Kinder Morgan, Inc. · NYSE:KMI
Kinder Morgan — Merger or Acquisition (October 2014)
40 slides from Kinder Morgan's merger presentation, Oct 22, 2014
Slide 1: Run By Shareholders, For Shareholders
Run By Shareholders, For Shareholders KMI to Acquire KMP, KMR and EPB October 22, 2014
Slide 2: Forward-Looking Statements / Non-GAAP Financial Measures
Forward-Looking Statements / Non-GAAP Financial Measures IMPORTANT INFORMATION AND WHERE TO FIND IT This communication may be deemed to be solicitation material in respect of the proposed acquisition by Kinder Morgan, Inc. (“KMI”) of each of Kinder Morgan Energy Partners, L.P. (“KMP”), Kinder Morgan
Slide 3: KMI Acquisition of KMP, KMR & EPB Transaction Overview
KMI Acquisition of KMP, KMR & EPB Transaction Overview Consolidating All Kinder Morgan Assets Under One Public Company As announced on 8/10/2014, KMI will acquire all of the outstanding common units of KMP and EPB and all outstanding shares of KMR KMP KMR EPB Acquisition Consideration(a) KMI Share
Slide 4: KMI Transaction Update
KMI Transaction Update Important Message for KMI, KMP, KMR and EPB Equity Holders: All regulatory approvals to proceed with the transaction have been received Meetings to approve the transaction have been set for Thursday, November 20, 2014 KMI, KMP, KMR and EPB holders may vote on or before t
Slide 5: Value Enhancing Combination
Value Enhancing Combination Significant Upfront 2015E KMI dividend per share expected to be $2.00 with significant coverage Dividend Increase 16% dividend increase from 2014 guidance of $1.72 Enhances Future 10% annual growth rate expected for at least the next 5 years thereafter (2015-2020) D
Slide 6: Simplified Organizational Structure
Simplified Organizational Structure Current Public Structure Simplified Public Structure Kinder Morgan, Inc. (NYSE: KMI) 13% Listed Shares BB / Ba2 / BB+ 100% Voting Shares One publicly traded company vs. four results in: Kinder Morgan Kinder Morgan, Inc. One equity holder base Management, LLC (NY
Slide 7: Unparalleled Asset Footprint
Unparalleled Asset Footprint Largest Energy Infrastructure Company in North America 3rd largest energy company in North America with estimated combined pro forma enterprise value of ~$140 billion(a) Nearly $18 billion of currently identified organic growth projects Largest natural gas network
Slide 8: Benefits of a C-corp
Benefits of a C-corp Simplifies structure; creates one public equity class Lowers cost of capital and creates a more competitive acquisition currency Significant income tax savings from the acquisition amounting to ~$20 billion over ~14 years Over half of combined KMP and EPB cash flows are
Slide 9: How the Math Works
How the Math Works Primary 2015-2020 Asset Level Assumptions(b) Status Quo Expected Pro-Forma Expected Dividend / Distribution 9% average annual EBITDA growth Dividend Growth Rate(a,b) ~$3.6B/yr average growth capex (excl. TMEP) Growth Rate(b) $5.2B for Trans Mountain(c) 2013- 2015- EBITDA g
Slide 10: Significantly Lower Hurdle for Growth
Significantly Lower Hurdle for Growth Same Level of Capex Generates Double the Growth at Pro Forma KMI vs Status Quo KMP ($ in millions, except per unit / share) Status Quo Pro Forma KMP KMI Hypothetical New Project Capex $1,000 $1,000 Project Cash Flows(a) 120 120 Project Taxes(b) 0 (19) Cost of Ne
Slide 11: Substantial Pre-Tax Value Uplift for KMP Unitholders
Substantial Pre-Tax Value Uplift for KMP Unitholders KMP Pre-Tax Benefit per Unit Post Transaction 10/21/2014 Implied Prices Prices 2015E 2016E 2017E 2018E 2019E 2020E KMP Pro Forma (Value) KMP Expected Distributions $5.83 $6.18 $6.46 $6.96 $7.09 $7.30 (a) Assumed Yield 6.95% 6.95% 6.95% 6.95% 6.95%
Slide 12: After-Tax Value Uplift to Average KMP Unitholder
After-Tax Value Uplift to Average KMP Unitholder KMP Status Quo - Hold KMP Unit (no conversion to KMI) 2014 2015 2016 2017 2018 2019 2020 KMP Value Creation(a) KMP Distribution – $5.83 $6.18 $6.46 $6.96 $7.09 $7.30 Taxes on Distr. with Zero Basis (Prior to Disposition Year) – – – – (0.59) (1.56) –
Slide 13: After-Tax Value Uplift to Average KMP Unitholder (Cont'd)
