金德摩根 (KMI) 2002 Q4 法說會逐字稿

Good afternoon and thank you for standing by. Welcome to the Kinder Morgan Conference Call. All participants will be able to listen only until the question-and-answer portion of today's call. Today's call is being recorded at the request of Kinder Morgan Incorporated. If you have any objections, you may disconnect at this time. Your speaker for today is Mr. Rich Kinder. He is the Chairman and CEO. Mr. Kinder you may begin.

Yeah. Thank you George, and welcome to the Kinder Morgan quarterly Conference Call. Today I will be talking about two companies, of course, Kinder Morgan Inc., which I'll refer to as KMI, and Kinder Morgan Energy Partners, which I'll refer to as KMP. KMI, of course, is a large midstream energy owner and operator with their among other assets, owns the general partner interest in KMP. KMP in turn is, of course, the largest pipeline master limited partnership in America. During the course of this call, we will be making forward-looking statements within the meanings of Securities Act of 1933 and Securities Exchange Act of 1934. The format will be -- I will go through several important developments. Park Shaper, our Chief Financial Officer will take you through the financials including the balance sheet in excruciated detail. And then we will both return and together address the management team and answer any or all questions that you might have. Several important developments to share with you today.

Let me start with KMI. Let me start with the earnings -- the earnings for four special items were $2.85 for the year. This is well above the consensus estimate of $2.69 and was up 45% from '01 on apple-to-apple basis. Also on magnitude, this is well above the original '02 budget that we published last January and referred to throughout the year, and that original budget number for earnings per share for KMI was 258. So we earned 285 for the year versus 269-consensus estimate versus 258 original budgets. Let me be quick to say that part of this upside was driven by modestly lower income tax rates at KMI for 2002 versus our original budget and that's about 10 cents of that increase to 285.

Put another way, Park will take you through this in more detail. Even without that modestly lower income tax rate, we would have earned 275; still well in excess of consensus estimate and very nicely in excess of our original budget 258. The rest of this increase, the very good results, resulted from improved profit from our operating businesses and Park will take you through the details of that.

Second point, I want to make to you is that we have increased the dividend at KMI from 10 cents a quarter to 15 cents a quarter or 60 cents per year. This is as a result of the Board's annual review in conjunction with our presenting the 2003 budget to the board in today's meeting. We will do that every January. Let me say that this still represents a very conservative payout ratio of less than 20% of our expected '03 earnings. We will continue to review our level of dividend payout on annual basis, and I might add, we would consider a significant incurs if the President's proposal to eliminate the double taxation of dividend is enacted in the law. Otherwise we will revisit this on an annual basis.

Third point I want to make also relates to KMI. We have raised our earnings guidance for '03. We recently in December shared with you the preliminary results of our budget, which was a $3.11 earnings per share for KMI in 2003. We have now raised that to $3.18. This reflects a slightly lower tax rate for '03 than we originally thought. We will put together our budget and probably more importantly stronger performance from our operating segments particularly trans Colorado at KMI and our CO2 operations at KMP.

Now turning to KMP, we had record earnings there also for the year. We earned over $600m in net income. That was up 38% from '01. For the fourth quarter we earned 50 cents versus a consensus estimate of 45 cents. So again we clearly out stripped the expectations. We also today voted, our board voted to increase to distribution as we had earlier indicated we would, the 62.5 cents a quarter, which works out to be $2.50 cents per year. This represents an increase of 14% over the distribution in the fourth quarter of 2001, and if you look at the total cash distributions per unit for 2002, we've declared $2.43 1/2 cents for '02 and that's up 13% from the total comparable number in 2001.

The next point I would like to make really applies to both companies and that is that we've had an outstanding profit performance in virtually all of our business units and I want to point out in some details and Park will also speak on this, that a great deal of this profit improvement was driven by internal growth. And I want to share some numbers with you. I know some of you think, I go overboard on numbers, but let me be very frank about it and take you through each of our business segments.

Let me start with KMP. At our products pipeline, our earnings were up 13% in the fourth quarter, 11% for the year. If you strip up the acquisitions that were made and get to what I would call same store sales, we had an internal growth rate of our products pipeline segment of 8.4%, 2002 over 2001. And that's in a year where our volumes grew at twice the national rate but the still below our historic average of volume growth and we spell that out in the press release. I won't go into detail but if you strip up the acquisitions, 8.4% internal growth of products pipeline. Natural gas pipeline, of course had a barren year as you would expect, up 37% for the fourth quarter, and all these written numbers are earnings before DD&A. I might add as well as, up 37% in the fourth quarter, 44% for the full year. Obviously the bulk of that increase was driven by our acquisition of the Payhouse asset, which we closed on early in 2002. But even if you strip up the whole Texas intrastate segment, which is where Payhouse is, and it's now mingled with our KMEP asset. You strip that whole thing off the table from both '01 and '02 and you get a 9% internal growth rate at natural gas pipeline group without those assets. So again very strong internal growth.

Let me next turn next to our CO2 pipeline segment -- that was a tremendous performance of course, up 36% in the fourth quarter, 18% for the full year, and a little over 90% of that came from internal growth. We had a very modest addition in purchasing more unit and more proportions of [Sac rock] unit. But 16% was the internal growth rate at our CO2 pipelines. In our terminals group, we had 26% growth in both the fourth quarter and for the year. If you strip out all the acquisitions, which came in 1s and 2s over the course of '01 and '02 and get '01 and '02 strictly apples-to-apples without acquisitions, we find we had an 8% growth from internal sources during the year 2002. So if you look across our four-business segments, 8.5% or 8.4%, 9%, 16%, 8%, well within the range when we talk about, we expect to get an 8-10% growth at KMP.

Now turning to KMI, we've said the other part of the formula is to get 8-10% growth out of KMP without acquisitions and then to take that growth and translate it into KMI, and also get 3-5% growth at MGPL in retail. If you look at KMI, for the full year 2002 the KMI interest in KMP was up 49% over the comparable period in '01. Natural gas pipeline was up 4%. Virtually all of that was internal growth, and our retail operations were up 13% and virtually all of that internal growth. Now I mentioned this myriad of numbers simply to say that we have very strong internal growth and that's why we are very comfortable with saying, and I think we've demonstrated this repeatedly that we can grow the distribution per unit at KMP by 8-10% a year without additional acquisitions and we can grow the earnings per share at KMI by 15% or better, without acquisitions. Now we still except to do lucrative acquisitions during 2003, which will improve these growth numbers.

When we talk about 2003, though, I am talking about the $3.18. Let me again remind you that this is without any acquisitions whatsoever in 2003. Next let me talk about -- briefly about the pre-tax write-down that we took, which was the major special item -- we talked about this in the conference call for the third quarter and talked about in more detail and gave you a range of numbers in our call back in December -- the range of numbers came out just as we excepted, both positive side from income tax adjustments and the negative side from write-down in the carrying value of our power assets. But let me talk about that, just a minute.

