金德摩根 (KMI) 2005 Q4 法說會逐字稿

Hello. Welcome to the Kinder Morgan conference call. [OPERATOR INSTRUCTIONS] At the request of the call leader, this conference is being recorded. If you do have objections please disconnect at this time. I will now like the turn the conference onto our host, Mr. Rich Kinder. Thank you, sir, you may begin.

Thanks to all of you for calling in this afternoon. This is the quarterly conference call for Kinder Morgan Inc., which I will refer to as KMI. Kinder Morgan Inc., obviously, is a large mid-stream energy player and owns the general partner and significant part of limited partnership units of KMP, Kinder Morgan Energy Partners, which is the largest pipeline master limited partnership in America and I will refer to that as KMP.

During the course of our discussion this afternoon we'll undoubtedly be making comments under the Securities Act of 1933 and the Securities Exchange Act of 1934.

As usual, I will give my overview of results and future outlook. Park Shaper, our President will go through the numbers, and then we will take any and all questions that you might have.

As usual, I will start with KMI. There I think the big news is that our Board today increased the dividend from $0.75 a quarter or a $3.00 annual rate to $0.87.5 or a $3.50 annualized rate. That's an increase of 17%. That marks the seventh raise since July 2002 when we started raising the dividend, and our dividend now is about 17 times greater than it was when we started raising the dividend back in '02.

The second major piece of information is obviously the earnings. We had record earnings for the year and for the quarter. We have a lot of certain items washing in and out which actually turned out to be mildly positive for the quarter, slightly negative for the year, but the real thing to pay attention to is income before certain items and Park will take you through this. We earned $1.29 in the fourth quarter, that's an increase of 25% over a year ago. We earned 4.45 for the year, that's an increase of 17% over a year ago. Both are well above our published '05 budget targets that we put out last January.

At KMI the earnings growth was driven by a number of things. First of all, by KMP. KMP contributed an increase earnings to KMI of about 18% as its operations, in particular its natural gas pipelines, continue to do well. I'll talk about that for in a minute. We also had help at KMI from Natural Gas Pipe Line of America, that's our big pipeline that services the Chicago area and other points upstream of that. NGPL had good through-put. It was able to get higher tariffs as it renewed contracts. There is high demand for NGPL storage and for its transportation capacity. They've been very successful in renewing their long-term storage and transportation contracts. To put that in context, at this time a year ago at the analyst conference we talked about that in '06 we would have 51% of our long haul transportation capacity expiring in 2006. Here we are at the beginning of 2006 and during calendar year '05 our team renewed all about 2.5% of that. We are virtually full in '06 and beyond, both on transportation and storage.

On retail, retail was below its plan and below '04. This is largely a result of lower demand, particularly in Wyoming and Nebraska, driven in part by lower agricultural load during the summer. We did have higher demand and added significant number of new meters in the state of Colorado where the market continues to grow. Power was above both '04 and as planned.

And then last but not least, our tariffs and assets in Canada also contributed to the fourth quarter in a modest way at any rate. We closed that transaction on November 30th, 2005, so we had one month of earnings from both Terasen gas much that's the local distribution company in British Columbia and from Terasen pipelines which we renamed Kinder Morgan Canada which is the pipeline serving the oil sands in Alberta. Both of them did report for one month. They were above the budget they had set for themselves and above the expectations we had set for them in our acquisition model. I can report that the integration of Terasen is going well. I'll talk more about that later. I think it is fair to say there is more growth opportunities there than we thought when we made the acquisition. We're finding that there is a tremendous need for pipeline and other energy infrastructure to support the oil sands production in Alberta.

If you look at the future for KMI, we continue to expect earnings per share of $5 in 2006 as we previously estimated in December. We expect cash flow of about $760 million in '06. We'll go into a lot more detail on both of those at our investor conference next week here in Houston.

Let me turn to KMP, which has impact for its own unit holders and also has tremendous impact on KMI by virtue of the inter-relationship. At KMP we increased the distribution to $0.80 a quarter. That works out to be $3.20 for annualized basis. For those of you keeping score, this is the their thirteenth consecutive quarterly increase, and it means at the declared distributions of 3.13 for 2005, that's a 9% increase over the 2004 declared distributions of 2.87, and it is on par with our 2005 published budget. '05 segment earnings before DD&A were about $1.8 billion, that's plus 20% across all four segments when compared to 2004. Now, as you know we break KMP into four business segments and all had substantially increased earnings before DD&A when you compare it to 2004. Two exceeded the '05 budget targets. One was flat to target and one was down to target. Park will give you the details as he goes through the detail financials on each of these segments. Let me just give you a quick overview.

The natural gas pipelines hard to say that they didn't have a truly outstanding year in terms of earnings before DD&A they were up 22% for the year and 30% for the fourth quarter, well above plan and Park will take you through the details there. The drivers of that tremendous year were very good performance on our Texas intrastate system and very good performance on Red Cedar gathering system in Colorado, plus we did have the inclusion of a full year of TransColorado in the KMP natural gas segment results.

Terminals also had a very strong year. It was above plan and above '04, and this performance was delivered despite significant negative impact and a series of challenges resulting from two hurricanes. Now, terminal was helped by acquisitions we made during the year especially by the Pet Co facilities in Texas we bought early in 2005, but they also benefited from internal growth and expansion and I believe we can of both of those, meaning expansions and acquisitions, in 2006 and beyond.

Our Co2 segment was well above 2004 and essentially on plan with the plan in 2005. Volumes at SACROC as you can see from the report were up for 2004 but below our plan, oil production from Yates and Co2 production our Colorado source field were well above our plan and well above '04 and they tended to offset the lower volumes at SACROC. As a Co2 demand from third parties in the Permian Basin continues to increase we expect to expand the operations at our source field which had an all time record in terms of production in 2005 and probably this will involve an expansion to Cortez pipeline system running from southwest Colorado across New Mexico to the Permian Basin.

Our products pipeline segment was up 7% in terms of earnings before DD&A compared to '04, but it was the one segment at KMP that was still below its plan. Part of the blame I think can be put on the hurricanes. We were also negatively impacted by the effect of weather and other factors to our NGL volumes. We usually give you the total refined products volumes, so let me give those to you. Total refined products volumes for the year were up 4/10 of percent, .4%. Revenues for the segment for refined products were up 7% for year '05 and the volumes were up 1% for the fourth quarter. Probably a more realistic way as we've done in the past is to strip out Plantations pipeline, that's our system jointedly owned with Exxon that runs across the southeast, and it was negatively impacted for substantial period of time due to damage to the refineries that supply product for Plantations, and if you strip Plantation out for the year, refined product volumes are the Kinder Morgan system would be up 2.5% for the year. That's a pretty good number and probably more relevant number in terms of really comparing it to any kind of national average. Our east line expansion which runs from Texas across New Mexico and into Arizona and will allow us to move significant additional volumes into Arizona from the east is on track. That's a $200 million plus project and still expected to come online early in the second quarter of 2006.

Now, that's our segment by segment results at KMP.

