金德摩根 (KMI) 2007 Q1 法說會逐字稿

Good afternoon. I would like to thank all participants for holding. All lines will be on listen only until the question and answer portion of today's conference. I did want to inform participants today's call is being recorded. If you have objections, you may disconnect at this time. I would now like to turn the call over to Mr. Rich Kinder. Thank you, sir, you may begin.

Thank you, Brian, and welcome to the Kinder Morgan quarterly conference call. As usual, I'll be talking about both Kinder Morgan, Inc., which I'll refer to as KMI, and Kinder Morgan Energy Partners, which I'll refer to as KMP. Also per usual, we'll be making statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. As usual, I'll give a general update on the results of the first quarter, and I also want to review some of the strategic developments and progress we're making on our major growth projects in the Company. And then I'll turn it over to Park Shaper, our President, who will go through the financial results in detail, and then together we'll answer any and all questions that you might have.

Let me start with KMI, because we expect to close the management buy-out to the privatization. During the second quarter, we did not put out a detailed earnings release today except to announce that the Board did declare a dividend of the usual dividend of the usual $0.875 for the quarter, payable on May 15th to shareholders of record on April 30th. More financial details will obviously be available when we file the 10-Q for KMI in early May, but let me just say that KMI was slightly ahead of the first quarter of 2006.

Regarding the MBO itself, we're still awaiting, as we've said publicly several times, the CPUC approval, the California Public Utilities Commission approval. The Commission itself has set a timetable, which calls for a decision to be made, in our case, on May 24, 2007.

Now let me turn to KMP, and there, as you know, we measure our financial performance by comparing our actual distributable cash flow to the budget targets, which we post on our website. There are lots of moving pieces for the first quarter, which Park will detail for you, but our distributable cash flow was virtually on target, just a shade ahead of our target under our budget for the first quarter of 2007. Again, Park will take you through the details.

Also during the quarter, we continued to make a lot of progress on several of our large infrastructure projects, which we believe are essential to positioning KMP for future growth, and we plan to invest over $6 billion in new infrastructure and expansion projects over the next four years alone. And certainly one of the projects we had intended to invest in all along, KMP was Trans Mountain pipeline, which is currently owned by KMI, and we're happy to announce today both Boards, after receiving separate fairness opinions, did agree for KMP to purchase the TransMountain pipeline system from KMI.

Let me go to the segments of KMP, starting with Products Pipeline. Products Pipeline was up 14% in terms of earnings before DD&A, versus a year ago, and it's slightly ahead of our budget targets for the first quarter. This business segment had a strong quarter, and the growth was pretty well across all its business units. But particularly driven by the Norris system, by our central Florida pipeline, by both our West Coast and Southeast terminals and by our Trans Mix operations. As we always do, we give you revenues and volumes.

If you look at the whole refined products revenues and volumes for this segment, revenues were up a little over 6% and volumes were actually down 1.3%. That's a little misleading, because that includes 100% of Plantation Pipeline, which we own 51% of and operate. And that particular pipeline, as we said before, continues to be impacted by the competitive alternative pipeline that began service late in the second quarter of last year. If you strip out Plantation, which is probably a better way of doing it, revenues were up a little over 7% and volumes were up a little short of 1% on the Kinder Morgan products pipeline system. So very good first quarter for Products Pipelines, and I think they're on target to have a very good year.

The natural gas pipeline segment earnings before DD&A were actually down about 5% from a very strong first quarter in 2006, but actually several million dollars above our plan for the quarter, and the results were driven by primarily by our Texas intra state pipeline group, our intra states continue to benefit from improved sales margins, as we renew contracts, and enter into new contracts. We also continue to get higher value from storage activities and better processing earnings. As you'll notice, the commercial volumes on the intra states increase quarter over quarter as we had higher utilization of capacity from some new customers that came online.

Our third business segment, our CO2 pipeline segment, produced first quarter earnings before DD&A that were up modestly, about 3% from the same period a year ago, but below our published budget for this year. We had some good and bad things happen there.

We had a nice increase in our oil production at the Yates Field and a nice increase in our NGL sales volume, primarily at SACROC, when you compare to the first quarter of 2006. But we had a decrease in SACROC oil production. Specifically, as is posted on the attachment to the earnings release, average oil production at Yates increased by over 4% to 26,100 barrels per day during the first quarter. Conversely, the oil production at SACROC was down by over 4% to just a shade under 30,000 barrels per day, and about that same amount under our target for oil production.

