金德摩根 (KMI) 2003 Q4 法說會逐字稿

Hello, and welcome to the Kinder Morgan Earnings Conference Call. Thank you very much for standing by. At this time all participants are in a listen-only mode. After the presentation, we will conduct a question and answer session. If you have a question, please press *1 on your telephone touch pad, and you will be prompted to record your name. Once your line has been open and your name has been announced by today’s coordinator – which is me – please announce the company that you are calling from. Today’s conference is being recorded, and if you have any objections you may disconnect at this time. I would now like to turn the meeting over to Mr. Rich Kinder. Sir, you may begin.

Okay, thank you Jana, and welcome to the Kinder Morgan Quarterly Analyst Call. Today we’ll be talking about Kinder Morgan Inc., which is one of the largest midstream energy companies in America, and I’ll refer to that company as KMI, its New York Stock Exchange symbol, and we’ll also be talking about Kinder Morgan Energy Partners, which is the largest pipeline master limited partnership in America, I’ll refer to that as KMP. And of course, KMI owns the general partner of KMP combined to have an apprised value of about $24b.

We’ll be making statements within the meaning of the Securities Act 1933 and the Securities and Exchange Act of 1934. As usual, I’ll give an overview of the results for the fourth quarter and the full year 2003, a little bit about our outlook for 2004 and then Park Shaper, our CFO, will cover the numbers and a more – a more lucid detail. And then as usual, we’ll answer any and all questions that you might have.

Let me start with KMI. We have three important announcements from KMI today. First we reported record earnings for 2003. Second, we have increased our quarterly dividend by 41 percent to 56.25 cents per share, or $2.25 annualized, from a rate of 40 cents or $1.60 annualized. And third, with regard to 2004, the KMI rate of its diluted EPS estimate from $3.60 to $3.71. So let me go through those three areas and let me start with earnings.

Earnings per share from continuing operations before special items in 2003 were $3.33. That’s up 17 percent from the $2.84 in 2002, also above the consensus estimate of $3.29. For the fourth quarter, comparable earnings per share were 89 cents, up 10 percent from the 81 cents in 2002 and again above consensus estimates of 86 cents.

Consistent with what we said in our third quarter analyst call, we did complete our reevaluation of certain of our power assets, mainly the power plant located in Wrightsville, Arkansas, which had been placed into bankruptcy by [Morant]. We did take a write down on that. It’s non-cash, it’s non-recurring and it’s within the range that we talked to you about at the end of last quarter we said it would not exceed $30m after tax. It did not. That amounted to 24 cents per share. We’ve laid all that out on the table in the first page of the earnings release, but let me just say we have now put that issue behind us, and while nothing is certain but death and taxes, I think we put any other potential issue in the power segment behind us. All of our remaining plants, it’s between 1 percent and 2 percent of our company, [they’re] sold under long-term agreements.

Let me talk about how pleased we are with the earnings per share, but maybe equally important to the EPS is to take a little bit of a look at the cash flow for 2003. We started with an original budget for free cash flow of $470m at the beginning of 2003. During the year we then, as things looked better, as we got a better handle on exactly where the cash was going to come out, we raised that to $530m. It turned out we came in at about $560m, in what we define as free cash flow. Let me define that again for you. That’s pre-tax income before DD&A less cash paid for income taxes and less all sustaining capital expenditures. What it really boils down to is it’s cash flow that we have available to pay dividends, to pay down debt, to do expansion capex, which as you know, is very minimal at KMI, because almost all of that is done at KMP, and for share repurchases.

So that really brings me to the dividend issue. Because we had this significant cash flow in 2003, we feel very comfortable in substantially increasing our dividend, while at the same time during 2003 we paid down almost $360m in debt at KMI, and Park will take you through that in detail. Because we paid down so much debt, our total debt to cap ratio is now down to below 43 percent at year end, down from 48 percent at year end 2002. And our absolute level of debt is now below $3b.

With our increase to $2.25 on an annualized basis, we’ve now increased our dividend by over 10 times, from 5 cents to 56.25 cents per share in the past 18 months and we’ve done that after primarily – most of it – after the passing of federal legislation in 2003 that substantially reduced the taxes on dividends.

Because we have this strong and growing cash flow and at our analyst conference we’ll take you through more details of what we expect to come out in 2004 on cash flow, but we expect to grow again this year. We expect we will be able to continue to increase our dividend so long as the tax treatment remains as favorable as it is now, and we expect that to last for at least several years, if not permanently.

We expect the rate of that annual dividend increase in the future to be at least equal to KMI’s annual growth and earnings. Let me also quantify our dividend policy by saying even at the new 2.25 annualized rate, our dividend still represents less than 50 percent of our expected free cash flow in 2004, and it represents about 60 percent of our expected earnings. That increased dividend will be payable on February 13, 2004 to shareholders of record as of January 30th.

Now let me talk a little bit about the 2004 outlook. Back in December, as we always do, we published our preliminary outlook for the year. Said we would detail that and post the whole budget on the web site for you. This week when we have our annual analyst conference here in Houston on Friday and completing the budget then prepared for the meeting, actually 2004 is shaping up as a little stronger. We’ve now raised our earnings expectations to $3.71 per share from $3.67. Now I remind you that when we talk about $3.71 that includes contributions from assets currently owned by the Kinder Morgan companies. It does not include any benefits or any unidentified acquisitions, although we certainly expect to make acquisitions at KMP during the course of 2004, just like we’ve done every year. And to the extent that we do that, that would read down to the benefit of both KMP and KMI.

With regard to cash flow in 2004, we’re estimating we will have at least $580m of cash flow, again, that’s the cash we would have available to pay dividends, repurchase stock, retire debt and fund any expansion of capital projects. And again, our expansion capital budget is very minimal at KMI for 2004.

Again, we will explain this in detail at our Friday annual analyst meeting. We will post it on our website, so that you and any other investor can follow our project throughout the year. Our 2004 budget will be the standard by which we measure our own success. Our bonus program will be key to that, just as it has been every year, and we remain committed to transparency and we will continue to review and explain any variances to that plan during each of our quarterly earnings calls during 2004.

Now let me talk about performance by each of KMI’s business segments, starting with KMI’s ownership interest in KMP. That ownership interest contributed just short of $400m, $398.3m of pre-tax earnings to KMI in 2003. That was up 18 percent over 2002 when it contributed about $339m. The figures in the fourth quarter were 105.5 this year versus about 91 a year ago. And if you look at the actual total distributions that we’ll get, $21m plus in distributions from our investment in KMP for the year 2003, and that’s up from $355m in 2002.

I know I don’t need to remind most of you that as KMP’s cash flow grows, KMI’s general partners share that cash flow growth as well, up to 50 percent of incremental cash flow, and KMP’s cash flow, as we’ll talk about in a minute, as Park will give you in detail, continue to increase substantially in 2003, primarily due to internal growth on its pipeline, terminal and COT assets.