Let me conclude at KMP by discussing three other important items. The first thing in as you will notice in the certain items list which we highlighted in both press releases, that we increased our rate case reserves in the fourth quarter by $105 million to reflect our assessment of the reparations due shippers in the SFPP rate case. This is the long running case. This case started in 1996 and earlier started in 1992. This assessment was made based on the December 16, 2005 FIRC decision in the SFPP rate case. Let me point out we decided to take this decision to create this reserve now. It is nonrecurring. It is a non-cash item. It is consistent with the filing that our SFPP unit expects to make with the FIRC at the end of February, 2006 as required by their order, and while this is adjustment reflects our best estimate of rep rations, certainly complainants in the case may claim the numbers should be something different. I will remind you that the ultimate resolution of this rate case and obviously any reparations associated with the rate case is subject to FIRC rulings and subsequent judicial appeals.

This $105 million number, for those of you who read the filings carefully, is substantially lower than the guidance we've given in the past in our 10K and 10Q for two reasons. First of all, the case we describe in those filings was based on what I would call a worst case assumption in the sense that it was based or that it assumed that the complainants prevailed on all issues. That's the first reason it is apples to oranges. The second reason is the recent decision in December was more favorable to SFPP than the assumptions particularly regarding the allowance of income tax in the rates of national member partnerships. We have given you what we think is the best estimate of what will occur in terms of reparations and taken that, again, non-cash non-recurring item in the fourth quarter of 2005.

Now, while I am on the subject of the SFPP rate case, this decision in December by the FIRC, which is obviously subject to appeal, also gave us better guidance on what the impact is likely to be on 2006 and beyond. Some of this we shared with you at the time. We made a release on that ruling or on that FIRC decision. We believe that when we put the new rates in effect on the west line, that's the line from Los Angeles to Phoenix, and put those lower rates into effect on May 1, that the impact of those lower rates for the rest of calendar year 2006 is likely to be in the 15 to $20 million range. At this time we're not lowering our $3.28 estimate of distributions to be declared in 2006 because we hope to still be able to distribute $3.28 for the year. We wanted to clear that up what the impact is.

Now, let me talk about the second thing I want to mention, and that significant expansion opportunities. The biggest of these expansion opportunities at KMP or KMI for that matter is our Rockies Express project. That's a line that will run from Wyoming and Colorado to eastern Ohio moving something on the order of 2 billion cubic feet a day of natural gas. We think it will break wide open the bottlenecks that currently strand Rocky Mountain production in the Rocky Mountain area. As you know, it is a partnership Kinder Morgan Energy Partners owns two-thirds, Sempra owns one third, and it will involve the construction of a new line from the Cheyenne, Wyoming hub to eastern Ohio intersecting with numerous major pipelines across America which in turn lead to market areas throughout the eastern two-thirds of the United States.

The project also involves the purchased and construction of a system known as INTREGA that runs from western Colorado up through the Wyoming hub and over to the Cheyenne hub. The entire INTREGA system is expected to be completed by the end of 2006, and the main Rockies expansion, the main Rockies Express system itself, is expected to come online in phases with total completion of the whole system by the beginning of 2009. The total cost of this project including the upstream INTREGA line will be around $4 billion on and ANH basis. We believe it will be the largest pipeline construction project in the U.S. in the last twenty years. It will be substantially accretive to KMP earnings and distributable cash flow, and to KMI earning as various phases come online.

As you know we recently completed an open season which we think is very successful. We spelled some of that out in the earnings release itself. We're now currently working to finalize binding agreements with the shippers so that we can definitively go forward with this project.

A second major expansion project that we have is the Kinder Morgan Louisiana line. This is about a two BCF a day lane, but it's much shorter, it will run about 150 miles from some of the regas facilities along the Texas Louisiana Gulf Coast that are now being constructed into across what we call Pipeline Alley ,thereby allowing this gas coming out of the regas facilities to be to intersect with a number of other pipelines that service the eastern part of the United States. That's about a $500 million project. The capacity is fully subscribed by long-term contracts with major shippers. We're going to build that project and we expect it to be in service in early 2009. Again, it will be accretive to both earnings and distributable cash flow KMP and earnings at KMI.

Final expansion project I would like to talk about, really more like a group of projects, is where we stand in Canada. I alluded to some of the this earlier. We're finding good opportunities to expand the Terasen pipeline assets and also to build new infrastructure to serve Alberta's rapidly growing oil sands production. Some of this will be done at KMI and some at KMP and both companies should benefit from this expansion. We are finding not just pipeline opportunities, but also opportunities to build condensate lines to supply that need in Alberta, some additional terminals, some blending activities, and some CO2 activity. All in all we're very early in this game, and I am always hesitant to make long range projections. I think we're going to find some really good opportunities in the Canadian field that we bought into by our Terasen acquisition.

I guess that leads me to the third and final point I wanted to make while KMI is growing add expected rates in the 10 to 15% range as we released in December, KMP is projected to grow its distributions by only 5% in 2006. Admittedly that growth is without acquisitions and we have a history to being able to make good accretive acquisitions each year. That may increase what we can do. Nevertheless, 5% is below what we experienced in the past and below the long-term expectations of 8% or better growth and distribution of KMP. We expect strong operating cash flow growth at our business units at KMP even in 2006. That growth is about $200 million at the segment earnings area and that's despite significant projected increases in sustaining CapEx which hit above that total. We also face higher interest rates which is due -- higher interest costs -- due primarily to higher rates, and we face increasing G&A costs from healthcare and insurance costs. We'll spell all of that out in a lot more detail next week at our investor conference.

I wanted to just emphasize when we take our preliminary look beyond 2006 and particularly out in that 2008 to 2010 time frame, it looks like we will see significant growth from the projects we're now pursuing and that gives us an awful lot of comfort that we'll be able to generate 8% or more annual growth and distribution without the benefit of additional acquisitions. So we think we have position both kipe and KMI for good future growth and that will allow us to increase the dividends at KMI consistent with growth in earnings and continue to increase the distributions at KMP.

And with that I will turn it over positive Park.

Thanks, Rich.

I will go through the numbers clearly we did have strong results in 2005. We also have a number of things in income statement and balance sheet that are unusual, whether it is the certain items or the first time to consolidate Terasen, so I will give you a road map so that you can see for yourself how strong the results were. I will start as usual at KMP and I will be referring to the financial pages which are attached to the earnings release. I will start on the first actually GAAP income statement for KMP and really touch at the bottom you will see the declared distribution, second line from the bottom $0.80 is what the KMP board approved today and which we will distribute in February. That does take our total distribution for the year to $3.13, consistent with our budget.

In order to see the distributable cash flow per unit to that supports you you really ought to tush to the second page. In the middle of the page you will see the DCF per unit excluding certain items. It is about $0.81, so $0.81 of DCF per unit beef the distribution of $0.80. This is excluding certain items will talk about what those are in a little more detail in a minute. That compares to about $0.81 of DCF per unit a year ago. A year ago the distribution was $0.74, for the year $3.38 compared to a $3.13 distribution and $3.11 of DCF compared to $2.87 distribution for 2004. The excess distribution or excess cash flow distribution for the quarter was about $2 million and for the year before certain items was about $53 million. Our budget was $39 million. Again, before the certain items we significantly exceeded our budget in terms of excess cash flow.