Now, if you go to BOE, barrels of oil equivalent, it's a lot closer, because you have the SACROC slightly -- excuse me -- Yates was slightly above budget, the NGL's were well above budget, so we were just off a few hundred barrels, in terms of BOE equivalent. But, remember, we get less for our NGL's than we get for crude oil. We generally figure we get about 70% as much for NGL's as we get for crude.

So overall, we did have a decline in the segment compared to what we expected to get, and it was also impacted by price, which drove about 60% of that decline. Everything else, as far as the source and transportation business was right on to slightly above targets in -- for the first quarter.

In our terminal segment, we had about a 10% increase in first quarter earnings before DD&A, compared to the same period a year ago, but we were just slightly below the budget for the first quarter this year. We expect to be at or above the budget for this segment for the year as a whole. Segment highlights included very strong performances at our big Pasadena Galena Park liquids terminal complex down in Houston ship channel. Also a good performance at our IMT terminal near the gulf -- near the mouth of the Mississippi River in southern Louisiana. And then we had higher ethanol throughput in the Chicago area, at both our Arco and Chicago terminals, and also at our Perth Amboy facility in New Jersey and the Port of New York.

So that kind of gives you an idea of how each of the segments performed. Now let me update you on some other significant events and on the status of our major growth projects. As you can tell from the press release -- and I'm going to give you a few other things here -- it's been a very busy quarter and it's shaping up to be a very busy year. All consistent with what we've talked about in terms of long-term growth for KMP.

Let me start with our announcement today that KMP will acquire the Trans Mountain Pipeline System from KMI for about $550 million U.S. The transaction is expected to close at the end of April. All regulatory approvals have been received, and it was approved by both independent directors of both Boards today following receipt of fairness opinions for each from separate investment banks.

Just to review it with you, right now the Trans Mountain Pipeline System can transport up to about 260,000 barrels a day of oil and product coming out of the Edmonton/Alberta area down to the lower mainland area of British Columbia around Vancouver and going on down to refineries in Washington State, and that's about what we're running today. That 260 is as a result of the fact that we completed our pump station expansion that went into service with that on April 1st of this year. We have the second phase of our Trans Mountain expansion program that will add 40,000 more barrels of capacity, taking us to 300,000 barrels a day, and we expect that to be in service by late 2008.

Now, combine the projects that are being done to expand Trans Mountain represent about $800 million Canadian in capital investments, but some of those have already been incurred by KMI.

And let me just give you sort of the financial background on KMP's purchase, in terms of EBITDA, both now and when these expansion projects are completed. And you can see from this why it will be immediately accreted to KMP. This year, post completion of the expansion, Trans Mountain, the assets being transferred to KMP will throw off about $78 million in EBITDA, and for that $78 million, KMP is paying $550 million. When you add up all of the expansions still to be done but not yet paid for, the total investment that KMP will have in this project when it's finished will be right at $1 billion U.S., and when it is completed, they will have EBITDA of about $123 million. So that gives you an idea of what, in terms of cash flow EBITDA KMP is getting for the purchase price its paying and for the future expansion its undertaking.

This is all what we call the TMX 1 expansion. Certainly, given the anticipated growth in the Oil Sands production and what we believe will be continued strong demand for West Coast markets, we intend to continue to work with customers to further expand Trans Mountain beyond this 300,000 barrels of through-put, but obviously only when our customers are willing to sign on for long term commitments. And we have another expansion that can take it to around 400,000 barrels, and then ultimately, it could go to 700,000 barrels coming over this particular route. And that's our long term intention, as demand justifies those expansions.

Now, also, KMP on a much smaller scale entered into a long term agreement this week with a consortium of airlines to construct a $25 million project. It's actually nine miles of 8 inch diameter pipeline and some related facilities to connect the Tampa International Airport with our Tampa refined products hub. And that will allow us to move about 30,000 barrels per day of jet fuel across it. Again, it's about a $25 million project, and we would expect that project to be completed and in service in the fourth quarter of 2008. Also, as I think most of you know, we did close the transaction with BP that increased our ownership stake in the Cochin Pipeline System to 100%. So we are now operating that system, a system that we think is going to play an important role in the future supply of propane in North America, and that will be and is immediately accretive to distributable cash flow per unit at KMP.

Now, turning to our natural gas, all of that is obviously products pipeline activity. Turning to our natural gas pipeline segment, we have a lot of things going on. Several major pipeline projects under construction, all of which are supported by long term contracts, and let me start with the biggest one, which our Rockies Express project or Rex, as we call it. And to update you on that, in February we did begin service on the second segment of the first leg of Rex. That was 192-mile stretch of 42-inch pipe from the Wamsutter hub in central Wyoming to the Cheyenne hub on the Colorado/Wyoming border. So we now have about 330 miles of the project in operation, running all the way from the Meeker hub in western Colorado, across Wyoming to the Cheyenne hub. That's now in service, and we're able to move about 500,000 decotherms of natural gas per day.

