Kinder Morgan, Inc. · NYSE:KMI
Kinder Morgan — Kinder Morgan Energy Partners — Investor Day (January 2008)
54 slides from Kinder Morgan's investor day presentation, Jan 24, 2008
Slide 1: Facing Impediments to Growth for 11 Years…
ENERGY PARTNERS, L.P. Facing Impediments to Growth for 11 Years… January 24, 2008
Slide 2: Forward Looking Statements
ENERGY PARTNERS, L.P. 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
Slide 3: Use of Non-GAAP Financial Measures
ENERGY PARTNERS, L.P. Use of Non-GAAP Financial Measures This presentation utilizes the non- non-generally accepted accounting principles financial measures of segment segment distributable cash flow, KMP distributable cash flow, distributable cash flow per unit, unit, earnings before interest, taxe
Slide 4: Agenda
ENERGY PARTNERS, L.P. Agenda Vision – Rich Kinder Financial Excellence – Park Shaper Operational Excellence – Steve Kean 4
Slide 5: Vision
ENERGY PARTNERS, L.P. Vision Rich Kinder Chief Executive Officer
Slide 6: Capital Structure
ENERGY PARTNERS, L.P. Capital Structure Kinder Morgan Energy Partners, L.P. Market Equity (a) $13.3B Debt (b) 7.0B Enterprise Value $20.3B 2008E EBITDA (c) $2.5B 2008E DCF (d) $1.8B Additional Cash Incentive Shares Distribution Distribution KMR KMP (LLC) (Partnership) 72 million i- i-units (a) 176 m
Slide 7: The Kinder Morgan Strategy
ENERGY PARTNERS, L.P. 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
Slide 8: Unmatched Footprint
ENERGY PARTNERS, L.P. Unmatched Trans Footprint Mountain 2 Cochin Largest independent transporter 2 of petroleum products in the U.S. Pacific Transport more than 2 million barrels per day (Bbl/d) 2nd largest transporter of natural Trailblazer 2 gas in U.S. (a) REX 3 2 Approximately 22,000 miles
Slide 9: But More Important Than Size – Location, Location, Location
ENERGY PARTNERS, L.P. But More Important Than Size – Location, Location, Location Demographics: products pipelines and associated terminals serve 9 of 10 fastest growing markets in U.S. (a) Shifting Natural Gas Supply Sources: natural gas pipelines well-positioned in Rockies and Texas High Crude Oil
Slide 10: Well-diversified Asset Base
ENERGY PARTNERS, L.P. Well-diversified Asset Base KMP CO2 2008 DCF Natural Gas Pipelines 32% CO2 transport and sales Profile (b) 47% Texas Intrastate 68% oil production related 53% Rockies Production hedged (a): Little incidental commodity risk CO2 Natural Gas 2008=83% ($44/Bbl) 28% Pipelines 2009=7
Slide 11: Powerful Combination
ENERGY PARTNERS, L.P. Powerful Combination 1. Large asset base 2. Well-located 3. Diversified 4. Proven strategy 5. Efficient structure 6. Consistently well-managed Stable Cash Flow with Visible Growth 7
Slide 12: Eleven Years of Consistent Growth
ENERGY PARTNERS, L.P. Eleven Years of Consistent Growth Total Distributions (GP + LP) ($mm) LP Distribution Per Unit (b) $2,000 $1,843 $4.50 $4.24-$4.32 GP (a) $1,750 $4.00 $3.68 % LP $1,469 $3.50 R = 17 $3.20 $3.32 $1,500 8% CAG $2.96 =4 $1,265 $1,162 $3.00 $2.72 GR $1,250 $2.50 $1,000 CA $827 $978
