Slide 1: Texas Intrastate Pipelines Update
Texas Intrastate Pipelines Update Steve Kean
Slide 2: 2005 Natural Gas Segment Overview
2005 Natural Gas Segment Overview (a) Products Natural Pipelines KMIGT Gas 21% 30% Pipelines Texas 26% Intrastates Trailblazer Terminals 51% 11% 16% CO2 Pipelines 28% TransColorado 9% Red Cedar/Other Rockies 8% (a) 2005 budgeted distributable cash flow before G&A and interest interest 2
Slide 3: Overview
Overview Results Market Environment Business Description Strategy (esp. sales business) Expansion Projects Outlook 3
Slide 4: Overall Financial Performance
Overall Financial Performance ($000's) 2002* 2003 2004 Op Inc EBDA DCF Op Inc EBDA DCF Op Inc EBDA DCF KM Intrastate $124,269 $148,126 $142,116 $146,940 $172,060 $157,505 $186,120 $213,126 $197,286 Y-Y % Change 18.2% 16.2% 10.8% 26.7% 23.9% 25.3% Monterrey $0 $0 $0 $7,990 $9,174 $9,111 $8,445 $10,05
Slide 5: Market Environment
Market Environment Texas is the largest gas producing state and the largest gas consuming state 15.9 Bcf/day production 11.2 Bcf/day consumption Consequently, Texas market developed a substantial intrastate pipeline network Intensely competitive, especially on the gulf coast; significant i
Slide 6: Market Environment - Trends
Market Environment - Trends Hub-to-Hub spreads tightening: Mexico effect Credit quality improving - - recovery in manufacturing and chemical sectors Gas quality issues becoming increasingly important - - lower quality on some new production and more sensitive end uses Market is low growth/fl
Slide 7: Business Description
Business Description Assets Services 7
Slide 8: Texas Natural Gas System
Texas Natural Gas System Asset Description 5 Bcf/day capacity 4-4.5 Bcf/day throughput 120 Bcf storage (including West Clear Lake) Market: HSC industrial, LDC, utility/nonutility electric generation West Dallas El Paso Rancho TxOk Pipeline Dallas Rancho Pipeline Waha Pipeline Austin Katy Shi
Slide 9: Business Description – Services
Business Description – Services (indicative % contribution to gross margin) Purchase/Sales (50%) Producer to end user Priced relative to index (hedged) Fuel component in purchase pricing Some embedded swing/storage service Transport (30%) Over 2 Bcf/day under term transport arrangement
Slide 10: Contracted Capacity and Term
Contracted Capacity and Term MMBtu Avg Term Volume/Day Remaining Sales & Commodity 2,529,901 2 yr, 6 mo Transportation Demand 2,527,500 4 yr, 0 mo Total 5,057,401 3 yr, 3 mo w/o Daily & Mo MMBtu Avg Term Volume/Day Remaining Commodity 1,943,335 3 yr, 3 mo Demand 2,527,500 4 yr, 0 mo Total 4,470,835
Slide 11: Objectives and Strategy
Objectives and Strategy Objectives Strategy Results • Modest volume growth on existing system, so • Solid margin growth, particularly on Enhance base business growth dependent on margin enhancement sales business • Segment market/services • Success in charging for value added - swing service service
Slide 12: Strategy – Sales Business Overview
Strategy – Sales Business Overview Customers (producers and end users) desire the service Margins are higher (especially when compared to current basis spreads on the pipeline) But… it is a low % margin business in a highly volatile commodity Ö Description of the Risk: Inadvertent position (in
Slide 13: Strategy – Sales Business Overview (cont'd)
Strategy – Sales Business Overview (cont’d) Tight controls: − Credit − More real time measurement − More OBAs with cash out provisions − Tighter contract language − Better systems - - multiple reports to support position management − Systems don’t do everything - - people are familiar with their d
Slide 14: Controls Process
Controls Process Volume Accuracy Gas Purchases 1.03% 0.070% %of Supply Volume on "Split" Contracts 0.060% 0.050% 60% 0.040% 0.030% 50% 0.020% 40% 0.010% 0.000% 30% -0.010% -0.020% 20% -0.030% -0.040% 10% -0.050% 0% -0.060% 07/03 08/03 09/03 10/03 11/03 12/03 01/04 02/04 03/04 04/04 05/04 06/04 07/04
Slide 15: Strategy – Sales Business
Strategy – Sales Business Better controls have reduced, but not eliminated, exposure to sales business But, increasing migration to fee-only transport and storage would mean surrendering margin Long term: (Keep what we can make the most of and sell what others can make the most of) Keep comm