Now, the second phase, which is due to start construction this spring, is what we call Rex West, and that will run from the Cheyenne hub a little over 700 miles to Adrienne County, Missouri, that's in eastern Missouri, and we recently received from the FIRK a favorable environmental review. We're on FIRK agenda for April 19th, on the certificate itself, and we expect to receive that this week. That will allow us to start construction on schedule later this spring. We have a target in service date for that part of the pipeline of January 1, 2008.

The third phase will run from Adrienne County, Missouri, on across Illinois, Indiana, and Ohio, ending at Clarington, Ohio, which is right on the Ohio/Pennsylvania border. That pipe will be laid during 2008, with an in service date for the pipe at the beginning of 2009. But by the time we get all of the compression on to actually take the pipeline to its full capacity of 1.8 billion cubic feet a day, that will actually be -- is actually targeted for June of 2009.

Let me remind you that the total project, which we believe is the largest natural gas pipeline project constructed in at least the last quarter century in America, remind you it's about $4.4 billion in total, and it's a joint venture of ourselves. We own 50%, Sempra, 25%, and Conoco, 25%. All pipe and compression has been ordered. So we have the prices fixed on that, and all of the pipeline construction contracts have been finalized, except for the final phase, which we will be constructing during calendar year 2008. There we have the contractors selected, but we don't have all of the contractual terms ironed out yet. So that's an update on Rex.

Turning to another major natural gas pipeline project is our mid-Continent Express project. That's a joint venture between ourselves and Energy Transfer Partners, about a $1.3 billion project that will take [barnet] shale gas away from Texas, move it across Louisiana and Mississippi, across various pipeline interconnects and ending at the Trans-Co connection just a shade over the border into Alabama. We have, the FIRK approved our request to beginning pre filing review under the National Environmental Policy Act. Pending necessary approvals, we expect this project will be in service by February of 2009.

Now, most of the pipeline capacity here is also subscribed by a group of customers led by Chesapeake, and I neglected to say with regard to Rex, that virtually all of that 1.8 billion cubic feet per day is fully subscribed for ten-year terms by a number of very large producers, including in Canada, Conoco, and BP, among others.

With regard to our Kinder Morgan Louisiana pipeline, that's a $500 million project that runs about 136 miles of pipe across Louisiana from Sabine Pass L and G Terminal, across what we call pipeline alley. The FIRK has now approved the draft environmental impact statement there, and, again, pending regulatory approval, we expect to have that in service by April of 2009.

We also announced today that, on our K-MIGHT system, Kinder Morgan Interstate Gas Transmission, coming out of the Rockies, we've now reached agreement to build what we call our Colorado lateral. That's a $29 million project, which will be 38 miles of pipe running from the Cheyenne hub to Greeley, Colorado. We'll be capable of moving about 75,000 decotherms per day. Expect to have it in service by the third quarter of 2008, and we have firm contracts for the great majority of that through-put.

So that's what is going on, and a lot of it is, in our natural gas pipeline segment.

In our terminal segment, we announced earlier this month an agreement to purchase and operate Vancouver Wharves, which is a large vault marine terminal located in the Port of Vancouver. This is an important strategic transaction for us. The facilities there include rail infrastructure, dry bulk and liquid storage, and material handling systems that presently handle over 3.5 million tons of cargo annually. We expect to close that transaction during this quarter, during the second quarter. And it will be nicely accretive to distributable cash flow for the balance of 2007 and beyond.

Then let me also update you on developments under our agreement with Green Earth Fuels. As you know, we announced earlier, in a series of steps we are committed to invest up to $100 million to build new tanks and infrastructure that will handle approximately $8 million barrels of biodiesel production at our facilities on the Houston ship channel, the Port of New Orleans, and in New York Harbor. Green Earth Fuels will build the actual biodiesel facilities themselves on ground they're leasing from us. All we're doing is building tankage and other infrastructure to service those facilities and getting paid a fee for doing so. The first of those facilities will come online in our Galena Park terminal here in July of this year, and our service facilities that compliment those biodiesel production facilities will begin service at that time. So everything is on schedule and on budget with regard to that project.

So in conclusion, all in all, I think the year is off to a pretty good start. About the only negative at KMP is the slightly lower than expected crude production at SACROC, which did have a negative impact versus budget. We were able to make that up by over performance elsewhere. Everything else is performing at or above expectations, and I think probably most importantly our growth projects are progressing, and we expect to announce significant additional new projects over the balance of 2007.