Before I go any further, why don't we talk about what the certain items were. If you jump up about ten lines there, you see a detail of it for KMP. There were a couple of items that showed up either earlier this year or only in last year, the loss on early extinguishment of debt, the G&A settlements were primarily in the first quarter, about $30 million. Then -- I am sorry, in the environmental reserve which we did take an incremental $23 million in the fourth quarter of this year and this just results from a reexamination of those environmental reserves. We add an extra year on every year. It is the three-year time horizon looking forward, given the regulatory environment we're in currently and the events that we had over the last couple of years, we needed to add this amount to that reserve.

Additionally right below that you have the inventory adjustment. This is the north system issue that we discussed in the third quarter we did take a $5 million charge in the third quarter and you will see that's reflected in the full year amount of almost $14 million. We have cleaned this item up in the fourth quarter and it is an additional $8.7 million. As we talked about in the third quarter call we have put in place new procedures, new meters. We don't believe this will be an issue going forward. We are hoping to recover some of these losses. We've also factored any losses that we expect to see in in 2006 into our budget. This shouldn't be an issue going forward and we think we cleaned it up for good.

The final items the rate case reserve and Rich really described that. You see the $105 million there.

Those are the certain items that are pulled out and again excluding those you get to the $0.81 of distributable cash flow per unit. What's driving that if you go to the top of the page you will see the segment performance and Rich touched up on this. Products pipeline is actually up nicely from a year ago, about 5% for the quarter, about 7% for the year. But it is below our budget. Looking at that Pacific was a little blow our budget. North system and NGPL volumes were down and it was below our budget. Plantation were slightly below our budget. Pacific, though, was significantly above last year. North system was about flat with last year. [INAUDIBLE] was a little below last year. Trans-mix was a little below last year. Plantation was above last year, and then the southeast terminals were above last year and above budget. All of that nets out to again nice growth relative to last year at $33 million. Still a little bit below our budget.

Natural gas pipeline significantly above last year and significantly above the budget had about $90 million of growth a year-over-year, about $33 million of growth for the quarter driven, as Rich said, by the intrastates and Red Cedar and of course for the year-over-year comparison TransColorado was up. TransColorado also exceeded acquisition plans so we were very happy with that.

CO2 a very similar to the discussion we had in the third quarter, right on its plan up 33% or $118 million of earnings before DD&A from a year ago. SACROC was a little below plan. YATES was above plan and the S&T business was above plan. Those netted out to basically flat with plan but again well up from last year.

On the terminal side we're up about $17.5 million and earnings before DD&A for the quarter. Up about $55 million for the year driven by acquisitions and some internal growth. Excluding the acquisitions and terminal segment was basically right on its plan and then the acquisitions clearly added a lot of cash flow on top of that. You will see the total segment earnings before DD&A of about a billion eight from up from a billion and a half a year ago or about 20% growth, so very nice growth delivered by the segments at KMP.

With that I will drop down to the G&A line which is [INAUDIBLE] lines down or so. You will see a little bit under last year, sorry a little over last year for the quarter, $16 million over last year-over-year to date. Part of that and really the biggest part are the acquisitions and most specifically the Pet Co acquisition at terminals and then we had over budget at legal and at benefits and insurance. That totals, we were 16 million dollars over last year and also about $16 million over our budget. Interest is up about $14 million for the quarter, up about $69 million for the year. Most of that we expected. It is about $13 million over its budget. Debt is up about $500 million from a year ago and that's really a combination of acquisitions and expansion CapEx. We'll talk about that a little more when we get to the balance sheet. Interest rates are also up and most of you know we were about 50% fixed 50% floating. We normally budget for interest rates to grow during the year as we did in the '05 budget. We had fourth quarter floating rates that were 133 basis points above first quarter floating rates, really I am sorry, 100 basis points above which equates to an annual increase of about 133 basis points.

We actually saw rates climb more rapidly during the year. It is the combination of the acquisitions which were not budgeted and we'll discuss that more, which led to additional debt and the higher interest rates which led to the interest line being above budget.

Minority interest a number of things fluctuate in there. The main reason why it is down is because our IMP terminal in Louisiana has produced less income since the hurricanes and we have minority interest in that, so the minority interest line is lower. Then you go through the certain items that takes you down to net income, $121 million for the quarter, $812 million for the year-to-date and that's actually including the certain items. If you look at it without the certain items, 256.5 million for the quarter, $982 million before the certain items. That's about 18% growth on the net income line.

The other thing I will point out sustaining capital expenditures you will see $45 million for the quarter, $141 million for the year. Our budget was $126 million. We ended up spending more sustaining CapEx on [coachen] where the [coachen] project continues and on some of the other products pipeline assets which totaled again that about $15 million over budget on sustaining CapEx.

With that let me go back to the first page on the income statement. I will walk you down what's going on there. For the quarter about $3 billion of revenue and almost 10 billion in revenue for the year driven partially by gas prices at the Texas Intrastates, as is the operating expense line below that. That's why it has gone up. Now, the certain items also flow through that operating expense line so you're seeing the impact of the rate case reserve and the other certain items on that line. DD&A is up about 12 million for the quarter, up about 61 million for the year. CO2 is about half of that. Terminals is about a quarter of it. The remainder is evenly split between products and natural gas pipelines. CO2 is a function of the increased production. Terminals is a function of acquisitions and expansions, products and natural gas is a function of expansion and a little acquisitions on the natural gas side.

G&A we discussed although you will note that the total for the year is actually up by about $30 million over where it is on the second page. Those are the legal settlement flowing through, again the certain items are not broken out on this page. CO2 [OI] is up about $7 million for the quarter, about 27.5 million for the year. CO2 is a big part of that and a little bit on the terminals and the intrastate, CO2 is over half of it. That takes you to an operating income number which looks like it is down $94 million from a year ago but if you add the certain items back I would actually be north of $300 million of operating income. Similarly if you added it back for the year rather than a little over a billion dollars, you would be a little under a billion two for 2005.

Earnings from equity investments strong performance from Red Cedar, but forecasted and expected rate reduction on Cortez offsets that a little bit. Amortization of excess costs of equity investments basically unchanged. Interest we discussed, other unchanged. Minority interest you see flowing through here the general partner share of the certain items and that is what reduces that in addition to what we discussed on the prior page around IMT. That takes you down again to the numbers that we talked about before certain items, but we don't believe those are reflective of the true earnings power of the assets on a going forward basis.

With that I will go to the balance sheet. One thing I didn't mention I didn't really talk about earnings per unit, not something we typically focus on, we think the more relevant measure at KMP is one, the distribution and two, the distributable cash flow per unit. So at the back of the third financial page for KMP is KMP's balance sheet. Catch and equivalents are basically unchanged and really netted those into debt. Other current assets up about $363 million. That's mostly an increase in AR, a little bit in mark to market hedges. PP&E is up $700 million. That's a function of CapEx and sustaining CapEx and acquisitions. Investments unchanged. Deferred charges up as a function of the acquisitions. It's almost $330 million. We have additional goodwill and even bigger than that are actually are some other intangibles as a result of the Pet Co and Dayton storage acquisitions and a couple offer items flow through there around again the mark to market on the hedges and some deferred charges.