The second business segment at KMI is Natural Gas Pipeline of America, or NGPL. They reported segment earnings of $372m for the year and $95.4m to the fourth quarter. Those results were 3 percent and 4 percent higher respectively than in the comparable period of 2002. I would just say that NGPL had a really terrific year. Probably most importantly re-contracting very successfully its firm transportation and storage capacity, and increasing its throughput. For example, for this winter season, between 98 and 99 percent of the firm transportation capacity is sold out, and our storage capacity is now fully subscribed throughout calendar years 2004 and into 2005.

In addition, the throughput in this segment increased by nearly 2 percent for the year, and particularly strong in the fourth quarter by 3.7 percent in that quarter. Let me remind you that increased throughput on NGPL does not – does not – directly correlate to an increase in short-term earnings, because as you remember, the vast majority of our firm transport and storage revenues come from demand charges that are secured by contracts that customers are obligated to pay, regardless of the amount of gas they ship. All that is true, but this increased throughput I think shows the strength of the market area, number one. Number two, that we’re certainly getting high share of that market. It means our customers are more fully utilizing the capacity they are paying for, and I think what that really does is it bodes very well for our future business and our ability to continue what we’ve done, I think a superb job over the last few years, and that’s successfully renewing, extending and expanding these contracts with our customers.

Third business segment at KMI is Trans Colorado. It reported segment earnings of a little over $23m for the year, $5.6m for the fourth quarter. Full year results are about double the previous year, but that really reflects KMI’s increased ownership stake in Trans Colorado, which we increased from 50 percent to 100 percent in October, 2002. Quarterly results were basically flat year to year, in both cases a little bit better than the budget we had in place for the year where we had budgeted about $16m of annual earnings before segment earnings. I’ll not again that Colorado and Wyoming are the fastest growing onshore natural gas production areas of the lower 48. There’s a lot of demand to actually take that gas and access various pipeline systems. Trans Colorado, for that reason, is expanding its system to enable more of the gas in Western Colorado to get down into the Mexico Hub and it can either move east or more likely to California from that point. That expansion is going to cost us about $33m, it’s fully subscribed and will provide about $125m a day of additional firm transportation capacity, again, fully sold to 10 years and we expect that expansion to be operational in August of 2004.

Now our fourth segment that came out is retail. Retail earned $65.5m in 2003 and a little less than $21m in the fourth quarter. Came in just slightly about our budget projection for the year at about 2 percent above 2002. As Park will talk about later and as we talked about in the first quarter of 2003 when we had a barn burner of a quarter, we said at that point we had a timing shift which would result in lower fourth quarter results, higher first quarter results, and that’s exactly what happened. As I say, we’re right on target for the year and just a shade above the budget numbers.

Another development on Trans Colorado, we now have all the permits and we are under construction with a 60-mile [Montero] to [Uray] Colorado pipeline that will serve several thousand new customers. For those of you who aren’t skiers or trout fishermen, that’s a great area of Colorado. Just, we already serve Aspen [tell you ride], the Vale Valley. This is down around Ridgeway, very popular resort areas going over the pass into [Uray], which is in the general direction of Silverton and Durango. So it’s a rapidly growing area and we’ll announce to attach a few thousand additional meters over the next couple of years.

Our final segment at KMI is power. Again, that represents a little less than 2 percent of KMI’s total segment earnings in 2003. Before the special items that I mentioned earlier, power had earnings a little over $22m for the year and a little over $3m for the fourth quarter. Results came in for this segment about $2.7m better than the company’s published budget, which you’ve seen, which was $19.4m for the year. And the expected [Convergo 2] we did have an earnings reduction exactly as we expected, because as you know, at the end of 2002 we discontinued power plant development activities in this segment.

I already talked about the special items and the write down to writes for the plant was $28m after tax. We initially took another $2m because there was some gas reserves associated with the power operations out in Colorado, we went ahead and sold those, realized $3m in cash and retained royalty interest and recorded a little less than $2m book loss on that.

So that’s KMI for you, just a superb year at KMI, and as I said earlier, a large part of that was driven by results of KMP, so let me talk about KMP now.

The most important news there is that today the KMP board authorized an increase in the fourth quarter of cash distribution per unit from 66 cents to 68 cents, or $2.72 annualized. To put that in perspective, that’s I believe the 18th distribution increase since the company began in February of 1997, and it too will be paid on February 13th to record holders on January 30th. This distribution represents a 9 percent increase over the fourth quarter of 2002 cash distribution, and in total we declared $2.63 per unit. During 2003 that’s up 8 percent from the comparable $2.43 cents in 2002.

KMP reported earnings in 2003 of about $694m, or $1.98 per unit, compared to about $680m the year before, or $1.96. Park will go through all those in more detail. Once again, I think our stable assets generated reliable cash flow, which supported distributions of a little over $825m in 2003, and we were able to increase the distribution in the fourth quarter. Most of this growth came from strong internal growth as we invested about $480m in capex projects at KMP in 2003. We also made 11 acquisitions totaling almost $400m.

Now let me comment on those acquisitions. Over $300m of those acquisitions were made in the fourth quarter. I think that has two impacts. Number one, we haven’t seen much benefit of those acquisitions in 2003, we will see it in 2004. And secondly, we have not turned up the equity portion of that financing, as Park will talk to you about, in our plan for 2004 we plan to put out KMP equity of about $200m in the first half of the year, and another $100m in the second half of the year.

Now let me go business segment by business segment. At KMP they give you some pretty interesting numbers. Let me start with products pipelines. They had a 3 percent increase in 2003 earnings before DD&A, earning just about $442m compared to $427m in 2002. For the fourth quarter, earnings before DD&A were up 5 percent to a little over $114m compared to a little less than $109m for the fourth quarter of 2002.

The segment had a strong fourth quarter, a pretty good year overall, although as Park will tell you, this is the one segment at Kinder Morgan that fell short of its published annual budget target of 5 percent growth. Fell about $8m short, $7m of that approximately came from the shortfall in [coaching], which I’ll talk about in a minute. I think the important news for the fourth quarter is that the trends seem to be in the right direction. Gasoline, diesel and jet fuel volumes, in other words the sum of the products volumes in this segment were up 2 percent in the fourth quarter compared to the fourth quarter of 2002. Jet fuel volumes were up considerably in both the third and fourth quarter. As we always do, we normalize for the impact of the 2003 transition from MTB ethanol in California, because as you recall, ethanol can’t be transported by a pipeline. It has to instead be blended at the terminals. When you correct for that, total product volumes were up 3.2 percent for the fourth quarter.

Interesting to note that on the same basis, I personally sort of look at gasoline on SFPP as a proxy for the West coast economy. Gas deliveries on the West coast system, the old SFPP line, on this basis of normalizing for ethanol, were up 2.8 percent for the fourth quarter and 1.5 percent for the full year 2003. So I think that gives you an idea, things seem to be coming back in the first quarter of this year, starting off in pretty good fashion.

