金德摩根 (KMI) 2002 Q1 法說會逐字稿

All lines will remain in listen-only until the question and answer session. At that time, instructions will be given if anyone wishes to ask questions. At the request of the company, today's call will be recorded for [indiscernible] replay. Right now, I would now like to introduce Mr. Rich Kinder, Chairman and Chief Executive Officer of Kinder Morgan. Sir, you may begin.

Okay. Thank you Sean. This is Rich Kinder, Chairman and Chief Executive Officer, Kinder Morgan.Obviously, there will be, during the course of this meeting, forward-looking statements within the meaning of both the Securities Act 1933 and the Securities Exchange Act of 1934.This growth was driven largely by the contribution resulting from KMIs ownership with the general partner of KMP and about 20% of the KMP limited partnership units. I might also add that the 71 cents was 5 cents above the consensus estimate for the quarter which was 66 cents.The KMI that was up from $48 million in the first quarter of 2001, an increase of 63%.Because of this strong performance of the KMP, the board reported an increase in quarterly distribution for KMP unit holders, the 59 cents per quarter, that equates to an annual distribution of 2 dollars and 36 cents. This distribution increase comes really a quarter ahead of our original expectations, and the distribution will be 59 cents instead of our projected 57.5 cents. This is the twelfth distribution increase since KMP was formed 5 years ago and it represents an increase of 12% over the distribution for the first quarter of 2001.About three-fourths of our growth for 2002 and beyond is expected to be internal.This would represent an increase of 33% over the earning of the dollar in 1996 for the full year 2001.The answer to that is we are still early in the year.

We prefer to be conservative in our outlook at this point.The third point I would make is that we are continuing to deliver all this growth while maintaining strong balance sheets at both companies. The fourth point I would make is that more and more of our growth is coming from internal sources versus growth from acquisitions. For example, at the GATX acquisition apples-to-apples and by that I mean including [indiscernible] for the full year of 2001 even though we did not acquire it until March.Now, we have tried and tried to convince the street I think of our internal growth, I think we failed in large parts so we are just going to continue to produce extraordinarily good results every quarter until even the doubting Thomas' among you come to a conclusion that we really do have good internal growth.

The final point I would make, and I think this is real differentiating factor. This as a management team is acting as principals not agents. We have the largest management stock ownership of any energy company in the SMP 500 and our financial return is totally pari passu with the rest of the shareholders. In other words you win, we win; you lose, we lose.Park.

Thanks Rich. Tough to follow that, but I will try to provide some of the details.That is up 63% from the first quarter of 2001.NGPLs transportation and storage was essentially fully contracted for during the quarter. NGPL will realize an additional growth in the second quarter from the Horizon joint venture pipeline which will be complete and begin operating in May.The two power plants that we are building are scheduled to be completed this summer. I will remind you that these plants are being built from merchant partners who will be responsible for providing the gas and selling the power generated by those plants.You will see the KMI debts-to-capital remains very strong at 48% below our target of 50%. You might also see a slight increase in debts for the quarter. That is entirely a timing issue.Moving on to KMP, our assets continue to deliver exceptional growth leading us to increase the distribution beyond expectations.As Rich mentioned, gasoline volumes are very strong growing over 7% last year.Diesel volumes were down compared to our very high first quarter of 2001 when inventories were built and shipments were high due to high prices for natural gas and power on the west coast and cold weather on the east coast. The first quarter of 2002 diesel volumes, however, were still 5% greater than the first quarter 2000 volumes. Jet fuel volumes were also down, about 13%, due to continued but expected reduction in flights by commercial airlines. Notably, the growth and gasoline was sufficient to offset the declines in both jet and diesel such that total volumes were flat the last year.CO2 will generate tremendous growth in 2003 and beyond due to increasing volumes generated by internal expansion opportunities.The growth was driven by a 12% increase in liquid terminal capacity while maintaining a high utilization rate of 97%. On the dry bauxite, volumes declined about 5% from the first quarter of 2001, primarily due to lower coal handling volumes.The increase from the end of the year was expected as a result of the acquisition of Tainoff's assets, and we do still expect to return to our target ratio. With that I am going to give it back to Rich.