As the CEO of this company and a 20% shareholder, I am certainly not happy with the fact that this was necessary to take a write-down in our power segment in the approximate amount of $135m pre-tax. And I accept, on behalf of myself and the management team, the full responsibility for this. You know, we thought we were going into the power development business on a very conservative basis, because we had a very conservative goal. And that was to build power plants for others, earn development fees as we did that, and if we ended up owning interest in plants we wanted that interest on our part to be of a preferred nature, and we wanted to have a totaling arrangements for those plants. We thought we had protected ourselves from the inevitable contraction, as a result of the over building of the Power plants on a nationwide basis.

All that strategy may have been sound at the beginning, but what we didn't anticipate was the severity of the impact of that contraction in this business segment on our counter parties. As a result of that, what we thought was an originally very conservative strategy, turned out to be false and that's what resulted in the write down. Now let me remind you that power, on a going forward basis, is only about 2% of our '03 earnings, and to get to that $3.18 -- that I had talked about and that Park will spell out in more detail and that we'll talk about in a lot of details next Wednesday at our Analyst Conference here in Houston -- but all of that $3.18, we've got that without acquisitions and with a substantial obvious deterioration in power earnings from '02 to '03. So we put the problems behind us. Am I pleased about it, no -- but that's where it is and we've addressed that problem head-on-head.

Now let me conclude by again emphasizing our philosophy. Let me say first that we are principals, not agents, running both KMI and KMP. And we are running those companies to maximize the long-term value and cash flow of a very strong and growing set of assets. As principals, we are trying to distribute as much as possible of the cash flow and value that we're creating to our investors, through debt reduction, dividends at KMI, distributions at KMP, and share repurchases at KMI. For example in 2003, at KMI we will generate approximately $450m in cash flow. We expect to have a small amount of expansion in CAPEX -- in this budget that we will publish next week, and detail with you in our Analyst meeting -- the CAPEX -- the expansion in CAPEX is estimated at $55m. So that leaves about $400m to being used for debt reduction, dividends and stock repurchase.

In short, at both of these companies, we have a game plan that has worked extraordinary well for us for the last 6 years. We are going to stick to that strategy and we will continue to do everything possible to deliver superior results. As I've said before, we can't always guarantee you extraordinary results but we can sure always guarantee you extraordinary efforts. And with that, I'll turn to Park for more detail on the financials. Park.

Yeah, thanks Rich. I hope that most of you have the press releases in front of you and can follow along as I go through the financial pages. I'll start with KMP. If you look at the first financial page in the KMP press release -- the income statement -- at the bottom, you'll see the clear distribution, as Rich mentioned of 62.5 cents, that's up 14% from the 55 cents that we paid in the fourth quarter a year ago. We have coverage of 63 cents over that 62.5 cent distribution. And in fact that coverage is about a penny higher than that, if you ignore a one-time item that we took in the products pipeline segment, which I will describe in just a minute.

Our coverage for the year is $2.55 over a total distribution of $2.435 that's 1.05 coverage and so very nice coverage for the year. Additionally, our distributions for the year will total $2.435 over the $2.15 that we distributed a year ago, that's 13% growth. Our distributable cash flow is $2.15 over $2.18 a year ago, that's 17% of growth. So, very nice growth in the cash generation at KMP and to see the force of that go to the second page, we will go through this segment.

And to focus primarily on the year, we do now have a full year to look at. Product pipeline, $427m in earnings before DD&A in 2002, up from $384m in 2001, that's 11% growth. As Rich mentioned, if we pull out the acquisitions and there are only a couple of small acquisitions with mid-segment and you pull out the one-time item, the internal growth is 8.4%. The one-time item is a litigation reserve that we have taken at plantation. Our share after-tax and plantation that are -- we on 51% of [have been added at sea core], and so we do have to pay tax on that entity. Our share after-tax is $2.1m. The amount that you see, the one-time impact on this line segment earnings before DD&A is actually $3.4m and so the growth that is shown near is actually greater and then we took this one-time litigation reserve.

In addition, as we have done every quarter, we will compare our results to our budget which we published on our website last January; and of course, we will publishing and describing in great detail our 2003 budget at the analyst conference next Wednesday. Our budget for product pipelines is about $414m of earnings before DD&A; and so we well exceeded that at $427m.

Next segment, natural gas pipelines is up 44% to $325m from $227m. Now of course a lot of that is attributable for the acquisition of payoff and we benefited from each expansion of Trailblazer. In truth, the natural gas pipeline segment is the one segment that actually is under-budget for the year. Our budget and earnings before DD&A for natural gas pipeline is $347m and the [inaudible] came in at $325m. And that being said, we generated 44% growth in the segment for the year, and we are very comfortable with the growth going forward, as in 2003 the North Texas pipeline and Monterrey pipeline will begin operation. CO2 pipeline was the best over-achiever for the year. We have been talking about this all year and you really see it in the fourth quarter, $132m in earnings before DD&A for the year; that's up from a 112 for 2001, that's 18% growth; our budget for CO2 for the year [inaudible] exactly 2001 a $111m. So we beat the budget by 19% at CO2. Now again, this is a function of increased volumes primarily [inaudible], although our base CO2 delivery volumes were strong as well. The volumes are at the bottom in page, you will see the delivery volumes for CO2 were actually down about 3% for the quarter, but up about 11% for the year. The [inaudible] volumes though showed phenomenal growth. They form about 58% for the quarter and up about 43% for the year. And so actually our volumes [inaudible] production averaged over 15,000 barrels a day for the fourth quarter compared to our fourth quarter 2001 of a little less than 10,000 barrels a day, and that's nice growth and production continues into end of January.

The last segment the terminal segment, $206m of earnings before DD&A, up from $163m in 2001; that's 26% growth, our budget was a $197m, and so we beat the budget by 5%. If you sum up this segment, we beat the budget by about 2% or by about $30m.

Dropping down to G&A, G&A for the year is about $119m compared to about $109m a year ago. The increase is primarily attributable to acquisitions and a little bit of increased expense from benefits. The budget for the G&A for the year was actually $100m, but those two numbers are not apples-to-apples. In 2002, we began to report taxes factors in G&A and this is a function for the accounting system to change. We began to report payroll taxes in G&A rather than in the operating sector. What you see on the page has been restated for both 2002 and 2001. So you had an apples-to-apples comparison between '02 and '01. You just don't lift the budget. The budget, if we had restated the budget, will be about $110m, and so we would be up the same amount that we are up versus '01. And then again the variance there is a function of acquisitions and the function of slight increases in benefits cost.

Net debt costs are up about $5m for the year, up about $12m for the quarter, our balance or average balance for the quarter and for the year is slightly higher but our average rate is lower offsetting them. There is a new line one here. It's just labeled -- "other" and is footnoted -- we want to identify this for everybody -- "there has been a modification and environmental reserves at our terminals and product pipeline segments." The net impact of that is the $300,000 that you see on that line. Minimal interest is just the function of earnings take you down to net income is [inaudible] $600m for the year for KMP, compared to $442m a year ago, growth of almost 38%.