Total assets almost $12 billion up from a little over $10.5 billion at the beginning of the year. Notes payable, we'll talk about that when we talk about debt. Other current liabilities is up almost $600 million, 280 of that is an increase in accounts payable.

Mark to market is hedges is another 280 and then you have accrued interest up almost 20 and other items up almost 20. Long-term debt as you can see it up about $500 million. Talk about that in just a minute. Market value of interest rate swaps fluctuate with forward curve for interest rates. Other is up almost $600 million. The mark to market on the hedges is almost $480 million of that. The rate case reserve is another 100 and some other items there. Minority interest unchanged. Accumulated comprehensive loss is over a billion dollars up from about $500 million. That's largely a function of the increase in oil prices from the beginning of the year to the end of year and the impact that that has on our hedge portfolio. Other partners capital is up about $340 million. We did issue equity during the year. We'll talk about that in just a minute.

Where you get in terms of debt to cap, first of all, total debt about $5.2 billion up from about $4.7 billion that's the 500 million increase. For the quarter it's up about $34 million. I will reconcile both of those in just a minute. The debt to cap is a little bit over 52% at the end of year. It was a hair under 52% at the beginning of the year consistent with our expectations as to where we end up.

Let's talk about the debt, it went up $500 million. What drove that? Expansion CapEx for the year is about a little over $720 million. That was the use of cash. Acquisitions, the cash portion of acquisitions was about $308 million. Total acquisition and announced acquisitions including assumed liabilities and capital that we expect to invest in those assets in order to expand them for our needs or to bring them up to our standards totaled about $470 million. Again, not all of the 470 was cash. 310 of it approximately was.

In addition in those acquisitions we assume $49 million of debt, and that was related to the Dayton acquisition. Right here we're actually going to reconcile debt. We need to count that $49 million in as debt assumed. So all of those were uses of cash.

We had sources of cash about $424 million from equity offerings. Then the KMR distributions, which are essentially a distribution reinvestment program, or can be thought of also as equity has been raised were about $177 million. Those are both sources of cash and then from working capital and other items we had a use of about $20 million, pretty close to flat but a small use. When you total those items up, you get to the $500 million increase in debt.

One thing I will point out for you real quick, if you look at the cash that went out on acquisitions plus the debt assumed, plus the expansion CapEx, you're a little over a billion dollars, probably about a billion fifty. If you compare that to equity raised during the year, $424 million plus $177 million of KMR you will see that we financed our expansion program and our acquisitions at almost 60% equity consistent with our long-term expectations.

The $20 million working capital and other items, really small, a number of things that move in and out. AR and AP were a source of cash at a little over $50 million. The timing between distributions from equity investments and their earnings were use of cash of about $29 million, investment in gas and storage and NGL inventories were use of cash of $19 million and settlement were use of cash of about $30 million, and then we had some other timing items that were a source of cash of about $8 million. Those items net out to be about $20 million use of cash.

On the acquisitions just the highlights again the cash about $310 million total about $470 million. The Pet Co acquisitions was the single largest, a little under 250. In total acquisition prices only about 187 in cash that went out. There were some units that went out for that as well. The Dayton acquisition was about $100 million. That was about 50 of cash and about 50 of assumed debt. The ExxonMobil Staten Island term enol was about $40 million, only about 24 million was that was cash. There were assorted smaller acquisitions. The only other large one was a terminal in South Carolina was about $42 million but only about 12 million of that was with cash that went out immediately. We intend to make some additional investments at that facility.

Looking at the expansion, about $720 million on the product side there is a little under 200 million, that was east line expansion and a continuation of the north line expansion and the tanks at Carson and Natural Gas Pipelines about $76 million, that was the Rancho pipeline, Markham storage and TransColorado expansion and assorted smaller things. CO2 was a little under $300 million. Most of that was at SACROC and the continued expansion program there. Terminals was a little under $160 million. We had a tank at Pasadena and in the New York harbor. We are expanding our shipyard river facility in South Carolina. We completed an expansion of the Dakota bulk facility in Milwaukee and so we have and then we had a number of smaller expansions that went on in the terminal segment as well. That's KMP.

With that let me flip over to KMI. Again if you have the KMI release, if you will turn to the first numbers page behind the earnings text, the first page you will see is the GAAP income statement. Again, these numbers are after the impact of certain items but you will see income from continuing operations about $1.39 for the quarter, about 4.43 for the year. The impact of certain items and we'll see this on the next page was positive $0.10 for the quarter and that's why we really talk about $1.29. About a negative $0.02 for the year and that's why we really talk about $4.45 for the year. You can see that if you flip to the second page and look in the middle of that page. You will see those numbers exactly, $1.29 for the quarter compared to $1.03 a year ago. That's up 25%. Then for the full year $4.45 compared to 3.81, that's up about 17% for the year.

One comment before I move on, we do have the Terasen water and utility services business in discontinued operations, so when you look on the first page and see that amount of discontinued operations for 2005 that's what it represents.

The certain items at KMI and they are laid ought on earnings per share basis in actually the text of the press release, related to a number of things. One, there was a power plant at Greeley that we have an interest in. We don't operate. We reduced the carrying value in it by about $6.5 million pre-tax. The hedge in effectiveness we talk about as third quarter. We expected that to come back in the fourth quarter. It has. It has been pulled out down below. That's actually $23 million of gain in the fourth quarter that again we have pulled out and balances out essentially with the amount from the third quarter.

KMR sales, had a gain on those sales from a book perspective of about $52 million during the quarter or about $0.18. We have some gains in prior quarters as well. I will talk about those sales a little more in a minute.

We made a contribution to the Kinder Morgan Foundation of about $15 million. This was just to kind of refresh the capital in that foundation. We have historically contributed about 800,000 dollars a year out of the foundation. That number will probably go up a little bit with the Terasen acquisition. We expect it will still be in the million and a half to two million dollar range. This contribution of $15 million should last us for many, many years.

Then the next item KMP certain item impact on KMI, basically the certain items at KMP flow through to KMI. We backed them out here. About a $0.10 impacted in the quarter, about $0.14 for the year. There are a couple of financing charges related to the Terasen financing. One was a currency gain and the other was a loss associated with a swap. Those two are netted on this line. You will see they're about a penny for the quarter and for the year. Then there are a few items that really relate to prior years. We had a large adjustment due to a modification in our effective income tax rate at the end of 2004 and flowing that through to our deferred tax liabilities resulted in a large gain we identified separately at the end of 2004. Then a couple of other smaller items mostly in 2004. There was one item actually in 2005 and was an adjustment for a minority interest at KMR.

Those are the certain items again that total to $0.10 positive for the fourth quarter, $0.02 negative for the year, but we basically backed them out in both case and think the relevant number is $1.29 for the quarter and $4.45 for the year. The other thing I will point out and Rich mentioned this Terasen actually contributed about $0.14 for the quarter and so that would mean KMI without Terasen would have been about 1.15 for the quarter. It would have been at about $4.31 for the year. Our budget for the year was $4.22. Like we talked about at the end of the third quarter KMI exceeded its budget even if you back out the impact of Terasen.

