El Paso Pipeline Partners L.P.
El Paso Pipeline Partners L.P — Merger or Acquisition (September 2014)
39 slides from El Paso Pipeline Partners L.P's merger presentation, Sep 25, 2014
Slide 1: KMI to Acquire KMP, KMR and EPB
Run By Shareholders, For Shareholders KMI to Acquire KMP, KMR and EPB September 24, 2014
Slide 2: Forward-Looking Statements / Non-GAAP Financial Measures
Forward-Looking Statements / Non-GAAP Financial Measures IMPORTANT INFORMATION AND WHERE TO FIND IT This communication may be deemed to be solicitation material in respect of the proposed acquisition by Kinder Morgan, Inc. (“KMI”) of each of Kinder Morgan Energy Partners, L.P. (“KMP”), Kinder Morgan
Slide 3: KMI Acquisition of KMP, KMR & EPB Transaction Overview
KMI will acquire all of the outstanding common units of KMP and EPB and all outstanding shares of KMR $73.1 billion total purchase price(c) $42.1 billion KMI equity $4.0 billion cash (commitment letter for full amount) $27.0 billion of assumed debt KMI management will remain unchanged; KMI’s Board o
Slide 4: Value Enhancing Combination
Value Enhancing Combination Significant Upfront Dividend Increase 2015E KMI dividend per share expected to be $2.00 with significant coverage 16% dividend increase from 2014 guidance of $1.72 Enhances Future Dividend Growth 10% annual growth rate expected for at least the next 5 years thereafter (20
Slide 5: Simplified Organizational Structure
Simplified Organizational Structure Current Public Structure Simplified Public Structure 5 CO2 Oil Production CO2 S&T Natural Gas Pipelines Products Pipelines Kinder Morgan Canada Terminals KMP 2014B Segment Earnings before DD&A = $6.4 billion EPB 2014B Segment Earnings before DD&A = $1.3 billion Ki
Slide 6: 3rd largest energy company in North America
3rd largest energy company in North America with estimated combined pro forma enterprise value of ~$140 billion(a) $17 billion of currently identified organic growth projects Largest natural gas network in North America Own an interest in / operate ~68,000 miles of natural gas pipeline Connected to
Slide 7: Benefits of a C-corp
Benefits of a C-corp Simplifies structure; creates one public equity class Lowers cost of capital and creates a more competitive acquisition currency Significant income tax savings from the acquisition amounting to ~$20 billion over ~14 years Over half of combined KMP and EPB cash flows are already
Slide 8: How the Math Works
How the Math Works Lower cost of capital benefits initial acquisition and future capital investments Less equity issuance required Tax depreciation (from existing basis and future capex) utilized by company versus being passed on to unitholders Modest cost synergies Based on the four attributes list
Slide 9: Significantly Lower Hurdle for Growth
Significantly Lower Hurdle for Growth 9 Same Level of Capex Generates Double the Growth at Pro Forma KMI vs Status Quo KMP ($ in millions, except per unit / share) Status Quo Pro Forma KMP KMI Hypothetical New Project Capex $1,000 $1,000 Project Cash Flows(a) 120 120 Project Taxes(b) 0 (19) Cost of
Slide 10: Substantial Pre-Tax Value Uplift for KMP Unitholders
Substantial Pre-Tax Value Uplift for KMP Unitholders 10 KMP Pre-Tax Benefit per Unit Post Transaction 2015-2020 yield calculated as 2014 distribution guidance of $5.58/unit divided by KMP closing price on 8/8/2014 of $80.34. KMP price in the 9/19/2014 column equal to its pre-announcement closing pri
Slide 11: After-Tax Value Uplift to Average KMP Unitholder
After-Tax Value Uplift to Average KMP Unitholder 11 Based on management’s projections. Tax estimates based on approximate calculations for an average unitholder. Actual taxable gain could be more or less. Assumes passive losses have not been utilized and can be utilized on the sale to offset ordinar
Slide 12: After-Tax Value Uplift to Average KMP Unitholder (Cont'd)
After-Tax Value Uplift to Average KMP Unitholder (Cont’d) 12 Based on management’s projections. Tax estimates based on approximate calculations for an average unitholder. Actual taxable gain could be more or less. Assumes passive losses have not been utilized and can be utilized on the sale to offse
Slide 13: Substantial Value Uplift for KMR Shareholders
Substantial Value Uplift for KMR Shareholders 13 KMR Benefit per Share Post Tax-free Transaction 2015-2020 yield calculated as 2014 KMP distribution guidance of $5.58/unit divided by KMR closing price on 8/8/2014 of $77.02. KMR price in the 9/19/2014 column equal to its pre-announcement closing pric
