金德摩根 (KMI) 2006 Q4 法說會逐字稿

[OPERATOR INSTRUCTIONS] Today's conference call is being recorded for replay purposes. If you object, you may disconnect at this time. I would now like to turn the conference over to our host, Mr. Rich Kinder. Sir, you may begin.

Thank you, and welcome to the Kinder Morgan conference call. As usual, we'll be talking about earnings and other issues with regard to Kinder Morgan, Inc. which is a major midstream energy company in North America. I'll refer to that by its New York Stock Exchange symbol KMI and we'll also be discussing the same issues with regard to Kinder Morgan Energy Partners which I'll refer to as KMP. KMI obviously owns the general partner and is a large shareholder in KMP.

As usual, we'll be making statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. I'll give an overview of the 2006 results and an update on other important matters and then I'll turn it over to Park for a discussion of the detailed financial results and then as usual we'll take any and all questions that you may have.

Let me start as I usually do with KMI. Its 2006 plan called for earnings of $5 a share including results from our U.S. retail operations. As you know, we have agreed to sell our retail operations to GE, and consequently we have replaced -- we have placed those operations and the financial results of those operations in the discontinued line, given this pending sale. The actual results for the year, including retail were $5.17 before certain items the certain items were a positive in this particular case so the apropos number is -- to compare I think is $5.17 versus a plan of $5.

What drove that performance at KMI, well, Natural Gas Pipeline of America had a very good year. Our Canadian operations both Terasen gas and Kinder Morgan Canada modestly exceeded their budget targets for 2006. So all in all KMI came in well ahead of the original budget which is how we always compare ourselves. The other item of interest, obviously on KMI, is the management buy-out. As all of you no doubt know by now, the shareholders in late December approved the MBO. We are still waiting for certain regulatory approvals which we expect to get in the first quarter and close the transaction accordingly.

Now let me turn to KMP. Lots of moving parts here but let me cut to the chase. We raised the distribution to $0.83 for the fourth quarter, thus $3.26 for the year, and that left us with a little over $6 million in excess coverage above that. This contrasts with a $3.13 distribution for calendar year 2005. Our budget for 2006 was $3.28 and if you'll recall last quarter on this call I said we expected to come in between $3.24 and $3.28 and probably at the lower end of that range.

We pride ourselves on transparency at Kinder Morgan so let me explain these numbers very clearly. Let me start with the distributable cash flow for 2006 for each of our business segments. Distributable cash flow, of course, is essentially EBITDA less sustaining CapEx. The best way to analyze the performance is I believe through DCF particularly for 2006 when as most of you know the FERC mandated reclassifying certain integrity work from sustaining CapEx to O&M. So the best way to look at the results of a midstream energy operation like ours, I think is as we always do is to look at distributable cash flow. Let me go through segment by segment on how each segment performed from a DCF basis.

Starting with our natural gas pipelines, they had $526 million of DCF that is $58 million above their plan. Good performance across the board, particularly in our Texas Intrastates. Our terminals group had DCF of 358 million that is 13 million above its plan. This was led by strong bulk volumes, if you'll notice the volumes on our bulk terminal operations were up 5% for our full year 2006 versus '05.

We also received help from internal expansions and from acquisitions that were made during calendar year 2005. In that operation, we continued to expand the products that we're handling and our back of the envelope numbers would say now that we are approaching handling about 30% of all the ethanol produced in the United States at our various terminals around the country.

On our products pipeline side, we had DCF of $466 million. That is $43 million below plan, now about 30 million of that came from two things. First, a reduction in the SFPP West line tariff as ordered by the FERC which as you know became effective on May 1, 2006 so that was the first thing. And the second thing was a true-up of the environmental reserves and costs each quarter. Neither of those was in the 2006 budget. And together those made up about $30 million of this $43 million shortfall. The rest of the shortfall came primarily from lower than expected results at plantation pipeline. We have talked about that in the past.

Our fourth segment, of course, is our CO2 pipeline segment. There we had $484 million of distributable cash flow. That is about $53 million short of the plan for 2006. All of this shortfall was as a result of lower crude production from SACROC that is pretty much consistent with what we have talked to you about over the past couple of quarters and the SACROC production came in for the year modestly below 2005 and about 4,000 barrels below the plan number for 2006. The Yates field the link pipeline in our source and transportation business all came in at or above their plan. So the CO2 issue is strictly a SACROC production issue.

Now, if you net all this out you get total distributable cash flow from our business segment of $1.834 billion for 2006 and that is $25 million short of our plan. I might add that it is up from 1.676 billion in 2005 or a net increase of $158 million or 9.4%. All of this led to distributable cash flow per unit of $3.29 per unit when we distribute $3.26 and again that $3.26 is $0.81 in quarters one through three and $0.83 for the fourth quarter. And as I said earlier that has excess above that $3.26 distribution of about $6.5 million.

Now let me talk for a minute about bonuses which we referenced in our -- in our release. Under our bonus program, if we don't achieve our budget targets we have no obligation to pay bonuses. So, since KMP fell short of its distribution target of $3.28 per unit, no bonuses were required. That said, given a lot of positives at KMP, both financial and operational and particularly from a project development standpoint, the Board of our GP at KMI and our sponsors in the MBO at management's recommendation decided to lower the amount of the GP incentive to back stop the payment of a reduced bonus amount of $20 million at KMP which is about 75% of what KMP had anticipated paying had the budget targets at KMP been achieved. So in other words we are paying out $20 million in bonuses at KMP but KMI as the general partner is taking $20 million less in distributions to back stop that bonus which was not required to be paid under our bonus program.

Let me add that our four most senior corporate executives at their own election took no bonuses for 2006 and of course as you know I'm not eligible for bonuses in 2006 or any year. I think the support of KMP by its general partner I think really shows the faith all of us at Kinder Morgan have in the people and in the future prospects at KMP.