And with that, I'll turn it over to Park.

Okay. Thanks, Rich. I'll go through the numbers and hopefully everybody has the KMP release and if you flip past the text and you look at the financial pages, that's where I'll start. The first financial page is the face of the income statement. Now really, the second page is more relevant, but before I jump to there, let me point out a couple of changes we made, really enhancements, to our back of the envelope calculation of distributable cash flow, and these changes will really just make it more closely approximate available cash, which is the real definition in the partnership agreement.

The first one you can see, five lines or so up from the bottom, in between depreciation, depletion and amortization and sustaining capital expenditures. We've added a book cash taxes line, and that's just the difference between cash taxes and book taxes, and so a positive amount on that line represents cash taxes that are lower than book taxes. Book tax is already being picked up in net income, and so this is just the difference between the two. And, again, by converting the tax number essentially to a cash tax number, we are more closely approximating real cash flow.

Now, you may wonder, as an NLP, why we have a tax line at all. We do own some assets in sea corps, in which we pay taxes. And the reason that we made this change at this time is because that difference is going to become a little bit more significant with the drop down of Trans Mountain that Rich just went over. Trans Mountain is largely a Canadian asset, and we will continue to pay Canadian taxes. That was all taken into account in the financials around the transaction. But the actual cash taxes that we pay won't necessarily be the book taxes that are reflected on our income statement. So we'll be showing that difference, and we'll continue to show it going forward. Now, you can see, of course, we will show historical numbers that way as well.

The second change is really a footnote too. It talks about the fact that we included our portion of the Rockies Express DD&A in the calculation. That Rockies Express will own 50% of it. We will account for it and are accounting for it under the equity method, which means the earnings show up as a single line on our income statement. What we are doing here is we are going to add back the DD&A and take off the sustaining capital expenditures so that you get a true sense of our interest in the cash that's being generated by Rockies Express.

Now, we do have other assets that we account for under the equity method, and some of them are significant. The largest are Plantation, Cortez, and Red Cedar. Now, the reason that we haven't made this change previously for them is because for those assets, which are more mature, the sustaining capital expenditures are fairly close to the DD&A, and so if we were to make the change for them it really would not make a difference. But on a new asset, like Rockies Express, your DD&A exceeds your sustaining CapEx, and so making this change will give us a better approximation of the true cash flow from Rockies Express.

And let me make something clear. This points out that really -- and it shows you the amount of DD&A that we've included our share from Rockies Express. When there is sustaining CapEx associated with Rockies Express, we will deduct that and deduct our proportionate amount of that as well. There doesn't happen to be any in this quarter.

With that, let me go to Page 2, because that's where you can really see these numbers before certain items. certain items are relatively small in the quarter. They total about 1.4 million negative. The biggest piece of that is a $1million of the loss on debt retirement that's related to the refinancing that we did at Red Cedar. And so that's a charge that came through equity and earnings at Red Cedar. It is definitely nonrecurring. We identified it separately as a certain item. The other charge is, it's a negative, about $400,000, an ongoing clean up from hurricanes Rita and Katrina. And so again, certain items are relatively small, about 1.4 million negative, but we think the right way to look at the distributable cash flow is not including those items.

You'll see in about the middle of that page that DCS per unit, before certain items is $0.80. It's actually about $0.804. It's dead on our budget. Our budget for the quarter was $0.804. That's a little bit below the distribution we've declared of $0.83, which is consistent with the distribution that we declared for the fourth quarter. As I mentioned, that is consistent with our budget. We still expect that we will distribute $3.44 for the entire year, and we expect that we will generate distributable cash flow in excess of that amount.

Now, while we were dead on budget, there were a number of moving pieces. Rich mentioned some related to the segment. One thing I want to point out is what I just mentioned, the actual difference between book and cash taxes added about $5.5 million in the first quarter.

Now, that was not in our budget. So that's actually a pick-up to where we were in the budget, and it really means that all other things were a little bit below when you sum them up before you get there a little bit below our budget. But truthfully, there are some timing issues in there, and two biggest timing pieces are in G&A and products pipelines. G&A -- and I'll talk about this a little bit more when I get there -- but G&A did end up a little bit above our budget for the quarter, but most of that is timing that we expect to come back. Meaning we'll have lower G&A over the last three quarters.