Slide 13: Significant Historical Returns
ENERGY PARTNERS, L.P. Significant Historical Returns (a) KMP: 29% CAGR (b) KMR: 14% CAGR (c) Dollars Dollars $1,800 $300 $1,619 Alerian $269 MLP Index $1,500 $260 KMP $235 KMR $1,200 $220 $900 $180 $581 $600 $140 $132 Alerian MLP Index $300 $237 $100 S&P 500 S&P 500 $0 $60 1996 1997 1998 1999 2000 2
Slide 14: Promises Made, Promises Kept
ENERGY PARTNERS, L.P. Promises Made, Promises Kept Promises Made Promises Kept Budgeted Actual 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 2006: $3.28 20
Slide 15: 2008 Partnership Goals
ENERGY PARTNERS, L.P. 2008 Partnership Goals Distribution Target $4.02 per unit (16% growth) Excess coverage of ~$12 million Maintain Solid Balance Sheet Expansions / acquisitions financed 50% equity, 50% debt Deliver Projects on Time and on Budget 11
Slide 16: Growth Opportunities
ENERGY PARTNERS, L.P. Growth Opportunities Current Projects (2008-2011) Additional Opportunities Shifting Natural Gas Supply Sources REX Northeast extension, REX/NGPL — Rockies Rockies Express pipeline Chicago project, MEP expansion, KMLP — LNG KM Louisiana pipeline expansion, storage, incremental s
Slide 17: Shifting Natural Gas Supply Sources
ENERGY PARTNERS, L.P. Shifting Natural Gas Supply Sources Natural Gas Supply % Production Volumes (Bcf/d) 2007E 2013 Change Change Rockies Natural Gas (a) 8.6 11.4 2.8 33% Rockies Barnett Shale Natural Gas (b) 2.1 6.4 4.3 200% production Gulf Coast LNG Imports (a) 0.7 2.8 2.1 300% expected to increa
Slide 18: Newbuild Natural Gas Pipelines
ENERGY PARTNERS, L.P. Newbuild Natural Gas Pipelines Wyoming Nebraska Indiana Ohio Illinois Colorado Kansas Missouri Oklahoma ROCKIES EXPRESS PIPELINE IN-SERVICE Mississippi ROCKIES EXPRESS PIPELINE Alabama MIDCONTINENT EXPRESS PIPELINE Texas Texas Louisiana KM LOUISIANA PIPELINE KM HEADQUARTERS Roc
Slide 19: Increased Use of Renewable Fuels
ENERGY PARTNERS, L.P. Increased Use of Renewable Fuels Renewable Fuels Standard (a) New legislation approximately doubles required use of 40 36.0 renewable fuels over next several years; increases Incremental Impact of EISA - 2007 35 EPACT - 2005 even more dramatically long- long-term 30 R CAG (bill
Slide 20: Growing Crude Production from Canadian Oilsands
ENERGY PARTNERS, L.P. Growing Crude Production from Canadian Oilsands WCSB Crude Production by Type (a) Heavy/Light Crude Differential (b) WTI vs. Mayan Crude Spot Price 4 $20 Oilsands -‘15 Condensate AG R ‘07 ~12 %C 3 Conventional Heavy il sa nds $15 O (MMBbl/d) Conventional Light 3.0 MMBbl/d ($/Bb
Slide 21: High Oil Prices Mean Opportunities for Enhanced Oil Recovery
ENERGY PARTNERS, L.P. High Oil Prices Mean Opportunities for Enhanced Oil Recovery CO2 Deliveries McElmo Dome 1,500 Premiere Source of CO2 in U.S. Other ~22 years remaining deliverability 45% KM working interest (37% net revenue (MMcf/d) 1,000 Sheep Mtn interest) 9.5 Tcf of remaining reserve