We now go back to the first page and walk you down to income statements. You'll see that revenues are up about 45% for the years. They are up about actually 130% for the quarter because of the tax of intrastate, and we say that with some frequency our revenues and our profitability [inaudible] and they met each other are somewhat a function of gas prices. Because of that reason, the [inaudible] of gas prices, we don't put a lot of creams into the revenue number. The operating expense number you'll see will track revenues, again what we believe is important is the operating margin.

Depreciation and amortization increased for the year, that's the function of acquisitions, primarily the [inaudible] acquisition. GN&A, we previously discussed, TLTI effect is other than income taxes, is up slightly again as a function of acquisition. Operating income for the year, $724m compared to $564m a year ago, a little less than 29%. Earnings from equity investments shows a decline in the fourth quarter that is because of again the one time of [second] plantation shows up on this line. So that's $3.4m that's reducing the fourth quarter in 2002. If you added that back in then there would be an increase in net lines for the fourth quarter. For the year, even with that one time negative, we are showing 5% growth on that line.

Amortization of asset, cost of equity investment is down slightly because some of that extra cost is equity method goodwill, which we no longer amortize in 2002. Interest expense we discussed other is essentially [inaudible], and minority interest again is a function of earnings. Taking to the net income again its [inaudible] $600m. You pull out the general partners interest in the net income, limited partners net income $338m compared to $240m a year ago, growth of over 40% and that leads to the net income per unit of a $1.96 compared to $1.56 a year ago and that's 26% growth. Additionally, 50 cents for the quarter compared to the consistent number of 45 cents as Rich mentioned earlier.

One last point on the income statement of KMP. We will distribute north of $700m in distribution out of KMP in 2002. There is a tremendous amount of cash and the cash that we generate is even more than that. It mask $710m plus. Tremendous amount of cash is being generated by these assets. With that flip 2 pages back and I'll go over the balance sheet.

The free cash is mostly unchanged and recognizes that the balance sheet is comparing end of year '02 to end of year '01. So when you look at other current asset that has gone up, that is a function of the addition of payout. You had the payout receivables but now hit on those lines, which were not there at the end of 2001. PTNE is done that the function of acquisition, investments are essentially unchanged. Deferred charges and another assets are up as a result of the [inaudible] intangibles and the market value or interest rate swap. Total asset stood about $8.3b compared to $6.7b a year ago. It's an increase of about $1.6b.

Notes payable and current maturities of long-term debt are up. I will talk about the debt in total in just a minute. Other current liabilities that increased again as a result of adding [tenants]. The [tenants] payable [inaudible] get on that line. Debt again, I will summarize in a second. You can see the market value of interest rate swap. There are $167m at the end of 2002. The other line is basically unchanged. Minority interest has been reduced because we now own a 100% of trailed [inaudible] in Partners' Capital [made not] by $250m, which is a result of the equity offering that we had and in earnings last distribution.

[Cash burns] was down to the total debt $3.6b at the end of the year compared to the $2.7b at the beginning of the year, and debt to total CAP of 51% compared to 46%. 51% is where we were in the third quarter and we most recently issued equity in that third quarter. So we are pretty much staying at the same level. Let me reconcile the increase in the debt [for you]. Its about $884m. We will call as a little bit less than $900m. Now the total acquisitions in expansion capital in the year was at $1.35b. Equity offered issued during the year, which is a termination of the equity offerings in the KMI distribution, is about $414m. And then there was a source of cash from working capital and this is very preliminary. Actually, I don't even have a cash flow statement yet. It's just the 15 for the month, in a month where there is a holiday at the beginning, and so it was a very rapid for us to put together the financial. But the current estimate is that, we have a source of cash from working capital somewhere around $80m. Those next to that approximately $900m increases in debt. Again it was acquisitions of about $1.35b in equity offerings and cash from the working capital of almost $500m.

Now the acquisitions quickly day totaled about $930m. Most of that is paying out, which is about $730m Trailblazer was about $80m. [Coating] was about $28m and miscellaneous others. The CAPEX is about $420m; a lot of that is that for our expansion projects and in various other smaller projects including a north Texas pipeline and the Monterrey pipeline, which were in process during 2002. And that's the KMP financials.

With that one, I will then go to KMI. Again if you look at the KMI press release and go to the first financial page, which is the income statement and as a follow up to how we normally do this, because of the special items, which are incorporated into this income statement on that first financial page is going to be easier for us to sort through these items. If we start on the second page, if you flip to that page and then the second section, the first line is titled diluted earnings per share from continuing operations for the four special items. Again this is EPS from continuing operations for the four special items.

For the quarter of 82 cents that compares to consensus of 74 cents for the year was $2.85 that compares to consensus of $2.59. Now the special items are laid out directly beneath that. Rich talked about the reduction and value of some of our power asset totals about $134.5m. Before tax the net that's EPS impact of that after tax is about 68 cents. The next item is income tax adjustment, and as Rich mentioned, in the fourth quarter 2002 we re-evaluated what our effective cash rate should be for 2002 and going forward. Primarily, as a result reduced taxes that we are paying at the state level and our new effective tax rate going forward is 38%. Now what that means is we have to go and revalue our deferred tax liabilities on the balance sheet, which had previously been valued at a higher effective tax rate. That re-evaluation at a low effective cash rate resulted in a gain and that is primarily what you see on this line that is labeled income tax adjustment. The total is 42 cents for the fourth quarter and 34 cents for 2002. The 34 cents is really the relevant number here. The 42 cents, the reason it is greater in the fourth quarter than it is for the year, is because in addition to that in the fourth quarter, we went back to the first three quarters of 2002 and applied the effective tax rate of 38% to those first three quarters. Now that results in a reduction impact in the fourth quarter. We didn't want to claim that as recurring earnings in the fourth quarter. So we have it identified here, its 42 cents less 34 cents, that equates to 8 cents. We have that 8 cents in this income tax adjustment line in the fourth quarter column. Now when you get to the 2002 column that is normal earnings and so its included in $2.85 there. That's the difference between those two numbers.

The last line there is other, it's obtaining negative. It is a compilation of a few smaller items that again net out to almost zero. Now just to tie to earnings per share from continuing operations, when you take out all of those special items, you get $2.50 for the year. Although again we believe that our true earnings generation power is $2.85. Now there is one distinction there and which I [inaudible] earlier, which is if you wanted to compare 2002 to 2001 on the same income tax basis, then what you will do is reduce the $2.85 by 10 cents, take it down $2.75. And you'd see what the increase in earning was just from operations.

Now with that, let's go to top of the page and we'll look at the specific segments and what they generated. And I think over the top of the page, the first thing is clearly investment and KMP. The best way as to see the net impact of KMP on KMI is to go to the section titled earnings attributable to investment in KMP.