Okay and thank you Park and Sean, we will now open the floor for questions.

Thank you. At this time, we will begin the question and answer session. If you would like to ask a question, simply press "star" and "1" on your telephone's touch tone pad. If you are using speaker equipment, you may need to pick up your handsets prior to pressing "star" and "1." If you wish to cancel your question or if your question has already been answered, simply press "star" and "2" and once again a "star' and "1" to ask the question and "star" and "2" to cancel. One moment while the questions register. And our first question comes from David Fleischer with Goldman Sachs.

Hi David. How are you doing?

Hi Rich. How are you?

I am fine.

Such a great quarter. I guess I will start with a negative setting question then I will hit a couple of others.

We don't expect there to be any substantial negative risk, and I don't think we ought to comment on the trial while it is going on. We feel good about our position, and the outcome of trial will not have any materially negative impact on our operations.

Again both of those two assets performed better in 2002 than in 2001.

That is right.

Okay. Let me go on and you know Tainoff's sounds as if it may make your initial cost savings on day #1 basically and I think you know a couple of months ago I tried to push you and you said it was too early to answer the question of what you know you might be able to do with the system in terms of you know it is the synergies of putting it together with the existing operations, you know expanding it, the volumes, new and better contracts you know cannot be ongoing. You know savings, benefits, growth that you could [indiscernible] they are wondering know. What you could tell us after 6 weeks you know in terms of the prospects there.

Yeah. First of all we did achieve our savings objective that were in our acquisition plan. In fact we modestly over-achieved those objectives. One of our key emphasis right know David is to term up as much of that as possible. We feel very good about the long-term 10-year storage arrangement that we did for shell that takes a substantial portion of the gas storage facilities at a very fair rate.So we feel very good about how these assets are performing the score although again I do not want to carry out we only had them about 6 weeks.I would like the main thrush and hope you can expect to see some announcements in the next month that will show us signing some very large additional or a very large additional contract that will term up even more of this capacity. So thus for we feel good about the pay-house acquisition.

And real small question. You know is there any relatives to that lower coal volumes in the quarter or is that just a bluff along a nice road or is that something more significant. And then lastly on the acquisition front where you know it seems like it is always a year back and loaded type feeling with not just with you but with everybody.

I want to assure that first question for lower coal volumes on our two major coal turnovers are strictly result of the warm winter weather, our biggest customers by forest TDA and they simply did not experience as much load as they expected so they did not need to brew as much coal. We certainly do not think that is long-term indicator of anything and again it is a very minor part of our even about terminals and certainly of the overall tenure margin. On the acquisition side, we are looking at a number of acquisitions right now and negotiations on a couple of them and we would look too. I think they have noted a very good year on the acquisition front and I do not mean that it will be October or November before we call these things I think we will able to do some deals sooner than that. Again, I would make the two points that I have always made that it is a long way from just having discussions to getting as I have said the horse and the crawl. We think that we have a good chance to make some very nice and creative acquisitions, but I want to again stress in my second point that increasingly more and more of our growth is coming from internal sources. I just gave you the GATX numbers on that which I think are just on the kind of growth we are getting internally. Park shared with you some of the upside we expect beginning in 2003 and beyond on CO2 platform that we built up and affirming so we feel very good about internal growth so while acquisitions remain important and we expect year-over-year output to be a little due about $1 billion year we said. Increasingly, this is driven largely by internal growth and that makes us feel very good, but we do expect to make acquisitions throughout the year.

Thank you Rich. Good work. Thanks.

Our next question comes from Ralph Paine.

Good quarter guys.

Thank you.

Looking at the volume sheet, it looks like they are up may be 3% or so. Does that 3% volume growth include the acquisitions or you know what would you say volumes were doing apples-to-apples excluding the most recent acquisition.