Looking at the segments at KMI, first the impact of KMP and really, at the middle of the page is the best place to look for that. You will see 148 million pre-tax KMI earnings from investments in KMP. For the quarter up from 130 million, that's up about 14% little about 567 million for the year up from about 477 million, about 19% growth. That's consistent with our budget even though we sold KMR shares during the year. Selling the KMR shares actually reduces the earnings KMI receives from KMP, and so the performance was strong enough to overcome that reduction in shares owned at KMI.

Now is a decent point to highlight that and Rich I think mentioned this as well. We certainly talk about it in prior quarters. We did sell some KMR shares at KMI. We did it because we had capital loss carry fowards that were expiring in 2005. We need to do generate capital gains so that those capital loss carry fowards would not be forfeited. We ended up selling even more than we expected at the beginning of the year because the Wrightsville facility, which was a joint venture with Marant, and which Marant had taken into bankruptcy, was actually sold during the year. That generated additional capital losses and the capital gains had to first be taken against the capital losses generated during the year and could then later after those were used up, be applied to capital loss carry forwards, so again we had to sell more KMR shares than we originally expected. We ended up selling a little under 5.7 million shares from KMI. We generated about $255 million in cash. We did offset all of the capital losses that we needed to so essentially we got that $255 million tax free after offsetting the capital losses. We basically will use that half to reduce debt and half to repurchase shares. We get to the balance sheet I will talk about that a little bit more. The other point is we are done with that now. We don't have any capital any additional capital loss carry forwards that we need to offset and so we don't intend to continue to sell KMR shares out of KMI.

NGPL, just going back to the top of the page looking at the segment, very strong year and as Rich mentioned continues to perform very well going toward. $44 million above last year, nicely above our budget for the year by about $24 million. Retail is actually under our budget and under last year for the quarter is under about $4.5 million versus last year for the year under $11 million. Volumes are lower, as a result of conservation and higher gas prices. Both residential and commercial customers and also agricultural customers, we also has some impact of weather there. We believe that we'll continue to see good growth out of retail within Colorado and continue to fight these trends in Nebraska and Wyoming we expect remain kind of flat.

You'll see the impact of Terasen gas and Kinder Morgan Canada. This is just the month of December. The transaction closed at the end of November. This is slightly larger impact than you would expect from an average month and that's because it is the winter when Terasen gas which is an LDC in British Columbia realizes more of this earnings.

TransColorado is no longer at KMI. That is now at KMP and power is up nicely for the quarter and for the year. Total segment earnings then were up almost $90 million for the quarter almost $186 million for the year to $1.25 billion. That's 18% growth. If you take out Terasen it still went up about 12%. Strong growth from those operating segments.

G&A expense, you'll see it's up almost $13 million for the quarter up only $4 million for the year, about $8 million the increase for the quarter and for the year is the function of Terasen, so G&A ended up right where we expected it would in our budget. Interest expense is up $29 million for the quarter, $45 million for the year, almost $23 million of that is related to Terasen. If you back that out it would be up about $7 million versus last year for the quarter. About $22 million for the year. It ended up slightly above our budget, a little additional expense. As a result, again, of floating rates going up more than what we had budgeted more. Interest expense on the trucks doesn't change. Other is largely KMR minority interest. That takes you down to the income from continuing operations before taxes and certain items, 255 million, up about 20% for the quarter. 904 million up about 17% for the year and ahead of our budget. Really, just drops back down to the numbers we talked about before, $1.29 for the quarter and 4.45 for the year.

With that let's go back to the face of the income statement and let me show you some unusual items there. The biggest thing being we have consolidated Terasen and so that flows through all over here. Total revenues you will see are up $337 million for the quarter, $420 million for the year. $245 million of that is related to Terasen. By far the biggest part. Same is true for gas purchases and other cost of sales. Up 230 million for the quarter, 313 million for the year. $160 million of that is the consolidation of Terasen. O&M up $20 million for the quarter, 34 million for the year, $16 million of that comes from Terasen. G&A we talked about. $10 million is the increase in DD&A comes from Terasen. Similarly taxes other than income tax is $5 million of that increase comes from Terasen. Again the consolidation of Terasen impacts all throughout here.

Operating income one, includes the impact of certain items and two, as always is pre-KMP. We don't believe that is an overly relevant measure. It looks like it is up 91%, but we would not ascribe any meaning to that. That's the increase for the quarter. It looks likes it is up 20% for the year, but we believe the more relevant measures, the segment income or the earnings from the segments that we went over on the second page.

Equity earnings at KMP we basically already covered. Other equity investments you have a couple of equity investments from Terasen that show up here. They include express and customer work.

Interest and minority interest we basically covered. Minority interest one thing that's unusual is you do see an impact from the KMP certain items that flows through on this line and then there is a power asset called Triton that we consolidate because of the change in accounting rules, but we don't realize any of the income from and so it all backs out on this line, that particular asset had a loss in the quarter. That means that there is a pick up that shows up here in the minority interest line. So that's why that number is gone from negative to positive. Then, in other net, you see the impact of the gains from the KMR sales offset partially by the contribution to the foundation. So again certain items just kind of flow through all over on this page and it takes you down again to the numbers that we talked about before, income continuing operations including certain items of $1.39 but we would really think of it as 1.29 and then for the year 4.43 but we would think of it as 4.45.

With that let's go to the balance sheet and so this is a last page and the KMI release and once again, the consolidation Terasen has an impact on the balance sheet. One thing I will point out as always these numbers are preliminary and the income statement as well. You will also see we have consolidated the balance sheet even more than we have historically and that's because this is a first time for us to consolidate Terasen and the transaction just closed six weeks ago. So we are more comfortable representing it in this fashion at this point in time.

Cash and cash equivalents down $61 million. This is again going to get complicated. I will take you back a year. The end of 2004 we talked about the fact that the cash balance was inflated there was cash on the balance sheet that we -- that had come from the TransColorado sale to KMP and already earmarked for share repurchase. The shares just had not been repurchased yet as of December 31, 2004. That totaled 118 million. So we would argue that the real KMI balance on that date or kind of a normalized balance would have been $118 million less than that. That being said, [Terasen] contributed 68 million of cash in the quarter and so the KMP in that was really about $48 million. I mention those numbers because they're going to become relevant in a minute when we talk through the debt.

Other current assets is up $821 million, $723 million of that is from Terasen. From the existing KMI assets accounts receivable is up about $30 million, other current assets is under $60 million. Other assets up 6.5 billion, all 6.5 billion of that came from Terasen and in truth the remaining KMI assets were down about $75 million and the other assets line. Total assets for KMI about 17.4 billion up from a little over 10 billion and again most of that comes from consolidating Terasen.