And then in the products pipeline segment, Cochin actually ended up a little bit below our budget for the quarter. We did incorporate into our budget some assumptions around the purchase of the remaining 50%, a little over 50% of Cochin that we completed in the first quarter. At the time we did the budget, that transaction was not final. It actually ended up being more favorable for us than what we had in our budget, except that the shape of those cash flows were different than our budget. And so Cochin ended up being below our budget in the first quarter, although it's nicely above last year. But it will be significantly above its budget for the remaining three quarters, so that's why I mentioned that as a timing issue as well.

So next, when you look at the $0.80, it is consistent with our budget. There are some pieces moving in and out. There is the incremental $5.5 million we get from this book cash tax, a difference, but truthfully that's almost completely offset by some negative timing impacts that we felt in the quarter that will reverse themselves, as we go throughout the year.

Now, moving up from that, you'll see net income per unit of about $0.33. Again, as Rich mentioned, we believe the most relevant metrics for KMP is the distributable cash flow per unit and distribution per unit. Net income is impacted by DD&A, DD&A is increased significantly at our CO2 asset. You can see that up above. That's what is driving the net income per unit down. It's actually very close to our budget. Our budget was about $0.36 of net income per unit and we ended up at about $0.33. So, again, while it compares not so favorably to the $0.53 from a year ago, we don't think that's a very meaningful measure.

Right above that, DCF before certain items, about $186 million, compared to about $188 million a year ago, and the line right above that, sustaining capital expenditures, you'll see about 26.8 million, compared to about $25.7 million a year ago. That amount for the quarter is -- is a little bit under our budget, but we do expect that for the year, sustaining capital expenditures will be on our budget or very close to that. Right above that, you see the book cash tax, a difference of numbers that I was talking about, and above that, you see the big increase in DD&A to about $131 million, up from $94 million a year ago. Again, those are the components that get us to that $0.80 of distributable cash flow. It's really almost $0.805 of distributable cash flow.

With that I'll jump up and talk about the segments, and Rich has really covered a lot of this. But you'll see Products Pipelines up $17 million from a year ago, right on our budget. We got a nice pick up from budget from the North System as Rich mentioned. Also from the Pacific System and from Trans Mix. Relative to last year, we were up significantly as the North System at Cochin, at the Central Florida pipeline, and at Trans Mix, all generating nice growth year over year. For the year on the products pipeline segment, we expect it to be above its budget, largely due to the increased contribution from Cochin.

The natural gas pipeline segment, you see about $136 million, compared to almost $144 million a year ago. A little bit down for the quarter, as Rich mentioned, but actually nicely above our budget for the quarter, over $7 million above our budget. And that increase over budget was driven by the Texas intrastate. They were about $5 million over their budget. Rockies Express was a little over its budget. Casper Douglas was a little over its budget, and so nice performance from those assets. Trailblazer was a little under its budget, and we think that that is, at least in part, timing. For the year, we believe that the natural gas pipeline segment will be on or above its budget.

CO2, Rich talked about the SACROC volumes, and you can see them below, they average just a hair under 30,000 barrels a day, down from both our budget and where we were last year. We were impacted negatively by price, and we had more expensive well work at SACROC for the year. Those negatives were offset from the positives from the Yates volumes. Nice increase in our plant products at SACROC, and so net we ended up above last year, but under our budget for the quarter. We do think that CO2 is likely to end up under its budget for the year, but it's still early in the year, and we're still working on that, and hopefully we'll see better performance in subsequent quarters.

On the terminal side, you'll see it's up almost $9 million for the quarter. It is a hair under its budget, but we believe with the benefit of the Vancouver Wharves acquisition and the expansions that are going on in the terminal segment, terminal segment should end up at or maybe above its budget for the year. So for the quarter, we had about $503 million of segment earnings before DD&A, up about $22 million from where it was a year ago.

Dropping down to the other expenses, you'll see G&A's, about 64 million, up from about $61 million. It's up about $3.2 million, so $3.2 million negative variance to where it was a year ago. It actually was negative to our budget by a little under $6 million. Now, I talked about timing, also, with respect to G&A, about $4 million of that, about $5.7 million, $5.8 million variance from budget is really timing, and we believe that that will come back in the last three quarters.

There is some higher legal expense during the quarter. We don't believe that's timing. We don't believe that we will get that back.

Interest you'll see about $91 million, up about $14 million from where it was a year ago. It's actually a little bit under our budget for the first quarter, and so we're on track there. Our balance is up about $400 million. Our average rates are up about 50 basis points. That's what is driving the increase from where we were a year ago.

Those are really the main items. You can take that down to net income. Of course, it's lower because of the increase in DD&A. The same thing goes for limited partners net income, and we've talked about the other items to get us to DCF per unit.

