Kinder Morgan, Inc. · NYSE:KMI
Kinder Morgan — Investor Day (January 2006)
55 slides from Kinder Morgan's investor day presentation, Jan 24, 2006
Slide 1: Vision, Financial Excellence, Operational Excellence
Vision, Financial Excellence, Operational Excellence January 24, 2006
Slide 2: Vision
Vision Rich Kinder
Slide 3: 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 4: Agenda
Agenda Vision – Rich Kinder — What we have accomplished — Where we are going Financial Excellence – Park Shaper Operational Excellence – Steve Kean __________________________ Presentation assumes a USC/CAD exchange rate of 0.86. 4
Slide 5: What We've Accomplished
What We’ve Accomplished KM enterprise value has grown from roughly $300 million 9 years ago to more than $35 billion today $6 billion in asset acquisitions Largest independent transporter of Tejas, GATX, Shell CO2, TGS petroleum products in the U.S. Terminals – achieved national footprint transport
Slide 6: Kinder Morgan Assets
Kinder Morgan Assets NGPL (KMI) NGPL GAS STORAGE (KMI) Trans RETAIL GAS DISTRIBUTION (KMI) Mountain Corridor GAS-FIRED POWER PLANTS (KMI) PRODUCTS PIPELINES (KMP) 2 PRODUCTS PIPELINES TERMINALS (KMP) TRANSMIX FACILITIES (KMP) NATURAL GAS 2 PIPELINES (KMI-KMP) Express Cochin NATURAL GAS Pacific STORA
Slide 7: Kinder Morgan: Three Securities
Kinder Morgan: Three Securities Kinder Morgan Energy Partners Kinder Morgan, Inc. Market Equity (a) $11.0 Incentive Market Equity (b) $14.0 Debt (a) 5.2 Distribution Debt (b) 7.1 Enterprise Value $16.2 B Enterprise Value $21.1 B 2006E EBITDA $1,802 mm 2006E EBITDA $1,739 mm 2006E Dist. CF $1,290 mm
Slide 8: Promises Made, Promises Kept
Promises Made, Promises Kept Promises Made Promises Kept KMP/KMR KMP/KMR 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 KMI KMI Earnings Per Share (a): Earn
Slide 9: 2006 Financial Goals
2006 Financial Goals KMP/KMR KMI Distribution Target (a) EPS Target (a) $3.28 per unit (5% growth) $5.00 per share (16% growth (b)) Excess coverage of ~ $9 million Stable to Improving Balance Sheet Stable to Improving Balance Sheet Expansions / acquisitions financed 60% equity, 40% debt ____
Slide 10: Consistent Track Record
Consistent Track Record Total Distributions (GP + LP) ($mm) KMP Distribution Per Unit (b) $1,400 $1,281 $4.00 GP (a) $1,162 $3.32-$3.36 $1,200 $3.20 LP $978 $3.00 = 18% $2.96 $1,000 4% GR $2.72 =5 $827 CA $2.50 GR $2.20 $800 CA $701 $2.00 $1.90 $600 $548 $1.45 $1.13 $1.30 $400 $333 $1.00 $0.63 $153
Slide 11: Significant Historical Returns, thru 12-31-05
Significant Historical Returns, thru 12-31-05 KMP: 32% annual return Dollars (a,c) $1,400 $1,200 $1,253 KMP KMI: 39% annual return $1,000 $800 Dollars (a,b) $1,000 $600 $900 $400 $459 $800 $851 MLP Index $700 $200 $194 $600 KMI S&P 500 $0 $500 Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- Dec- $400 9
Slide 12: 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 13: KMP: Solid Asset Base Generates Stable Fee Income
KMP: Solid Asset Base Generates Stable Fee Income CO2 KMP Products Pipelines 2006 DCF (a) 30% CO2 transport and sales Refinery hub to population 70% oil production related center strategy Expected production hedged (b): 68% Pipelines Products 2006=88% CO2 27% Associated Terminals (c) Pipelines 2007=
