Kinder Morgan, Inc. · NYSE:KMI
Kinder Morgan — Annual Investor Conference 2004
32 slides from Kinder Morgan's conference presentation, Jan 23, 2004
Slide 1: Companies Run By Shareholders For Shareholders
Companies Run By Shareholders For Shareholders Annual Investor Conference January 23, 2004
Slide 2: 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 3: Kinder Morgan System Map
Kinder Morgan System Map 2 PACIFIC COCHIN 2 2 2 KMIGT 2 2 PACIFIC NORTH 2 3 CALNEV 2 4 PACIFIC NGPL KMP KMCO2 CO2 Pipelines Terminals PLANTATION Products Pipelines KM TEJAS KMI 8 Products Pipeline Terminals NGPL 2 KMTP 2 Transmix Facilities NGPL Storage 2 CFPL 2 Natural Gas Pipelines Natural Gas Pip
Slide 4: Kinder Morgan: Three Securities
Kinder Morgan: Three Securities Kinder Morgan Energy Partners Kinder Morgan, Inc Market Equity (a) $9.0 Incentive Market Equity (b) $7.6 Debt 4.3 Distribution Debt 3.0 Enterprise Value $13.3 Enterprise Value $10.6 2004E EBITDA $1,307 mm 2004E EBITDA $1,033 mm 2004E Dist. CF $968 mm 2004E Dist. CF $5
Slide 5: Consistent Track Record
Consistent Track Record Total Distributions (GP + LP) ($mm) KMP Distribution / Unit (a) $2.90 - $1,000 $940 = 21% $2.94 $827 CAGR $2.72 $800 $3.00 $2.50 5% $701 =6 $2.20 Net Income GR $2.50 CA $548 $1.90 $600 $2.00 $/LP Unit $1.45 $1.30 $400 $333 $1.50 $1.13 $198 $1.00 $0.63 $200 $153 $30 $0.50 $17
Slide 6: 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 KMI KMI Earnings Per Share (a): Earnings Per Share (a): 2000: $1.10 2000: $1.28 2001
Slide 7: Significant Historical Returns
Significant Historical Returns (a) KMP: 40% annual return $1,100 $900 KMP KMI: 41% annual return $700 $500 $500 MLP Index $300 UTY $350 KMI $100 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 $200 S&P 500 KMR: 15% annual return $175 $50 $150 Jul-99 Nov-99 Mar-00 Jul-00 Nov-00 Mar-01 Jul-01
Slide 8: 2004 Corporate Goals
2004 Corporate Goals KMP/KMR KMI Distribution Target (without EPS Target (without acquisitions) acquisitions) $3.71 per share (11% growth) $2.84 per unit (8% growth) Grow coverage to $28 million Maintain strong balance sheet Maintain strong balance sheet Free cash flow used to pay Finance
Slide 9: Growing KMP/KMR Distribution Coverage
Growing KMP/KMR Distribution Coverage Published Budget vs. Actual Coverage Internally Generated Cash Flow Budgeted Coverage Actual Coverage Available for Reinvestment ($ millions) 1.10 1.04 1.05 Coverage KMR Distributions 1.02 $17 1.00 1.00 1.00 2 $136 $150 0.90 2002 2003 2004E $108 $100 Approximate
Slide 10: 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 11: 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 12: Attractive Value Proposition
Attractive Value Proposition KMP/KMR KMI Distribution/Dividend $2.72 $2.25 Yield ~ 5.5% / 6.0% ~ 3.8% yield yield Internal Growth Target 8-10% 10-12% 12
Slide 13: Kinder Morgan Energy Partners
Kinder Morgan Energy Partners KMP and KMR
Slide 14: Solid Asset Base Generates Stable Fee Income
Solid Asset Base Generates Stable Fee Income Terminals Products Pipelines KMP 59% Liquids, 41% Bulk 2004 DCF (a) Refinery hub to population Geographic and product center strategy diversity 74% Pipelines (b) 3-4 year average contract life Terminals 22% Associated Terminals (b) 17% Product 4% Transmix
Slide 15: KMP 2004 Segment Goals
KMP 2004 Segment Goals Growth in Earning before Top DD&A Strategic Business Segment ($millions / %) Priority Products Pipelines $41 / 9% SFPP rate case East Line expansion Natural Gas Pipelines $10 / 3% Contract Advantage and West Texas Pipelines CO2 $119 / 58% Deliver infrastructure on time and on
Slide 16: Modest Top Line Growth at KMP Leads to Significant Bottom Line Growth
Modest Top Line Growth at KMP 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 assoc
Slide 17: KMP: Leading Position in Each Major Business
KMP: Leading Position in Each Major Business Products Pipelines (based on barrels per day) (a) Natural Gas Pipelines (based on pipeline miles) 1. Kinder Morgan (1.9 million bpd) 1. El Paso (54,900 miles) 2. Buckeye Pipeline (1.5 million bpd) 2. Kinder Morgan (25,600 miles) 3. Magellan Midstream (.6
Slide 18: Critical Mass Leads to Increased Opportunities