All of our volume numbers are apples-to-apples.So it is all apples-to-apples so that is real growth.

Great. Great.

Park you want to.

Yeah. Of course, this is incorporated into the budget that we disclosed to everybody in January but the trailblazer expansion project is a very high return project and commitment.

Okay. Great. Two other quick questions.

Okay. With regard to additional equity offerings as we have publicly said, we intend to make an offering of KMR and our budget numbers that we have shared with you and are posted on our web site to anticipated that would be done in the second quarter and we still anticipate that occurring. With regard to the, we do not have any plans to issue KMP equity. We do not have any plans to issue KMI equity.We have just declared a distribution of 59 cents so that is a little better than a 1.1 coverage ratio.

Great. Thanks for it guys.

And our next question comes from Daniel Soop.

Hi Daniel. How are you doing?

How are you? Thanks.

Fine.

Two unrelated questions. First it looks like sustaining cap-ex at KMP is down meaningfully in the first quarter and I was wondering if you could talk about what is behind that with the unrelated question.

Okay.

Yeah. It is really just the timing issue I mean one of the issues with sustaining cap-ex is that it does not come in ratably and we had an unusually high first quarter in 2001 and we had basically a normal quarter in 2002 and so again we will continue to see lumps in sustaining cap-ex as we go forward and we expected nothing, and the first 31/2 months indicates that we will be either above or below our budget of sustaining cap-ex for the year. So we expect that come in right on or very close to our recent plan.

Okay. Another matter.Good paraphrase. Is that clear.

Well Daniel something we certainly look at frequently and right now we are grossly 50-50 fix-floating in both companies and of course most of that floating has termed up, but we swapped back to floating on a portion of it, but we will have of course one impact which will tend to move more than the fix because when we complete the KMR equity offering that will go to pay down the floating rate commercial paper and we will in fact take most of that commercial paper out of the KMR and KMP so we will, I think, be more fixed than floating at that particular point of time. So we will try and move in that direction, but we will continue to look at it. Again, we have run all kinds of numbers of studies I am sure you have done the same in the long term.Park do you have anything.

I mean I guess two things. One to be you can be even more specific. At KMP we are actually below 45% floating so we are a little bit under the 50-50 target of KMP if KMI were a little bit over it, but the other thing is I think people have proven historically that floating rates are cheaper than fixed rates; but because of the reason that you picked, you too pointed out Daniel, we have not gone 100% floating even though again that is open a long run to cheaper way to finance. What we have done is that that is extreme.

Thank you very much guys.

Thank you.

Yeah. I have got several questions. Quickly implicating to KMPs you know income statement.This is probably due to just lower rates of the floating I assume.

If both rates have iterated, lower rates in a slightly higher balance and so at the decline you are corrected due to lower rates.

How to start to reconcile to the 78 million that KMI reports this.

The true up of on the to get to the 78 million also reflects the limited partnership units. If you recall, the KMI owns 20% of the limited partnership units.

Okay.

Park anything you want to add there.

Very good. A quick question about you know going forward. GNA expenses and KMP are 26.3 million versus 28.5. GNA of KMI is 19.5 to 16.3. How are these allocated between the two entities and what are the main items in each one. Well Francis, I know that Rich you are not draw to help a lot of salary and lot of guys are not, but it is the bonus arrangements in there or you know just administrative expenses or how are those two different.

Yeah. Now let me start out by saying we have not allocated my dollar salary. I think it is all going to KMI and I do not think the bonus, we do not allocate that either. Well Park, I will let you handle that.

Yeah. GNA expenses directly occur at the two entities and are directed charged to the two entities. There is not a pool that is allocated out. Again, we own assets and the assets are owned by one entity or the other and just about everyone if it works on the things, works on a specific asset and expenses are related to assets until they are directly tied. For people who happen to work on multiple assets for which there are relatively few there are salary slips which are created annually and examined periodically that basically dictate how their expenses are divided.