Slide 14: KMI: Solid Asset Base Generates Stable Fee Income
KMI: Solid Asset Base Generates Stable Fee Income Investment in KMP (b) KMI NGPL 2006 Segment Income (a) General partner interest FERC regulated with 3-year earns incentive distributions average contract life Owns 13% of total limited Primary customers are partner units Chicago local distribution NG
Slide 15: Vision: Where We're Going
Vision: Where We’re Going Trend KM Opportunity Growing Rockies Natural Gas Production Rockies Express, Entrega Increased Supply of LNG on Gulf Coast Kinder Morgan Louisiana Pipeline Canadian Oilsands Trans Mountain, Corridor expansions Spirit condensate line, Edmonton terminal Increased Use of Heavy
Slide 16: Rocky Mountain Natural Gas: Reserve Base Supports Need for New Infrastructure
Rocky Mountain Natural Gas: Reserve Base Supports Need for New Infrastructure Reserve Estimates: (PGC) Proved 26 Probable 37 Potential 61 P1 + P2 + P3 124 Tcf 16
Slide 17: Rocky Mountain Natural Gas: Basis Spreads Support Need for New Infrastructure
Rocky Mountain Natural Gas: Basis Spreads Support Need for New Infrastructure Basis Spread (a) ($1.04) ($1.42) $1.16 $1.88 ($0.42) ($0.64) $0.46 $0.54 ($0.43) ($0.72) __________________________ (a) Basis differential versus Henry Hub. Sources: Historical Prices – GasDat, Forward Prices – Sempra Oct
Slide 18: Rocky Mountain Natural Gas: Expected Production Growth
Rocky Mountain Natural Gas: Expected Production Growth Supports Need for New Infrastructure Rocky Mountain natural gas production is growing, but takeaway capacity is limited Rockies Exports 0.4 Bcf/d Rockies Production Growth (a) 0.7 Bcf/d Production (Bcf/d) Wyoming 2004 5.8 2007 7.0 2009 7.6 Utah
Slide 19: Increased Supply of LNG on Gulf Coast
Increased Supply of LNG on Gulf Coast Gulf Coast LNG Projects Under Construction ") ! ") ") Henry Katy ") )" ") ") & - ~8-11 Bcf/d of terminal & -") # * ! ! ") kj capacity under ") ExxonMobil – Golden Pass # * 2008-09 Sempra – Cameron LNG 1-2") Bcf/d, projected in-svc ! 1.5-2.65! Bcf/d, est in-svc 2
Slide 20: Canadian Oilsands: Supply
Canadian Oilsands: Supply Canadian Crude Production by Type (a) World Oil & Bitumen Reserves – Top 10 (b) (MBbl/d) (reserves (billions of barrels) 4,000 Oilsands 350 345 315 Pentanes/Condensate 300 5 3,500 ‘05-‘1 270 Bitumen Conventional Heavy AGR 3,000 Conventional Light/Med s ~10% C 250 Oil nd Oil
Slide 21: Canadian Oilsands: PADDs II and IV Have the Most Access to Canada
Canadian Oilsands: PADDs II and IV Have the Most Access to Canada Major Canadian Oilsands Takeaway into the U.S. Bb R ) Trunkline 0 M IDO l/d AIN Fort McMurray NT (22 RR U MO l/d) Cold Lake (MMBbl/d) Capacity CO NS MBb A TR (225 Edmonton in to U.S. Hardisty PADD II 2.0 - BOWRIVER /d) CENEX RANGELA A
Slide 22: Canadian Oilsands: U.S. a Significant Importer of Crude
Canadian Oilsands: U.S. a Significant Importer of Crude U.S. Crude Refinery Inputs by PADD – 2004 Canadian Total Imports as (MBbl/d) Refinery % % of Total Inputs Imports Imports PADD I (East Coast) 1,597 97% 13% PADD II (Midwest) 3,288 89% 36% PADD III (Gulf Coast) 7,438 59% --- PADD IV (Rockies) 55
Slide 23: ANS Production is Declining