Slide 16: Expansion Projects
Expansion Projects $75 – 100 MM of capital 5 Bcf additional salt dome storage 350,000 MMBtu of South Dallas additional transport Project Collin ET capacity C 16 Prop. ” Interconnect Dallas Rockwall Hunt 2 4” 2 mi. 24” 30” South 20 LS ” Dallas Kaufman Carthage Prop. Project Comp. Sta. Forney 30
Slide 17: Expansion Projects – Dallas Area
Expansion Projects – Dallas Area Opportunity – planned Barnett Shale exploration and production is constrained by the available pipeline capacity. KM project – build new facilities and enter into upstream transportation arrangements to bring over 200,000 MMBtu/day of Barnett Shale gas into the e
Slide 18: Expansion Projects – West Rancho
Expansion Projects – West Rancho East end of Rancho (Katy to Austin) in service in July and under budget Acquired West End of Rancho crude line in 2004; can be converted from Waha area eastbound to Austin Working with several shippers for long term commitments to the project Substantial basi
Slide 19: Expansion Projects – Markham Storage
Expansion Projects – Markham Storage Using existing salt cavern (already leached) Connected to KM Texas system Adding compression and surface facilities can make 5 Bcf of working capacity available by the end of this year Anchor shipper secured 19
Slide 20: Gulf Coast LNG Projects
Gulf Coast LNG Projects ") ! ") ") Henry ") Katy ") ") ") Sempra & - SU Trunkline & -") *# ! ! ") Cameron 300 MMcf/day ") j k 1.5 Bcf/day expansion ") *# ! ! ") BP j k jk Pelican Shell ! Island Gulf Landing ") ") Freeport 1.2 Bcf/day 1 Bcf/day Calhoun LNG ") LNG 1.5 Bcf/day Cheniere 1 Bcf/day Sabine
Slide 21: Expansion Opportunities – Point of View on LNG
Expansion Opportunities – Point of View on LNG LNG on the Texas Gulf Coast is highly likely KM Texas well positioned to provide services header system (intrastate) downstream services: swing management (storage) LNG terminals will be controlled by the majors But …. downstream services (e
Slide 22: Outlook and Conclusions
Outlook and Conclusions Asset is substantially more stable “Best pipeline asset position in Texas” Making progress on incremental margin improvement in existing market while aggressively pursuing new markets Actively managing our risks and exposures 22
Slide 23: Natural Gas Pipeline Company of America (NGPL), KMIGT and Trailblazer
Natural Gas Pipeline Company of America (NGPL) KMIGT and Trailblazer Scott Parker
Slide 24: NGPL Impact on KMI Earnings
NGPL Impact on KMI Earnings (a) 2004 Actual 2005 Budget KMP KMP 49% NGPL 53% 40% NGPL 39% Retail 7% Retail Power 7% 2% Power TransColorado 2% 1% (a) 2004 results and 2005 budgeted segment earnings before G&A and interest interest expense. KMP includes: (i) general partner interest, (ii) earnings fro
Slide 25: NGPL Pipeline and Storage System Overview
NGPL Pipeline and Storage System Overview Horizon NGPL SYSTEM KEOTA Trailbla zer HERSCHER COLUMBUS JUNCTION • Over 10,000 Miles of Pipe COOKS MILLS • 61 Compressor Stations with 1.0 Million HP Amarillo Line LOUDON Peak Day Deliverability-Market Bcf/d Amarillo Line 1.7 Gulf Coast Line 1.6 Market Stor
Slide 26: NGPL Competitive Advantages
NGPL Competitive Advantages Well Connected to the Marketplace Local Distribution Companies “LDCs” Gas Fired Power Plants Other Downstream Markets Storage Size & Integrated Services Diverse Supply Basins Access to most Major Supply Basins Pools for customers to sell and buy gas on N
Slide 27: Competitive Advantages… Well Connected to the Marketplace
Competitive Advantages… Well Connected to the Marketplace Interconnected with Midwest LDCs NGPL Total NGPL Total Point Capacity Physical Major Market LDCs (Bbtu/d) Interconnects Nicor – Chicago Suburbs 10,547 79 Peoples/No. Shore – Chicago & No Subs 6,976 31 NIPSCO - Indiana 1,815 5 MidAmerican - Io
Slide 28: Competitive Advantages… Well Connected to the Marketplace