For the quarter, when you say what we refer as general partner interest, what we recognized from the units that we owned of KMP, and what we recognize on KMR subtracting all the minority interest associated with KMR. Because just to refresh our memory, we consolidate KMR on to KMI's financial statements. And so you have to pull off that minority interest to get the net impact. You'll see that the net impact of KMP on KMI is $338.5m in 2002, up from about $228m in 2001 or almost 49% growth. Tremendous growth that KMI realizing out of its investment in KMP.

One point I will make returning up to the top, the top number in this number is pre-minority interest, it's $392m. Now our budget lined for that item was actually $404m. And so you might say well we missed budget on KMP, the truth is again I said that is before minority interest. You'll also see down and it shows up in other on this page, $48.6m compared to $26.4m of a year ago, the budget for that other line was $60m, and somewhat under budget there. All that is the minority interest associated with KMR. If you net the two, we will arrive on budget for KMP.

In CPO, $360m worth of earnings in 2002, compared to $347 in 2001, up 4% growth. That is right on our budget. Trans-Colorado has been showing -- and remember this is the first quarter in which are on a 100% Trans-Colorado. So what you are seeing for the fourth quarter is a 100%. What you see for all other periods, the 9 months of 2002 and all of 2001, all of the periods prior to the fourth quarter or [hard] 50% equity earnings. But again since we now do all the 100% at Trans-Colorado, we will show it here as its own segment. Trans-Colorado had phenomenal quarter with $5.7m of earnings, volumes are very strong, basis differentials coming out of the Rockies are very high, and we're very excited about what Trans-Colorado is doing right now.

Retail had a very strong year, $64.1m up from the $56.7m in 2001, that's 13% growth out of retail a lot of this comes from more efficiency, it comes from the hedging programs that we have in place and the strong irrigation road that we had over the summer. And it comes from the small acquisition that we made about, $11m Citizen Leaders in Colorado. [inaudible] is significantly under budget, $37m is for 2002 compared to $66m in 2001. So we had a decline versus last year. [Inaudible] came in at about 74% of our budget, and that is a result of scaled back development fees, and again that we went through the issue that we had with [inaudible]. I'll reiterate what Rich said, which is even with diminished power segment in 2003; we are going to generate $3.18 cents worth of earning.

G&A for KMI touched $74.5m compared about 68.5 a year ago -- that's an increase of about $5m that's primarily due to some increase in benefit [product]. Interest expense is down significantly, for the quarter is down about $6.8m; for the year is down about $54m, the average balances are more or less the same for 2002, as they are for 2001 but the range is well up. Also, I discussed previously, this is primarily made up of KMI minority interests and you'll see that it is an increase from 2001, it increase expensed to $48.6m from $26.4m, but our budget on that line was $59.7m, so we came in significantly under budget there. One other thing I'll point out on the interest expense, our budget was actually $179m, and so we significantly re-budget on the interest expense line.

Interest to income from continuing operations before income tax and special items and [we are much] happier, its income tax excluding special items, which is [efficiently] applying the effective tax rate of 38% for these -- for this income from continuing operations. [inaudible] $351m of income compared to $237m a year ago of 48% growth net income from continuing operations; now with that why don't we go ahead and return to the first page, and I will show you how some of the special items made the first phase a little unusual. Total operating revenue is little over $1b. Gas services are down slightly, [inaudible] is basically flat, G&A is flat. We talked about that on prior page. Depreciation and amortization is essentially flat. COCI is basically flat and here you have the re-evaluation of power investment of about $134.5m, which is reducing operating income. Now truthfully if you want to see, you know, what normal operating income would be, you add the 134 of that to the 236, you would still be slightly below the 384 from a year ago -- that is because of the reduction in power. It's all laid out on the prior page when we through the power segment.

The new CKMP, again we through that on the prior page; equity and earnings of other equity investments is very small known to that is Trans-Colorado for the full year and that's the nine months of Trans-Colorado when it was in equity investment. You'll see for the fourth quarter, it is a tiny number. Interest expense, minority interest, and other net we have already discussed, but recognize that the other net is where a number of these special items conducted well and so that number is also unusual.

Take you down to the loss and income from continuing operations of $309m and once they appointed out the income tax line on this stage and with special items in it, that is why you see a negative income tax in the fourth quarter. So again, to really understand that you need to look at with [hell of a] special items, which is on the second page. There are couple of things I do want to point out on this stage, we just took a $5m after tax loss on disposal of discontinued operations, and $1.5m extraordinarily loss from early extinguishments of debt, which was some debt that we called in November.

Taking that down to net income, $303m and then also, if you go down to the diluted earnings per share, you'll start with the $2.50 of income from continuing operations after the special items, you pull off the 5 cents just continued and extraordinary item, gets you to $2.45 of net income. Although I reiterate again the relevant number that we think the assets are generating is $2.85.

With that let me go back to the balance sheet. Tax at KMI is up a little bit and that's because we had no commercial paper outstanding at the end of the year. So we had a little bit of a higher cash balance than we normally do. Our other current asset is basically flat. Investment is essentially unchanged. There were some ins and outs on the stage KMR -- our KMR interest and [inaudible] shows up on this line Trans-Colorado used to show up on this line, but now that we own 100% of it, it's actually moved to the line below [PPNE] and so [PPNE] went up largely because of Trans-Colorado, but also because of capital expenditures.

Our other asset has increased primarily the market value of the [Flop], total assets $10.1b compared to $9.5b a year ago. On the liability side, [inaudible] stable and current maturities of the long-term debt $500b. Again we have no commercial paper outstanding at the end of the year. That is all current maturity that is due in March, again because we have nothing drawn on our credit request facilities and no commercial paper outstanding. We will be able to pay that down with commercial paper. On the current labiality is down and [that is] a reduction in payable. Otherwise, liabilities and deferred credits essentially flat. Our long-term debt, I will talk about in a minute. Market value of the interest rate is flat with KMI about $140m; and the Capital Trust security essentially unchanged. Minority interest in equity of subsidiary KMR that went up as a result of the issuance of additional KMR.

Now, stockholders equity went up primarily as assumption of net income offset by share repurchases, which in the year totaled about $150m. Looking at the total debt $3.3b compared to a little over $3b at the beginning of the year that's an increase of a little less then $300m. The debt-to-cap is about 48% from about 47%, but really not a significant change. Looking at the change in debt of $300m, there's a relatively easy way to understand that. Our total investment in 2002 was $460m, and those investments includes Trans-Colorado, they include expansion capital, they include the power investments, they include [inaudible], and they include various other smaller investment. Again that's $460m, the comparable number in 2003 is $55m, the difference of over $400m. What that means is in a normal year, which we consider 2003 to be and 2002 not to be, we had unusually high amount of investment in 2002. In a normal year not only would that not have gone up by almost $300m, it would have gone down by over $100m, and again that's just the over $400m difference between the investments we made in 2002 of $460m and the investments we plan to make going forward of more or less $50-$60m. That is -- actually is, and back to Rich.

Okay. We will take any of your questions that you might have. George if you come back on and open it up for questions.