Slide 14: Substantial Value Uplift for EPB Unitholders
Substantial Value Uplift for EPB Unitholders 14 EPB Pre-Tax Benefit per Unit Post Transaction 2015-2020 yield calculated as 2014 distribution guidance of $2.60/ unit divided by EPB closing price on 8/8/2014 of $33.60. EPB price in the 9/19/2014 column equal to its pre-announcement closing price on 8
Slide 15: After-Tax Value Uplift to Average EPB Unitholder
After-Tax Value Uplift to Average EPB Unitholder 15 Based on management’s projections. Tax estimates based on approximate calculations for an average unitholder. Actual taxable gain could be more or less. Assumes passive losses have not been utilized and can be utilized on the sale to offset ordinar
Slide 16: After-Tax Value Uplift to Average EPB Unitholder (Cont'd)
After-Tax Value Uplift to Average EPB Unitholder (Cont’d) 16 Based on management’s projections. Tax estimates based on approximate calculations for an average unitholder. Actual taxable gain could be more or less. Assumes passive losses have not been utilized and can be utilized on the sale to offse
Slide 17: Investor Total Returns
KMI: 11% CATR Since Inception(e) KMP: 24% CATR Since ‘96(b) KMR: 15% CATR Since Inception(c) Source: Bloomberg. Total returns calculated on daily basis through 9/19/2014; assumes dividends / distributions reinvested in index / stock / unit. Start date 12/31/1996. Start date 5/14/2001; KMR initial pu
Slide 18: Strategy Remains the Same
Strategy Remains the Same Focus on stable fee-based assets that are core to North American energy infrastructure Market leader in each of our business segments Control costs – It’s the investors’ money, not management’s – treat it that way Dividend policy to remain consistent with past practice Leve
Slide 19: Additional Transaction Information
Additional Transaction Information Expect KMI and KMR shareholder meetings and unitholder meetings for KMP and EPB in 4Q 2014 Preliminary proxy filed 8/27/2014 HSR early termination received 8/25/2014 [No other regulatory approvals required] Expect closing in 4Q 2014 19 Summary Timeline The gain/los
Slide 20: Business Risks
Business Risks 20 Natural Gas Midstream sensitivity incorporates current hedges, assumes same directional move in oil and gas prices, ethane rejection, flat ethane frac spread, and assumes other NGL prices maintain relationship with oil prices. As of 6/30/2014 approximately $5.5 billion of KMP’s tot
Slide 21: Summary
Summary Attractive Value Proposition Unparalleled asset footprint Diversified midstream energy platform provides stable, fee-based cash flow Continued focus on strong balance sheet and de-levering at KMI Highly visible, attractive growth project backlog Established track record Industry leader in al
Slide 22: Appendix
KINDERJMORGAN Appendix
Slide 23: KMI Pro Forma Compares Favorably to Peers and S&P 500 High-dividend Companies
KMI Pro Forma Compares Favorably to its Midstream Energy Peers and S&P 500 High-dividend Companies 23 Source: FactSet and Wall Street research. As of 9/19/2014. KMI data shown at beginning-year 2015 pro forma for KMP / KMR / EPB acquisitions. Includes all companies which meet the following criteria:
Slide 24: Cross-guarantees Overview
Cross-guarantees Overview KMI will consolidate its subsidiaries under a single C-corp as follows: Acquire public shares of KMR and public units of KMP and EPB EPB is acquired by KMP Execute cross guarantees among KMI, KMP and substantially all wholly owned operating subsidiaries and subsidiaries whi
Slide 25: Years of Growth at KMP
18 Years of Growth at KMP Strategy Has Led to Consistent, Growing Results 1996-2014E CAGR = 36% KMP Total Distributions (GP + LP) ($MM) KMP Annual LP Distribution per Unit(c) KMP Net Debt to EBITDA(d) 2014 budget. In 2010, total distributions paid were $2,280 million. These distributions would have
Slide 26: Financial Rigor: Promises Made, Promises Kept
Financial Rigor Promises Made, Promises Kept KMI Budgeted Dividend: 2011: $1.16(a) 2012: $1.35 2013: $1.57 KMP Budgeted LP Distribution: 2000: $1.60 2001: $1.95 2002: $2.40 2003: $2.63 2004: $2.84 2005: $3.13 2006: $3.28 2007: $3.44 2008: $4.02 2009: $4.20 2010: $4.40 2011: $4.60 2012: $4.98 2013: $
Slide 27: 5-year Growth Capex Backlog
5-year Growth Capex Backlog ($B) 2H 2014 2015 2016 2017+ Total Natural Gas Pipelines $0.6 $0.4 $1.0 $2.6 $4.6 Products Pipelines 0.7 0.3 1.0 Terminals 0.7 0.5 0.8 0.2 2.2 CO2 – S&T(b) 0.1 0.3 1.0 0.4 1.8 CO2 – EOR(b) Oil Production 0.2 0.4 0.4 1.0 2.0 Kinder Morgan Canada 5.4 5.4 Total $2.3 $1.9 $3.
