Slide 1: Real Assets, Real Earnings, Real Cash
Real Assets, Real Earnings, Real Cash October 2002
Slide 2: Forward Looking Statements
Forward Looking Statements Forward looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. The future results and securities values of Kinder Morgan Inc., Kinder Morgan Energy Partners, L.P. and Kinder Morgan Management, LLC (collectively known as “Ki
Slide 3: Kinder Morgan: Two Companies, Three Securities
Kinder Morgan: Two Companies, Three Securities Kinder Morgan Energy Partners Kinder Morgan, Inc Market Equity (a) $5.6 Incentive Market Equity (b) $4.4 Debt 3.5 Distribution Debt 3.2 Enterprise Value $9.1 Enterprise Value $7.6 2002E EBITDA $960 mm 2002E EBITDA $850 mm 2002E Dist. CF $710 mm 2002E Di
Slide 4: 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 5: Solid Asset Base Generates Stable Cash Flows
Solid Asset Base Generates Stable Cash Flows(a) Terminals Products Pipelines KMP Largest independent terminal Largest independent refined operator in U.S. products pipeline system in U.S. 64% Liquids, 36% Bulk Refinery hub to population Geographic and product center strategy Terminals diversity 18%
Slide 6: Solid Asset Base Generates Stable Earnings
Solid Asset Base Generates Stable Earnings (a) Retail KMI Power and Other Natural gas distribution service Preferred interest in two 550 Serve Colorado, Wyoming and megawatt plants Power Nebraska Retail 6% Common equity interest in three 240,000 customers 7% small Colorado plants (380 megawatts tota
Slide 7: 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 8: Management Philosophy
Management Philosophy Low Cost Asset Operator Senior management limited to $200,000 per year in salary No planes, sports tickets, etc. Attention to Detail Weekly operations and financial assessment Monthly earnings and accounts receivable review Quarterly strategic review Risk Management
Slide 9: Consistent Track Record
Consistent Track Record KMP Distribution / Unit (a) Total Distributions (GP + LP) ($mm) $2.50 Expected $800 $711 2.50 $2.20 700 6% Current CAG R=2 $1.90 $2.44 600 % $546 2.00 86 Net Income $1.45 = $1.30 500 A GR C $/LP Unit 1.50 $1.13 400 $333 1.00 $0.63 300 $198 200 $153 0.50 100 $30 $17 0.00 0 199
Slide 10: Earnings Growth Significantly Exceeds S&P
Earnings Growth Significantly Exceeds S&P Mean NTM EPS Estimates for KMI/KMP Mean NTM EPS Estimates for the S&P 500 $3.25 $120 KMI = 284% $110 $2.75 $100 $2.25 $90 KMP = 48% $80 $1.75 $70 S&P 500 = (4%) $60 $1.25 $50 $0.75 $40 Jan-02 Jan-01 Jul-01 Jul-00 Jan-00 Jul-02 Apr-01 Apr-02 Apr-00 Oct-00 Oct
Slide 11: Earnings Exceed 2001 Results and 2002 Expectations
Earnings Exceed 2001 Results and 2002 Expectations KMI Earnings / Share KMP Earnings / Unit 2001 Consensus 2002 2001 Consensus 2002 $0.71 $0.66 $0.66 $0.64 $0.59 $0.60 $0.57 $0.60 $0.48 $0.50 $0.47 $0.48 $0.48 $0.44 $0.44 $0.43 $0.45 $0.41 $0.37 $0.40 $0.40 $0.36 $0.20 $0.20 $0.00 $0.00 Q1 Q2 Q3 Q1
Slide 12: KMP 3Q Results Driven by Internal Growth
KMP 3Q Results Driven by Internal Growth Three Months Ended, Sept 30 YTD % % of 2002 2001 Change Budget Comments Products Pipelines $108.6 $98.1 11% 77% Volumes; Cochin - $1.1M Natural Gas Pipelines 83.0 55.4 50% 68% Tejas and Trialblazer CO2 Pipelines 34.0 26.4 29% 82% Volumes Terminals 52.8 43.1 2
Slide 13: KMI 3Q Results Driven by KMP
KMI 3Q Results Driven by KMP Three Months Ended, Sept 30 YTD % % of 2002 2001 Comments Change Budget KMP $101.5 $70.3 44% 71% Internal growth NGPL 88.7 83.6 6% 75% Expansions, power load Retail 7.6 5.7 33% 64% Acquisitions, irrigation Power 7.0 21.2 (67%) 45% Development fees G&A (16.7) (16.6) (.5%)
Slide 14: Other Operational Accomplishments