You know I think the another thing I would add to that account is that of course a number of our subsidiaries are regulated identities both with federal and state regulatory agencies, and they have to follow their own form. So there is a lot of crosschecks and double-checks, and that is true for both KMP and KMI on making certain that these are appropriately allocated.

Thank you. One final question. There is still a lot of criticism out there about you know KMI getting 50% of the profits. Is there you know is there any kind of point where that percentage would vary or does it vary from that 50% or how do you explain you know saying that you know you get 50% as a reliance and KMP seems to be increasing out there, while you know, people putting up the money are only getting 50% even though you know it appears that most of your newer acquisitions have got to be made by either KMI or you know or the above it.

No I understand that but the above it which is the tax-free entity for the pensions.

No. Really KMI does not make any acquisitions.

Yeah okay, I understand.

partner's stock but with regard to your point there are a couple of things. First of all, KMI as the general partner gets about 40% not 50%, and in fact a little less than that at this particular point of time; but the 50% comes about because KMI also has purchased and paid for 20% of the units of KMP so that is the extra slot that it gets.And I guess I would say that of course the KMP shareholders enjoyed a compact 52% annual return since the 5 years we have had this. So I think the only reason that KMI gets as much as it does for its general partner management it is simply because over the years we have managed to increase the total distribution from $16 million in the year before we took over (1996) to this year will be in excess of $ 700 million. So that is the kind of increase we have had.

I will just add to that virtually every MLP out there has this tiered arrangement. It is very common. It has been around you know certainly over the last decade with most of the major pipeline MLPs informed. They all get into the high splits between 45 and 55. The only reason where at the 50% sharing level is as we have said because we have been so successful.

Thank you.

Thank you.

Our next question comes from Steve Morrison.

Hi Steve. How are you doing?

Great! Congratulations on another terrific quarter.

Thank you.

I have a couple of detailed questions. How much do Teharts contribute to either down the quarter?

Pretty minimal. Park $ 8 million or less.

Right. Yeah.

Well somewhere around 7 or 8 million?

That is about right.

Okay.

Right.

That is if our recall somewhere around a 17 or 18% increase of what the pro-forma was last year. If that is right, could you elaborate a little bit on how you are able to do this?

I will only just tell you what the increase is. You are pretty good. It is about a 21% increase over last year. Again, that is on a pro forma basis. A lot of the growth has come at our liquid terminals which we acquired.I do not know that we would gotten the point where we to be precise or where we may be do not talk enough in detail about some of our statements. But again, let me emphasize the liquid terminals have been truly successful, real successful as Park indicated. We have gone from a little that we have increased our capacity, and that is all on your sheet from about 30 to say 31 million barrels of leas-able capacity to 34.5 million barrels of lease-able capacity, and yet we have maintained the same high utilization rate of 97%. So we have gotten these terminals, we have added on to them; and we have been able to grow accordingly.For example, this has not been even hit yet here at our unit and greener park terminals, we are spending $17 million to get additional capacity of over 150,000 barrels and all that will go in service later this year and all termed up to 5-year contracts at very nice numbers.

And I would presume that incremental capacity additions in terminals are highly profitable due to operating leverage.

That is exactly right.

Does that also imply that the liquids terminal business nationally is a pretty tight market?

That is one of the reasons we like JPX so much is that we are on both ends of the spectrum if you will. We have large facilities at the beginning point of the major pipelines going both to the northeast and the Midwest. And then in Codorac and Philadelphia we have large terminals at the receiving end.So that has to come in from some place and again most of that or a lot of it today is coming in by water.

It will show higher than that up when you see the queue because actually a [indiscernible] for the first quarter which this year was going to happen in the first quarter of last year.

That is kind of if you will not get them launched into volumes pro-forma then [indiscernible] the other volume information is pretty flat. We do get the effect of the terrific increases well and through.

Next question.

Our next question comes from Sandrine Bowen.

Thanks. I was wondering if you could go over the status of your bank balance and commercial paper please.

Bank balance is a commercial paper, sure of that.