Critical Mass Leads to Increased Opportunities KMP Enterprise Value (a) KMP Expansion Capital (b) $15 $13.3 $700 $609 $12 $600 $9.8 $465 $481 $9.1 $500 $9 $400 $5.9 $239 $6 $300 $200 $3 $90 $100 $0 $0 2000 2001 2002 2003 2000 2001 2002 2003 2004E (a) Enterprise value is debt outstanding plus market
Slide 19: High Return Internal Expansions Add Growth
High Return Internal Expansions Add Growth KMP 2004 Expansion Capital Budget 2004 Completion Business Segment Budget Major Projects Date Product Pipelines $159 North and East Line, Carson 2004-2006 Natural Gas Pipelines $76 CMC, Austin 2004 CO2 $310 SACROC/Yates 2004 Terminals $64 Carteret, Delta 20
Slide 20: KMP Expansions Result in Increased Returns
KMP Expansions Result in Increased Returns Return on Investment (a) Return on Equity (a) 25.0% 25.0% 23.8% 22.1% 20.0% 20.0% 19.0% 17.4% 13.1% 15.0% 12.7% 15.0% 12.3% 12.6% 10.0% 10.0% 5.0% 5.0% 0.0% 0.0% 2000 2001 2002 2003 2000 2001 2002 2003 (a) For detailed calculation, please refer to Park Shap
Slide 21: KMP is conservatively capitalized
KMP is conservatively capitalized Rating CP Capacity: Baa1/BBB+ Total Revolver $1,050 Current Net Debt / Total Capital 54.7% Outstanding CP 426 2004 Budget Estimates: Debt / EBITDA 3.5x Excess Capacity $624 EBITDA / Interest 6.5x Enterprise Value and Credit Ratings (a): Maturities: $ (in millions) $
Slide 22: MLPs are Attractively Priced Securities
MLPs are Attractively Priced Securities Approx. Actual Actual Market 5-Year 5-Year Cap 12/31/03 Growth Annual Tax (billions) Yield (Dist/FFO/Div) Return Treatment Notes MLP Composite $38 6.6% 5% 22% Deferred (a) REIT Index $205 5.5% 4% 14% Limited (b) Deferral UTY $220 3.8% 4% 2% 15% (c) KMP $7 5.5%
Slide 23: Kinder Morgan Inc.
Kinder Morgan Inc.
Slide 24: Solid Asset Base Generates Stable Fee Income
Solid Asset Base Generates Stable Fee Income Investment in KMP (a) KMI NGPL 2004 Segment Income (b) General partner interest earns FERC regulated with 3 year incentive distributions average contract life Owns 17% of total limited Primary customers are Chicago partner units local distribution compani
Slide 25: Targeted KMI Internal Growth
Targeted KMI Internal Growth Assumptions: 1. Investment in KMP 15% results from 8-10% LP distribution growth 2. NGPL / Other Assets 3 - 5% segment earnings growth 3. Use of Free Cash Flow $100 million in debt reduction $60 million in share repurchase Consistent with 10-12% earnings growth 4. Use of
Slide 26: Low Capital Needs, Increasing Cash Flow Lead to High Return on Investment
Low Capital Needs, Increasing Cash Flow Lead to High Return on Investment Investment Expansion Capital Acquisitions Power and Other Return on Investment/ $600 Return on Equity (a) $421 20% 20.0% 19% 19% $400 $225 $201 18.0% 17% $200 16.0% $100 $156 $131 $91 13% 14.0% 12% 12% $0 2000 2001 2002 2003 1
Slide 27: Over $2 billion Returned to Investors through 2004
Over $2 billion Returned to Investors through 2004 $2,019 $2,100 $1,800 $1,500 $1,200 $900 $511 $637 $556 $440 $600 $300 ($125) $0 -$300 2000 2001 2002 2003 2004E Total Dividends 23 23 37 135 280 497 Share Repurchase 0 266 149 38 60 513 Change in Net Debt 488 348 (311) 383 100 1,009 27
Slide 28: KMI vs. SPX: Higher Return, Lower Risk, Trading at a Discount
KMI vs. SPX: Higher Return, Lower Risk, Trading at a Discount Total Long-Term Current Projected 2004 Projected Dividend Return EPS (Column 1+2) Growth (a) Yield (b) Beta (c) Multiple (d) KMI 10-12% 3.8% 13-16% .64 16X SPX 7.0% 1.6% 8.6% 1.0 18X (a) Source: KMI = Company Estimates; SPX = First Call C
Slide 29: Risks
Risks Regulatory Pacific Products Pipeline FERC/CPUC case Periodic rate reviews 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 year of a 100 basis poin
Slide 30: Future Opportunities Beyond 2004
Future Opportunities Beyond 2004 Natural Gas Pipeline Expansions Refined Products Expansions TransColorado East Line Advantage New York Harbor Greasewood to Cheyenne Houston West Texas Los Angeles Silver Canyon SACROC/Yates Natural Gas Storage Opportunities Acquisitions LNG Inter
Slide 31: Unique Structure, Stable Assets and Attractive Growth
Unique Structure, Stable Assets and Attractive Growth Unique Structure Stable Assets, Attractive Growth KMP Stable cash flow from essential Tax efficient entity infrastructure Pay-out 100% of available cash Low cost discipline Structure creates discipline Conservative capital structure KMR Man
Slide 32: Kinder Morgan
KINDER’ MORGAN