Slide 22: Increased Production and Use of Heavy Crude
ENERGY PARTNERS, L.P. Increased Production and Use of Heavy Crude North American Petcoke Production (a) Refiners are converting to handle 120 Rest of N. America 102 heavier crude; Oilsands, South -‘1 GR 100 U.S. Gulf Coast America… (mm dry short tons) ‘07 CA 5 % 80 … Heavier, sour crude produces 8.5
Slide 23: Coal Imports/Exports
ENERGY PARTNERS, L.P. Coal Imports/Exports Our terminals are well-positioned on coasts and inland waterways to handle either export or import coal U.S. Coal Imports/Exports (a) Coal Imports 120 111 Appalachian coal production declining, U.S. Coal Imports U.S. Coal Exports 100 93 affecting Eastern Ut
Slide 24: Current Projects
ENERGY PARTNERS, L.P. Current Projects Over $7.0 Billion In Current Projects Estimated Project Expected Project Cost ($mm) Completion Rockies Express $2,445 (a) 2007-2009 Midcontinent Express 660 (a) 2009 KM Louisiana Pipeline 510 2009 CALNEV expansion 425 2011 Trans Mountain – Anchor Loop expansion
Slide 25: On the Drawing Board: $10B+ of Potential Additional Capex
ENERGY PARTNERS, L.P. On the Drawing Board: $10B+ of Potential Additional Capex (a) 9 Natural Gas 5 1. REX Northeast Extension 10 2. REX/NGPL Chicago Pipeline (b) 3. MEP Expansion 6 4. KMLP Expansion Oilsands 5. TMX2/TMX3 Expansions 2 1 6. Chinook Gulf Coast Pipeline CO2 7. Gulf Coast Pipeline Renew
Slide 26: Future Growth
ENERGY PARTNERS, L.P. Future Growth Present trends are long-term Other trends will emerge – ethanol transport, carbon capture and storage Management team has consistently identified opportunities over long period of time (1997-2007) $8.2 billion in acquisitions $6.5 billion in expansion capital
Slide 27: Financial Excellence
ENERGY PARTNERS, L.P. Financial Excellence Park Shaper President
Slide 28: ~$15 Billion in Capital Invested To Date
ENERGY PARTNERS, L.P. ~$15 Billion in Capital Invested To Date (a,b) ($ billions) Total Invested by Type (a,b) Total Invested by Year (a) $9.0 $8.2 $6.5 $3.5 $3.3 $3.3 $6.0 REX/MEP Expansion $3.0 Acquisition $3.0 $2.5 $0.0 $1.9 Acquisitions Expansions $2.0 $1.6 Total Invested by Segment (a,b) $1.5 $
Slide 29: How We Have Done: Acquisitions
ENERGY PARTNERS, L.P. How We Have Done: Acquisitions ($ millions) Acquisition Performance First- First-year DCF 2007 DCF (a) Acq. Acq. Acq. Acquisition Price Actual Model Variance Actual Model Variance First Dropdown – 1999 (b) $736 $119.6 $88.2 $31.4 $133.5 $84.9 $48.6 Second Dropdown – 2000 (c) 70
Slide 30: How We Have Done: Returns on Capital
ENERGY PARTNERS, L.P. How We Have Done: Returns on Capital 2000 2001 2002 2003 2004 2005 2006 2007 Segment ROI (a): Products Pipelines 11.9% 11.8% 12.8% 12.9% 12.4% 11.6% 11.8% 13.2% Natural Gas Pipelines 13.3 15.5 12.9 13.5 14.0 15.5 16.7 17.6 CO2 27.5 24.6 22.0 21.9 23.8 25.7 23.1 21.8 Terminals 1
Slide 31: How We Expect to Do: Returns on Major Projects