After-Tax Value Uplift to Average KMP Unitholder (Cont’d) KMP per Unit Value Creation(a) We conducted two sensitivities on the present value after-tax KMP analysis: First, we sensitized KMI’s price at close and its impact on the incremental after-tax cash flow to the average KMP unitholder (a hi
Slide 14: Substantial Value Uplift for KMR Shareholders
Substantial Value Uplift for KMR Shareholders KMR Benefit per Share Post Tax-free Transaction 10/21/2014 Implied Prices Prices 2015E 2016E 2017E 2018E 2019E 2020E KMR Pro Forma (Value) KMR Expected Distributions $5.83 $6.18 $6.46 $6.96 $7.09 $7.30 (a) Assumed Yield 7.24% 7.24% 7.24% 7.24% 7.24% 7.24
Slide 15: Substantial Pre-tax Value Uplift for EPB Unitholders
Substantial Pre-tax Value Uplift for EPB Unitholders EPB Pre-Tax Benefit per Unit Post Transaction 10/21/2014 Implied Prices Prices 2015E 2016E 2017E 2018E 2019E 2020E EPB Pro Forma (Value) EPB Expected Distributions $2.60 $2.60 $2.73 $2.78 $2.87 $2.96 (a) Assumed Yield 7.74% 7.74% 7.74% 7.74% 7.74%
Slide 16: After-Tax Value Uplift to Average EPB Unitholder
After-Tax Value Uplift to Average EPB Unitholder EPB Status Quo - Hold EPB Unit (no conversion to KMI) 2014 2015 2016 2017 2018 2019 2020 EPB Value Creation(a) EPB Distribution – $2.60 $2.60 $2.73 $2.78 $2.87 $2.96 Taxes on Distr. with Zero Basis – – – – – – – We believe the After-tax Distribution
Slide 17: After-Tax Value Uplift to Average EPB Unitholder (Cont'd)
After-Tax Value Uplift to Average EPB Unitholder (Cont’d) EPB per Unit Value Creation(a) We conducted two sensitivities on the present value after-tax EPB analysis: First, we sensitized KMI’s price at close and its impact on the incremental after-tax cash flow to the average EPB unitholder (a hi
Slide 18: Investor Total Returns
Investor Total Returns(a) KMP: 24% CATR Since ‘96(b) KMI: 11% CATR Since Inception(e) $5,000 $175 Dollars ━ KMP = $4,365 Dollars $4,000 $140 $3,000 $105 ━ S&P 500 = $159 ━ UTY = $152 ━ RMZ = $152 $2,000 $70 ━ AMZ(d) = $1,515 ━ KMI = $147 $1,000 $35 ⇐ IPO 2/10/2011 ━ S&P 500 = $363 $0 $0 Dec-96 Dec-9
Slide 19: Strategy
Strategy Remains the Same Same Strategy Since Inception 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 — Dividend policy to rem
Slide 20: Additional Transaction Information
Additional Transaction Information Summary Timeline All regulatory approvals have been received Unitholder and shareholder meetings scheduled for Thursday, November 20, 2014 Unitholders and shareholders can vote on or before the meetings Your vote is important – vote today Expect closing b
Slide 21: Business Risks
Business Risks Regulatory (KMP/EPB/KMI) — Products Pipeline FERC rate cases — Natural Gas FERC rate cases — Legislative and regulatory changes Crude oil production volumes (KMP) Commodity prices (KMP) — CO2 oil production • 2014 budget assumes $96.15/Bbl realized price on unhedged barrels • 20
Slide 22: Summary
Summary Attractive Value Proposition Unparalleled asset footprint Diversified midstream energy platform provides stable, fee-based cash flow Continued focus on strong balance sheet and de-levering at KMI Highly visible, attractive growth project backlog Established track record Industry
Slide 23: Appendix
KINDER/MORGAN Appendix
Slide 24: KMI Pro Forma Compares Favorably to Midstream Peers and S&P 500 High-dividend Companies
KMI Pro Forma Compares Favorably to its Midstream Energy Peers and S&P 500 High-dividend Companies LQA Dividend Dividend Growth Company Name Industry Market Cap Yield Rates 2015-2020 PF KMI(a) Oil & Gas Pipelines ~$100,000 10.0% growth rate Large Cap U.S. Midstream Williams Companies, Inc. Oil & Gas
Slide 25: Cross-guarantees Overview
Cross-guarantees Overview KMI will consolidate its subsidiaries under a single C-corp as follows: — Acquire public shares of KMR and public units of KMP and EPB — EPB is acquired by KMP — Execute cross guarantees among KMI, KMP and substantially all wholly owned operating subsidiaries and subsidia
Slide 26: 18 Years of Growth at KMP
18 Years of Growth at KMP Strategy Has Led to Consistent, Growing Results KMP Total Distributions (GP + LP) ($MM) KMP Annual LP Distribution per Unit(c) $5.58 (a) $5,000 $6.00 $5.33 (a) $4,499 $4,500 GP LP $4.98 $4,017 $5.00 $4.61 $4,000 $4.40 $4.20 $3,500 $3,230 $4.02 $4.00 $3.48 $3,000 $2,737 $3.1
Slide 27: Financial Rigor