Thank you. At this time we are ready to begin the question and answer session. If you would like to ask a question, please press star then "1" on you touchtone phone. You will be announced prior to asking your question. You may withdraw your question by pressing star, then "2". Once again to ask a question please press star then "1". Our first question comes from Mr. David Fleischer with Goldman Sachs. Mr. Fleischer, you may ask your question.

Hey Rich, a good year and quarter in here once again. First question I want to ask has to do with some of the details behind the CO2 business growth [free], where you've go new pipe capacity coming on, the compression coming on both I guess close to mid-year or before mid-year. Wondering what guidance you can give us as far -- first of all as far as the volume increase of those two projects will get you to? And it sounds as if -- as the spending takes place, you are getting more volumes more quickly and I am wondering where you might be by the end of year and update those numbers you've got us in the past?

Let me just say that we do, as Park said, we had a very good 2002 in our CO2 operations with earnings before DD&A up about 18%. And as you can see the trend line was very good, up 36% in the fourth quarter. You are absolutely right; we are heading the compression very rapidly after having another very big [trounce] of compression going into February. And then our new [inaudible] CO2 pipeline will come in by midyear. All of that leads us -- and we will share this with you in a lot more detail at the Analyst conference next week -- but as far as a base budget is concerned, CO2 earnings before DD&A will be up in excess of 30%, '03 over '02. And as a matter of fact, that number may prove to be conservative. Park mentioned that for the fourth quarter we averaged little over 15,000 barrels per day of Sacroc production. For the month of January, we had anticipated 15,000 in the budget for January; we are at almost 17,000 barrels per day in January. We anticipated averaging at least 20,000 barrels per day at Sacroc for calendar year '03, we'll go into more detail on that next week. And now I am thinking, we'll probably beat that based on what's been happening and the fact we are adding the new pipeline capacity and the new compression. From a CO2 stand -- that's the oil barrels -- from a CO2 standpoint, of course, right now we are running that in line of coming in the Sacroc and the Oxy property next door, just about a full lap where we are at capacity and when [inaudible] comes in we will have the ability to significantly ramp up CL2 used in that section [inaudibility]. So we -- the CL2 [inaudible] or the track up very [inaudible] in later in the year. So it is a very good project for us and we continue to make a real progress there.

Well then the follow up is you have certain percentage, high percentage of your '03 that was 85 percentage of your projected '03 volumes sold hedges, you know with these higher volumes I presumes you have a smaller percentage hedge, unless your hedge is more, that would have been more recently at higher prices. So, I was wondering if you could help us understand your hedge position.

Yeah, Park can give you the details, but hedge position obviously is heavier in the [inaudible] months, lower in the out months and let me just say before I turn it to Park there, of course the hedging is based on budgeted volumes. So, to the [extent] for January we are projecting 15,000 [inaudible], we are now running almost 17. Those un-hedged volumes will general go at the higher price. Park, you want to talk about it?

Yeah, the only point I make there is, we actually do renew that forecast as we learn more, and so we go through the process and if it looks like we will generate more then we will lay on more hedges, and the policy is zero to six month [inaudible] with 90% hedged, 6-12 months out we are [inaudible] to 75% hedged, and it does drop down from there on; but again in 2003, I think you are pretty close. We are already 85-90% hedged, but now it is true that to the extend volumes exceed our current forecasts, then those barrels as of today will not be hedged.

Are you tempted with these stronger oil prices to take your hedges -- hedge position out much further?

Yes, as we would -- we like to put them on as far out as we can. If you actually look at the forward curve a lot of the increase in prices that come in the near month, and when we look out in the out years it has not moved as much. But we continue to layer on hedges as far out as we effectively can forecast production and can get efficient hedge.

One last small question. We are seeing some significant cost pressures, you know insurance and pension costs, cash requirements there, medical expenses; you don't seem to be suffering from that, although you did -- at one point Park mentioned the benefit cost. Can you update us on why you are there or those costs going up? Is it offset some else where? Or you are not seeing them as much of what?

That's very [equation] David, and those costs are going up and they are offset with just tremendously strong performance from the operating units. Yeah we'll -- we took the insurance up almost double between '01 and '02 and there is another sizable increase '02 to '03. The medical expenses and [inaudible] hidden at the end of the table. I think [inaudible] is 18%.

Correct.

An 18% increase for this year. We are doing everything we can to contain it. A little higher co-pay and that kind of thing on prescriptions and those things, but it is significant; and you know in a sense I guess we are maybe when we say we are going to 318 and hopefully will do a little better than that, we are probably understating the real earning power of these assets because we are eating additional insurance and medical expenses and benefit costs in those numbers David.

Few dollars have to go little further now.

That's right, that's right. Well as you can see Mr. Morgan is retiring. So, we have got another [dollar] to fill [inaudible]

Okay thank you.

Thank you.

Our next question is from Yves Siegel.

Hi Yves how are you doing?

...is with Wachovia Securities. You may ask you question.

Fine.

How are you doing Yves?

I am fine, thank you. Park could you -- I was curious on the working capital comment you made, that you generated about $80m of cash from that. Can you just give a sense of how you were able to accomplish that? And what you think the outlook might be for '03 going forward?

Yeah. Let me say again, that is very preliminary. As I said I don't even have a cash flow statement for either KMI or KMP, but that was just eyeball on the balance sheet, and seeing where things might come out and also looking at how the cash has moved in. So again, that's a preliminary number from us. Do not give us credit for that. If that happens then that is a timing issue, generally we expect working capital to be flat in the absence of acquisitions, and so I would not consider working capital to be a source of cash. I would not consider it to be a use of cash and any given quarter it may go one way or the other. We do work hard to minimize those things, but that does not mean we can always control them, but do not count on working capital to be either [inaudible] for you.

[inaudible] certainly talk about, again, [though we] came out we talked about the 455m for '03, that's with working capital neutral.

And in generally having the reason that I bring it up is because I am just reconciling a debt balance. Again, I don't want to prevent anything as something that we are expect to see continue.

And then just a follow up on Dave's question. What's the ability to try to pass through either through rate relief or just increasing pricing, you know, that the escalation on the cost side of the equation, what's your ability to do on the terminal side for instance?

Well the terminal side of course is unregulated and so that becomes just a matter of what the market will bear, and as we have spoken in the past on a liquids terminal side it is a very tight market right now. We have very good market positions and as we renew contracts, most of them are 3-5 year contracts, but as we renew those contracts to the extent we can, we are obviously trying to increase costs. The same potential is there on the bulk terminal side. It is more a terminal-by-terminal analysis. On our pipelines, of course it depends on how regulated this -- some of our pipelines are unregulated, so again whatever the market is there, as in the Texas situation. On our interstate natural gas pipelines, of course it depends on whether we late cases We have no litigation; do not intend to file litigation on [GPL]. So, we have -- nor did increase the [Max Strips] to the extent that on some of our transportation we are not getting [Max Strip] which is the case of course. You know, we will try to increase those rates where we can. We are at max rates on a good bit of our storages, so we don't have any growth or capacity to escalate cost there. With regard to our other interstate natural gas pipelines, we do have late cases on both KMI and Trail Blazer coming up in the next year or 18 months. Those are relatively modest and they have a lot of -- on Trail Blazer, almost all the capacity or great bulk of capacity is under long-term of contracts. So they are locked in and the same is true on the high portion of KMI, but to the extent that we can pass through, we will, but it is not a huge element; and then if you look at our natural -- at our products pipeline, of course there we don't have late case, but we do get there. As you recall, inflation less 1% and that was about [inaudible] about 1% last year, 2.7% year before. Probably coming up this July will be next to nothing and may even negative a 0.5% or so.