Slide 28: Natural Gas Megatrend: Footprint & Market Opportunity Set
Natural Gas Megatrend Tremendous Natural Gas Footprint & Market Opportunity Set 28 Source: Wood Mackenzie H1 2014 Long-Term View. Projected 5-year / 10-year increase. KM Natural Gas Asset Footprint Power Generation + 2.6 / 7.2 Bcf/d(b) Industrial (petchem) + 2.9 / 3.8 Bcf/d(b) LNG Export + 5.0 / 10.
Slide 29: Natural Gas Megatrend: Real-time, Long-term Benefits
Natural Gas Megatrend Generating Real-time, Long-term Benefits Kinder Morgan’s unparalleled natural gas footprint is well-positioned to address North America’s need for more infrastructure Natural gas comprises significant percentage of our cash flow: KMP ~43%, EPB 100%, KMI ~54%(c) Own or operate ~
Slide 30: KMP Returns on Invested Capital
KMP Returns on Invested Capital 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Segment ROI(a): Natural Gas Pipelines 13.3% 15.5% 12.9% 13.5% 14.0% 15.5% 16.7% 17.5% 16.9% 14.0% 11.9% 11.9% 11.9% 11.6%(b) Products Pipelines 11.9 11.8 12.8 12.9 12.4 11.6 11.8 13.2 12.5 13.4 13.7
Slide 31: KMP Capital Investment
($ in billions) Notes: Includes equity contributions to joint ventures. From 1997 through full-year 2014 (forecast). 2012 net of proceeds from FTC Rockies divestiture. Total Invested by Type(a,b) Total Invested by Segment(a,b) Total Invested by Year KMP Capital Investment ~$46.5B Invested Since Ince
Slide 32: Natural Gas Pipelines Segment Outlook
Natural Gas Pipelines Segment Outlook Well-positioned connecting key natural gas resource plays with major demand centers 32 Excludes acquisitions and dropdowns, includes KM's share of non-wholly owned projects. Includes projects currently under construction. Project Backlog: $4.6 billion of identif
Slide 33: Products Pipelines Segment Outlook
Products Pipelines Segment Outlook Project Backlog: $1.0 billion of identified growth projects over next two years(a), including: Cochin reversal / conversion Eagle Ford condensate processing KMCC extensions KMCC-Double Eagle interconnect Long-term Growth Drivers: Development of shale play liquids t
Slide 34: Terminals Segment Outlook
Terminals Segment Outlook Project Backlog: $2.2 billion of identified growth projects over next five years(a), including: Liquids BOSTCO Phases 2, & 3 Alberta crude by rail projects Chemical terminal development SCT Jones Act tanker builds Houston terminals network expansion Edmonton Phase 2 expansi
Slide 35: CO2 Segment Outlook
CO2 Segment Outlook Project Backlog: Identified growth projects totaling $1.8 billion and $2.0 billion in S&T and EOR, respectively, over next five years(b), including: S&T Southwest Colorado CO2 production St. Johns build-out Cortez and Lobos pipelines EOR SACROC / Yates / Katz / Goldsmith / Residu
Slide 36: Kinder Morgan Canada Segment Outlook
Kinder Morgan Canada Segment Outlook Project Backlog: $5.4 billion expansion of Trans Mountain Pipeline Long-term Growth Drivers: Expand Oilsands export capacity to West Coast and Asia Following successful open season, major expansion plans under way The Trans Mountain Pipeline Expansion Project (TM
Slide 37: Energy Toll Road: Diversified, Fee-based Business Model
Energy Toll Road Diversified, Fee-based Business Model Natural Gas Pipelines (KMP/EPB/KMI) Products Pipelines (KMP) Terminals (KMP) CO2 (KMP) Kinder Morgan Canada (KMP) Volume Security Interstate & LNG: take or pay Intrastate: ~75% take or pay(a) G&P: minimum requirements / acreage dedications Volum
Slide 38: After-Tax Analysis for KMP and EPB Unitholders
After-Tax Analysis for KMP and EPB Unitholders 38 KMP and EPB After-Tax Analysis Assumptions After tax calculations for illustrative purposes only. These represent approximate calculations for an average unitholder assuming a sale as of 12/31/2013 (i.e. it excludes 2014 partnership activity). Actual
Slide 39: Kinder Morgan
KINDER/MORGAN
El Paso Pipeline Partners — Merger or Acquisition (September 2014) on 6ix