Other Operational Accomplishments KMI NGPL Re-contracted all 1.0 Bcf in 2002 expirations; Renewed 900 mmcf of 1.7 Bcf expiring in 2003 Completed St. Louis expansion project Power Restructured Colorado plants to eliminate commodity price risk Completed both power plants under construction KMP
Slide 15: Stability Results in Strong Credit and Liquidity
Stability Results in Strong Credit and Liquidity Credit Statistics: KMP KMI Consolidated (c) Ratings: BBB+ BBB NA Seven Largest MLPs Baa1 Baa2 NA A3/A- Net Debt / Total Capital 51% 48% 54% Baa1/BBB+ Debt / 2002E EBITDA 3.7x 3.8X 4.6X Baa2/BBB 2002E EBITDA / Interest 5.4x 5.2X 4.3X Baa3/BBB- Ba1/BB+
Slide 16: Good Market Access and Strong Liquidity
Good Market Access and Strong Liquidity $343 million in KMR equity in July KMP KMI Completed in very difficult market CP Capacity: Roughly 15% return since pricing Total Revolver $906 $758 $1.5 billion in long term debt in August Outstanding CP 110 250 (a) KMP $500 million, 31 year @ 7.3% Exce
Slide 17: Stable Platform, Exceptional Growth Potential
Stable Platform, Exceptional Growth Potential KMP/KMR (a) KMI (a) Stable Cash Flow 7.5% yield 1% yield Strong Balance Sheet 40% debt/cap target Excess cash used for share buyback, dividends and debt repayment 50% debt/cap target Add: Internal Growth 8-10% 18-20% - Organic growth on existing assets -
Slide 18: Targeted KMP Internal Growth
Targeted KMP Internal Growth Budgeted 2003– 2003–2005 2001 Change in Annual Business Segments Actual 2002 Target Growth Drivers Products Pipelines $347.8 $39.6 $30-35 Demographics in West and Southeast U.S. Natural Gas Pipelines 218.4 113.4 20-25 Expansions and extensions CO2 Pipelines 108.4 1.9 20-
Slide 19: 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 20: Excess Capacity Allows Growth
Excess Capacity Allows Growth Business Segments Pipeline Systems Utilization Rates (Approximate) Products Pipelines Pacific System 70% Plantation Pipeline 80% Central Florida Pipeline 65% Natural Gas Pipelines Texas - Intrastate 80% Rocky Mountain – Interstate 100% CO2 Pipelines Cortez Pipeline 80%
Slide 21: Internal Expansions Add Additional Growth
Internal Expansions Add Additional Growth Number of Capital Completion Business Segments Projects Committed Date Expansion Projects Product Pipelines 1 $58 2004 Knoxville Natural Gas Pipelines 2 $118 2003-2004 Cheyenne, Monterrey CO2 Pipelines 1 $160 2003 SACROC Terminals 5 $55 2002-2003 Houston, Ca
Slide 22: Structure offers Two Risk Reward Profiles
Structure offers Two Risk Reward Profiles Limited Partner General Partner KMP/KMR KMI Yield Approx. 7.5% Approx. 1.0% Distributions Share in all distributions from Only entitled to incentive Available Cash distribution on Cash from Operations Current Split of Cash 60% 40% Distributions Upside/Downsi
Slide 23: KMR is Economically Equivalent to KMP
KMR is Economically Equivalent to KMP KMR KMP Distributions Shares Cash Yield 8.2% 7.5% Voting Rights In Parity with KMP Limited Mandatory Purchase Assures value in liquidation (a) No Optional Purchase Yes Yes Tax Considerations Allocated Taxable Income No Yes Non-Qualifying Income No Yes UBTI No Ye
Slide 24: KMP is Attractive Compared to 10-yr UST
KMP is Attractive Compared to 10-yr UST (a) 10% 8% KMP Yield (%) 6% 4% Treasury 2% 0% 1997 1998 1999 2000 2001 2002 KMP Dividend Yield US 10Yr Treasury Yield Source: Goldman Sachs (a) From January 3, 1997 to October 18, 2002. 24
Slide 25: KMI Multiple at a Discount to the S&P
KMI Multiple at a Discount to the S&P 500 (a) 40 30 Forward Multiple S&P 500 20 KMI 10 0 Jan-01 Jan-02 Jul-01 Jan-00 Jul-00 Jul-02 Jul-99 KMI S&P 500 Source: Goldman Sachs (a) From July 23, 1999 to October 23, 2002. 25
Slide 26: Real Assets, Real Earnings, Real Cash
Real Assets, Real Earnings, Real Cash