ANS Production is Declining Alaskan North Slope Production (a) Washington State Refinery Capacity (b) Canadian crude through Trans Mountain 2,000 15% (92 MBbl/d) ANS Crude Oil Production 1,500 (MBbl/d) 1,000 500 Other 85% (521 MBbl/d) 0 1987 1989 1991 1993 1995 1997 1999 2001 2003E 2005E 2007E 2009E
Slide 24: Canadian Oilsands: Pipeline Expansions Possible as Refineries Upgraded/Expanded
Canadian Oilsands: Pipeline Expansions Possible as Refineries Upgraded/Expanded Refinery Processing Capacity by U.S. PADD % Capacity Heavy w/ Ability Crude (MMBbl/d) Refining to Process Processing Canadian Capacity Heavy Crude (a) Capability (a) Imports Difference PADD I (East Coast) 1.6 51% 0.8 0.2
Slide 25: CO2: High Oil Prices Leading to Demand for Enhanced Oil Recovery
CO2: High Oil Prices Leading to Demand for Enhanced Oil Recovery (MMcf/d) CO2 Deliveries Opportunities to expand supply 1,500 Other and pipeline capacity 1,000 McElmo Dome… Sheep Mtn …is one of the cheapest sources of Bravo Dome 500 CO2 McElmo Dome …has ~35 years of remaining 0 reserves 1984 1987 19
Slide 26: Higher Petcoke Production
Higher Petcoke Production U.S. Petcoke Production (a) (mm dry short tons) 80 Crude supply increasingly heavy 80 -‘1 GR Rest of N. America ‘05 CA Heavy crude refiners have wider 5 U.S. Gulf Coast 60 % ~5 margins 45 49 51 52 50 43 Heavy Crude MORE PETCOKE 40 Approximately 56% of U.S. refiners 20 have
Slide 27: Growing Coal Imports
Growing Coal Imports U.S. Coal Imports (a) Rationale for Imports (millions of tons) 70 65 High BTU, low sulfur, competitive price 2005 Coal Import 60 Country of Origin Avg. Delivery Colombia Venezuela ‘1 GR Major BTU Price ‘0 CA 50 Indonesia Canada 5 Sources Content Sulfur ($/Ton) $/MMBtu % Other 5-
Slide 28: Identified Future Growth Opportunities
Identified Future Growth Opportunities Approximately $8 billion in identified growth opportunities over next 5 years Estimated Total Project Expected Entity Project Cost ($B) Completion KMP Louisiana Pipeline (LNG) $0.5 2009 KMP Entrega 0.5 (a) 2006-2007 KMP Rockies Express 2.3 (a) 2008-2009 KMP CO2
Slide 29: Financial Excellence
Financial Excellence Park Shaper
Slide 30: Financial Excellence
Financial Excellence Internal Accountability — Extensive, top-down and bottom-up budget process — Weekly operations and financial assessment — Monthly and quarterly earnings Risk Management — Avoid businesses with direct commodity price exposure where possible — Hedge commodity price risk Discipline
Slide 31: Risk Management
Risk Management Avoid Businesses with Direct Commodity Exposure Hedge CO2 BOE Production — CO2 hedging policy: SACROC & Yates Hedge Profile (swaps and/or options) Avg Hedge Px WTI & WTS $29.97 $30.88 $34.61 $37.27 $44.08 ($/Bbl) (b) % of Production 50 Months Hedged Net equity Production (a) 40 1-12
Slide 32: $10 Billion in Capital Invested at KMP
$10 Billion in Capital Invested at KMP ($ billions) Total Invested by Type $8.0 Total Invested by Year $6.0 $2.0 $1.9 Expansion $4.0 $7.5 $1.6 Acquisition $1.6 $2.0 $1.3 $1.3 $2.7 $1.2 $1.1 $1.1 $0.0 Acquisitions Expansions $1.0 $0.9 $0.8 Total Invested by Segment $4.0 $3.5 $0.4 $3.1 $3.0 $0.0 $2.0
Slide 33: $13 Billion in Acquisitions at KMI