Financial Rigor Promises Made, Promises Kept Promises Made Promises Kept KMI Budgeted KMI Actual Dividend: Dividend: KMI has exceeded 2011: $1.16(a) 2011: $1.20(a) its dividend target 2012: $1.35 2012: $1.40 in each of past 3 yrs. 2013: $1.57 2013: $1.60 KMP Budgeted KMP Actual LP Distribution: LP D
Slide 28: 5-year Project Backlog
5-year Project Backlog(a) Nearly $18 Billion of Currently Identified Organic Growth Projects Tremendous footprint provides $17.9B of currently identified growth projects over next 5 years 5-year Growth Capex Backlog ($B) 4Q 2014 2015 2016 2017+ Total Natural Gas Pipelines $0.4 $0.6 $0.4 $3.3 $4.7 Pr
Slide 29: Natural Gas Megatrend
Natural Gas Megatrend Tremendous Natural Gas Footprint & Market Opportunity Set… U.S. Natural Gas Projected Supply & Demand(a) (Bcf/d) Demand 2014 2019 2024 KM Natural Gas Asset Footprint LNG exports -0.3 4.7 9.8 Mexican net exports 2.1 3.8 4.6 Power 21.3 23.9 28.5 Industrial 21.0 23.9 24.8 Other 29
Slide 30: Natural Gas Megatrend
Natural Gas Megatrend … Generating Real-time, Long-term Benefits $641B of investment in midstream energy infrastructure needed through 2035, implying $29B per year annual spend(a) compared to $18B annual spend by MLPs(b) over past five years Kinder Morgan’s unparalleled natural gas footprint is we
Slide 31: KMP Returns on Invested Capital
KMP Returns on Invested Capital 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Segment ROI(a): 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% 11.9% 11.9% 11.6%(b) Products Pipelines 11.9 11.8 12.8 12.9 12.4 11.6 11.8 13.2 12.5 13.4 13.7
Slide 32: KMP Capital Investment
KMP Capital Investment ~$46.5B Invested Since Inception(a,b) ($ in billions) Total Invested by Type(a,b) Total Invested by Year $25 $11 $20 Expansion $10.0 $10 Acquisition $15 $21.9 $24.6 $9 $10 $8 $5 $7 $6.6 (b) $- Expansions Acquisitions $6 $5 $4.9 Total Invested by Segment(a,b) $4 $3.3 $2.9 $25 $
Slide 33: Natural Gas Pipelines
Natural Gas Pipelines Segment Outlook Well-positioned connecting key natural gas resource plays with major demand centers Project Backlog: $4.7 billion of identified growth projects over next seven years(a), including: — LNG liquefaction (FTA at Elba Island) — Pipe projects supporting LNG liquefac
Slide 34: Products Pipelines
Products Pipelines Segment Outlook Opportunities for growth from increased liquids production Project Backlog: $1.1 billion of identified growth projects over next two years(a), including: — UTOPIA — Eagle Ford condensate processing — KMCC extensions — KMCC-Double Eagle interconnect Long-term Grow
Slide 35: Terminals
Terminals Segment Outlook Well-located in refinery / port hubs and inland waterways Project Backlog: $2.5 billion of identified growth projects over next five years(a), including: — Liquids • BOSTCO Phase 3 • Alberta crude by rail projects • Chemical terminal development • SCT Jones Act tanker bui
Slide 36: CO2 Segment Outlook
CO2 Segment Outlook Own and operate best source of CO2 for EOR(a) Project Backlog: Identified growth projects totaling $2.1 billion and $2.1 billion in S&T and EOR, respectively, over next five years(b), including: — S&T • Southwest Colorado CO2 production • St. Johns build-out • Cortez and Lobos
Slide 37: Kinder Morgan Canada
Kinder Morgan Canada Segment Outlook Sole oil pipeline from Oilsands to West Coast / export markets Project Backlog: $5.4 billion expansion of Trans Mountain Pipeline Long-term Growth Drivers: Expand Oilsands export capacity to West Coast and Asia TMEP $5.4 Billion Expansion — Following successf
Slide 38: Energy Toll Road
Energy Toll Road Diversified, Fee-based Business Model Natural Gas Products Kinder Morgan Terminals CO2 Pipelines Pipelines Canada (KMP) (KMP) (KMP/EPB/KMI) (KMP) (KMP) – Interstate & LNG: take or pay – Take or pay, minimum – S&T: primarily minimum – Intrastate: ~75% take or pay(a) – Essentially no
Slide 39: After-tax Analysis for KMP and EPB Unitholders
After-tax Analysis for KMP and EPB Unitholders KMP and EPB After-Tax Analysis Assumptions After tax calculations for illustrative purposes only. These represent approximate calculations for an average unitholder assuming a sale as of 12/31/2013 (i.e. it excludes 2014 partnership activity). Actual ta
Slide 40: KINDER/MORGAN
KINDER/MORGAN