So, what we can do is petition the FERC to change it to a healthcare index from [PTI] index.

But that's a long way to [inaudible] saying we pass it through when we can't, but again given our type of assets, for the most part this is something we just have to live with, [bond] efficiency [elsewhere] also.

And Richard if I could ask one last question and it may be a little bit broader. Given, what looks like a lack of drilling activity and the increasing decline rates on natural gas productions, what is your vantage point in terms of -- how that might impact your business going forward?

Well, I think that we are seeing a strong volumes on our natural gas system, and I think our volumes -- our throughput is more driven by the demand side than anything else so. When we have demand growth, those volumes move into our pipeline. You made a very good point on why is if that we haven't increased the production more than we have, why don't we have more gas rigs working with the $5 plus gas price? It is a whole separate set of issues, but so far that hasn't impacted our bottom line, or our throughput, and we don't anticipate this where we thinking in a long term and there will be a response. It's -- the pricing is the [inaudible] but, for example, there is tremendous [pinup] natural gas coming out of the Rockies. That's reflected in our system in Trans Colorado and also in Trailblazer, and [KMIGT] is coming out of the Rockies. Others have the same situation. Normally in the winter, of course, you expect the Rockies and Midwest prices, for example, to move to within 20 to 30 cents, normally within 50 cents of each other just reflecting the cost of hollowing the gas. But we are still seeing enormous differentials as of the first of this week we were still seeing differentials. I think, we are having $1.60 or $1.70 from [CIG to] [inaudible] to the mid-continent in GPL price. So, there is more gas backed up in the Rockies that needs to come out and there are also some environmental issues out there particularly [Inaudible] and [Inaudible] river basin. But so far that has not has made an impact and we don't think it will.

Thanks so much.

Our next question is from Mr. John Edwards with Deutsche Bank. Mr. Edwards you may ask your question.

Hi John.

Hi! How is it going? Great quarter.

Thank you.

Just a couple of questions. Could you update us on with regard to, I guess on the ongoing -- the fourth case that's been ongoing for a long time on your products pipeline?

Yeah. And there really is no new news on it, as we said repeatedly, it has been tried as before the ALJ. We would expect the decision sometime in the perceivable future. That's really a recommendation from the ALJ that [within] going the full perk, which is probably a year or 18 months after that decision. And then obviously if either side doesn't like the decision it gets from the -- only when you have full perk decision, that will any impact either from Rich's standpoint or [inaudible] standpoint. As either decide, there is no for [inaudible] DC circuit which don't have the right to affirm or overrule or send back or more sort a long process. But as I said before and we will say again, that certainly when you look at Kinder Morgan at the risk and rewards scenario, certainly you need to look at the regulatory risks in this company. We have a 30,000 miles of pipeline, over half of which are regulated in one form or another and we are very confident that in the long-term we could manage that regulatory risk. We don't see anything on the horizons specifically including this asset. [inaudible] barrel, that's going to make us unable to -- make our distributions at KMP or maintain our growth rate at KMI. But you could have wins without some push in any regulatory environment. And as soon as we find out what their decision is, we will certainly forward disclose that obviously. Mike can you add...?

I will just say, even if we just had a [inaudible] cooling, the ship is going to absolutely [inaudible], you are going to put in relative size. So end of the day, you are talking about 10-15 cents as the [MLT] in terms of distribution. We are not going to get good results in any kind of reduction in distribution even if we had a horrible loss. And in fact, probably it will do the way the growth in the distribution for couple of quarters. That were stationary.

Okay. Then -- yeah definitely. And then when is the decision expected?

We don't know, again it's...

I am sorry, the ALJ recommendations

We would break the drawbacks in first half of this year.

And then as far as the Trans-Colorado, are you looking at -- perhaps selling that down to KMP or may be you could comment a little bit on that?

Yeah. As you know, Trans-Colorado is not my favorite investment from the beginning. We did buy out the other half from [Cresco] last quarter for about $105m. So, we have about -- it will have -- you will see budget number for EBITDA next week. But actually we think we will do a lot better than that. It will probably have EBITDA [inaudible] earnings and [inaudible] not quite that high, something [inaudible] with the three for 2003. We are benefiting John from enormous bases differentials, and we now see we can now have visibility, if that's the right word out through '03, the bases differential between the producing areas, one from Colorado and the Vancouver hub in Northern Mexico is averaged $0.90-$1 in that range. So, when our tariff is 31 cents, you could see it's a no blinder to fill that pipeline up and it is running 280m a day on that North [inaudible]. We are talking to several producer division, what long-term contracts for additional capacity. If that materializes as we think it will, we could well be looking at an expansion of that line some through compression and some through looping. Well I will tell you, we will only do it if we turn-up both the old capacity and the new capacity because if you don't have it turned-up, you are subject to the whims in bases differential which could change. I think it's a pretty long-term play with the bases differentials, but you know, how conservative we are; we will really lock it in. If we can get a [lock] here, well -- you could possibly see an expansion on that system in the relatively near future. Now Park did I misstate any numbers.

No, I was just going to say to get back to EBITDA. If you just look at the fourth quarter of 2002, the EBITDA for the fourth quarter was round about $7m.

That will be about 30.

Yes, sort of, little less than 30 bases differential, actually stronger now than it was for the full quarter -- in the fourth quarter, and that we could even appreciate from there.

So then, if assuming you can reduce the rest to level that you desire; you would look at, perhaps locating that asset at KMP?

That's right. Yeah, I should have closed my follow-up John, yeah good correction. We would always move it down to the MLP, if we can come up the contracts so that the MLP, as you know, we just don't put assets in those -- we don't have long-term stable cash flow.

Okay.

That's only what we are doing.

Okay. And then you had updated us the last quarter on the discount between KMR and KMP, and perhaps, you could speak to that?

Yeah. When we talked, I guess, in December, the spread was almost $5.5; I didn't see the close this afternoon rather it's more like 3.25 -- something like that. It had closed someplace -- somewhat but it's still had spread that shouldn't exist. We said in December that we were going to talk to our Board about it in January, we did, and we've got discretion from the Board now -- sorry from the Board its KMI -- should we choose to do so. To buy in some of that [KMR ground], [inaudible] we claim it's a well over good deal. We haven't made decision to that; we'll watch it from day-to-day. We'll only buy then if there is an unwarranted disconnect. But we do have that authority; we will look at it. And I believe you will see those two correct. It's got to be just the liquidity issue, I think, for the most part because Park and I've said, it might [inaudible] in the place. Economically, the two KMP and KMR [inaudible] from the economic standpoint.