Competitive Advantages… Well Connected to the Marketplace Interconnected with Gas Fired Power Plants Gas Fired Electric Generation on NGPL Natural North End Power Plants • Over 17,700 MW of Electric Generation connected 116 • Plants have been constructed in last few years and are widely disbursed 20
Slide 29: Competitive Advantages… Well Connected to the Marketplace
Competitive Advantages… Well Connected to the Marketplace Interconnected with Other Downstream Markets Midwest Markets (via) NGPL Northern Natural Alliance ANR MRT Illini Guardian Horizon Midwestern Eastern Markets (via) ANR Panhandle NGPL Crossroads Eastern Markets (via) Columbia Tennessee Texas Ea
Slide 30: Competitive Advantages… Storage Assets
Competitive Advantages… Storage Assets 243 Bcf of Working Gas Firm or Interruptible services Delivered Storage Service “DSS” is no-notice packaged service where deliveries (or withdrawals) include transport on NGPL NSS can be packaged with transport for no-notice injections and off-peak with
Slide 31: Competitive Advantages… Access to most Major Supply Basins
Competitive Advantages… Access to most Major Supply Basins BASIN Annual Daily No GREEN WIND rth RIVER RIVER Production Average er Overthrust n Bo WIC Po rd Bcf1 Bcf ny er Ex Amarillo Line Trailbla zer pr e ss Alliance Anadarko 1,350 3.7 D-J BASIN ILLINOIS PICEANCE Hugoton 940 2.6 BASIN PL Permian 1,
Slide 32: Competitive Advantages… Flexible / Redundant Infrastructure
Competitive Advantages… Flexible / Redundant Infrastructure Excellent Reliability for Firm Service Customers OFO (operational flow order) days - flexibility is decreased. Winter 04/05 – 0 days Winter 03/04 – 0 days Summer 04 – 0 days Firm Curtailment days - effected pipeline segment capaci
Slide 33: NGPL – Base Business
NGPL – Base Business Limited unsubscribed Capacity Significant recontracting success already for 2005 Seeing high customer demand and increased margins on: Amarillo and Louisiana Line Transport NSS Storage Service Average contract term remains about 3 years Collections: on average 99.4
Slide 34: Current Position - Limited Unsubscribed FTS Capacity
Current Position - Limited Unsubscribed FTS Capacity Amarillo Mainline (1.7 TBtu/d) Sold Out Gulf Coast Mainline (1.6 TBtu/d) 158,000 long haul available April ’05* 74,133 winter only available Nov ‘05 Louisiana Line (.9 TBtu/d) Sold Out Cross Haul (.7 TBtu/d) Sold Out * Note: 158,000 equal 4.8% of
Slide 35: Limited 2005 FTS Expirations By Quarter
Limited 2005 FTS Expirations By Quarter (Volume in Dth/day) Significant recontracting success already. NGPL had 18.7% of capacity expiring in 2005, today only 5.8% of mainline remains to be recontracted. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Cumulative 2005 Amarillo Mainline (1.7 Tbtu/d) 0
Slide 36: Historic & Future Long Haul FTS Expirations
Historic & Future Long Haul FTS Expirations Recent History: Mainline FTS Expirations that occurred in 2003 = 61% Mainline FTS Expirations that occurred in 2004 = 20% 2005 and Beyond: Mainline FTS Expirations remaining in 2005 = 6% Mainline FTS Expirations in 2006 = 51% Mainline FTS Expirat
Slide 37: NGPL Storage Services
NGPL Storage Services NSS (field storage) & DSS (no notice market storage) NSS Storage Capacity Currently Sold out - No NSS Storage Capacity available for sale All NSS contracts expiring in 2005 have been recontracted Majority for a long term (5 years) at an increased margin 2003 Contract Ex
Slide 38: NGPL Customers by Service
NGPL Customers by Service Firm Transport “NSS” Storage by Customer Type by Customer Type As of Jan 1st, 2005 As of Jan 1st, 2005 Marketer LDC Marketer 62% 47% 32% LDC 28% End User 12% Pipeline Pipeline 3% 3% End User - 4% Producer - 6% Producer - 3% Average contract term for FT is 3.2 yrs “DSS”
Slide 39: Sustaining Capex – Reinvestment in the Asset
Sustaining Capex – Reinvestment in the Asset Sustaining Capex Trend-NGPL ITEM 2002 2003 2004 2005 Actual Actual Actual Budget (Unburdened) (Unburdened) (Unburdened) (Unburdened) Ordinary Sustaining Capex $17,645,489 $21,106,732 $17,358,558 $19,518,382 Pipeline Integrity Capex $10,342,155 $15,545,828
Slide 40: NGPL Infrastructure Development