ENERGY PARTNERS, L.P. How We Expect to Do: Returns on Major Projects ($ millions) Expansion Capital Analysis Full Year-1 In-service Return on Total EBITDA Invested Segment Cost (a) (Annual) Capital Natural Gas Pipelines $4,044 $452 11.2% Products Pipelines (b) 1,721 211 12.3% Terminals (c) 649 91 14
Slide 32: Return on Investment vs. Cost of Capital
ENERGY PARTNERS, L.P. Return on Investment vs. Cost of Capital Full In-svc New Projects Actual (prev slide) 2007 KMP ROI: 12.1% 14.1% Cost of Capital Calculation: Equity = 6.5% ÷ 57% x 50% = 5.7% Debt = 6.5% x 50% = 3.3% Total Cost of Capital = 9.0% 9.0% Return above Cost of Capital 3.1% 5.1% In add
Slide 33: Distribution Coverage
ENERGY PARTNERS, L.P. Distribution Coverage Stable, low-risk assets distribute substantially all of our available cash; consistent with Partnership Agreement Actual coverage typically exceeds budget 2007 2006 2005 Actual Budget Actual Budget Actual Budget DCF (a) $3.65 $3.46 $3.29 $3.32 $3.38 $3.31
Slide 34: How We Will Grow Over the Long-term
ENERGY PARTNERS, L.P. How We Will Grow Over the Long-term Current expansion projects total approximately $7.0 billion over the next several years Significant increase in CO2 crude oil hedge prices Growth in base business Future expansion and newbuild opportunities – REX extensions, REX/NGPL project,
Slide 35: CO2 Crude Production Hedge Profile
ENERGY PARTNERS, L.P. CO2 Crude Production Hedge Profile SACROC & Yates Crude Oil Production (a) Avg Hedge Px WTI & WTS $43.97 $49.38 $55.72 $62.54 $74.61 ($/Bbl) (b) 50 Net Equity Production 40 (MBboe/d) 30 20 83% 73% 71% 69% 10 22% 0 2008 2009 2010 2011 2012 Swaps Puts Unhedged % Hedged __________
Slide 36: Subset of Current Projects Secures 8% Growth
ENERGY PARTNERS, L.P. Subset of Current Projects Secures 8% Growth 8% growth achievable with three components: 1. Increase in average CO2 hedge price from $44 in 2008 to $63 in 2011; currently unhedged barrels at market prices 2. $4.0 billion in natural gas and products pipeline projects Rockies Exp
Slide 37: Subset of Projects Secures 8% Growth
ENERGY PARTNERS, L.P. Subset of Projects Secures 8% Growth (millions except where noted) 2009 2010 2011 Expansion Capital (a) Natural Gas & Products Pipeline Projects $944 --- $320 CO2 - SACROC and Yates 358 339 273 Illustrative Total $1,302 $339 $592 Incremental Cash Flow Natural Gas & Products Pip
Slide 38: Perceived Impediments to Growth
ENERGY PARTNERS, L.P. Perceived Impediments to Growth Perceived Impediment Kinder Morgan View Size Size does potentially make it harder to grow at the same rate as a smaller company. However, size also provides stability, reducing risk Size provides more opportunities GP Incentive We have been
Slide 39: Risks
ENERGY PARTNERS, L.P. Risks Regulatory Pacific Products Pipeline FERC/CPUC case Periodic rate reviews Unexpected policy changes CO2 Crude Oil Production Volumes Construction Cost Overruns Environmental Terrorism Interest Rates Approximately 50% floating rate debt Budget assumes flat rates
Slide 40: Kinder Morgan Energy Partners
KINDER/MORGAN ENERGY PARTNERS, L.P.