Okay. But you had commented, I think the last quarter, about the profitability in terms of keeping the KMP growth going, you know, at some point there is the large-large numbers issue, I think you were talking about tapping perhaps the alternative sources of capital. I think you mentioned, you know, perhaps some private equities -- that sort of thing?

That's certainly possible, if we had a large-scale acquisition. We certainly don't need to do that for our internal growth and I hope that point I made, maybe not well, but what I tried to make in that part of the presentation was -- for so long we had people saying, well we are [inaudible] all we can do is make acquisitions. Well we only made, if you [inaudible] in the '01, which we really do even though we paid for it in '02. We only made a little less than $200m of acquisitions in '02 and as you can see, we still had tremendous earnings growth at both KMP and [KMI]. So, I don't know what the way this limit will be but clearly we've shown, we can grow very well with that comparisons or we can grow with that acquisitions. How would you like it -- the world is round or the world is square? You know, it will teach us either way. But clearly we have enormous internal growth; we have enormous opportunities for capital expansion at KMP and that's why we are not going to do [warren field] acquisitions and watch there held to home [inaudible] for KMP and KMI. The opportunities to expand our own platform beginning with CO2 through natural gas pipelines, through our liquid pipelines, is just we have tremendous internal growth opportunities and hopefully that's what I was driving home. We are getting North of 20% on our internal growth projects, way North of that in terms of our CO2 projects and this is an entity that's running on all cylinders and largely being driven by internal growth at this point.

Okay great. Thanks a lot. A great quarter. And we will look for you to update next week.

Thanks John.

Mr. Kurt Lawner, from CSFB. You may ask your question.

Hi Kurt, how are you doing?

All right. Good Afternoon. Thanks. I wanted to ask you to help us think through the idea of raising the dividend on KMI and making the common relative to increasing - dividend increase capacity at KMI. If the tax law changes, the way many of us think it will, obviously, that could have some sort of a negative connotation or impact on the MLP structure; KMR gets involved here. So the idea of simply looking at KMI as a dividend increase story under a tax law change, I find disconcerting to some degree and I would like to ask you to comment on that.

Yeah. I will be happy to. I will try to be as give you the [inaudible] version and what we have thought an awful lot about this thing could go and on. But let me try it this way. Let me start from the KMI perspective. We have said throughout this call and we have even detailed with a $450m, a slightly above that, pre-cash flow for '03, 55m in expansion CAPEX. So we got $400m of true cash flow. Now, clearly, we plan to use the portion of that to pay down debt to keep balance sheet strong, but that leaves, even if you say you are going to use 50% for debt, that leaves $200m. Now you have an environment [inaudible] and I think you will agree with this. So what you are going to do with that with that $200m of balance equity. You pay down that with $200 and now you got $200m after that. And more and over and beyond - if you have that $200m and the President's proposal is enacted and you can pay out dividends that are 100% tax free. I think we would have an enormous clamor from our shareholders, expecting that we pay increased dividends. I am not saying we go to this, but clearly, if you have $200m or have 120m shares, if you pay out North of $1.50 and still be within your free cash flow and be passing an enormous benefit, would be coming out at today's low price for the stock at -- I don't know, 4.5 or 5% of yield and you would change the -- it would be very consistent; It will not be a change in our philosophy, which is simply to, as I said earlier, to get this free cash flow out to our investors, whether it's paying down debts, paying dividends, or buying back shares. We will do whatever is most cost effective. Right now it's clearly more cost effective from tax standpoint to buyback shares, as we have done for the past 2 years, than it is to raise the dividends. So that's it from a KMI standpoint. If we don't get the presidents proposal through or it turns out to be some -- half baked is not a word I want to use -- but some $5000 CAP or something like that on, which really won't benefit most of our investors [inaudible]. Then we will just continue to reevaluate our dividend on an annual basis and we will turn more toward buyback of stock and all likely because it is more efficient from a tax standpoint. Now take the second step to MLP. We do not agree with those people who think you will have a significant impact and [inaudible] we sent on MLP. And again we have to start, as I know, I am [inaudible] to certain extent currently [Jeff] to start with idea that the advice the MLP has is that the entity equivalent with the Sacroc does not pay taxes. So, if KMI didn't pay taxes, instead of having $450m of cash flow, we may have $650 or $700m of cash flow. So, KMP will still have a significant advantage on the KMI or any Sacroc in terms of generating tremendous amount of cash to pay out. Okay, so you say, "Well, that is fine, but what about the unit holder of an MLP versus a shareholder of the Sacroc." We think there it is pretty close, even if you exempt from taxation the dividends that I receive as a Sacroc holder. Still as an MLP unit holder, 85-90% across MLP universe and above 90% of KMP. We will re tax [deferred]. So I really don't pat any taxes on that either. So, we think you have, if you are chalking this up on scoreboard MLP is 1 Sacroc is 0, at the corporate level and then at the individual levels it is pretty good. Since probably Sacroc is 1, MLP is 0.9. So I still give the advantage to MLPs; their yields are still higher. I don't think you are going to see any corporation paying out on a 7% or better yields as MLPs are giving itself. I think you will have MLPs will continue on their present course, and I think it will good for the country and good for KMI if the President's policy is passed. I think it's very -- there is certainly a question out there, as to whether it will get passed without compromise. Mike.

I will just say the -- that nothing in the dividend tax proposal changes the total value proposition for KMP. The total return proposition which is 7% yield, [largely] tax deferred and then an 8-10% growth rate in that yield will try to get you something in the [mid-teens] on a very stable asset base. So, nothing has changed in that fundamental value proposition. And the only thing I will add to that is, I think about Richard's analysis and true benefits of MLP in the two levels at which the MLP does not pay tax. If you can get more people thinking about taxes on dividends and distribution you might be getting more people recognizing that power of the MLP, because they are not to [inaudible] with the MLP.

I guess the only thing that comes out negative from all this then is hoping against something that will come out half baked.

I think that's right.

All right. Thanks for the insight guys.

Thank you Kurt.

There is Rebecca Followill of Howard Weil. You may ask your question.

Well, Hi Rebecca, Howard Weil.

Howard Weil

Okay. Go ahead.

Couple of questions for you, following up again on this KMI repurchase. How much would you deem to be a significant discount?

I think we'll evaluate that as we go forward. $5 pretty significant, $3 is pretty significant, but I think at each point in time, we'll take a look it and see what we want to do.

Okay. Second on the tax rate. Can you talk a little bit more about -- I think you mentioned that it was a lower state, effect the state tax rate. What has changed in the state situation below your tax rate if that's the main reason for lower tax rate?