Now obviously, even though the effect of this ethanol blending and the fact that you can’t move ethanol through the pipeline has impact on volume. It’s just the counter on earnings, we were actually positively impacted by the fees we charge from ethanol blending at our various California terminals, so actually – and as well as strong diesel volumes which were up by 6 percent for the year. So we had a pretty good year, particularly in the fourth quarter on our Pacific system. Again, the real disappointment in the products pipeline came from [Coaching] pipeline, that’s the NGL line coming down from Canada. As you recall, that’s operated by BP. We own 45 percent, BP owns 45 percent, Coneco owns 10 percent. That was the one where they had a fire in late July. It was actually down for 29 days, I think, and so [Coaching] actually had about $7m less in earnings in 2003 than it did in 2002. So that made up almost all of the shortfall in the product segment.

Turning to natural gas pipelines, there the 2003 earnings before DD&A were $373m, up 15 percent from $325.5m in 2002. Very strong performance and particularly in the fourth quarter where earnings before DD&A were up 11 percent to $99.7m compared to $89.5m for the same period in the fourth quarter. The growth in this segment for both the fourth quarter and the fully year was overwhelmingly driven by the strong compartments of our Texas intrastate system. And we also had some modest contributions from two expansion projects, our North Texas and our Monterey pipelines which came online during 2003.

Annual earnings before DD&A for the Kinder Morgan intrastate pipelines increased 22 percent year to year. Let me just throw out the expansions. Not considering the new pipelines, the earnings on our Texas intrastate pipelines alone, that’s [Teas] and KMPP that we’ve now put together, were up $31m over 2002, apples to apples.

I think what we’re seeing there is we are now seeing and getting a real benefit from those [Teas] assets that we acquired in the first part of 2002 as I’ve told you before. We weren’t overwhelmingly pleased with the performance of the [Teas] assets and 2002. We’re damn pleased with them in 2003, and in fact as you know we run three year acquisition models when we make an acquisition, so 2003 was the second year of the [Teas] model and we actually exceeded our acquisition plan now in 2003.

Another indication out in our lines, transport volumes were up by almost 13 percent for the year and almost 14 percent for the fourth quarter. Sales volumes were up about 2.5 percent for the year and 12 percent for the fourth quarter. So very strong year, very strong quarter on our natural gas pipeline segment.

Now turning to our fastest growing area, our CO2 pipeline segment for 2003. Reported earnings before DD&A of $204m, up from $132m in 2002. That’s an increase of 54 percent year to year, but maybe more importantly, exceeding by almost $30m the 2003 budget target of $174.5m, Park will talk about that in more detail. For the fourth quarter, earnings before DD&A were up 56 percent to $61m plus, compared to about $39m for the same period in the previous year.

Most of the growth in this segment was attributable to expansion projects at the [Sack Rock] unit in the Permian Basin where our oil production, as we told you it would, averaged over 20,000 bpd. Now at year end we’re running a little over 23,000. We’re now between 24,000 and 25,000. The fourth quarter average was over 23,000 bpd and that’s up 52 percent from the fourth quarter a year ago.

In addition to the production at [Sack Rock] our CO2 delivery volumes and our CO2 production at our [McElmo Dome] source field in Colorado also increased considerably. CO2 volumes are up 17 percent for the year and 61 percent for the quarter. During the month of December [McElmo Dome] reported record CO2 production, averaging over 1b cubic feet per day, and that sell through set a record the other day with 1.020b in CF of production out of our [McElmo Dome] field.

Also during the year, of course, we did buy Marathon’s interest in the [Yade’s Field], increasing our interest there to 50 percent and assuming the operatorship. That closed in November. We expect that to add about 20,000 bpd on an 8H basis of oil production in 2004. Again, we owned about 50 percent of it.

I want to remind you that CO2 is one of the very few areas where KMP is exposed to commodity price risk. There again, we mitigate that risk by a very disciplined, long-term hedging strategy which is intended to generate more stable realized prices. The proof is always in the numbers, so we always tell you what the numbers are, and here with crude today topping out the last couple of days at around $36, our average for 2003 was $23.73 compared to $22.45 in 2003. For the fourth quarter it was $23.05 compared to $22.34 for 2002. Proof that our hedging program, which is actually depriving us of income in 2003, is working and we continue to hedge. We have a vast majority of 2004 volumes already hedged, and Park will talk about that in detail. The hedges, some of them go out five and six years.

Turning to our fourth segment, our terminal segment, also had a very good year. Reported a 15 percent increase in 2003 earnings before DD&A to about $241m, that’s up from $209m in 2002 and well above budget. And fourth quarter earnings up about the same, up 15 percent to $61m compared to $55m a year ago.

Results in this segment were driven by expansion projects within our existing [Wentwoods] terminals, and we did make some small acquisitions that did pay benefits, but the terminals that were owned both years, apples to apples, accounted for a little more than 50 percent of the increase in segment earnings. Most of that internal growth occurred at New York Harbor at our [Collerette] facility, and here in Houston in [Galenna Park].

For the outlook on KMP, as we said in December we expect to require cash distributions of at least $2.84 cents per unit for 2004. Let me remind you, those expectations include contributions from assets currently owned by Kinder Morgan and don’t include any benefits from unidentified acquisitions. We certainly expect to make additional acquisitions, which would represent an upside.

Now if you look at that $2.84 and compare it to the $2.63 in 2003, your first reaction is that’s an 8 percent increase, that’s right within what we’ve told you. We think year after year we can increase 8 percent to 10 percent at KMP in terms of distributions per unit, but actually that probably tells the story a little too pessimistically. When we share the detailed budget with you on Friday you are going to see that the actual growth in distributable cash flow per unit at KMP is close to 11 percent, but what we’re doing is just increasing our coverage ratios. In other words, we are having excess coverage about the actual distribution that we are looking to make. So a very good growth at both counties, very positive outlook for 2004. While it’s impossible to judge a year based on two or three weeks, so far the first quarter is looking fine. With that, I’ll turn it over to Park.

All right. Well thanks, Rich. I’m not sure how much more detail I can provide, but I’ll give it a shot. I’ll start with KMP and again, if you have the press releases in front of you I’m on the first earnings page in the KMP press release. At the bottom of the page you’ll see the declared distribution for the fourth quarter of 68 cents, that’s up from a year ago, 62.5 cents, a 9 percent increase. For the year we will have distributed $2.63, up from $2.435 so up 8 percent 2003 over 2002.

Now for the quarter we show coverage, which again back of the envelope is net income before DD&A less sustaining capex of 68 cents. For the year we show coverage of $2.69. If you go before the change in accounting principles its $2.71 after the change in accounting principle. That change was back in the first quarter and resulted in about an additional $3.5m of income. But again, it’s a coverage of 1.02 to 1.03. Our budgeted coverage was $2.64, basically 1.00 percent coverage. We have clearly exceeded that throughout the year.