Now, let me just add that obviously to the extent KMI had not elected to support the bonus payment, and the KM Board had elected to pay some reduced bonus on its own this would have lowered the distributable cash flow per unit. For example, if KMP had funded at 50% of the original bonus it would have covered 3.24 distribution with a little bit to spare as opposed to the 3.26 with 6.5 million to spare in actual results.

Turning from financial results, let me talk about some other significant developments that have occurred and are occurring at the Kinder Morgan companies. First of all I'm very proud to say that for the full year of 2006 the Kinder Morgan companies each of their six business segments out-performed industry standards on the environmental health and safety front. This is all posted on our website and you can see the improvement that we have been all able to achieve there. And we are very proud of that. In no means are we resting on our laurels, it is a constant battle when you have 43,000 miles of pipeline and 155 terminals to make certain that you are operating them in the safest manner possible.

Second point is, we have announced our budget targets for 2007. We did that mid-December and we will detail that budget for you and our general outlook for the future at our annual investor conference which will be held in Houston on January 23, next week. Obviously all of that will be webcast and will be posted on our website. So anybody and everybody can have access to what our outlook is for 2007. And as we said in that press release in December, that 2007 budget calls for distributing $3.44 per unit for 2007, and that is an increase of about 6% over the $3.26 that was distributed for 2006. And as we'll talk about at that conference in a lot more detail the growth really accelerates toward the end of 2007.

Third point I want to make is that, and we'll discuss this in a lot more detail at our investor's conference, we now have $6.5 billion in identified new projects that we expect to be completed at KMP between now and 2010. Among these are the following, certainly the biggest single project is our Rockies Express natural gas pipeline project. That is our project, about a $4.4 billion project in which we own 50% and that project will take natural gas from the Rockies across the mid continent to the Ohio/Pennsylvania border.

Kinder Morgan Louisiana is a $500 million project that we own 100% of that will take regassified natural gas away from LNG regas facilities on the Gulf Coast across the pipeline alley as we call it in Louisiana. Our newest project is our mid continent express project which is a 50/50 partnership between ourselves and another pipeline company and there we will be moving Barnett Shale gas from Texas across Louisiana and Mississippi into Alabama to connect with pipelines going both to the Midwest and to the northeast.

All of these projects are in the natural gas pipeline segment. They all have long-term throughput agreements underpinning them, and they are all either in the process of being built or being engineered at this time. We have numerous terminal expansions in that segment. Probably the most important of them is -- is about a $200 million expansion of our facilities located on both sides of the Houston ship channel at Pasadena and Galena Park. There will be building additional facilities that will handle long-term contracts that express the demand that our customers have for that kind of storage and ancillary facilities.

In our CO2 segment we anticipate a good bit of expenditure there. Perhaps the most interesting part is in our source and transportation segment. There we will be spending our share about $120 million on expanding the CO2 production in our source fields in southwest Colorado, and then making a coordinated expansion of our Cortez pipeline which moves that CO2 from Colorado across the state of New Mexico to the Permian Basin in Texas where it is used for tertiary recovery.

We also have a number of product pipeline expansions underway including the second phase of our line from El Paso to Tucson and Phoenix, Arizona. That Arizona market, as you know, is one of our fastest-growing markets on our product system.

Now, in addition to all this $6.5 billion of projects that we have identified and are working on, I expect and management team expects we'll find other opportunities really in all four of our business segments at KMP over the next few years. But I think the important thing is that all of these new projects, plus another important factor, namely the increasing price per crude production in our CO2 segment, which will come as old hedges are rolled off and replaced by new, higher hedges -- higher-priced hedges in 2008 and beyond. You put that factor together with all these new projects and that's what leads us to believe that we have a very good ability at KMP to grow the distribution by 8% a year or better over the next several years and that is the game plan that we are marching forward on.

So with that I'll turn it over to Park for a much more detailed analysis of the financial side and then we'll come back and take your questions. Park.

Thanks, Rich. As always, I'm going to start with the KMP release. Hopefully you have the release in front of you. You can flip back to the first numbers page that follows the text. That's the income statement for KMP. The face of the income statement is not overly useful mainly because of certain items. In 2006 the certain items were about $13 million positive basically. They were some gains that are one-time items that we are not taking credit for and I'll talk a little bit more about that in a minute.

In 2005, there was a large negative certain item or total of certain items that totaled $172.5 million the biggest piece of which was the rate case reserve that we took in the fourth quarter. Again, those are kind of spread out on the face of the income statement so I think the second page is a better place to see the results of operations. But before we go there, I want to note something at the bottom of the page you'll see sustaining CapEx for the quarter of $63.5 million and for the year about $140 million. Now that number is actually inflated by about $14 million. That really should be backed out and associated with a certain item that we'll discuss on the next page.

And so the real number for the quarter is more like $49 million and you will see this on the next page and more like 125.5 for the year. Now while I'm on that, 125.5 compares to our budget of $170 million. And the biggest reason why that is short is what Rich already discussed. It has to do with the change in accounting based upon FERC rules that moved a bunch of integrity costs out of sustaining CapEx and into expense. That actually reduced our sustaining CapEx by $25 million and that amount showed up in expense. Of course at KMP it doesn't make any difference. I mean, we pull out sustaining CapEx before we get to distributable cash flow, and we believe distributable cash flow is a much more meaningful measure than earnings. So it doesn't make any difference but we just want to explain it to you so that you can reconcile back to our budget.