There have been a number of things. We have had some project underway that have reduced our state tax obligation; we have also had additional changes in our business that have reduced our state tax obligation. And really what happened here is, we go through the process of preparing our returns -- the state tax returns really don't get filed until the fall it's is kind of the October timeframe, and that's the point in time in which we reexamine what our tax rate should be going forward. And so we got through that process this year and recognized that, "hey we are actually accruing too much at this point." We mentioned it in the third quarter call that we had an equaling that this might be coming. We talked about it in December when we thought it was going to happen. We think that we are at the appropriate level for '03 and going forward, but it is something that we are going have to look at every year.

Thank you. And then on your previous numbers on 3.11, what tax rate do they assume versus the current? Or is it 38-39 now for '03?

Yeah. It's a -- 3.18 is the current estimate, 3.11 was the prior estimate and then in the 3.11 we had 38.5 I believe.

Okay. And then a couple more of minor questions. On the CO2, the EBIT is up significantly in Q4 versus Q3. Can you talk a little bit about how much is that driven by the increased volume in Sacroc versus how much is due to -- I know that your hedge [but] even of over time as oil prices go up, your hedge positions is not going to be more favorable, given what have oil prices have done over the past 12 months. So how much of that was due to increased oil production and how much of it was increase due to just the higher margin?

Rebecca, I think, the right way to think about it is, when we have excess production, when we produce above our forecast, then that is more valuable is oil prices are higher. Now it's a relatively smaller impact, because you know we typically are in the current quarter 90% plus hedge. And so, you know, you don't see a big impact from changes in current oil prices. But it does happen that if we overproduce and oil prices are high, well then you are going to see a bigger impact from that.

So it's well over 50% that I am looking at January.

The volume impact is not going to feature looking at them.

I think the predominant end piece, a feature of the increase of the fourth quarter was the wrap up at [dodge].

Okay.

And as I said earlier, that's continued into '03 and seems to have a real [inaudible].

Okay. And the reason for the volumes continuing to go up much higher than expected, is that you are, you know, ramping up -- or what is changing, you know, the production is coming up so much?

Obviously we're spending a great deal of money as we've previously disclosed to you. Last year the Board authorized $162m, and we'll spend another huge amount of money in 2003 on that project. And that's to drill the wells and put in the [CO2] injection equipment, as well as expand the capacity of the pipeline coming in there. That's the centerline pipeline that is underway right now and will come on line, as we said early, before mid-year. So that's what we're doing and as we do that -- and of course a tremendously important part of it is to add compression, both on the injection platform and on the ability to take the oil out. So we [inaudible] in February, we've got another whole trough of compression that's right now been manufactured here at Houston. That will be shipped out there and put on a mine. So we will probably see another nice pump by March on top of the present. So that's what -- is ramping it up and the results are at the high end of the range that Tim Bradley and [inaudible] would echo. And it's a wonderful project. Again we are not [inaudible] company, we are virtual oil company and one real specialty niche, which is it, I think -- you said modestly we have more CO2 expertise than anybody in the country, or as much as anybody else. And Tim and his people are able to employ that expertise and Sacroc is a perfect field to do it. And it's a huge, huge field with tremendous abilities. You'll recall we took it over in mid 2000 that was producing 8,000 barrels a day. And again we are at almost 17,000 right now in January.

Just the next week at the conference, Tim Bradley, the head of our CO2 group is going to have a lot of additional information on price and volumes to share with you too.

I don't want to go in too much -- he would probably fall on his face. He is going to be a featured speaker.

Thank you and one last question for you on the power and other. That was up in the fourth quarter relative to the third quarter significantly. And I had come as expected much lower numbers, anything in particular going on there?

No, I mean it's primarily just going to be there -- some remaining development fees that are flowing through. And so that's going to drive that variance.

So that was -- its just a lumpiness that in this fourth quarter?

Yes.

Okay. So a better-run rate going forward for power would be?

We'll have that all next week, when we lay out the budget. So we'll tell exactly what we expect for 2003 next Wednesday.

The segment will be down '03 versus '02. That's going to be a section out there.

Okay, thank you.

Thank you.

Mr. Eric Olson of Barrel Hanley, you may ask your question.

I was just curious, how come the rating agencies value the capital first securities and the minority interest on KMI balance sheet, do they count that as equity or do they, a final percentage to that is debt?

Park...

It's [not] that is considered debt. They do occasionally not consider the 100% equity.

And also on this $450m in free cash that you've been talking about, are you making an assumption for working capital changes in that?

Yes the assumption is that there are no working capital changes.

Thank you.

Mr. Ron Londe of A G Edwards, you may ask your question.

Hey Ron how are you doing?

Very good Rich how are you? It appears to me that the general partners interest to net income actually dropped to 44.5% from 45.7% last year. Can you give us some insight in to the reason for that? And also if you can comment on the number of units outstanding, it looks like units increased on average about 11.7%, how many of those were from, you know, offerings and how from KMR pass through units? And how much cash from that pass through ended up in the MOP?

Let me -- Ron it's Mike, on the first one, you know, really the GP of interest is calculated on for cash. So generally, that's what around 40% of the GP gets as cash. And I think what you do -- when you look at it, compared to the net income we get a slightly different number and basically that goes back to we didn't have as much coverage, when you compare kind of earnings to cash distribution in '01 as we did in '02. We had more coverage and that affects that dynamic. But the actual mechanics we'd have, our cash is distributed. Of course as [inaudible] by the partnership agreement. And again that works out to roughly 40% of the $700m that Park talked about.

And to put it in another way, you should never look for some kind of fidelity or some kind of meaning in at the percentage of general partners interest in net income over net income. Again, those two are unrelated. The general partner share is dictated completed by the partnership agreement and is a function of the distribution. And I think your next question was on the number of units. The reason that the number of units went up -- and I think you are looking at the average for the year -- is because of the equity issuance that occurred in July. If you look at the average balance for the fourth quarter, 180.6m units, that is closer to where we will end the year. Now, you -- also identify that the number of units goes up each quarter as a function of the KMR distribution. And so the actual year-end rate is just a little bit under 181m units. And it will go up quarterly and you know, the easy calculation there is just the yield times the number of KMR shares outstanding, which is 45m shares, shows you the number of additional shares that will go out each year.

And obviously Ron that will increase because it's compounding on itself. All shares we issue has dividends of KMR and more KMR is outstanding. And that gets paid to dividend. And that's why I think Park has said previously and we'll certainly go into some detail next week on that we expect about $120m of new KMR units to be issued. And that the right way to think about, that's really is a massive DRIP program equity issue. And I think that was your last question Ron. The number for 2002 is about $85m; the number for 2003 will be about [120]. The main reason why there is that growth is again because we issued more KMR in the middle of the year. So, you'll have a full year of distribution on those new shares.

Thank you.

Thanks.

At this time, there are no further questions.

Okay. Well, listeners we thank you very much for attending this conference. So feel free to call Park or Mike with any questions you might have. And again we think we had a tremendous quarter and tremendous year. And we look forward to see you all next week, so we could explain that what a great 2003 we are going to have. Thank you again.