Slide 41: Operational Excellence
ENERGY PARTNERS, L.P. Operational Excellence Steve Kean
Slide 42: Overview
ENERGY PARTNERS, L.P. Overview Progress on Major Projects Reducing Risk of Significant Incidents in our Operations 38
Slide 43: Operations Goals – Safe, Reliable, Efficient Operations
ENERGY PARTNERS, L.P. Operations Goals – Safe, Reliable, Efficient Operations Continuous reduction in risk to the public, employees, contractors and the environment Continuous improvement in the efficiency and productivity of existing operations Well-executed expansions and effective integration of
Slide 44: Major Projects – Summary
ENERGY PARTNERS, L.P. Major Projects – Summary (a) Capex ($mm) – KM Share $2.3 billion of capital projects in Original Current Variance service (33% of total); net Business Unit overrun of less than 1% Natural Gas $3,710 $4,044 $333 Total spend through 2007 $3.4 Products 934 942 8 billion (about 50%
Slide 45: Expansion Challenges
ENERGY PARTNERS, L.P. Expansion Challenges Construction Labor – availability, cost, skill level Construction Equipment – e.g. high demand for pipeline spreads and specialized equipment Materials and Specially Fabricated Items Regulatory Delays and Permit Conditions – regulatory agencies are responsi
Slide 46: Managing Expansion Risks
ENERGY PARTNERS, L.P. Managing Expansion Risks Disciplined project approval process Costs, contingency, required returns and schedule Customer commitments underlying expansions Risk management Properly allocate risk between Kinder Morgan and customers Lock costs in where appropriate Experien
Slide 47: Operations Performance – Safety, Reliability and Efficiency
ENERGY PARTNERS, L.P. Operations Performance – Safety, Reliability and Efficiency Nature of Challenge: over 600,000 one calls, nearly 50,000 locates annually Progress to-date: External reporting of performance Incentive compensation tied to safety and environmental results Budget process – sep
Slide 48: OSHA Recordable Incidents
ENERGY PARTNERS, L.P. OSHA Recordable Incidents OSHA Recordable Incidents per 200,000 Hours Worked 7 6.4 6 5 4 3.1 3.2 3 2 2 1.7 1.3 1.25 1 1.1 1.2 1.1 1 0.7 0.2 0.3 0 Natural Gas CO2 Products Terminals KM Canada Pipelines Pipelines 2005 KM 2006 KM 2007 KM Industry Average 44
Slide 49: OSHA Lost Time Cases
ENERGY PARTNERS, L.P. OSHA Lost Time Cases 5 Lost Time Incidents per 200,000 Hours Worked 4 3.4 3 2 1.4 1.2 1.1 1 1 0.7 0.8 0.7 0.6 0.2 0.2 0.2 0.2 0.3 0 0 Natural Gas CO2 Products Terminals KM Canada Pipelines Pipelines 2005 KM 2006 KM 2007 KM Industry Average 45
Slide 50: Avoidable Vehicle Incidents
ENERGY PARTNERS, L.P. Avoidable Vehicle Incidents 5 4.5 Avoidable Vehicle Incidents per Million Miles 4 3 2.4 2 1.8 1.2 0.9 0.9 1 0.6 0.7 0.8 0.7 0.7 0.7 0.2 0.3 0 Natural Gas CO2 Products Terminals KM Canada Pipelines Pipelines 2005 KM 2006 KM 2007 KM Industry Average 46
Slide 51: Incidents & Releases: Liquids Pipeline ROW
ENERGY PARTNERS, L.P. Incidents & Releases: Liquids Pipeline ROW Liquids Pipeline Incidents per 1,000 Miles (a) Liquids Pipeline Release Rate (a) 1.0 0.96 35 34.0 Bbl per billion barrel miles 30 Incidents per 1,000 miles 0.8 Industry 25 Industry Avg. 0.6 20 Avg. 0.45 15.5 0.4 15 0.29 10 6.0 0.2 5 0.
Slide 52: Incidents & Releases: Natural Gas Pipe ROW
ENERGY PARTNERS, L.P. Incidents & Releases: Natural Gas Pipe ROW Natural Gas Pipeline Release Rate (a) Industry 0.5 Avg. 0.4 Incidents per 1,000 miles 0.35 0.32 0.3 0.27 0.2 0.1 0.0 2005 KM 2006 KM 2007 KM __________________________ (a) An Incident means any of the following events: (1) An event tha
Slide 53: Operations Performance: Continued Focus in 2008
ENERGY PARTNERS, L.P. Operations Performance: Continued Focus in 2008 Special emphasis on risk reduction at high consequence assets and operations ROW protection Pipeline integrity PSM / RMP facilities Extend existing compliance systems to more assets, more activities and more requirements – e
Slide 54: Conclusions
ENERGY PARTNERS, L.P. Conclusions Solid performance on our large project slate – but risks remain (particularly on “target price” construction contracts) Continued improvement in operations performance 50
Kinder Morgan Energy Partners — Investor Day (January 2008) on 6ix