So if you added that $25 million on to the 125.5 that we have, you end up at about $151 million. That's still lower than our budget of 170 by about $19 million. Most of that was actually at Cochin. Cochin was over half of that reduction and that was basically because the operator in 2006 VP took a slightly different approach to the management of that pipe in 2006 from what we expected when we put the budget together over a year ago. Still, continuing forward with the Cochin insurance project it is just the expenditures. What happened in a slightly different way in 2006 and are spread over time in a slightly different way from how we expected they would be again when we put together the 2006 budget. And then there are small decreases at sustaining CapEx spread across the other segments that again results in that total $19 million reduction from the $170 million.

With that, let's go ahead and go to the second page and look in the middle of the page. You can see DCFs per unit before certain items of about $0.85 for the quarter. $3.29 for the year. That compares to the distribution for the quarter of $0.83 and a distribution for the year of $3.26. And as Rich mentioned our excess coverage for the year is right about $6.5 million.

Let me go ahead and talk about the certain items because really we are going to focus on things without the certain items, but just so that you understand what they are. In the fourth quarter of 2006 a certain item is almost all related to insurance recoveries from hurricanes Katrina and Rita. These are dollars that are collected or expected to be collected from insurance companies. Now that amount, and it shows up here at $8.8 million, has actually been reduced by the write-off of assets that were impaired by the hurricane. The actual recovery is greater than the $8.8 million and truthfully the book write-off is about $6.3 million, so the actual recovery is north $15 million. Although there was some that came in throughout the year. This isn't the full impact.

But I do want to compare that to the amount I told you before of $14 million of sustaining CapEx is related to recreating, rebuilding those assets that were destroyed in the hurricane. So if you actually compare what we had to spend in sustaining CapEx to rebuild these assets and what we covered -- what we recovered from insurance recoveries, they are pretty close and again I just want to tie all those numbers together for you so that you understand what's going on there.

If you look at certain items for the year, they are positive about $13 million. And the biggest other issues are the gain on the sale of the Douglas gathering system we recognized earlier an increase in environmental reserves that was a negative about $18 million. The hurricane gains that I discussed, and then about $7.5 million related to a number of things. But the biggest was a gain related to a contract in the natural gas pipeline segment.

And so, from that, let me continue up again from the middle of the page. We talked about DCF per unit and the distribution. You see the sustaining capital expenditures a couple of lines above that. Again, here representing it without the $14 million, it is $49 million for the quarter; 125.5 for the year. One other thing that I will point out you'll see that last year's sustaining CapEx of about $141 million we end up at about $151 million on a comparable basis when you add back the little over $25 million that's integrity that now shows up in expense. So again, if you look at it on an apples to apples basis because those dollars showed up in sustaining CapEx in 2005 our sustaining expenditures including integrity expenses were up about $10 million.

DD&A, you'll see is up significantly, largely driven by increased DD&A at our CO2 segment but also by acquisitions and expansions at our terminal segment and then above that you see the limited partners net income before certain items and then the total net income before certain items before the general partners interest.

One thing I will point out as Rich mentioned, KMI funded a partial payout of KMP's bonus through a reduction in its general partner incentive. So when you look at the incentive for the quarter of $119 million it is about $20 million less than it otherwise would have been.

With that, let's go up to the segments to talk about their performance. Again, Rich has touched on a lot of this. You'll see products pipelines up slightly in terms of earnings before DD&A for the quarter that's actually down for the year 502 million versus 508. That doesn't tell the full story because as we mentioned, there are expenses that previously showed up in sustaining CapEx in 2005 that now show up there. So the right way to look at it is in terms of distributable cash flow.

But let me reconcile one number for you before I go there. That 502 compares to an annual budget that is posted on our website that we went through last January of about $582 million. So in terms of earnings before DD&A it is under budget by $80 million. Sustaining CapEx at product is actually favorable by $37 million. The biggest piece of that being the shift from sustaining to integrity expense. And so, when you net that off at the 80 you get the $43 million that Rich mentioned before which is the amount that product is under budget on a DCF basis and again, he mentioned the major drivers of that before. They are the rate case, environmental expenditures, integrity at plantation, a couple of other items at plantation driving that myth in terms of DCF.

The natural gas pipelines had a phenomenal year, basically flat in terms of earnings before DD&A for the quarter, but up $55 million in terms of earnings before DD&A from where they were last year well above their budget in terms of earnings before DD&A, it's about $53 million above budget again, in terms of earnings before DD&A. In terms of distributable cash flow as Rich mentioned up by $58 million. That out-performance driven by the Texas Intrastates, a little bit of KMI GT, Trailblazer, Red Cedar, and some other assets.

CO2 you'll see the earnings before DD&A up a little bit for the quarter. They are actually up about $19 million for the year. But well under our budget and again, in terms of distributable cash flow CO2 is under its budget by about $53 million. All of that was at SACROC, Yates, and the sale of the transportation business, as Rich mentioned, actually outperformed their budget.

On the terminal side, you'll see up $22 million for the quarter, up $79 million for the year. Also ahead of their budget in terms of the earnings before DD&A they are ahead of their budget by a little under $10 million. In terms of DCF they are ahead of their budget by about $13 million. Actually I said $10 million, I should have said $20 million is the amount. A little under $20 million is the amount that they are ahead of their budget in terms of earnings before DD&A. Now, again, DCF they are ahead of budget by about $13 million. In our terminal segment we actually had higher than budgeted sustaining CapEx expenditures and then nice performance from the assets.

Dropping down to look at G&A you'll see for the quarter it looks like it is down about $10 million. That is primarily timing. For the year it is up about $31 million from where it was a year ago. But it's right in line with our budget. Now, that being said, there are a number of things that move around here. We do reflect, clearly KMP is paying bonuses and then KMI is funding that through a reduction in the general partner's incentive and so there is a bonus pay out here in the G&A line, but it is about $6.5 million less than what we budgeted and so there is a pickup to budget from bonuses of about $6.5 million. There are some offsets. Legal is a little bit ahead of budget, insurance is ahead of budget, and then some of the corporate functions, including some of the functions -- corporate functions at CO2 and terminals are above their budget. But again this net comes out to right on budget on the G&A line.