Looking back at the first page, which is the face of the income statement, I don't think there is a whole lot to go over there. You might note that revenues are down a little bit, but so are operating expenses. This is largely a function of our Texas intrastate, where we are buying and selling, really, on back to back contracts, natural gas, and so as natural gas prices decline and would lower in the first quarter of '07, than they were in the first quarter of '06, you see lower revenues and correspondingly lower costs. Now, of course, as we mentioned, our Texas intra states have outperformed our budgets and doing very well relative to where we thought they would be.

Otherwise, the only other thing that you might note there is that earnings from equity investments are down. Now that is a function of Coyote no longer being a separate entity. It's now actually owned by Red Cedar, and Red Cedar's overall earnings are down a little bit from last year. Cortez is also down slightly from where it was last year. So that's what is driving that decline.

But otherwise, we really discussed what is on that page, and with that, I'll go to the last page, the earnings release, which is the balance sheet and walk down that. Cash and cash equivalents essentially unchanged. Other current assets is down by about $21 million. That's a couple of things moving in one direction and several things moving in the other direction. So assorted variances that make up that.

PP&E is up, which is a function of capital expenditures offset by depreciation. Investments, you'll see is down about $10 million. There are some moving parts there. We did receive a distribution from Red Cedar as a function of their redoing their debt facility. Our distribution was $35 million. That reduces this amount, a distribution from an equity investment reduces this balance sheet carrying amount, but it's offset by investments in Mid Continent Express of $15 million, and then earnings relative to distributions, which also increase this amount by about $10 million.

Deferred charges and other assets really pretty much flat. Total assets is a hair under $13.4 billion, up from about 12 and a quarter -- I'm sorry. I said 13. It's about $12.4 billion, a hair under that, up from about $12.25 billion at the end of the year.

Notes payable and current maturities I'll talk about in a minute when I talk about total debt. Other current liabilities is a reduction of about $100 million. AP is down, accrued interest is down. The mark to market on the hedges has an impact here, and that's down, and then there was another payable that was paid in the quarter that had been accumulating, and that is also factoring into that reduction of about $100 million. Long term debt I'll discuss in a minute. The value of the interest rate swap is unchanged. Other is unchanged. Minority interest is essentially unchanged. Accumulated other comprehensive loss just moves with the mark to market on the hedges. Again, we're just mark to marketing through the balance sheet, which is hedged accounting. Other partners capitol, you see the adjustment there, just a function of earnings and distributions.

Now, total debt is a hair over $6 billion. It is actually up about $290 million from where it was at the beginning of the year. And I'll go through what the drivers of that increase in a minute. You'll see debt to cap is about 55%, up from a hair under 54%. Consistent with our expectations, we do have a lot of expansion projects going on, and so we expected that during the year of 2007, the debt to cap would increase.

Probably a more meaningful measure as we've did not discussing in our recent calls is the debt to EBITDA number. You'll see it's 3.45 times, up a little bit from the 3.32 times, but still we believe indicative of a very strong balance sheet. Our debt is significantly less than 4 times our EBITDA, and we believe the KMP is very conservatively levered.

Let's talk about the change in debt. It was $290 million increase in debt. Part of that was a function of buying the remainder of Cochin. In so doing, we have on our balance sheet $43 million of debt that's associated with Cochin. So that's part of that increase.

The other large increase is expansion CapEx, which totaled about $233 million. Now, in that total, I'm including the investment associated with a Mid Continent Express of about $15 million. When you see the cash flow statements, that will show up as a contribution to an equity investee, but I'm counting that as expansion capital, which is really what it is.

Now, those increases are offset by the KMR distributions which are a source of cash of about $52 million during the quarter, and then when you look at working capitol and other items, they were a use of cash of about $67 million. To give you a breakdown real quick there of what those are, again, the working capital and other items, the use of cash of about $67 million, AR and AP was a source of cash of about $5 million. Other current assets and current liabilities were a use of cash of about $71 million, and I talked about some of the accrued liabilities, really accrued interest, and some of the other items that were reduced during the quarter, which drive that use of cash of $71 million during the quarter. We had an increase in margin deposits associated with our hedges of $26 million. So that's a use of cash.

Then if you looked at our distributions relative to our earnings from our equity investment, that was actually a source of cash of $25 million. The biggest piece of that being, again, the Red Cedar distribution of $35 million. So those things totaled to a use of cash of $67 million.

Now, the other item, large item is the expansion CapEx, about $233 million, looking at that real quick on the product side, we spent about $26 million, a lot of that was related to the two East Line expansions, about $7 million on each. One was just cleaning up last year's, or finishing up last year's expansion, and then getting to work on this year's expansion. And then we're adding tanks in Las Vegas, adding tanks at Colton, and then we are also expanding our count net lines, and all of those were expenditures during the quarter.