$13 Billion in Acquisitions at KMI Close Price Acquisition Date ($B) Opportunity KN Energy Oct 1999 $7.0 Major natural gas pipelines Terasen Nov 2005 5.9 Canadian oilsands Total $12.9 __________________________ Note: All amounts in U.S. dollars unless otherwise noted. 33
Slide 34: 2006 Expansion Capital Budgets
2006 Expansion Capital Budgets 2006 KMP Budget ($mm) Major Projects Product Pipelines $141 East Line, Las Vegas, Greensboro Natural Gas Pipelines 29 Rancho, Louisiana Pipeline CO2 353 SACROC and Yates Terminals 150 Pasadena, Perth Amboy, Shipyard River Total $673 2006 KMI Budget ($mm) Major Projects
Slide 35: Attractive Return on Capital
Attractive Return on Capital KMP Return on Investment (a): 2000 2001 2002 2003 2004 2005 Products Pipelines 11.9% 11.8% 12.8% 12.9% 12.4% 11.3% Natural Gas Pipelines 13.3 15.5 12.9 13.5 14.0 15.5 CO2 27.5 24.6 22.0 21.9 23.8 25.7 Terminals 19.1 18.2 17.7 18.4 17.8 16.9 KMP Return on Investment 12.3%
Slide 36: Attractive Return on Capital
Attractive Return on Capital KMI Return on Investment (a,b,c): 2000 2001 2002 2003 2004 2005 Investment in KMP 11.2% 16.9% 21.4% 25.0% 29.6% 37.9% NGPL 11.4 11.1 10.9 11.4 12.1 12.6 Retail 13.0 11.7 15.0 14.5 13.1 10.6 Power 14.3 20.2 9.7 5.6 4.7 5.8 KMI Return on Investment 10.5% 11.7% 12.4% 13.3%
Slide 37: KMP Has Consistently Raised Equity to Fund Projects
KMP Has Consistently Raised Equity to Fund Projects ($ millions) Capital Equity Percent Year Invested Raised Equity 1998 1,618 1,278 79% 1999 1,065 421 40% 2000 1,020 358 35% 2001 1,893 1,096 58% 2002 1,261 437 35% 2003 873 307 35% 2004 1,343 809 60% 2005 1,143 656 57% Total 10,216 5,362 53% _______
Slide 38: KMI & KMP Have Solid Balance Sheets
KMI & KMP Have Solid Balance Sheets ($ millions) Credit Summary KMP (a) KMI L-T Debt Rating Baa1/BBB+ Baa2/BBB Net Debt / Total Capital (b,c) 52% 56% 2006 Budget Estimates: Debt / EBITDA 3.1x 4.2x EBITDA / Interest 5.6x 4.0x CP Capacity (c) Long-term Debt Maturities (c) KMP KMI KMP KMI Total Bank Cr
Slide 39: KMP Has Returned Nearly $5 Billion in Cash to Partners, 1996-2005
KMP Has Returned Nearly $5 Billion in Cash to Partners, 1996-2005 ($ millions) KMP $1,400 $1,281 GP (a) $1,162 $1,200 LP $978 $1,000 $546 $827 $492 $800 $701 $406 $336 $600 $548 $278 $400 $333 $208 $670 $735 $153 $198 $113 $491 $572 $200 $423 $38 $58 $340 $17 $30 $115 $140 $220 $0 1996 1997 1998 199
Slide 40: KMI Has Returned Over $3 Billion in Cash to Investors, 2000-2005
KMI Has Returned Over $3 Billion in Cash to Investors, 2000-2005 ($ millions) KMI $4,000 $3,566 $3,500 $473 2000-2005 2006E $3,000 $2,500 $2,000 $1,500 $1,324 $1,369 $3,093 $1,000 $473 $873 $500 $851 $0 Dividends Share Change in Net Total Repurchase Debt __________________________ Note: All amounts
Slide 41: Risks
Risks Regulatory Pacific Products Pipeline FERC/CPUC case Periodic rate reviews Unexpected FERC, NEB, BCUC policy changes Environmental Terrorism Interest Rates 50% of debt is floating rate Budget assumes an increase based on the forward curve The full-year impact of a 100-bp increase in
Slide 42: Operational Excellence
Operational Excellence Steve Kean
Slide 43: Operational Excellence
Operational Excellence Objectives Approach Progress to Date Next Steps 43
Slide 44: Objectives