Notes payable and current maturities of long term debt, you see $958 million, $928 million of that is from Terasen. The actual KMI CP balance is 25 million. We'll go through the debt in total in just a minute. Other current liabilities is up 678 million. 600 million of that is from Terasen. AP is up about 25 million, accrued taxes are up a little over 20 million. Other current liabilities are up a little over 20 million. They represent the difference. Other liabilities and deferred credits up 829 million all of that comes from the consolidation of Terasen. Long-term debt you'll see is up about $4 billion, we'll talk about that in just a minute. The deferrable interest debentures are the thrust. Terasen had a similar security and that's why this balances up is about 1$00 million, the addition of these Terasen securities on that line. The value of the interest rate swaps again just fluctuates with the forward curve for interest rates.

The minority interest in equity of subsidiaries is up about 145 million. That's a function of the KMR sales which increases KMR minority interest.

Accumulated other comprehensive loss is up about 73 million. That's the effect on the hedges of the change in gas prices over over the year. Other stock holders equity is up over a billion one, that's largely a function of the equity issued for the Terasen transaction but then also earnings less dividends.

With that takes you, just looking down at the total debt to cap, $7.1 billion of debt compared to just under 2.6 billion at the beginning of the year. It is 56% debt to cap, consistent with where we thought we would be when we announced this transaction.

Let me reconcile the debt for you a little bit and I want to take you back to what we said at the beginning of the year. I am going to reconcile to two things. I will reconcile to the balance at the end of '04. I am also going to reconcile to the forecast with a budget where we thought we would be. This is where the $118 million of cash that TransColorado that was really going to be share repurchased comes into play. If you take the 2586 and you add the $118 million back, because again, those were -- that was cash on the balance sheet at the end of the year that was earmarked for share repurchase you would be at about $2.7 billion of debt. That's the exact same thing we talked about a year ago in this call and the investor conference. That 2.7 billion of debt is really where we figured we ended the year. We thought ended 2004 and we planned for 2005 to end at the same amount. At $2.7 billion of debt. So in our budget with basically built in for debt to remain flat. Where we actually ended up once you take out the impact of Terasen is 2.484. Under $2.5 billion of debt. That's over $200 million of improvement from where we thought we would be. I am going to walk you through what that is. First let me tell you how you get from the 7.1 billion to the 2.5 billion or a hair under it.

We assume debt in the transaction in U.S. dollars of a little bit under $2.5 billion. Then for the transaction we issued debt of a little bit over $2.1 billion. Again, that 4.6 almost $4.7 billion represents debt that's really associated with Terasen. If you back that out of the 7.1, you get to 2.484. Again, absent the Terasen transaction we would have ended up a hair under $2.5 billion.

How did we outperform our expectations? Well, remember we sold KMR of $255 million generated cash for KMR sales of $255 million during the year. That was not a part of our budget. That was not in those original forecasts. We expect that with that KMR -- those KMR proceeds we will use about half to pay down debt and half to repurchase equity. That's an incremental $127 million of debt reduction and an incremental $127 million of share repurchase. Our share repurchase budget was $102 million plus the $118 million which was from the TransColorado transaction which totaled $220 million and then you add on the 127 from the KMR sales takes you to 347. That's what we would have expected to repurchase during the year. We actually repurchased about 314.

The other thing is we have about $33 million more to go on what we expect that we will repurchase related to cash generated during 2005. That shows up as debt reduction right now or cash on the balance sheet. So if you take the 2.7, you reduce it by the half of the KMR sales that is intend to do reduce debt which is 127. You reduce it by another 33 which is the share repurchase that had not yet happened at the end of the year. You get to a little under 2.55 billion, basically what that's taking is we over performed our expectations by about $60 million. Part of that Terasen. Part that is just stronger performance at KMI.

That's one debt reconciliation. I am about to walk you through another. Before I do that, let's look at the simplified calculation of cash flow. You will see it is about $714 million for the year. That's above our budget of $623 million. To be fair, some of that did come from Terasen in the month of December. That total was about $27 million. If you back that out you get $687 million compared again to 623. We out performed in that respect.

The other thing I will point out is we have modified how we reflect cash taxes here. We've actually gone back to cash actually paid during the year, so the 2004 number is a little bit different than the '04 number that we talked about at the end of last year, although if you back out what we said last year, there was a tax payment for 2004 that we expected to happen in 2005, and we increased '04 cash taxes for that. If you back that out, that's all of the change.

So again just back to another form of debt reconciliation, we generated $714 million of cash during the year, and that turned into a reduction in debt and now I am going to reconcile back to the actual reduction in debt, so remember from our expectations we were supposed to be at 2.7 billion. Where we actually were at the end of the year was a hair under 2.6. It's the 2.586 number you see. Where we ended up was $100 million below that 2.484. How did that $100 million of reduction come about? We generated cash of $714 million. We repurchased shares of 314. We had dividends of 355 million. We had expansion capital of 66 million. We generated cash from the KMR sales of 255 million. We had pension contributions in excess of expense of about 24 million and then we had a use of for working capital and other items of a little over $100 million. Those working capital and other items, about $60 million of that was from AR and AP and other working capital items. About $50 million is really timing on distributions. That's what's generating that difference.

One thing I will point out is if you look at the change in working capital and other items from the third quarter to the fourth and so what happened in the fourth quarter, we actually generated about $100 million in cash from those sources, so the source of cash of about $100 million in the fourth quarter but still ended up being a use of cash of about $100 million for the year. Those items total up to the $100 million reduction in debt. The big items are the 714 generation of cash, share repurchase of 314, dividends of 355, expansion CapEx of about 66, KMR sales, which is a source of cash of about 255, and then the pension contribution of 24 and working capital and other items use of cash of about 100. Expansion CapEx did end up a little bit above our budget, our original budget was 37 million as I said we spent 66. NGPL ended ended up having more projects, primarily on the storage side, but a little bit on pipeline expansion, NGPL ended up spending about $28 million on storage and about $7 million on some pipe expansions. Retail also completed the automated meter reading effort and then had some additional expansion CapEx related to meter growth on the Western Slope of Colorado and that totaled about $24 million total for retail.

That's it. I am sorry that there are a lot of moving pieces. Again, I think we had very strong performance. Hopefully that reconciliation helps to you decipher it. I will hand it back to Rich.

Okay. Thank you, Park. With that, Brian, we'll take -- open the line for questions.

[OPERATOR INSTRUCTIONS] I have a question from Patrick Rau. Please state your company name.

Harris Nesbitt. Question on the Rockies Express. I know, I guess the first generation of plans I saw on the pipeline is it might extend as far east as Pennsylvania. I am curious, might it get to there and could you possibly even extend it further down stream maybe more into new England?

Anything is possible as we do this. Our current plan calls for to go to Clarington, Ohio. Some of our shippers have expressed interest in taking it on into Lighty and we will look at that. But the current plans what we have the commitments on through the open season would end at Clarington. As we pointed out, it is in a series of phases that will be built going from Cheyenne. Clarington is about 90 miles from Lighty, something like that is where it ends now. We are looking at the possibility of extending it.

And has there been any progress on the Kinder Morgan Carthage pipeline. I guess you had the open season a couple of quarters ago.

Kinder Morgan Carthage pipeline? No, nothing new on that.

And my last question is it looks like in your outlook for 2006, you've taken down your cash flow guidance for KMI to 760 million from 775. I am curious what's behind that.