Interest you will see is up significantly from a year ago. About $19 million for the quarter. About $72 million a year to date. But it is very close to our budget. It is actually about $8 million ahead of our budget meaning greater expense than our budget. Balance is up significantly. We'll talk about the expansion CapEx and the acquisitions when we get to the balance sheet. Rate is up around 100 bases points, that is 20 to 30 base bias points above where we budgeted and those two things are driving the excess above budget. Minority interest basically unchanged primarily related to some of the terminal assets. And then the certain items which we have already gone through and again the net income and distributable cash flow which we've already covered.

I'll flip back to the first page the income statement again real quick. Although there is not a whole lot of interest there and again it is distorted by the certain items I'll remind you, revenues are down about $9 billion compared to about $9.8 billion a year ago. That is purely a function of natural gas prices. You'll see operating expenses are also down. They are actually down by a bigger amount. It gives you operating incomes up about $243 million. Although again certain items are interspersed throughout there, so I don't think that's the best way to look at it. Really the second page is probably the best way to look at the actual results from operations.

With that, let me flip to the balance sheet. It's the last page in the KMP earnings release. Just going down this page, other current assets are down that is largely accounts receivable, PP&E is up, that's CapEx and accusations less DD&A. Investments are unchanged. Deferred charges and other assets that is largely the adjustments to the carrying value of hedges on the balance sheet. Total assets about 12.2 billion up from about 11.9 billion at the end of last year.

I'll talk about the notes payable and current maturities in conjunction with the total debt. Other current liabilities is down almost $300 million. That is accounts payable is down a considerable amount and then again the carrying value of the hedges fluctuates and is causing the rest of that. Long-term debt I'll discuss in a minute.

Market value of interest rate swaps just varies with the forward curve for interest rates. Other is down almost $270 million. That again is the carrying value of the hedges and the swaps flowing through. Minority interest mostly unchanged. Accumulated and comprehensive loss is down about 239 million, again it's the carrying value of the swaps and the hedges and other partner's capital is up about 169 million.

Where that leaves us in terms of total debt about $5.7 billion. We are up about $520 million from the beginning of the year. I'll reconcile that for you in just a minute. For the quarter, at the end of the third quarter we were at about $5.5 billion so we are up about $219 million again and I'll go through what's driving that increase in a minute. Debt to cap, end of the year about 53.8% consistent within our expectations.

At the beginning of the year we were about 52.4%. At the end of the third quarter we were about 52.8%. But we believe a more meaningful measure of KMP's balance sheet strength is the debt to EBITDA. Again just for an NLP which has distributions as significant as ours we think this is a better way to look at it. And you'll see our debt to EBITDA is just a hair over 3.3 times. At the end of the third quarter we were a hair under 3.3 times. At the beginning of the year we were a hair over 3.2 times. All very strong measures and again KMP has a very strong balance sheet.

Let's talk about the change in debt. As I mentioned for the quarter debt was up about $219 million. For the year it is up about $520 million. Just going through the various impacts there, we did issue about $248 million of equity during the year. None of that was in the fourth quarter that offering was all in the third quarter.

The KMR distributions generated cash, this is the equivalent of an equity offering so they generated cash of about $52 million in the fourth quarter and almost $200 million for the full year. And then some uses of cash acquisitions about $30 million for the quarter, about $125 million for the year.

The acquisitions in the quarter were the liquids terminal at Roanoke, Virginia and then two at terminal segments, one is the [Filliper] operation and then second are some transload facilities that we purchased.

Expansion CapEx, for the quarter $255 million, it was a big quarter. For the year $761 million. I'll go through in a little bit more detail what those expenditures were in just a minute. Then we generated cash of about $43 million from the Douglas gathering sale that again happened earlier in the year. I believe that was the second quarter so that was no impact in the fourth quarter but that is an impact for the year.

Then looking at working capital and other items. For the fourth quarter it was a source of cash of about $14 million. For the entire year it was a use of cash of $123 million. Now those amounts are almost all driven by changes in AR and AP. For the fourth quarter AR and AP generated about $25 million in cash. For the year it was a use of cash of about $93 million. Most of that came in the first quarter and there was one particular large payable that passed from 2005 into 2006 that drove over half of that change.

And then in addition to that, for the year, we had some other small changes in current assets and current liabilities and then a little bit of a use of cash for gas and storage and NGL line fills and a few other items, again to get us to the $123 million use of cash for the year and $14 million source of cash for the quarter.

Looking at the expansion projects on the products segment we spent about $22 million on expansion in the quarter, about 145 million in the year. Largely the East line expansion that came in service and then our new East line expansion, the El Paso to Phoenix expansion that's going on now.

On the natural gas side we spent about $30 million in the quarter, about $64 million in the year. Beginning some expenditures on the Louisiana LNG pipeline and then some ongoing storage expansions. CO2 about $68 million expansion CapEx in the quarter; $258 million for the year. Almost all at SACROC. That's where most of our expansion CapEx there in that segment.

On the terminal side, pretty big fourth quarter, spent $124 million in expansion CapEx; for the year $252 million. Significant portion of that in the fourth quarter and the year was at Pasadena and Galena Park where we are adding tanks and facilities all backed by customer contracts. We are also continuing the development of the new Edmonton terminal and then expansions on the East Coast for coal imports.