Yeah.At KMI, we have bank facilities of $300 million in excess of our commercial paper program; and so again, we are more than adequately backstopped on our commercial paper program. But commercial paper continues to be at very attractive rates, and we will continue to fund in that market.

Thanks very much.

Our next question comes from Stephen Arigo.

Hey Steve. How are you?

Hi Richard. How are you?

Fine.

Actually my questions have been asked and answered.

Good.

Some other gentleman will take up at this time. Thank you.

Thank you.

Our next question comes from Ron Blond.

Hi, Ron how are you doing?

Thank you, Rich. How are you?

Fine.

I spent a few hours slogging through that 14-A filing on KMR the other day and I was wondering if you could give us some direction on the timing on when that vote might transpire and then how much time it will take to come out with the KMR units in the market place.

Okay, I will let Mike answer that.

Again, we done our preliminary filing with the SEC and so we have to be very careful about what we say that the KMR proxy that we filed I think is very self-explanatory. You can read it, understand it. It is basically going out for vote to eliminate the exchange feature that is associated with KMR security, we are doing that. Because we think it will ultimately allow us to issue KMR and make KMR more liquid. That all is in the proxy. We have, as we said, we published a plan in January that contemplated a second quarter equity offering, and we see no reason to amend that plan at this point.

we will give return by the end of the second quarter?

Yes, that will still be the plan. Yes.

You had earning before DDNA of 98 million versus 85 with 7.6 of that coming from Calnev which would mean rest of the pipeline system would be up 6.3% without Calnev. Can you break that down for me a little bit more which pipelines were up or down.

Well, I do not think we will break it out any further than that.They came over from GIPX including that big Los Angeles terminal and those had very good first quarters.

Is that growth a GIPX kind of a function of a [indiscernible] market versus backward market last year.

No, as a matter of fact, I think we are somewhat very unfortunate. Almost all our revenues, of course all of our liquids terminals comes from industry players. Very little from anybody who is trying to arbitrage and of course, right now we have a backward dated market anyway. So, we [indiscernible] percentage in doing that.

Yeah, thanks.

So as we see jet fuel come back a little bit and it is beginning to come back and maintain this growth on the gasoline side.The plantation pipeline will also set an all time record for April. Is that right?

No, we set a record for the month of March, and I am sure we are going to set another record for the month of April.

So that is the kind of volume improvement we are seeing. We had weak January and February and some of these pipelines and it is really only too strong to say but it came rolling back in March and that has continued and even extended the rally in April and some of this is poured out in your API members as you can see gasoline usages nationwide has turned up and again reminds you we have faster going areas in general demographically than the nationwide numbers, so we tend to get a good bit growth than that happens nationwide.

Thanks.

Next question.

Our next question comes from Rebecca Followill with Howard Weil.

Hi, Rebecca how are you doing?

Thank you. I got three questions. One, I noticed the share account creep up on KMI this quarter compared to the fourth quarter, what is that related to and where do you stand on share buyback, are you still out there in the market place aggressively. Second the terminal properties had $25 million of goodwill overlies that, that something amortize anymore of it, any risk on [indiscernible] 144 right down on that and then finally on the liquids terminals, looks like you guys have changed the way that you are showing the reporting on that now. In the past, I think there was throughput volumes but now it is liquids lease-able capacity. Could you kind of reconcile that and help with us that new nomenclature?

Yeah, let me thank you for all three of those. First of all on the creep up part, on the creep up ...

I think, [indiscernible] I remember. Thanks.

Yes, and so there are efforts right in that.

Thanks.

And with regard to the 144 issue on terminal, you know, obviously, like everybody else we have until the end of June to look at any potential 144 items. We have not found anything they would request for, that would require any reduction in 144. We will also continue to look and finish that up by the end of the second quarter. With regard to liquids terminals, again what we are trying to do, I guess [indiscernible] goes unpunished, we were trying to be as transparent as possible and try to get you on a backup page of KMP, we think one of the most relevant statistics to give you an idea of how these various assets are performing.So, if anything where we have not given you the very best numbers, it is probably on that. But with regard to the liquids terminals, the relevant data here is how much capacity you have, not how frequently it turns and because you are getting paid for that [indiscernible] on a preferable basis, whether it is per month or by a year under the contracts. So that is why we thought we would be helpful by going to actual lease-able capacity and then give you that percentage of utilization.On the terminal side, the liquid terminal side, its virtually all of lease-able capacity gains. That is what we intended to do.