That's very good. We should have explained that. Park, you want to tell them about the $15 million?

What happened and you're right. It is $15 million deterioration there. We finalized the budgets and most specifically from the Canadian assets. We realized there was actually an incremental $10 million that in the budget process had been classified as expansion that should have been classified as sustaining, and that number is after sustaining CapEx but before expansion. Then when we moved the watering utility services assets out to discontinued, we lost $5 million. That's $10 million of additional sustaining and 5 from the loss of the water and utility services.

We probably should have added on this call you saw I think we referenced it again in the release and we referenced it yesterday. Yesterday we did announce that we reached agreement with a group, including the present management of that subsidiary, to sell the water utility business for about 105 million U.S. or about 130 Canadian I guess, and so that accounts for the other 5 million that Park is talking about. We are selling that, and that money will be used to pay down debt.

The other we should probably add before we get a whole lot more questions, we will be providing more detail on the '06 budget at the investor conference which is next Tuesday and will be webcast.

Right.

Great. See you guys next week, then.

Thank you. Next question.

Next question comes from Ross Payne. Please state your company name.

Ross Payne with Wachovia.

Hi, Ross, how're you doing?

First question is, obviously, the natural gas was very strong at KMP. Was there any particular basis differential that you saw during the quarter that was stronger than normal or can we expect this performance going forward?

I hope we can expect this performance going forward but I will say that obviously our Texas intrastates in particular do benefit somewhat from some of this volatility with prices moving around and basis differentials between the Henry hub and the ship channel, so I think we were helped by that, but in general, obviously we were just helped by tremendous demand for the services we were providing, including storage, and including the transportation, and a lot of gas moved out of Texas into intrastate pipeline, so it was a whole lot of different factors. We're very pleased with our position that we've gotten intrastates Texas into, and we think it is sustainable long-term position that we can continue to make very good earnings off of.

Very good. Rich, also you mentioned that expansion programs in the Canadian oil sands will benefit KMI and KMP. Can be elaborate on how that may impact KMP.

Obviously as we expand Transmountain and we reference some of that in the press release, we're very far along on what we call the Phase 1 Transmountain expansion which will take us from 225,000 barrels a day, moving to the west coast from Alberta, to 300,000 barrels a day and that will obviously be in KMI because Transmountain is in KMI. As we do some of the other expansions, those of you who follow the industry press in Canada know we and a partner have proposed a major condensate line running from the Kidimat area across British Columbia and into Edmonton, Alberta to provide condensate used to extracting the oil sands. If we're successful if that project and it look good right now, if we are successful with shipper commitments, that would be in KMP. We would be do investments like that into KMP.

We also are pretty far advanced on a terminal in the Edmonton area. Again, trying to finalize some shipper commitments there which would be a staging terminal that would allow people to take advantage of storage much like a lot of our terminal situations here in the States and then they could move from that storage, that terminal into either our Transmountain line and go to the west coast or they could go into Inbridges line and move to the Midwest, and if we build that and again that looks very positive, if we build that, that would be built in KMP. As we do new incremental deals up there, wherever possible we will put those in KMP, and but the expansions of the present lines that are already in Terasen and therefore in KMI in all likelihood will remain at KMI. That's what I meant by it, Ross.

Very good. Two final questions and I will jump off here. First of all, any kind of impact from the new diesel formulations and second of all, moving forward with the Rockies expansion expectations on how you're going to finance that equity versus debt?

Okay. Really on the new diesel formulations we're working to accommodate our customers on that, and in some cases that involves some additional expenditures, particularly at our terminals where we can provide for ultra low sulfur diesel, and we are charging our customers for those additional capital, that additional capital that's spent and recovering income off of that. So it is certainly not a negative and it may be a mile positive in terms of adding asset base to our terminal system. On the financing of the Rex project, Rockies Express, Park, do you want to take that.

We will expect consistent with all of our expansion projects and acquisitions and this will be a long-term project with very solid credits and contracts and so it will be at least 50% equity so probably somewhere between 50 and 60% equity financed.

Thanks, guys.

Thank you.

Our next question is from Karl Kerr. Please state your company name.

Karl Kerr, Credit Suisse. You started to answer this question in your last comment. Going back to the oil sands, it looks like the Transmountain expansion you're negotiating with right now is roughly about 45% of the original M&A project economics that you had in there of about 1.2 billion U.S. the way I calculate it. Correct me if I'm wrong, but that line you were just talking about, that was not in the original economics, that would seem to be above and beyond additional accretion opportunities. Are there any other major projects that are beginning to look more feasible? Is it too early for us to start looking at the second stage of the Transmountain expansion?

Yeah, that's a good question, Karl. Let's started with the [Diluent] line. That is clearly not a project that was in our acquisition model. We said at the time kind of ad nauseum that we were being very conservative we thought and adding a moderate amount of expansion to transmountain and the corridor expansion which even at the time of the merger was already advanced negotiations between the Shell group and the Terasen group and beyond that we would look for opportunities as they occurred and that we hoped and thought that there would be upside which would convert what we called a double two bagger, a good double into a home run or grand slam home run. It is too early to declare victory by a long shot. But we are finding more opportunities than we thought. The Diluent line would be in addition to anything we planned on and obviously we don't do it if it is not a fair return that make sense for the KMP unit holders and for KMI.

In addition, the TMX expansion we're combining two phases into one, so we are advancing the ball there instead of the original plan of the to take it from 225 up to about 255. That was Phase 1 and then a second phase to go from 255 to 300 which would come a couple years later. In point of fact when we got up there and started meeting with producers, we found there was a tremendous interest in expanding transmountain faster, even though the producers obviously are bearing in terms of subscription to capacity are bearing a big portion of that risk, of the expansion. So we listened to what they had to say and decide to do roll the first two phases together and that's what we talked about would be a trance mountain we're now calling Phase 1 Transmountain which would consist of compression and the anchor loop which goes through the park there on the border of Alberta and British Columbia, and those two steps would take us to 300,000 barrels a day and we are very hopeful and confident that we will have a formal announcement on that shortly. We have indicated that we have made great progress with the producers.

Beyond that, I think we're also probably going to be able to advance the ball on what we call Phase 2 and Phase 3 of transmountain quicker than we thought. Phase 2 is a project that would take it from 300,000 to 400,000 barrels and then the real sweet spot is going from 400 to 700,000 barrels and we're looking at 2 and 3 right now. This is all moving on the present Transmountain system or on the present Transmountain right of away and servicing and we talked about this before, the lower main line which is the Vancouver area and specifically Washington State refiners, and then some moving over the docks and we feel pretty good that we're going to be able to move those up and build them quicker than we thought, and in no way does this proscribe or prohibit us building also a north route over to Kitamat if there is demand for moving product to Asia, and I've said all along we're agnostic about where it goes and we will move wherever the shippers want.

A lot of shippers are very enthusiastic and we think there is a great deal of potential in Washington State with the three big refiners there, all of whom we think will look seriously or are looking seriously at converting their refineries to burn heavier Canadian crude. They're now burning almost exclusively ANS, Alaskan North Slope, which is in serious decline as you know. They need to replace it with something that clearly they are already connected by pipeline. All we need to do is upsize for them. We think that those refiners working together with producers will strike agreements to move a whale of a lot of heavy crude into Washington State.