That is it for KMP, and with that I will turn to KMI. Again, if you look at the KMI press release and you go back to the numbers page I'll start on the first numbers page which again is the GAAP income statement. This income statement and the comparison is even less relevant than the KMP one for several main reasons. One, this is the first year that we consolidated KMP. So 2005 does not consolidate KMP, 2006 does. Two, we only had one month of tariffs in 2005. Clearly we have 12 months of it in 2006. That distorts the numbers. And then the third are the certain items; although the certain items are not overly significant at KMI for either 2006 or 2005. And so actually, if we'll go to the second page, we can talk about the certain items real quick. You'll see they are there in about the middle of the page.

For the fourth quarter and just to orient you to this page, once again, what we have done for 2006 is we have shown you a pro forma column which shows KMI as if KMP were still accounted for under the equity method. So we have one of those columns for the quarter and for the 12 months. And those are the columns or that is the column that I will speak to and I will compare against 2005 and against budget. And so again, for 2006 I'm focused on the pro forma column which restates KMP as if it were being accounted for under the equity method as it was prior to 2006.

But looking at the certain items for the quarter, they are positive about $14.1 million. For the year they are positive about $25 million. The biggest piece of this actually for the quarter and for the year, is deferred a tax liability change is the label there. Basically it is a reduction in our effective tax rate which has to be applied against our deferred tax liability balance. And so we have had these gains in the past. Again this is not the first one that we've had this year.

We never take credit for them. We always break them out here as a certain item. But again the total of certain items $14 million positive and $25 million positive for the year. Last year in the quarter, certain items totaled a little under $13 million positive. For the year they totaled a little over $2 million negative. But, what you can see here then, are the earnings from continuing operations before certain items $1.46 for the quarter and $5 per share for the year.

Now as Rich mentioned, if you want to compare to our budget, our budget was $5 a share. But our budget did include retail in continuing operations. And you would have to go back to the prior page, which you can see the discontinued operations generated $0.17 of earnings per share. If you add the $0.17 to the $5 you get $5.17 and I think that is the appropriate comparison to our budget and while I'm talking about that, let's talk about retail real quick. Retail ended up just a hair under its budget about $700,000 under its budget and again, it no longer shows up in continuing operations.

With that, actually why don't we turn to the next page, which will show you the pre-tax impact of KMP on KMI earnings. It shows up as 138 million compared to 148 million for the quarter. 581 million compared to 567 for the year and again I'll point out that's been reduced by $20 million voluntarily on KMI's part to fund a partial payout of KMP's bonuses.

With that, let me again, sorry to jump around but I'll go back to the prior page and look at the other segment. NGPL had a very strong year. Had a good quarter as well. It ended up above last year and above its budget. Terasan gas and Kinder Morgan Canada also ended up a little bit above their segment budget. They also ended up a little bit above their total budgets when you include G&A. And so we got the performance from the Canadian assets that we were looking for when we made the Terasan acquisition. Power was essentially flat with this budget. Came in consistent with our expectations.

G&A is flat with budget you'll see the total for the year once you back out KMP $149 million. Our budget was a little over $150 million. That is a little bit misleading because retail has been backed out of that and G&A that's been allocated at retail and discontinued operations is about $10 million. So we actually did run over on some other items related to accounting and tax, legal, insurance, a little bit in Canada, although that was mostly classification between the segments and G&A. And so again, netting those things off we ended up just a hair under our budget. Interest expense you'll see about $429 million for the year. That's very close to our budget. Came in where we expected. It is up a lot from last year because of the Terasen acquisition.

Dropping down, minority interests are largely driven by KMR and then other net, you'll see it's a little bit up from where it was last year, that is a function of the Terasan acquisition and adding in customer works. Again where that gets us is $5 a share or $5.17 if you add back in retail.

Real quick on the first page, I'll just point out one thing. And I'm sure there are some people out there who will get excited by this. But revenues hit $11.8 billion up from $1.25 billion in 2005. We couldn't quite hit ten times our revenue growth in 2006 but we got pretty close. And of course that is all again just a function of the accounting and the acquisition at Terasan. We don't consider that to be overly relevant.

Moving then to the balance sheet for KMI, it is the last page and once again, we have a pro forma column for 2006. Which is just 2006 as if KMP were still accounted under the equity method. Running down on that page cash and cash equivalents are essentially unchanged. Other current assets is down about $227 million. That is a reduction in accounts receivable and a result of the sale of water which took current assets away.

Investments is really just a function of the carrying value of KMP. Goodwill is up slightly. That is there was a remaining adjustment to goodwill that occurred in 2006 that was related to the Terasan acquisition. And then goodwill can fluctuate with FX. For the entire year, there really was not much of a change in the currency in the Canadian and U.S. currencies, and so it didn't have a very big impact for the entire year.

PP&E is down. That is basically CapEx less DD&A. Other assets is up and that is a function of moving retail into discontinued. The noncurrent portion of retails asset all show up in other assets now. So total assets about 17.6 billion up from about 17.5 billion at the beginning of the year. Notes payable I'll talk about when I talk about debts. Other current liabilities is down about $68 million. A number of things going in and out there. AP is down a little bit. The water sale reduced this number a little bit. Rate stabilization accounts at Terasan gas came down some. Accrued interest and taxes went up some and then the carrying value of hedges and swaps went up some. Then you'll see other liabilities and deferred credits is up about $82 million. That is an increase in the carrying value of hedges and swaps.

Debt I'll talk about in a minute but the deferrable interest debentures and the capital securities don't change and the interest rate swaps, again, just fluctuate with the forward curves for interest rates. Minority interest that is largely KMR and a little bit of Triton which is the Jackson facility. Shareholder's equity other comprehensive loss has come down slightly. Other stockholders equity is up about $300 million.