In the natural gas segment, we spent about $39 million. I mentioned Mid Continent Express. That was about $15 million. We're also expanding the Texas intra state to a connection with NGPL, spent about $6 million in that in the quarter. Expanding our Markham Storage Field, we spent about $6 million on that. And then we have ongoing expansion of the new Louisiana line, expansion of Trans-Colorado, and expansion of our Dayton Storage Field, all of which took some expansion CapEx during the quarter.

Our CO2 segment, we spent about $89 million, about 19 of that went to capitalized CO2, SACROC was about $33 million. The southwest Colorado expansion was about $18 million during the quarter. And then at Yates we spent about $11 million during the quarter.

And then at terminals, we spent about $79 million of CapEx during the quarter. The Pasadena and Galena Park expansions were $30 million. Perth Amboy, where we are also adding tanks, was about $13 million. Pier 9, where we are adding a new pier, actually, in order to accommodate imports of coal was $10 million during the quarter, and then our Edmonton terminal, where we are adding a merchant terminal near our site up there, that was about $10 million during the quarter.

So just high level terminal, $79 million, CO2, about $89 million, and natural gas about $39 million, and products about $26 million in the quarter. That totals up to that approximately $230 million of expansion CapEx during the quarter. And that's the main driver, in addition to the Cochin debt we took off that caused debt to go up by $290 million.

That's it, and I'll turn it back over to Rich.

Okay. Brian, if you'll come back on, and we'll take any questions you all may have.

[OPERATOR INSTRUCTIONS] Our first question comes from Dan Jenkins. Please state your company name, sir.

Good afternoon. Dan Jenkins, State of Wisconsin Investment Board.

Good afternoon.

I just was wondering if you would give us a little more color on what you're expecting for this year in terms of expansion CapEx and the acquisition expenditures, and then, you know, how you intend to finance that and maybe some of the timing around that, and then kind of what your target at the EBITDA is related to that.

Yes, let me start with the latter two, and then I'll ask Park to give you a more detailed update on where we expect to be on expansion CapEx for the year.

From an acquisition standpoint, as we said in our January conference, aside from the Cochin acquisition, which we had planned on, and felt would close in the first quarter, we didn't have any other acquisitions in there except for a place holder for what turned out to be Vancouver wharves. We had anticipated in the budget that we would do that. I think we had $70 million for an acquisition in terminals group. So essentially we've done those acquisitions, so we have nothing else in our budget for acquisitions.

Now that said, we will continue to look at potential acquisitions if they make sense, and if we have the correct opportunities to get them at the right price, and by that I mean the right multiple of distributable cash flow, we'll do so. But we don't have anything else budgeted for our acquisition at this point, although we are looking at a number of other things, particularly in the terminal area. With regard to EBITDA targets, as we've said consistently, what we do is not rocket science, and if I would not give us good grades on everything we do, but I would give us good grades on our financial discipline. And then what we do is we know what our cost to capital is at KMP, and it's about 8.5%, and if you figure 50% debt at about 6.25.and a distribution yield today, so a hair under 6%, so say 6%, and divide that by .57, because the general partner is getting 43% of the cash flow, you get to a cost of equity that, you know, is between 10.5 and 11%. Average it out, you get to about 8 .5%.

We think generally we can do expansions and acquisitions so that our unlevered return, based on distributable cash flow, is in the 13 to 14% range. In other words, about 500 basis points better than our cost to capital. And if we can do that, and as we show you every January, as Park goes through in laborious detail, our return on invested capital is actually north of that number.

For instance, we were just reviewing, as we do every April with our Board today, all of the transactions, acquisitions of any size that we've done at KMP over the last several years. We found that we've done $4.8 billion of acquisitions and add on expansions to those acquisitions, and as a multiple of EBITDA, the actuals have come out at about 6.3 times the DCF multiple has been about 6.7 times. In other words, a little bit better than this 13 to 14% range that I'm talking about.

So that's our game plan, and that's what we use. Obviously, Dan, we vary what we're willing to pay for an acquisition or what we're willing to do an expansion for, based on how certain the cash flows are, the credit worthiness of the shippers, et cetera, et cetera. But in general, that's our target, to have a nice distance between what we expand or buy assets at, versus what our cost to capital is.