Taking a look at what drives that coverage. Earnings for the quarter, 51 cents compared to about 50 cents a year ago. For the year $1.98 compared to $1.96. Now the main reason why the growth rate in the earnings is lower than the growth rate in the distributable cash flow is because of the DD&A. We talked about this when we went over the 2003 budget back in January of a year ago. We got more conservative in how we are accruing DD&A, especially at [Sack Rock] that resulted in an increased DD&A rate in 2003 over 2002. You can see the effect on the next line. If you look at the year we have $1.21 per unit of DD&A compared to $1.03 a year ago. That’s 17 percent growth in DD&A.

The line right below that is sustaining capital expenditures. It’s about 50 cents a unit compared to about 45 cents a unit a year ago. The number of units is up a little bit as well. We ended up with $93m in sustaining capex in 2003, up from $77m a year ago. Our budget was $95m, so we’re essentially right on budget, consistent with expectations on sustaining capex. And again, that drives the $2.69 or the $2.71 of coverage, depending upon how you look at it.

If you go to the next phase you can see the segments. Again, Rich has covered a lot of this but I will compare it to budget. You’ll see products pipelines for the year about $442m of earnings before DD&A compared to about $427m a year ago. Our budget was about $449m. Again, we’re off budget by about $7m. Now on the segment this large, that’s only about 1.5 percent. It’s not a wide miss from budget. Additionally, it is almost all driven by [Coaching] and the rupture and the shutdown that we had there. Just about all of our other assets were right about plan. And, as Rich mentioned, the fourth quarter volume numbers are very encouraging for what we will see next year. Of course, we’ll go through those expectations in detail on Friday.

Natural gas pipeline, about $100m for the quarter, that’s about $10m from a year ago, $373m for the year, up from $325m a year ago. Our budget was about $365m so we exceeded budget by over 2 percent. Again, as Rich mentioned, dramatic growth in the Texas intrastate, just taking off in KMPP, we’re up $31m in 2003 over 2002.

So we have two pipelines driven primarily by the [Sack Rock] volumes which you can see down below on that page, and as Rich mentioned, are up 52 percent for the quarter and 55 percent for the year, resulted in almost $204m of earnings before DD&A for the year. Up from $132m a year ago, 54 percent growth and well over our budget which was $174.5m. Almost $30m over budget, about 17 percent over budget for the year, so a great year for CO2.

On the terminal side, for the quarter $61m, up from $55m. For the year, about $241m, up from about $209m. It’s about 15 percent growth, also well in excess of its budget of about $233m, so almost 3.5 percent above budget.

There is one minor issue here, is a re-class with G&A down below. There’s about $6m that we had originally expected would be expensed in the terminal segment that we have actually moved down to G&A, so in effect it increases the terminals earnings, it also increases G&A expense. It’s related to benefits and it makes terminals consistent with how we report these benefits for all of our other segments, so we have made that change. I’ll talk about that again when I get to G&A.

And we made a change in 2002.

Exactly. 2002 has been restated, so it’s on a consistent basis, but when you compare it to the budget, then that $6m essentially needs to be added on to the budget number. You’ll see the terminals are still above the budget. When you sum up the segment earnings before DD&A, you get 1.26b in 2003, up from a little under $1.1b in 2002. It’s about 15 percent growth, and it’s also well above our annual budget which was about $1.22b. So very nice out performance from the segments.

With that, let me jump down to the G&A line. We’ll see its in the segment titled Segment Earnings Contribution. For the quarter its up $42m, up from about $32m a year ago. For the year about $150m, up from $122m. Our budget was about $128m. Now again, about $6m of that variance is related to the terminals that I just discussed, and the other variance is from budget or increased legal expenses and increased benefit, pension and health expenses, for the most part. And so those essentially just came in a little bit ahead of what we expected.

The net debt cost, you’ll see about $47m of interest expense for the quarter, compared to about $47m a year ago. For the year, about $181m, compared to about $176m. That’s a couple million dollars under our budget. What we had for the year relative to last year was a slightly higher balance as a function of the expansion in capital expenditures and the acquisitions, although most of the acquisitions were back-end loaded in, so they didn’t have a very big impact. And a slightly lower rate, even though we budgeted for an increase in rates as we consistently do, because 50 percent of our rates are floating, we always budget for an increase in that floating rate. We actually did not see that throughout the year. Rates actually declined slightly from where they were last year.

Other and minority interest and cumulative effect of change in accounting principle, you know, not overly significant. The minority interest number, that is primarily just a [inaudible] partner minority interest. You’ll see net income of $697m. We had $694m prior to the change in accounting principle, it’s up 15 percent from the net income in 2002.

With that I will make a couple of additional comments on the page right before this, again going back to the income statement. Revenues are up about 24 percent for the quarter, they are up about 56 percent for the year. We don’t believe that those are overly meaningful numbers. Once again, our revenues are impacted by commodity prices. You’ll see that operating expenses are also impacted by commodity prices, and have increased as well. So again, we don’t think that the revenues are a meaningful measure.

DD&A we talked about the tremendous growth there, mostly driven by the oil production at [Sack Rock] it’s up 27 percent for the year. G&A we’ve already discussed. PP&E is up as well, largely by the increased production at [Sack Rock] and some higher property tax rates. Operating income is up $82m or about 11 percent for the year. Earnings for equity investments, there are a little bit of ins and outs here, but primarily in [Plain Facion] and [Court Chesmo] but I will point out that last year, for a full year, we had the MKN partnership. In 2003, we only had the MKN partnership for about half a year. It was dissolved in June of 2003.

Interest expense we’ve already discussed, other is very minor, and minority interest we’ve already discussed. And again, it gets us to the income before change in accounting principle of $694m and then after that change of $697m. That drops down to our net income per unit of $1.98, although again, we think the much more relevant measure, rather than net income, is the distributable cash flow per unit which is $2.69 or $2.71 after the accounting change. And then of course the distribution, $2.63 for the year.

Real quick on the balance sheet for KMP, which is the last stage of the KMP earnings release, not a whole lot of changes on the asset side. PP&E is up almost $850m, that’s driven by acquisitions and expansion capital. We announced about $400m worth of acquisitions in 2003, as Rich mentioned. We also had expansion capital of about $480m. So those things added together really drove the increase in PP&E.

You see investments are down almost $50m, again that is the dissolution of a MKN partnership. Total assets, $9.1b, up about $800m from about $8.35b at the end of 2002. On the liabilities and capital side, other current liabilities, largely unchanged. Long-term debt I’ll discuss in just a minute. Market value of swaps just moves around with the forward interest rate curve. Other is largely a function of our hedges, asset retirement obligations, which is a change in accounting principle, and then the acquisition of [Yate] and in partner [sample] you’ll see its up about $100m.