NGPL Infrastructure Development Focused on Growing the Asset Projects In-Service 2004 Expansion Capex Black Marlin Acquisition $3.2 Projects In-Service 2005 Iowa Storage Expansion $14.3 Proposed Projects In-Service 2006 A-G Cross Haul Expansion $20.7 Sayre Storage Expansion $35.3 Fut
Slide 41: NGPL Arkoma Lateral
Acquisition of Black Marlin Pipeline Pontotoc ") Le Flore 812 NGPL Arkoma Lateral Coal ay Oklahoma Pushmataha Tran Atoka Johnston 24” 38, sok Texas r 000 30” NG McCurtain PL A/G Choctaw Acquisition of 38 miles of 30” from NNG Marshall Lin $3.2 MM (purchase and integrate into NGPL) e Bryan 30 ”
Slide 42: 4.4 Bcf Iowa Storage NSS Service
4.4 Bcf Iowa Storage NSS Service Iowa Storage Expansion Install 3,500 HP Install 2.5 miles of field loop line $14.3 MM capex 4.4 Bcf of additional storage capacity Fully Contracted Service commencing Spring 2005 20
Slide 43: A-G Cross Haul Expansion
A-G Cross Haul Expansion Install 5,500 HP at existing Station 801 ") Install 1,800 HP at existing Station 155 156 OKLAHOMA $20.7 MM capex 51,000 Crosshaul & 20,000 Seg #1capacity Fully Contracted Lawton 51, Filed ") 8127C application with the FERC 801 ") 000 Service commencing Spring 2
Slide 44: 10 Bcf Sayre Storage Expansion
10 Bcf Sayre Storage Expansion Install 7,500 HP at existing Station 184 22 new wells, gathering looping $35.3 MM capex 10 Bcf of additional storage capacity Fully Contracted Filed 7C application with the FERC Oklahoma Service commencing Spring 2006 102 159 Texas Oklahoma 158 112 Oklaho
Slide 45: Future Project – No Lansing Storage Expansion
Future Project – No Lansing Storage Expansion 12,000 HP compression Oklahoma 20 new wells 10.0 Bcf additional capacity $60.0 MM capex 802 Texas Oklahoma Service projected Spring, 2007 Dallas North Lansing NGPL Storage 388 Marshall Longview 304 23
Slide 46: LNG Header Strategy (KMP Investment)
LNG Header Strategy (KMP Investment) Lake Lafayette Charles TEXAS LOUISIANA SABINE-HENRY PLANT HENRY HUB EXT. SUPPLY FEEDER TEXAS GAS Beaumont FLORIDA GAS TEXAS EASTERN JEFFERSON FLORIDA GAS KMTP Port CAMERON ANR-LAKE ARTHUR TEJAS Arthur Henry TEXAS GAS-LOWRY Hub BEAUMONT EXT. COL GULF-CHALKLEY SUPP
Slide 47: LNG Header Strategy
LNG Header Strategy New 77 mile pipeline owned by KM Energy Partners to connect LNG Terminals to the Pipeline Grid Only 23 miles of new pipeline, $89 MM Total Capex 77 miles of pipeline leased from NGPL provides project with substantial downstream interconnects and minimal environmental impact
Slide 48: 2005 KMP Natural Gas Segment Overview
2005 KMP Natural Gas Segment Overview (a) Products Natural Pipelines KMIGT Gas 30% 21% Pipelines Texas 26% Intrastates Trailblazer Terminals 51% 11% 16% CO2 Pipelines 28% TransColorado 9% Red Cedar/Other Rockies 8% (a) 2005 budgeted distributable cash flow before G&A and interest interest 26
Slide 49: KMIGT and Trailblazer Pipelines
KMIGT and Trailblazer Pipelines Wyoming Nebraska Cheyenne Hub Colorado Kansas KMIGT NGPL Trailblazer 27
Slide 50: Trailblazer
Trailblazer Stable earnings base Access to Rocky Mountain supply Low cost provider Long-term contracts Average FT contract term = 4 yrs Average FT expansion contract term = 8.4 yrs Recent contract renewals have been for 10 years Rate Case settlement in 2004 No rate case filing requ
Slide 51: KMIGT
KMIGT Stable earnings base Subject to limited competition Currently 98% of transport capacity sold Long-term contracts – weighted average approximately 6.1 years Extensive infrastructure in active Wind River and NE Colorado supply areas Ethanol plants providing market growth No rate ca
Slide 52: KMIGT Cheyenne Market Center
KMIGT Cheyenne Market Center 11,300 HP compression 10 new wells 6.0 Bcf additional capacity $28.4 MM capex N e b raska Fully contracted for 10 years Wyoming Huntsman In-service August 1, 2004 Storage CIG Cheyenne Cheyenne Hub Proposed Advantage Pipeline KMIGT Pipeline Trailblazer El Paso-
Slide 53: The Future…
The Future… Modest base business growth on NGPL and Other Interstates Recontract existing pipeline and storage capacity Capture modest margin growth on existing capacity Growth opportunities from new capital projects focused on: Infrastructure to distribute increasing Rockies supply Stor
Slide 54: Kinder Morgan
KINDER’ MORGAN