In addition, of course, we also supply with light crude the Chevron refinery in Vancouver. We supply all of the refined products in the Vancouver area and then we move about a few tens of thousands of barrels a month across the dock in Vancouver most of which goes to southern California. We will see the Chevron barrels and the refined products barrels being about flat, just modest growth in the market. We would see a lot of growth in Washington State refiners and we would see some moderate growth in more ships or shipments going over the dock in Vancouver.

We're very enthusiastic about that. That's the TMX. It is bigger, going faster than we thought and we think it will probably real opportunities not just for us but break a bottleneck that the producers have experienced and then all of these other things there was no terminal in our acquisition model. There is as I said no condensate or Diluent line, and several other thing that we're working on now that would be preliminary to discuss that we think will also be good projects, so I think we're going to find a lot of good opportunities now. You know our motto is the devil is always in the details. We will not claim credit on any of these until we get shippers signed up. I think so it is going to be a lot of fun, a lot of fun over the next several years.

I appreciate all of that. Two quick data points if I could. Just, Park, how many shares KMR shares did you own at the end of the quarter, and two, just to clarify, is the $5 guidance reiterated, does that include any SFPP drag or because it is not final, final that's still out of the numbers?

We're it'll under 10 million shares of KMR as of the end of the year, KMI does, and the $5 does not include any impact from the SFPP rate case.

Thanks, guys.

Next question comes from Josh Golden. Please state your company name.

J.P. Morgan Asset Management.

Hi, Josh.

Hi. Good evening. Quick question on the leverage numbers somewhat and just want to touch on the FASB EITF, I think it's the 04-5 accounting change where you have to consolidate. Will there be any type of restructuring charges for that in the coming quarter?

No, there won't. That's purely an accounting change. Unfortunately our accountants don't get overtime for doing that kind of work.

Do you guys have an estimate right now with the pro forma leverage numbers will look like for the consolidated entity given the uptick in debt and the Terasen acquisition.

We'll go over those next week at the conference on Tuesday and that will be webcast.

The rating agencies, have you spoke to them already?

They're aware of the EITF.

Okay.

Truthfully a year ago we presented a potential impact on the balance sheet from that consolidation. We've known this has been coming as has everybody else, so it should not be a surprise to anyone.

Okay. And how would that effect the income statement over at KMI?

Ultimately has no impact on the income statement. Now, you will see KMP consolidated on to the income statement and then broken out in the is that right that KMI does not own broken out in minority interest.

It will make Park's presentation even longer when we break that out.

More of you will get put to sleep as we go through it.

Okay. Quick question in terms of all of the expansion and the CapEx that you have planned. Are you making any provisions in the coming year to pay down some of the Terasen acquisition debt and the uptick in at the MLP?

We'll continue. Most of these projects the Rockies Express, if we build a condensate line, the Kinder Morgan Louisiana all of which will be done over a period of years will be done at KMP, and we will continue just what we've done for the last nine years, which is, If we put out a billion dollars in investment, we will put out substantial portion that far probably about 60% in equity as we go and KMP or KMR. Now of course we will, in the short term we will have the proceeds from the water sale, which we will use to pay down debt at Terasen obviously, and to the extent we have other cash we will pay down at Terasen. We have an awful lot of investment opportunities in Canada in KMI but again a lot of them in Canada and most of them the United States will be at the KMP level and we will just continue to do that as we have. At KMI we have no intention to putting out further KMI equity. Broke my heart to put that that many shares to buy Terasen. I guess that comes from being an owner. At any rate we believe we'll be able to fully finance everything on a going forward basis.

Fair enough. Quick question on the hedges. Specifically for the oil hedges. Looking at your realized price versus where the spot prices are now, some of the hedges you have, when do they start to roll off?

We have put hedges on over a number of years and we'll continue to put hedges ongoing forward and so our hedge program goes out now and 2010, but a large portion of 2010 hedges were put on within the last year, and so it is kind of a continuous program and so there is not a way to -- you can't look at it and say there is a clip at some point in time when the hedges are gone.

Obviously the corollary to that is that each year because we put on the hedges sequentially, each year the price we realize from the hedges goes up in some cases pretty dramatically, if you get to what we're hedged out now in 2010 which is a relatively small portion of the 2010 production. I think it is at $55 which is obviously a dramatic improvement what you had in '05 and that will ratchet up as you go as the new hedges come on and I think Park may have mentioned earlier and certainly in prior calls that we have tended as price has moved up we tend to put on more puts than swaps which gives us the upside but still locks in a very fair base price that guarantees we'll have a very adequate return on all of the money we spent on SACROC and YATES.

And next week at the conference we'll go through by year how many barrels are hedged and had what efforts and what percent of those hedges are swap versus put.

Since we under report our oil production because as you know we report the number everybody focuses in on, at SACROC for example is 32,000 barrels a day or so, which is crude production. Actually Park can probably recite the number. I think we had another, what did we average in NGL productions out there, another 16,000 barrels a day or something like that and we own -- Tim is here. Wouldn't that be right? About 16,000 barrels?

[INAUDIBLE]. For the year about 9400 barrels a day from NGL.

Our share -- 9400 our share off 16,000 total. There is another 9400 barrels and clearly to keep it simple because it is a heck of a lot more difficult, we have just put all of the hedges as you know against the crude and that's why you see the differentiation. In essence you count the NGL's we're really producing more like 41or 42,000 barrels out of SACROC.

To clarify then on the KMI guidance, the con sal addition of the KMP, back to the guidance for next year?

Will not, no. Are you talking about EPS guidance. It will not.

Thank you. Fair enough.

Next question.

[OPERATOR INSTRUCTIONS] Next question is from Steven [Erecol]. Your line is open and please state your question.

How are you doing.

Fine.

All my questions were answered. You just stroked another one when you said you hated to give ut the shares on Terasen. It is kind of interesting to me, you created a a lot of wealthy people in the sense that a lot of other GP interests have come public and it amazing we they're trading at a minimum of 25 times earnings and our stock is substantially less. My observation would be, I would encourage us especially given the projects we have coming on in the next two years to be a large repurchaser of our shares to get the shares back.

Well, that's a good idea, Steve. Obviously we'll be balancing that against great capital expenditure opportunities we have, and I am always for fewer shares at KMI as I said, but again we have to make certain that we have plenty of fire power to go after these expansion opportunities which are -- I just -- this Rockies express project at KMP, all of these projects are really outstanding and I think when they come home to roost, of course that's going to drive a lot of cash flow up to KMI and that's the time when we'll have a lot more fire power I think to either pay down debtor buy back shares. Or continue to raise the dividend of course.

Thanks again.

Yep. If there are no further questions, Brian, we have no further questions?

That is correct, sir.

Okay. Thank you, all very much for being on here. If you have further questions, please call Park or Kim and we will welcome as much of you as possible down to Houston next week where we will go into all of this in many more detail and we will webcast that. Thanks very much