Total debt is a little under $4.3b, its up from a little over $3.6b at the beginning of the year, that’s an increase of almost $680m. Similarly, our debt’s cap has gone up to about 55 percent from about 51 percent at the beginning of the year. The main reason for this is what Rich pointed out. We had a number of acquisitions over $300m in the fourth quarter of 2003. Now we haven’t seen the impact from those acquisitions in our results. We also have not yet permanently financed the equity portion of those acquisitions, but we expect to do that in the first half of 2004.

But reconciling the $677m increase in debt, the actual cash that went out for acquisitions is $344m, the difference between that and the approximate $400m that we talk about are the additional investments that we need to make in the assets that we acquire take us up to $400m. The expansion total is $480m, so again it’s up $345m, plus $480m. We generated about $173m in equity offering that was in May of 2003. We also generated about $126m in cash from the KMR distributions that were paid in shares as opposed to in cash. And so that is effectively an equity raising mechanism itself and resulted in $126m in 2003.

We paid a rate case payment of $44m in April of 2003. And in working capital and in certain items, we’re at use of cash of about $107m. That use in part was an intercompany item that we talked about a year ago that was on the books at the end of 2002 and was settled shortly after the beginning of 2003. That was about $50m. The remainder is a use of cash for working capital and a couple of other items of a little over $50m. We normally expect that to be flat, we actually had a source of cash from working capital for all of 2002. There will be some fluctuations, but for a $9b enterprise, a use of cash of about $50m isn’t overly significant, but I will tell you that we worked pretty hard to keep that down and we hope to generate cash from working capital in future years.

That’s really the balance sheet and the financial results at KMP. With that, let me turn to KMI. Again, hopefully you all have that press release in front of you. If you turn to the first numbers page behind this text you will see the KMI income statement. The third page of the income statement has the special items mixed in with all of the operating results. What you will see as a result is income from continuing operations per share of about 65 cents, compared to about 54 cents a year ago. We think that the more meaningful numbers are before special items, which is 89 cents for the quarter in 2003 and it is 81 cents for the quarter in 2002. So an increase of about 10 percent.

For the year, again you’ll see the actual income per share of $3.08. Before special items it’s $3.33. For a year ago, it was $2.49 and before special items, it was $2.84. So the $3.33 over the $2.84 is a 17 percent growth that Rich mentioned earlier.

With that, we’ll go to the second page, where I actually provide a reconciliation for you from the number before special items to the total that you see there. Starting at the top, you’ll see equity and earnings of Kinder Morgan energy partners. This is not actually the best way to look at the impact of KMP on KMI, but because this is the budget number that was published, I’ll go ahead and talk about this briefly. You’ll see it’s $465m in 2003. The budget number was $456m, so about 2 percent over budget from KMP. Now if you drop down to about the middle of the page, you will see the earnings attributable to investments in KMP, and this is where you see the real impact of KMP and KMI, we’ve netted out the minority interest. For the quarter about $105m compared to about $91m a year ago, up 16 percent. For the year, $398m, just under $400m compared to $338.5m a year ago, so up almost 18 percent, and again, that’s driven off of the increase in distributions at KMP of 8 percent per unit.

NGPL, you know Rich has talked a lot about this, the one thing that I’ll point out is when you look at the full year amount of $370m, we would actually add $4m onto that. That $4m shows up down in interest expense and is actually reducing it, but we consider it to be an NGPL item. That would take it to $376m and actually make it exactly in line with NGPL’s budget.

Trans Colorado, $23m compared to a budget of $16m, so Trans Colorado exceeded budget by over 44 percent. Retail, again you’ll see it looks like its down and it is down in the quarter, but again, that was expected. For the year it is $1.5m above last year and it is a couple hundred thousand dollars above its budget, so retail exactly where we thought it would be.

Power, you see a big decline from a year ago, both for the quarter and for the year, but that was actually expected. Power for the year did better than our budget of $19.4m by $2.5m, so we’re certainly pleased with the performance there, primarily driven by strong operating performance at the plants in Colorado and in Jackson, Michigan. Now of course the reason for the decline were the development fees that we recognized in 2002 and didn’t recognize in 2003.

G&A for KMI, you will see it is down a couple million dollars from where it was a year ago. It’s actually ahead of our budget a little bit, for largely the same reasons as KMP. It relates to benefits, health and pension costs.

Interest expense you will see is down about $8m for the quarter, it’s down $22m for the year, but back $4m out of that, you know the true interest expense for 03, it’s about $143.6m, again that $4m we really consider to be a part of NGTL, so that gives you a variance of about $18m, still very nice relative to last year and the variance is also about $18m compared to the plan. And once again, we have built in an increase in rates in our plan, that increase was not realized, turned into very nice pickup in interest expense at KMI.

The other line is largely the remaining capital trust securities, that shows up on two different lines for 2003. It’s all in other or minority interest in 2002. Again, this is a change in accounting principle which makes the income statement just a little bit confusing.

Income from continuing operations up about 9 percent for the quarter, about 17 percent for the year, and then after taxes up about 11 percent for the quarter and about 18 percent for the year to $412m, which was over 6 percent above our expectations for 2003. So again, very strong performance at KMI. You will remember our original budget was $3.18 per share, and we come in at $3.33 per share.

Rich has largely talked about the remaining items, including the volumes. I’ll go back to the front of the income statement, and again you know, these numbers have the special items in them and you get some unusual comparisons. Operating revenues, they are down slightly for the quarter, they are actually up about 8 percent for the year. Once again because of retail our revenues do have some sensitivity to commodity prices. We don’t think that they are an overly meaningful metric. Gas purchased is another cost of sales, similarly are impacted by gas prices and so again, really just nets off the changes in revenue.

O&M is basically flat, consistent with our expectations. G&A we’ve discussed, depreciation and amortization is up slightly. TOTI is up slightly as well. And then you see the line there, the revaluation of the power investments, it’s up $44.5m in 2003. Now on top of that is another about $2.9m that shows up in the equity and earnings of other equity investments line. This is because a portion of what we did in the fourth quarter of 2003 is related to the sale of financial gas reserves that are in one of our Colorado power plants that’s actually a joint venture, as we’ve accounted for under the equity method. It resulted in a pre-tax loss of about $2.9m. When you add that $2.9m to the $44.5m and tax affect it, you end up below the $30m which is essentially where we thought we’d be when we first discussed this in third quarter earnings report.

Now the equity and earnings lines, I think we’ve largely talked about interest expense, we’ve discussed. Capital trust deteriorated again, some of it is on that line for the second half of 2003. For the first half of 2003 and all of 2002 the trust expenses show up on the minority interest line.

Once again takes you down to the total, you will see net income here is after special items. It does get to the net income per unit or per share of $3.08, but once again, we believe the relevant measure is the $3.33.