Objectives Better than industry averages and improvement over 3-year KM averages, in each business unit. Zero significant incidents Compliance with all applicable rules and regulations Constructive relationships with regulatory authorities Improve operational efficiency 44
Slide 45: Approach
Approach Set objectives Develop measures Accountability for results Frequent updating and progress tracking Transparency In short, same as approach to financial excellence — using same management structure and systems — authority and accountability in the business units (where the information and re
Slide 46: Approach – Measures
Approach – Measures Gather data and compare each business unit to industry average and 3 year business unit average to determine: 1. how we are performing relative to peers 2. whether we are improving on our own performance. Reportable spills and releases. Addressing challenges in obtaining data and
Slide 47: Approach – Accountability
Approach – Accountability Portion of incentive compensation pool for each business unit is tied to performance against these measures and the elimination of significant incidents (e.g. fatalities or significant spills/releases). 47
Slide 48: Approach – Progress Tracking
Approach – Progress Tracking Weekly business unit meetings update progress on operational excellence — Incidents — Efficiency (e.g. product loss in operations) Monthly update of statistics Quarterly business reviews address progress on operational excellence. Regular interaction between operations V
Slide 49: Approach – Transparency
Approach – Transparency Posting safety statistics on KM external website. Expanding reporting in Q1 49
Slide 50: Progress to Date
Progress to Date Organization changes Resolving key outstanding issues (constructively engaging with regulators) — Arizona — OPS KM-wide set of principles and standards established Each business unit has developed long-term plans for operational excellence – updating progress at QBR’s. 50
Slide 51: Safety Performance (2005)
Safety Performance (2005) Avoidable Vehicle Injury/Illness Rate Accident Rate Business Unit Vs. 3-yr Vs. Industry Vs. 3-yr Vs. Industry Products + + + + Gas Pipeline + + + + Terminals - + N/A N/A Retail + + + + CO2 - + + + Power + + + + 51
Slide 52: Kinder Morgan Safety Performance – 2005
Kinder Morgan Safety Performance – 2005 As of 12/31/05 Gas Transmission Retail CO2/SACROC/Yates YTD YE YTD 3-yr YTD YE YTD 3-yr YTD YE YTD 3-yr 2005 2004 2005 KM 2005 2004 2005 KM 2005 2004 2005 KM # # Rate Avg # # Rate Avg # # Rate Avg OSHA Recordable Injures/Illnesses Kinder Morgan Entity 24 17 1.
Slide 53: Kinder Morgan Safety Performance – 2005 (cont.)
Kinder Morgan Safety Performance – 2005 (cont.) As of 12/31/05 Products Pipelines (a) KM Terminals KM Power YTD YE YTD 3-yr YTD YE YTD 3-yr YTD YE YTD 3-yr 2005 2004 2005 KM 2005 2004 2005 KM 2005 2004 2005 KM # # Rate Avg # # Rate Avg # # Rate Avg OSHA Recordable Injures/Illnesses Kinder Morgan Ent
Slide 54: Next Steps
Next Steps Continued progress on long-term plans by each business unit. Extension of near miss reporting system (in use on Southeast Products assets today) to all KM business units – driving improvements and efficiency gains from the field. 54
Slide 55: NVDHOW YaaNIy
NVDHOW YaaNIy