Just from my perspective, you explained that will effect everybody else as it is since the terminals E-bid is lumpen all together it is hard to breakout. If you are trying to look again at profitability liquids versus bulk transport. So it helps sometimes if we get, may be get those broken out or sometimes.

For example, we are able to use some capacity in the liquids terminal for some bulk handling or some capacity in the bulk terminal for some liquids handling. So increasingly it is going to be very difficult to break those two apart other than just giving you a reasonable capacity for most kind of members. But we have these all of these terminals operating as one unit.We tried to report our results of operation the same way we had managed them, and I think putting them together has paid real dividends for us. Mike, that is the one thing that may help.

Okay. That helped. Thank you. Thanks guys.

Okay. Next question.

Our next question comes from Jim Harmon.

Hi. Thank you. I would like to follow up on Rebecca's question on share repurchases at KMI. About how many shares have you repurchased and how much capacity is left on the program?

Well, I am sorry we did not answer that. Go ahead Park.

You know in February we announced an increase of the program from 300 million to 400 million, and we are more than halfway through that additional 100 million; and so, that is basically where we stand at this point in time.

Okay. A follow-up question just on power and power development along NGPL, what do you see that market doing over the short term and may be a little longer term?

We have been averaging about 4000 megawatts a year of growth. That number coming online in the second quarter of this year is a little above that between 4000 and 4500 megawatts new capacity will come online this year. That is about the amount we expect next year; and again, we are pretty confident, very confident on 2002; actually because these plans are in the ground being completed and probably 90 or 95% confident on 2003 because again the financing is done on these projects. They are actually being constructed or they would not be coming online throughout March from now so we feel very good about that. Further out in 2004 and 2005 and beyond, you know, while we have for 2004 in the 1500 to 2000 megawatt range, I think it is too early to tell and we approach that with a pretty jaundiced eye I think. But good news is that we have a lot of good things coming with relation on NGPL, and we have predicted that the second half of 2002 would be the first time and that would, given the chickens would come home to rooster and the good news is that I think they are heading in that directions, and we will have those coming online, not predicting exactly how much at this moment. Bottom line results [indiscernible] is difficult because again you do not how much they are going to dispatch. But we anticipate that is what will help us to get to a 4% roughly growth in NGPL for this year and the foreseeable future as these new facilities come online and as you have additional usage to those facilities on a going forward basis.

Thank you.

Next question.

At this time, I am receiving another question from Jeff Epstein.

Yes Jeff.

Hi guys! Congratulations on the good quarter.

Thank you.

You know the pipelines are producing record results in the month of April. Why somewhat of a cautionary outlook in Q2?

And I mean I would say I do not think that our outlook for the second quarter has changed since what we discussed in January. And so I mean I think it is completely consistent with the expectations that we laid out when we ran over the budget in January.

Yeah, absolutely. I mean the average is nothing this year in the first quarter. If any thing, it has been more positive than we thought it would be in the budget. If you recall this is all posted on the website.We will continue to look at it at the balance of the year and we have already begun to focus in on 2003 in terms of what that looks like. But, you know again, we had a very good first quarter, in fact a very good second quarter and the balance of the year, so I would take anything which say there is negative on future results. We feel very good about it.

Okay, good. It is only too attributable to the season out in the gas pipelines I think.

Yes, again which was inspected and so when you think all we were doing pointing out that we would see that in case people did not realize that that is what happened.

Okay, great. Thank you guys.

Any other questions.

At this time, there are still no further questions.

Okay, well thank you all very much for listening and have a good evening, and we will talk to you again soon. Thank you.