With that, I’ll go to the balance sheet. It’s the last page of the KMI press release. You will see assets largely unchanged. Other current assets is down about $120b. This is the result of the inner company amounts that I discussed with KMP and that we discussed a year ago. It was about $50m. It was a receivable for KMI. It went away within days of the beginning of 2003. And then gas in storage has come down, that valuation and a tax receivable is lower at the end of 2003 than it was at the end of 2002. Now the investments line is down slightly as a result of the power write-off. PP&E is basically flat, other assets are basically flat. Total assets of just under $10b.

On the liability side, the notes payable and current maturity of the long-term debt, I’ll talk about that when I talk about the total debt. Other current liabilities is essentially unchanged, as is the other liabilities and deferred credit. And then in the long-term debt you’ll see there is the outstanding notes and debentures, again I’ll talk about that when I total up the debt.

You’ll see a new line here, it’s called deferrable interest debentures issued to subsidiary trust. This is a capital trust security, it’s the same thing that shows up two lines later, or three lines later, but again, because of the change in accounting we now have to show this amount here in the debt total as opposed to the $275m that we previously show on its own line. Value of the interest rate, again just fluctuates with the forward interest rate curve. Minority interest largely unchanged, stockholders equity has gone up, as we have generated significant earnings.

Total debt for KMI, $2.96b, down from over $3.3b at the beginning of the year. Forty-three percent compared to 48 percent at the beginning of the year. A significant reduction in debt, about $360m almost reduction in debt at KMI. You’ll see at the bottom part of the page when you look at our preliminary cash flow numbers that we actually generated almost $560m in cash after sustaining capital expenditures, but before expansion, debt reduction, dividends and share repurchase.

So let me reconcile this $560m to the $360m of debt reduction. In 2003 we paid dividends that totaled about $135m. We had expansion capital of about $77m. Now this is a little bit ahead of our original forecasts, and that’s because there were two projects we entered into during the year 2003 that weren’t in our original budget. Those two projects were the [Mantros], the [Uray] project at retail, we spent about $10m on that in 2003. The second one was the Trans Colorado expansion, and we spent about $14m on that in 2003. And so that’s the difference between the $77m where we ended up and our original forecast which was around $55m.

We repurchased about $38m worth of shares in 2003. We actually generated cash from stock issuance of $48m. This is almost all due to options exercising. We generated cash from working capital and a couple of other items of about $16m during the year, so again a source of cash and then we made contributions to our pension plans and our medical plans of about $14m during the year. Again, if you total those things up and you take it off of the $558m in cash that we generated, you get $358m, and that’s the debt reduction. So the remainder went to pay down debt.

Once again, I will point out that our original budget had the cash flow projection at $470m when we reforecast in the middle of the year, we were expecting $530m. Performance continued to improve, and we generated $560m of free cash flow, again before expansion capital, dividend, share repurchase and debt reduction in 2003. With that, I’ll give it back to Rich.

Okay. And with that, Jana, if you want to come on, we’ll take any and all questions you may have.

Thank you, Mr. Kinder. (Operator instructions) Our first question comes from Ross Paine.

Ross, how are you doing?

How are you doing, guys? Very good quarters here on both companies. First question I’ve got is, any thoughts on what you are going to do with Trans Colorado?

Yes, as we’ve said before, now that we’ve turned up almost all those contracts and have the expansion fully subscribed, it’s becoming a more appropriate asset for KMP. Clearly both boards would have to approve, we’d have to get [parent] opinions, go through everything we’ve gone through on other drop downs, and we are looking at that seriously.

Let me say that none of that is in the budget to the extent that it has dropped down, we believe it would be accretive to KMP and modestly accretive to KMI, depending a little bit on just what the use of proceeds was. But we are looking at that, and obviously would not do anything until the final fork approval on the expansion, which we hope to get around early April. And of course, the expansion is scheduled to be complete in August.

Okay. Just a couple other questions. First of all, retail sales were down slightly. I know you guys expected that, if you could kind of touch base on that. Second of all, what are your expectations or budget – and I don’t want to get into Friday’s news, but for interest rates for 2004. And finally, your thoughts on where you are going to place the money that is over and above your distributions as you increase your coverage. Thanks.

That last question I assume you are talking about KMP?

Correct, that is.

Well let me start with those. Park, you want to talk about the interest rates for 2004?

Absolutely. You know, once again in our 2004 budget, which we will detail on Friday and I’ll be brief here and more elaborate on this on Friday. We have built in an increase in floating rate debts. Rich, if you want me to address the first one too on the retail sales, you’ll see retail volumes are actually up nicely, but again, natural gas prices have factored in on those sales, so any fluctuations you see are frequently the result of just changes in natural gas prices.

It might have been, on the time, we think again to between our first and fourth quarters.

And we talked about the earnings at retail, there was a bigger impact in the first quarter of 2003 than the first quarter of 2002, and again that was timing and you saw that impact the fourth quarter of 2003 relative to the fourth quarter of 2002.

And overall, Park is absolutely right. Retail’s volumes were up very nicely, and of course as you know, retail is just a pass through in terms of gas costs. Whatever it pays for its customers, at the half, it just passes those through to the customers.

And then the final question I think is related to what we are going to do with the excess coverage, which as Park said in the budget for 2004 amounts to around $40m. It’s cash generated above and beyond what we would distribute in units. And we will certainly look to reinvest that on very favorable terms. And at the analyst conference, Mike is going to go into some detail on what that looks like over the next several years.

And the right way to think about it is that we had significant expansion capital plans in 2004, and that money will help finance that.

That’s right.

Great. I appreciate it.

Okay, thanks.

Thank you. (Operator instructions) And our next question comes from Scott Seller.

Scott Seller with Morgan Stanley.

Hi Scott, how are you doing?

Good, Rich. How are you?

Fine.

I promise I am only going to ask two questions, because I have a bet – I bet a Coca Cola with my associate that we are going to keep the call under two hours today. First question is, on your free cash flow next year, looking at your debt to cap at about 43 percent and looking at your payout ratio, I guess what I’m trying to understand is your stock is trading at about 16.5 times consensus on 2004, about three times book value. I know you all are always looking to potentially repurchase stock and pay down debt, but your debt to cap is now pretty close to a target ratio and your stock is now trading at three times book. I was curious if you all would consider also increasing your dividend through the year, that’s one use of cash.

I’ll wait for your answer, and then I will ask my second question.

Well, we’ll look at that. The key part of our discussions at the KMI board today was exactly that point. This is a wonderful problem to have, but we are generating a tremendous amount of free cash flow at KMI, as we said, and I think the right thing to do and the right way to answer this – we’ve said over and over again, this is a company run by shareholders for shareholders, and we are going to do what makes the most sense. We’re going to keep a strong balance sheet in our budget, we’re going to pay down a certain amount of debt, obviously we really have significantly lowered the debt and we will look to distribute the money that we don’t need to pay down debt to either increase the dividend or to buy back shares, and we’ll just look at what makes and most sense.