Where that gets us in terms of debt to cash for KMI, again looking at it without consolidating KMP I think that is the right way to look at it. KMP is BBB rated. It does support its own debt. KMI is not recoursed on that debt. So I think the right way to think about KMI's debt is to back out the KMP debt. You'll see we're a little under $7 billion at the end of the third quarter we were a little under $7.1 billion at the beginning of the year. We were a little over 7.1. Debt to cash has come down from a little over 55% down to a little over 53% during the course of the year.

You'll see down below, the back of the envelope calculation of cash flow about $704 million for the year. It's about $215 million above where we were for the third quarter. So that is the quarter increase. I will point out this is just from continuing operations so it does not include retail. But what did we do with that cash? Again we generated $213 million in the quarter, about $704 million for the year.

The actual reduction in debt for the quarter when you net out the change in foreign exchange was basically zero. For the year the actual reduction in debt, again, even net of changes in foreign exchange was about $160 million. So we used about $160 million for the year to reduce debt.

We did pay dividends in the quarter they totaled about $117 million. For the year they totaled almost $470 million. We had a little bit of share repurchase in the first quarter that totaled about $34 million. None following the first quarter. Expansion CapEx was about $206 million for the quarter, about $380 million for the year. And then we did generate cash from the water sale of about $113 million, again that happened in the second quarter. And then we also generated cash from working capital and other items of about $116 million in the quarter and $234 million for the year. Now those are big amounts. The biggest piece of it, when you look at it for the year, is primarily AR and AP and other working capital items total over $200 million. So they are driving that $234 million source of cash for the year.

For the quarter, it's really a source of cash from a reduction of gas in storage and then a source of cash from a reduction in margin postings and some turbine sales that are driving most of that $116 million source of cash for the quarter.

In terms of expansion CapEx, again the total is a little over 200 million for the quarter, about 380 million for the year. NGPL spent about $39 million for the quarter, about $102 million for the year. Primarily storage expansions at North Lansing and Sayre. Kinder Morgan Canada about $152 million for the quarter, $237 million for the year. Corridor expansion and the Transmountain expansions really kicking up and then Terasan gas expansion CapEx about $14 million for the quarter, about $41 million for the year.

Now the other thing that I'll touch on is sustaining CapEx at KMI, you'll see for the year the number was $196 million. That was up from $103 million a year ago. But it was below our budget of $256 million. We already talked about this some at NGPL. But because of the shift from sustaining to expense, NGPL sustaining CapEx was down about $23 million. At Terasan gas sustaining was below budget about $9 million and in Kinder Morgan Canada was below budget about $4 million. On the whole pretty close to where we thought we would be especially when you add the integrity expenses back. Then the one other piece that is driving that variance is retail does not show up in the 196 but it is in our budget of 256 and that number was $24 million. So that reconciles those. And that is it for the financial statement. So I'll hand it back to Rich.

Thank you, Park. Jackie if you'll come back on we'll take any and all questions that you all might have.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question is from Samuel Arnold. Will you please announce your company and ask your question.

I am with Credit Suisse. Just had a question for you with the bonus pool. Could you talk a little bit about how far down in the ranks that goes and a little more of the logic behind giving that bonus?

Yes. I would be happy to, Sam. We pay bonuses to virtually every person in the Company. From the steel worker up through everybody but me. In the Company. And that's what we will be doing this year. And again, KMI paid out its bonuses in full just as it had accrued. And so this was strictly a KMP issue. And again, we believe very much here in I guess you could call it walking the talk. We've always said that our bonuses depend on making targets. And here we had KMI obviously made its target and then some. KMP missed by admittedly a slight amount, about $25 million as we talked about, but still did miss. We thought it was appropriate still to pay out some bonuses. But we elected to pay out at about 75%. And the general partner elected to pay those.

Okay. Great. Thanks. If I could ask just one quick other question?

Sure.

You had announced that you are purchasing the remaining interest in Cogen, I was wonder are you planning on giving out a cost for that? And then, secondly could you talk about more of your long-term plans for that? Are you still considering keeping it the same use or would you consider reversing it or kind of what are the thoughts there?

We've got a number of things in mind and I think we'll talk about that more next week at our investor conference. But I think we have publicly stated that purchase price was about $50 million.

Okay. Great. Thank you.

Ye.

Thank you, sir. Our next question is from Ross Payne. Will you please announce your company.

Ross Payne with Wachovia.

Hey, Ross, how are you doing?

How are you doing Rich?

Good.

Couple of questions here. Plantation is obviously having a lot of competition. Is that simply from Colonial or other sources of other pipelines? And what's driving the underperformance in that area?

Well, I think we've talked about this some. But let me -- the main thing is that Bengal pipeline came online which took, depending on how you look about 80,000 barrels a day away from Plantation and essentially ran it into Colonial, bypassing Plantation. We have seen some improvement as some of -- and then the other thing I should say is that the mix that our refiners that are connected to Plantation elected to do in 2006 also cut back on volumes and they elected not to service some areas with some particular grades of gasoline. So all that led to a negative.

Now, we have seen some pick up that just over the last couple of months. So we're modestly hopeful that we'll have a little better volumes. But we have -- we do face competition. We have been very open about this in the past. Plantation is -- is kind of the one pipeline that we have that is not dominant in its area, unlike SFPP which is the major player on the West Coast, Plantation is the smaller player in the southeast. So I think we've arrested the fall off and we expect a pretty nice uptick in Plantation earnings in 2007 that we'll talk about next week. But it has suffered from competition and from the decision of the main refiners that support it to -- to vary the kind of product that they produce and are selling in the southeast.

Okay. Thanks very much. Also, Rich, Interstate is up significantly. Texas Intrastate rather. Is there any basis differential plays that are going on there or is it just general pick up in volumes?

