 — 1-year growth = 4.8% $3.13 $3.26 $2.87 — 3-year growth = 8.1% $2.44 $2.63 $2.15 — 5-year growth = 7.0% $1.42 $1.71 $1.24 $0.94 $0.63 1996 1997 1998
Slide 37: KMP Drives KMI Growth
KMP Drives KMI Growth KMP Cash Distributions Received by KMI $1,330 Substantial cash flow GP $1,202 LP Units Owned Minimal capital expenditures at $1,079 KMI level $902 $1,169 Strong balance sheet $682 $632 $1,054 $574 $940 $477 Growing distributions and $406 $582 $783 $333 $536 $472 investm
Slide 38: Operational Excellence
Operational Excellence Steve Kean Chief Operating Officer
Slide 39: Operations Goals – Safe, Reliable, Efficient Operations
Operations Goals – Safe, Reliable, Efficient Operations Continuous reduction in risk to the public, employees, contractors, assets and the environment Continuous improvement in the efficiency and productivity of existing operations Well-executed expansions and effective integration of acquired
Slide 40: Efficiency
Efficiency Part of weekly asset review — Throughput — Operating costs (including energy use and L&U) — Sustaining capex updates Detailed, “bottoms up” budget process for operating expenses and sustaining capex — Separately identify safety and compliance needs; separately track spending on those
Slide 41: Sustaining Capex
Sustaining Capex From 2008-2011: — Annual sustaining capital expenditures increased by 24% (25% YOY 2010-2011B) Increases in sustaining capex due to: — Asset additions (expansions and acquisitions) — Increased environmental and compliance spending – remediation, tank integrity program — Compress
Slide 42: Risk Reduction - Overview
Risk Reduction - Overview Focus on immediate risk reduction opportunities Build the systems to make compliance routine Discussion of pipeline risks – Pipeline integrity – Damage prevention Incident rates 37
Slide 43: Implementation Plan
Implementation Plan Systems-making Immediate Risk Reduction Compliance Routine Continuous Improvement ROW protection programs Addressing operations performance Systems Improvement and in our existing processes — Operations Management System extension Liquids pipeline O&M re-write — Annual bu
Slide 44: Compliance Summary
Compliance Summary Key elements: 1. Clear statement of requirement, assignment of responsibility and deadline for completion, and 2. Exception reporting to management Performance: — OpsInfo expanded to nearly 90,000 compliance actions per year • Timely compliance: 99.5% in 2010 Other items tra
Slide 45: Compliance Summary – Cont’d
Compliance Summary – Cont’d Env. Permits Hazardous DOT and Business Waste / Transport DOT Damage Unit SPCC (a) Safety PSM / RMP (b) Maintenance Security Contractors Prevention Natural Gas OpsInfo OpsInfo INFOR EAM INFOR EAM OpsInfo ISNetworld Petris Pipelines & AAT Products OpsInfo OpsInfo OpsInfo O
Slide 46: Pipeline Risks
Pipeline Risks Pipeline integrity Excavation/construction damage 41
Slide 47: Pipeline Integrity Summary – Pipeline ROW
Pipeline Integrity Summary – Pipeline ROW % of HCA (a) % of HCA using Business Segment miles assessed direct assessment (DA) 90% Natural Gas Pipelines < 0.1% (100% by 12/31/12) Products Pipelines & Terminals 100% 0% CO2 – S&T 100% Relies on DA – Oil 100% 0% Kinder Morgan Canada 100% 0% Kinder Morg
Slide 48: Excavation / Construction Damage
Excavation / Construction Damage “One call” statutes, pipeline markers and public communication / education programs Additional KM protections — Increased ROW protection force (added 158 positions 2004–08); total pool of 950 qualified personnel; 519 actually performing ROW protection tasks in 20
Slide 49: 2010 ROW Data
2010 ROW Data 364,376 31,222 Marks One Call 12,500 line Tickets 86/d crossings or parallel 1,000/d construction 34/d 0 34 Reportable Line Hits Releases 175 Encroachments 44
Slide 50: KINDER/MORGAN
KINDER/MORGAN 02/29/2008
Slide 51: Remaining Risks / Mitigation
Remaining Risks / Mitigation Risks Mitigation Undetectable / difficult-to-detect flaws • Working on advanced technology/techniques One call gaps / non compliance • Tighter monitoring rules • More frequent patrols 46
Slide 52: Various Legislative Proposals - Impact
Various Legislative Proposals - Impact Do not expect material impact from final legislation Extending HCA Requirements to non-HCAs — Not expected to extend much beyond what Kinder Morgan already does in non-HCAs Remote controlled or automatic shut off values — Already in widespread use — Poten
Slide 53: Incidents & Releases: Liquids Pipeline ROW
Incidents & Releases: Liquids Pipeline ROW Liquids Pipeline Incidents per 1,000 Miles (a) Liquids Pipeline Release Rate (a) Industry Industry Avg. Avg. __________________________ Note: KM totals exclude non-DOT jurisdictional CO2 Gathering and Crude Gathering for compatibility with industry comparis
Slide 54: Incidents & Releases: Natural Gas Pipeline ROW
Incidents & Releases: Natural Gas Pipeline ROW Natural Gas Pipeline Incidents Rate (a) __________________________ Note: KM totals exclude non-DOT jurisdictional CO2 Gathering and Crude Gathering for compatibility with industry comparisons. (a) An Incident means any of the following events: (1) An ev
Slide 55: Lost-time Incident Rate (DART)
Lost-time Incident Rate (DART) 50
Slide 56: OSHA Recordable Incident Rate
OSHA Recordable Incident Rate (current) (2005) 51
Slide 57: Vehicle Incident Rate
Vehicle Incident Rate __________________________ (a) Industry average not available for Terminals 52
Slide 58: 2011 Objectives
2011 Objectives Incident rates: better than industry average and better than the Kinder Morgan 3-year average; zero significant incidents Extension of compliance systems to additional requirements Terminals SQE program Continued special emphasis on high consequence assets and operations Ef
Slide 59: KINDER/MORGAN
KINDER/MORGAN