Okay. And then, Rich, on your CO2 at KMP I just had two questions. I don’t know if Tim is in the room or –

Tim is in the room, yes.

Okay. You all are running about 23,000 bpd of production, I was curious what – and I don’t know if you all maybe will just discuss this on Friday instead, but just two questions. What is your targeted production in 2004 and how much capital spending at KMP to CO2 in 2004?

Okay, first of all we’re at 23,000 a little over what was the average for the fourth quarter, not the year end or not where we are today, we’re a little better than that now. Our projection for 2004 was that we’ll average 30,000 bpd at [Sack Rock] so in other words, we’re starting in the mid-20’s, expect the end of the mid-30’s is not quite linear, but we expect to average 30,000 bpd for the year.

The capital spending, Park, you want to kind of break that out for him?

I mean, the total capital spending at CO2 for 2004 is a little over $300m, and again, this is going to be a part of what we go through in detail on Friday.

Okay, thanks. That’s it.

Thank you. And our next question comes from Denato Esay.

Hi, Rich and Park.

Hi, Denato.

Congratulations as well on another outstanding fourth, here. I am curious, Park, if you have a meeting set up or are working on it with the rating agencies to give them, you know, behind the story so to speak, and appreciate all the asset mix and earnings profile and cash flow profile that you have today. And you know, I guess following on that, the cash flow question is, what, when you are looking at [inaudible] assets at today, the value of them has been up measurably given what world prices are and the like, but what kind of acquisition, Rich, would you think would be still attractive price-wise given this rather robust energy environment right now? Thanks.

Park, you can cover the rating agencies, he said, are we having news with them so they would appreciate how much cash flow came out of –

We have frequent conversations with them and frequent meetings with them, and I hope that they appreciate how significant the cash flow is, but I can assure you that we will meet in order to ensure that they do.

And with regard to what kind of acquisitions, I think there are still some attractive opportunities out there for KMP to make acquisitions. First of all, as you can see, we went almost $400m. I’ll go through these in detail on Friday, but close to $400m in 2003. And really, none of significant size except for [Yates] and those less than $400m we project to throw off $92m in EBITDA in the first year. So we’re buying at pretty good numbers. Now a lot of these are terminals and CO2 which we traditionally pay less in terms of a multiple of distributable cash flow or EBITDA than we do for pipelines.

There are some pipeline opportunities out there, there are some more terminal opportunities that we are, I believe we will close. You know, we close deals with Shell in October and Coneco in December. On products, terminals I think we’ll have additional announcements within the next few weeks on another group of terminals that we’ll be buying at favorable prices, I think. And I think as I said, there’s some other opportunities in the pipeline segment.

But a lot of the general expansion opportunities we’re going to talk about at our Friday meeting, particularly in the natural gas pipeline, paying particular reference to the Rockies and also some pretty nice opportunities here in Texas where again, we are seeing very good throughput on our system.

Thanks, and we look forward to Friday.

Good. Thanks, Denato.

Thank you. And our next question is from David Macrone. And sir, please announce your company name.

It’s Goldman Sachs. Hi, everyone.

David, how are you doing?

Good. Rich, can you tell us what the expected size and timing of the KMP offering would be?

Well, I think we have, when we share the budget on Friday we have set forth that we would do a couple hundred million dollars in the first half of the year. We haven’t decided on the exact timing and then we would do another crunch later in the year. And again, this assumes that we don’t do any additional acquisitions.

Now remember that of course as Park alluded to earlier, each year we are generating cash by virtue of KMR distributions which we make in stock but fund with cash. And that will amount to about $145m of equity that we put out in our quarterly distributions in 2004. So let’s just say we were to do 200 in the first half of the year, 100 or so in the second half of the year, that would be 300 plus 145, I’d say you’ve got roughly $450m. Again, we expect capital expenditures a little above what we did this year, but that would be our preliminary look. And certainly if we make acquisitions, as I expect we will, then we would issue more equity. We are committed to continuing to maintain a strong balance sheet, and since all of these acquisitions that we’re doing are accretive, we’re in good shape to put out equity and still have very nice accretion to our shareholders.

And on a separate issue, KMR is a $5 discount to KMT. Can you give us a sense for your commitment level and the time horizon for delivering the value you think is there to KMR shareholders?

We’re coming up on the third anniversary of KMR. Obviously it went public in May of 2001. I’d point out that on an absolute return basis, KMR has done exactly what we promised it would do for institutional investors, which is it has outperformed the S&P 500 and its outperformed the utility index. And again, at that time, we talked about this was the first chance for institutions to get in and own MLPs which broadly offer returns like utilities, in our view, superior utilities.

The discount is pretty wide, it’s about 12 percent right now. We continue to be troubled by that, but just wanted to point out the absolute performance. I think the interesting thing to look at is Enbridge, which is the only other comparable that has an I share and a standard unit. It’s only trading at about a 3 percent or 4 percent discount right now. We don’t believe there’s any fundamental reason for it, and it’s our job just to go out and education people about the security and what it all means.

And the real question is for all of you, I mean it’s trading at a discount, it’s clearly an opportunity, it’s performed very well in the past. Who wouldn’t want to buy it?

Well on that note, how do you view share buy backs of KMR versus KMI? The KMI level.

We did buy back, included in that $38m, or whatever the number was in 2003, we did buy back a little bit of the KMR during that –

Three to five million dollars. And I think that is something that we will continue to consider in the future.

Okay, thank you very much.

All right.

Thank you. And our next question comes from Yves Siegel. And please announce your company name.

It’s Wachovia Securities.

Hey, Yves, how are you doing?

Pretty good, thanks. Good afternoon, or good evening, almost. Two questions for you. One, the relatively low acquisitions multiples that you paid, I assume that terminal prices are pretty much static and the reason the blended rate is so low is because of the [Yates] acquisition. Is that a fair assumption?

I think that’s a fair statement, yes.

And then the second question is, Rich, are you seeing any shift in the ability to enter into long-term commitments in order to go ahead with the expansion projects?

Meaning the natural gas area?

Yes.

No, I don’t think so. I mean, again, we’ve got that on Trans Colorado. On our Advantage project, which would connect [Cheyenne] up to Southern Kansas, a nexus point for pipelines in the Midwest and further East, we’ve seen good interest and clearly others have seen similar interest. So I don’t think anything has changed. You know, any time you are trying to firm up long-term commitments it’s a long, arduous process, because it’s not just – oh gee, that sounds like a good idea but you’ve got to get down to terms, and a lot of times the MDQs, the minimum data quantities, may vary seasonally depending upon what part of the country you’re serving, but no, I don’t think we’ve seen any diminution in people’s ability, and we’re seeing a lot of interest in various paths out of the [Lock heaps] in particular, and also in Texas as you know we bought that Rancho facility coming into Austin, and we signed up the Austin Power Authority to a long-term contract.