No, it is more than anything, it is just a general pick up across the whole business. It's -- it's a matter of, that we were able to have pretty good margins. Of course higher gas prices marginally benefit the Intrastates. Not for a great extent but to the extent you have some contracts where we buy and resell that are based on some percentage of the spread. That helps a little bit. We also had a good performance in our processing area and in our conditioning fee area. And then of course we did have the Hill Country pipeline that was on for a full year. And we had -- we had pretty strong demand across-the-board. And of course during the year, that will really have more impact in the coming year, but we did sign a new long-term significant agreement with our largest customer CenterPoint that will go into effect in April of this year. And that will be a positive going forward.

But mostly I think we just continue to -- it's definitely, Ross, a game of singles and doubles here. Just continue to do the right things in running that Texas Intrastate, try to increase our volumes, try to serve our customers better, just try to be the provider of choice.

Okay. Price realization is moving up in CO2. Any expectations on what that's going to look like for '07? And also in the CO2 area looks like you spent about 268 million in CapEx. What dollar number do you need each year to keep production flat?

Well, let me start with the second question. We look at -- we are still continuing to grow that asset. And I think the kind of expenditures that we're doing in terms of adding patterns, in terms of adding compression, are largely to continue to grow the future prospects, not just to maintain a level. Now I think that we are getting to the point where we are getting the full complement of things like compression as we've talked about before one of the issues there is that we're actually having more CO2 recycled, so we need more compression capacity in order to keep recycling that and still be able to take all of the oil that's being generated out of the ground. And we estimate at year end that we had about 1500 barrels a day that we were not getting because we didn't have enough compression.

Now, we had ordered the compressions a long leave time item and that's coming on -- one chunk came on last week, other parts are coming on in February and March. But those are the kind of things we're doing. It is a fluid situation and we're trying to make sure that we are putting the material, the equipment in place to maximize our returns there. That's the main thing. Now you talk about CO2 price realization, I assume you're talking about hedge prices. Is that right?

Yes, I mean the actual price realization that's in your press release. I think you did 4390 this year versus 3890 last year.

We'll cover that next week in the conference. You'll get to hear all about '07 next Tuesday.

But I think the main thrust out over a period of time, and I kind of referenced that, one of the things that sort of has inherent upside for KMP over the next several years is, and we'll go into detail next week at the conference, but as these older, lower-priced hedges come off they are replaced by much higher-priced hedges. There is not so much of a jump between '06 and '07. But between '07 and '08 and then beyond that, we have a lot higher hedges. Even if you have no increase in production, you just had flat production just the very fact of your hedges jumping up by several dollars a barrel makes a huge difference. And we'll show all that at the conference together with our percentages of hedged volumes that we have out through 2010 and '11.

Okay. Thanks very much guys.

Sure.

Thank you. Our next question is from Alex Meier.

Hi, it's Alex Meier with Zimmer Lucas. Congratulations on the quarter.

Thank you.

Two questions. I guess the first one is related to I guess your distribution guidance. Is TMX included in that? I'm talking about KMP now.

Oh, is TMX included? We have assumed for 2007 that the TMX drop down will happen basically mid year, end of May to be specific.

Okay. Just in terms of what you did with the GP during the fourth quarter, do you think that is something that you could turn to as an alternative going forward?

I wouldn't read anything into that as far as going forward policy, Alex. This was -- we looked at this for all the reasons that both Park and I've talked about and decided to recommend and the Board and the sponsors agreed with it, to do that for 2006. But certainly no commitment on KMI's part to do that again in the future. We'll look at each year on a -- on a case by case basis obviously.

I think it shows general partner support for -- for the limited partners and I wouldn't expect that to change. But each circumstance is going to be evaluated independently.

Great. Thank you.

Thank you.

Thank you. Our next question is from Faisel Khan. Please announce your company.

Citigroup. Quick question, on the mid continent express pipeline there was a lot of competition for other proposals in that area of the country to build pipeline. Curious how were you able to kind of beat out the competition? Was it that you had existing rights of ways or was it that you had more relationships with the shippers? What enabled you to kind of move that project over the finish line?

Oh, I just think good looks and humor. No, I think it certainly helped us, as it does in all these, that we were able to -- I think we have a lot of credibility with the producer community across this country and clearly, I think shippers like Chesapeake knew that if we said we were going to build it we'd build it. And that we had the technical capabilities and the financial wherewithal to do it. I think that's a large part of it.

I think also the fact that we do have a lot of relationships with these various shippers elsewhere, and some upstream connectivity through NGPL on our cross haul line further upstream if you will from the start point of the mid continent express also helped. But what we try to do is we believe if you put these projects together, and this sounds like kind of I guess apple pie and baseball or something. But we believe you've got to play -- you've got to be fair to your customers. You have to do a deal that's good for you in terms of return, but that's also good for your customers. And I think that's what we're doing. And again, if you look at the tremendous volumes coming out of the Barnett Shale and the need to get them further east I think that's the need we're serving and we're delighted that we got the project and we're going to move forward.

In terms of your returns what kind of multiple to EBITDA do you think you will eventually build this pipeline for? You said, 1.2 billion so--?

Of course it's a 50/50 deal. So I wouldn't go into the exact details of it. But it's a nice project for us and provides a good service for our customers, I think. It's an attractive return for us.

And it also is dependent upon where we end up with customers, the open season just closed yesterday. While it went well, there is still some ongoing negotiations with some of those shippers. So where we actually end up on this project is still a little bit up in the air. But it will be a nice return.

In terms of construction and the ability to get some of the large diameter pipe and compressors and that sort of equipment because you talked about some of the lead time issues for compression, is that -- is that something that you think you could still get done on time? Or are there -- is there a backlog or a longer waiting time developing for these -- for these type of materials?

