Slide 1: Same Old Boring Stuff: Real Assets, Real Earnings, Real Cash
Same Old Boring Stuff Real Assets, Real Earnings, Real Cash January 2003
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward looking statements 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 involve risks, unce
Slide 3: 2003 Analyst Conference Overview
2003 Analyst Conference Overview Refined Products Infrastructure Natural Gas Pipelines CO2 Pipelines Corporate Development and Capital Markets Financial Review 3
Slide 4: Agenda – Rich Kinder
Agenda – Rich Kinder Overview 2002 Results Strategic Position 2003 Goals Long-term Growth Risks Summary 4
Slide 5: Kinder Morgan System Map
Kinder Morgan System Map 2 PACIFIC COCHIN 2 KMIGT 2 PACIFIC 2 3 NORTH CALNEV 3 KMP 4 PACIFIC NGPL KMCO 2 CO2 Pipelines Terminals KM TEJAS PLANTATION (2,3,10) Indicates # of Facilities in area 10 Products Pipelines KMI 2 Products Pipeline Terminals KMTP 2 CFPL Transmix Facilities Gas-Fired Power Plan
Slide 6: Kinder Morgan: Two Companies, Three Securities
Kinder Morgan: Two Companies, Three Securities Kinder Morgan Energy Partners Kinder Morgan, Inc Market Equity (a) $6.2 Incentive Market Equity (b) $5.2 Debt 3.6 Distribution Debt 3.3 Enterprise Value $9.8 Enterprise Value $8.5 2003E EBITDA $1,102 mm 2003E EBITDA $939 mm 2003E Dist. CF $809 mm 2003E
Slide 7: Consistent Track Record
Consistent Track Record Total Distributions (GP + LP) ($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 2.00 Net Income = $548 600 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 8: Attractive Value Proposition
Attractive Value Proposition KMP/KMR (a) KMI (a) Stable Cash Flow 7.0% / 7.5% yield 1.3% yield Excess cash used for share buyback, dividends and debt repayment Add: Internal Growth 8-10% 15-20% Internal Growth - Total Return Potential 15-17% 15-20% Acquisition Upside - Total Return Potential 18-20%
Slide 9: Structure offers Two Risk Reward Profiles
Structure offers Two Risk Reward Profiles Limited Partner General Partner KMP/KMR KMI Yield 7.0% - 7.5% Approx. 1.3% 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/Downsid
Slide 10: Company Delivers on its Promises
Company Delivers on its Promises Promises Made Promises Kept KMP/KMR KMP/KMR Distribution per unit: Distribution per unit: 2000: $1.60 2000: $1.72 2001: $1.95 2001: $2.15 2002: $2.40 2002: $2.435 KMI KMI Earnings Per Share (a): Earnings Per Share (a): 2000: $1.10 2000: $1.28 2001:$1.66-$1.79 2001: $
Slide 11: KMP 2002 Results Driven by Internal Growth
KMP 2002 Results Driven by Internal Growth Twelve Months Ended, Dec 31 % 2002 2001 Comments Change Products Pipelines $427.3 $383.9 11% Gasoline Volumes Natural Gas Pipelines 325.5 226.8 44% Tejas and Trailblazer CO2 Pipelines 132.2 111.7 18% CO2 and SACROC Volumes Terminals 205.6 163.3 26% Liquids
Slide 12: KMI 2002 Results Driven by KMP
KMI 2002 Results Driven by KMP Twelve Months Ended, Dec 31 % Change 2002 2001 Comments KMP $392.1 $251.9 56% Internal growth NGPL 359.9 346.6 4% Expansions, power load TransColorado 12.6 (5.3) NA Volumes, basis differential Retail 64.1 56.7 13% Acquisitions, irrigation Power and Other 36.7 66.0 (44%
Slide 13: 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 14: 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 15: KMP and KMI Boards are Majority Independent
KMP and KMI Boards are Majority Independent KMI Board of Directors 10 directors 7 independent (a) 2 insiders (Rich Kinder, Mike Morgan) KMP Board of Directors 5 directors 3 independent 2 insiders (Rich Kinder, Park Shaper) (a) One director, who is not considered independent under current
Slide 16: 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 17: 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 18: KMP is largest MLP and conservatively capitalized
KMP is largest MLP and conservatively capitalized Enterprise Value (a) Credit Rating 12.0 A2/A $9.8 Market Equity Debt 10.0 A3/A- Baa1/BBB+ 8.0 $3.6 $5.9 6.0 Baa2/BBB $2.3 $3.3 $3.1 $3.1 $3.1 Baa3/BBB- 4.0 $6.2 $1.5 $1.4 $1.8 $1.4 Ba1/BB+ 2.0 $3.6 $1.8 $1.7 $1.2 $1.6 0.0 Ba2/BB KMP EPD EEP NBP EPN T
Slide 19: KMI is Strong Credit with Significant Free Cash
KMI is Strong Credit with Significant Free Cash Credit Statistics Rating BBB/Baa2 Current Net Debt / Total Capital 48% 2003 Budget Estimates: Free Cash Flow (a) Debt / EBITDA 3.4x $600 EBITDA / Interest 5.8x $487 $500 $469 $400 $382 Debt to Total Capital $300 $257 70% 67% 61% $200 60% $100 50% 47% 4
Slide 20: Good Access to Public Markets
Good Access to Public Markets $3.8 billion in debt and equity raised and credit facilities renewed $343 million in KMR equity in July Completed in very difficult market Roughly 17% return since pricing (a) $1.75 billion in long term debt in August, December KMP $500 million, 31 year @ 7.3% K
Slide 21: Little Need to Access Markets in the Future
Little Need to Access Markets in the Future KMP KMI CP Capacity: Total Revolver $975 $775 Outstanding CP 220 0 Excess Capacity $755 $775 KMP KMI Maturities: 2003 45 501 2004 5 1 2005 205 501 2006 45 7 2007 255 0 21
Slide 22: 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 22
Slide 23: Potential to Access Private Capital for Acquisitions
Potential to Access Private Capital for Acquisitions Alternatives: Private Market Offering of KMP or KMR Private Placement of a Preferred Security Joint Venture with Financial Investor to Purchase Asset − Investor receives attractive, low risk return and operational expertise − KMP gets access
Slide 24: 2003 Goals
2003 Goals KMP/KMR KMI Distribution Target (without acquisitions) EPS Target (without acquisitions) $2.63 per unit (8% growth) $3.18 per share (12% growth) $2.72 per unit year end run rate Move toward 40% debt to total capital Maintain strong balance sheet with new acquisitions Free cash flo
Slide 25: 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 26: 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 27: Excess Capacity Allows Growth
Excess Capacity Allows Growth Business Segments Pipeline Systems Utilization Rates (Approximate) Products Pipelines Pacific System 75% Plantation Pipeline 80% Central Florida Pipeline 65% Natural Gas Pipelines Texas - Intrastate 80% Rocky Mountain – Interstate 100% CO2 Pipelines Cortez Pipeline 80%
Slide 28: 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 29: 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 30: 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