We’ve just signed a couple more industrial customers of good size in the Houston Ship Channel area that require new connections, and that’s in our capital expenditure program in our Texas intra states for this year. They are not significant, but they will be accretive to earnings and cash flow.

So no, I don’t think we’re seeing a problem there. Now you know, a few years ago when the marketers imploded, I think we saw some reluctance. But now we’re actually seeing some of the LCDs on our various systems want to turn back and take a little larger amount of capacity, because they don’t have – I think this is right – they don’t have as many marketers to fall back on, so we are seeing them get a little more aggressive, and I think appropriately so for their customers, in tying up capacity.

I’d say if anything it’s probably moving in the other direction a little bit.

I guess I didn’t do a good job asking the question, because that was it. Who is filling the void of the marketers, and I guess you just said it’s the LCDs.

And to a certain extent the producers, of course, with all these various ways we’re doing in the Rockies, overwhelmingly there it’s the producers. They are getting much more sophisticated, they are looking for optionality, so most of the producers that have been producing in the Rockies don’t want to be bound totally to California. Nor do they want to be totally bound to the Midwest. They want some optionality. I think that bodes very well for companies like Kinder Morgan that have a lot of pipelines, first of all, and we believe now it shows some huge confidence, we don’t talk much about this, but in terms of miles of pipe now on the U.S. natural gas pipelines, we’re the second-largest natural gas pipeline system now. So that helps.

We are able to get more optionality, and secondly we have the balance sheet strength to be able to expand if we get a good through put commitment from creditworthy parties. So we’re seeing a combination of producers and customers on the other end pick up the slack that the marketers left, and I think it took a couple years for them to get to that point and they realized the marketers weren’t there anymore, although some marketers are becoming more aggressive.

So I think it works pretty good for signing up long-term contracts. The key is, we’re very conservative on this and we, as I have said so many times, we do not believe in the old phrase, build it and they will come in the pipeline business. We think you have to lock in your agreements up front for long periods of time, unless you have a monopoly situation where nobody can challenge you, and there of course, your rates are highly regulated. So we’re looking at it very carefully and I think there’s a lot of potential.

Just a quick follow up, what about storage assets, is that an opportunity for you for some more expansion?

Yes, we look at that consistently, and of course North Lansing that we’re building in East Texas is now up and running, not fully complete but we are moving gas in and out of it. And we continue to look for assets there.

As I said earlier, about – now I haven’t verified it with final 03 numbers, but horse shoes and hand grenades, about a third of NGPL’s revenues come from storage versus transport and we are fully subscribed on our storage capacity, all categories, from now through most of the first quarter of 05. So all of 04 we have nothing available in January and February, and next year even we have a little smidgen available next March which I am sure will be placed long before we get there.

So I’ve said so many times, it leads us to a game of singles and doubles, and NGPL is just typical of that. There is real demand for storage to the extent we can build more, reconfigure what we’ve got to get more turn. All of those things, we’re going to try to do and we continue to improve on it.

Thanks a lot, Rich.

Just another example of that, we bought the [Sayer] storage field, we bought the other half of the Mid-Tex storage field, we have the Cheyenne Market Center Storage Project going on, and so we are certainly pursuing storage opportunities.

Good point.

Thank you. And our next question comes from John Edwards. Sir, please announce your company name.

Deutsche Bank.

Hi, John, how are you doing?

Good. Nice quarter.

Thank you.

Just maybe I didn’t understand something right, it looked like the G&A budget on KMP was up, but it was – or not the budget but the expense – was up at KMP for the year but down at KMI. I was wondering if that could be explained.

Park.

Yes, I mean, you are talking about relative to last year? I mean, I can answer it both ways.

Yes, year-over-year. The one without the other was down –

Year-over-year KMP is up as a result of expansions and acquisitions and legal costs at KMP being significantly higher in 2003 than they were in 2002. At KMI G&A is actually down year-over-year. It’s a result of lower legal costs at KMI, those things more or less offset each other. Actually, they almost exactly offset each other year-over-year. And then, we weren’t quite down as much as we expected, because again the health costs and the benefits costs and the pension costs were a little bit above what we expected.

Okay, so you are moving some buckets around there.

Well, I mean, you know – I don’t want to characterize it as moving buckets around, it’s really just how the expenses come out.

It just happened that taking the legal costs – and I am looking at our general counsel here, because he knows I’m not very happy about KMP’s legal costs – but on the KMI side we just happened to have some major litigation in 2002 and much less litigation in 2003 and it was just the reverse on KMP. Those things just happen, and the total swing was just in that category, was $4m or $5m each place. In other words, KMP was $4m or $5m higher, as I recall. KMI was $4m or $5m less compared to 2002. So it just happened to be pretty close, but there was no intentional movement, it’s just whatever came out.

A significant portion of that we had anticipated and budgeted, and then at KMP we even went a little bit above our budget.

Okay, with your debt at KMI, debt to cap down to about 43, a little below 43 percent now, how low are you – how low will you allow that to go?

Well if the rating agencies are on the phone, they could tell us the answer to that, I’m sure. Let me just say that Park and Mike and I, I think are comfortable with, we’ve always said that [inaudible] you get it certain with a two instead of a three. Park will take you through the coverage ratios at KMI are, in my experience, just extraordinary. I’ll ask Park to give you a couple of examples of that. So we think it’s an appropriate level. However, we still budgeted for, and shared with the rating agencies, another debt pay down for 2004 and we’ll just continue to look at it and work with them.

Give them an eye towards coverage ratios.

Yes, just a sense of the strength of KMI, and I mean, truthfully we think that KMI is underrated. That is not a surprise to the rating agencies, we’ve told them that many times. But by the end of 2004, you know, reducing its debt by another $100m, KMI’s debt to EBITDA will be less than three times, so again, EBITDA – debt will be less than three times our EBITDA and our EBITDA over interest coverage in 2004 will be more than seven times.

I mean again, just tremendously strong coverage ratios. I mean, KMI is a very strong credit, I don’t think there is any other way to put it.

Okay. Great. Okay, thank you very much. I look forward to seeing you guys on Friday.

Thanks, John. Okay.

(Operator instructions)

Okay, it sounds like we have answered the questions then, in about an hour-and-a-half. So we’re ahead of the game, and for those of you coming, we’re starting in Kinder Morgan fashion with a little fancy [inaudible] on ice, and we’ve pampered you, we’re paying $9.50 a plate for it, so if you said you are going to show up, please do, and you’ll have an allotment of two beers. Beyond that, you have to pay for it yourself. But we’ll see you tomorrow night, and then most of the day on Friday and take you through this story in a lot more detail. I think we had a great quarter and a great year, and we appreciate your interest. Thank you.

Thank you very much for participating in today’s conference call. Have a great evening, and you may now disconnect.