Before we committed with our customers Chesapeake and others on this project, we had checked that out. Of course we do have huge amounts of pipe on order given the multiplicity of our projects. But we're confident that we can -- we can build that on time.

Okay. Are you -- are you seeing any sort of -- any sort of lingering of the time line in terms of getting some of that equipment and labor to come to bear on these projects? Are you seeing anything happening in the market there?

Well, I don't want to ever belittle the issues in building multi billion dollar projects. And there are a lot of them. What we have been able to do on Rockies Express and the Louisiana Pipeline as we said before we locked in all the pipe and -- and the compression. So it was a question of labor. And on the Rockies Express, of course, we're just finishing. We expect to bring in service the last week of January, the old Intrega project ran a little late simply because they have had a lot of cold and snow out there. But we expect to bring that online the last week of January over to the Cheyenne hub. So that's done.

The West, what we call REX-West which runs from Cheyenne hub to Audrain County, Missouri, which we expect to complete during 2007, not only is all the pipe ordered and all the compression ordered for that but the labor contracts are let for that. So all the spreads are contracted. If you look at REX-East which is from Audrain County, Missouri to Clarington, Ohio on the Ohio/Pennsylvania border the last phase of it, which we'll build in, most of it in 2008, a little in the first part of 2009, there we again have the pipe and the compression locked in but we clearly don't have all the contracts locked in. We built-in escalation in our budget and we have a contingency factor in our budget to cover that kind of escalation. But certainly that's what's not locked in.

Okay.

And so that's the way we proceed on the mid continent express we've got good bids we think on the engineering and construction work and good bids on the pipe there.

Okay.

So I think it sounds pretty good. But I don't want to minimize all across North America, and it's probably worse in Canada than in the states. But there is a definite issue of getting good quality labor at reasonable prices. It's the market has just turned with all of these infrastructure projects being done by everybody from the oilsands players in Canada to pipelines like us in the lower 48. So it is something we keep our eyes on very closely.

Okay. One last question. On -- there is I guess a court case right now the DC Court of Appeals Exxon versus the FERC, challenging some of the tax policy issues by the FERC with regard to MLPs on -- it would basically challenge some of the revenue requirements for interstate pipelines. What -- do you -- do you know anything about that -- that case? Or how that would impact you, depending upon how that case would turn out?

No, I don't know anything about that specific case. But I do know about the -- doesn't have Exxon in it but there are a number of cases, including ours, SFPP that have bounced back and forth from the FERC to the DC Circuit and as you know to put it real succinctly, what happened was that the first time it went up the DC Circuit said that the allocation scheme that the FERC had was not a just and reasonable -- I have forgotten the magic words, but was not an appropriate exercise in their discretion. They sent it back down. The FERC came back with a tax allowance. That's gone back to the DC circuit and there have been oral arguments on that case a lot of intervenors on both sides of it and that is what the DC Circuit has before it now. It could affirm the FERC, it could send it back down for another decision at the FERC, we just don't know.

Okay. Is there any sort of long-term impact that could have to putting pipelines in MLPs or do you think that this eventually gets -- the FERC eventually finds a way around this issue?

I would never predict that. I would just say that you know, we don't know. Clearly the tax component is an important part of return for MLPs in general and again the intellectual background here is that of course taxes are being paid they are just not being paid at the entity level they are being paid by the people who own the units in the limited partnerships. So we certainly think and the FERC agrees, from its decision, that the right thing to do is to have a tax component and I think there are various ways that that could be done and my own view is that that will eventually, there will be a tax component that will eventually find its way through. Whether it's this one or whether the DC Circuit mandates some more efforts, I don't know.

Okay. Thank you for your time. I appreciate it.

Sure.

Thank you. [OPERATOR INSTRUCTIONS] Our next question is from Carl Kirst. Sir, you may announce your company.

Credit Suisse. Hey, everybody. I'll make this quick, Rich. Most of my questions have been answered and I know this is kind of moot but NGPL just such a dynamite performance here. Can you help us out with what the delta was really from budget to what we're experiencing? Is it really coming from the storage? Is it coming from transportation? Just trying to figure out what's the driver here.

Yes, the basic driver I think is that as contracts roll over, and again, you have to look at NGPL that you always have to look at the fact that those contracts, we've said many times, you're going to have depending on the year a third or a quarter of those contracts roll over every year because most of them are three or four year contracts. And as those have rolled over, over the past couple, three years or the last two years in particular, when we have been able to renew them at higher prices and I think that's the biggest driving thing. It, as you know, on NGPL, it's not that significant what your volumes are and the volumes have been pretty good. But it's what your contractual obligations of your shippers are.

The other thing is that we spent a good amount of money increasing the storage on NGPL and increasing some of the capacity like on the cross haul line and now we are in 2007 going to be increasing the capacity on Louisiana line. So all those have also led to increased revenues and bottom line profits. But we continue to try to roll these contracts over on as favorable terms as we can and we've benefited. And this may not go on forever. We've benefited from the fact that there, as you know, has been a tremendous bottleneck in the mid continent region of gas coming out of the Rockies and people want to move that further east and NGPL is a very effective way of doing that getting it in the Chicago market. So I think there are a bunch of reasons, it is a good pipeline system. We are very proud of it. Again, we're spending more money on it, we are increasing our storage position. We like storage a lot, whether it's on NGPL or on our Texas Intrastate so we are looking for ways for to expand all of that. So it is kind of a multiple number of sources that I think led to its success.

All right. Thanks a lot guys.

Thank you. I am showing no other questions at this time, sir.

Okay. All right. Well, Jackie, thank you very much, and thanks to all of you for listening. We want to wish you a happy new year and thanks for hearing us and we hope to hear -- to see most of you at the investor conference next week. Thank you.

Thank you for participating in today's teleconference. You may now disconnect.