Now in expansion CapEx, Park, you want to do that for this year

If I'm remembering correctly, I think it's around 1.6 billion is the number for expansion CapEx. That does not include Rockies Express and does not include Mid Continent. It doesn't include Rockies Express because that's essentially a self-financing entity and doesn't show up on our balance sheet. It doesn't include Mid Continent Express, because we expect that that will be a self-financing entity, but it wasn't incorporated in our budget at all, that project came along after we did the budget. So about a 1.6 billion is expansion CapEx budget for the year. We may find some opportunities to invest even more than that, and it is greater than that if you include those two acquisitions.

As far as how we will finance it, we'll finance it the same way we have historically, with about equal amounts of debt and equity, and so that's how we expect to do it going forward.

And I think you might have had a question about whether we have a target debt to EBITDA ratio. I think we're comfortable anywhere under 4, and truthfully, I'd say we'd even be comfortable in the low 4's. If I remember correctly, I think at the end of 2007 when we looked at it, we were probably approaching 4, but we were not north of 4 times debt to EBITDA. I still expect that's around where we will end up, and I expect following that, it will probably decline a little bit from that level.

Did that answer your questions, Dan?

Mostly, but I just wonder if you could add a little bit on maybe what the timing will be with coming to partner with say new partnership units or new debt with the various projects and acquisition. Do you have any sense of that?

We don't know when during the year it will be. We'll just determine that as we go along.

Okay. Thank you.

Thank you.

Our next question comes from Sam Arnold. Ask your question and please state your company name.

This is Sam Arnold with Credit Suisse. Just a couple quick questions for you on TMX, you guys had mentioned that after you do the expansion of 300,000 barrels a day that the EBITDA run rate would be 123 million. Could you walk me through the CapEx, because I know you're paying 550 for it, and then how much -- what's the total expansion CapEx and then how much has been incurred by KMI and will KMP have to reimburse them?

Yes, the price that KMP is paying KMI 550, and we're talking U.S. dollars here.

Right.

It's a little confusing on it. 550 includes the moneys spent on the expansion to date. Okay?

Okay.

And the additional expansion that needs to be done between now and the completion of this TMX1 that gets us to 300,000 barrels a day is approximately 450 million additional U.S., and that would get us to right at the dollars that KMP will have in this when it's finished.

Okay. Great. Another question. I guess this asset, under the NLP definition, does it matter what country of origin these products are located in, and I guess my question is there is no risk of putting TMX into this type of structure and have that 90% NLP asset threshold being broken. Correct?

That's correct. The -- it's not an issue of qualifying income, because it's irrelevant to here because it is a tax payer in Canada.

Got you. Okay. That's what I thought. Okay. One other question. That 344 per unit, that includes -- because it says in the language in the press release that it may not include any type of other unidentified projects, but I assume that includes the TMX. Right?

Yes, it includes the TMX, Cochin, and then again, a place holder which turned out to be Vancouver Wharves in terminals.

What we said is it didn't include any unidentified acquisitions. At the time of the budget, we were already working on Vancouver Wharves and Cochin and Trans Mountain.

Okay. Thank you very much.

Thank you.

Our next question comes from John Edwards. Please state your company name and ask your question.

Yes, this is John Edwards at Morgan Keegan.

Hi, John.

How are you?

Fine.

Rich, just on the Trans Mountain, you know, you mentioned you're going to get to 123 million in EBITDA by the end of '08, and then what is your longer-term expectations for growth?

I said we'd be at 123 million when all the expansions are finished and online for a full year, and just to correct that, this is a ramping up because the next expansion, it's 300,000 barrels doesn't fully come online until late '08. So it's really more like an '09 and '10 type of thing. But go ahead, I'm sorry.

I'm sorry. thank you for clarifying that.

But beyond that, John, what we will be doing is we would intend to do further expansions there. In fact, the beauty of some of what we're doing now is to, are -- for instance, part of this expansion will take us to the 300,000 barrel level -- is actually doing all of the construction through the National Parks. So that will be done, and it will position us to do the rest of the expansion more cheaply, and so we would anticipate and certainly hope that we, as demand for crude coming out of the Oil Sands continues to increase, and that's demand pull, and as the supply continues to increase, supply push, that we will have the need for more capacity, and that our shippers will be willing to sign up for it on a long term basis. We think they will at some point in time, but we're not going to build it unless we do have that demand there. But we have talked in the past, in terms of the TMX 2, that would add another 100,000 barrels, and then a TMX3 that would add another 300,000 barrels, which would take us to 700,000 barrels, all on that southbound line running from Edmonton across the mountains down to Vancouver, and then on into Washington State.

Now, again, the -- there is, and we're also constructed with that in mind -- we also would have the ability, if there were demand in the Chinese market or elsewhere in Asia for a deep water port in [Kittimat] or in that are, we could run straight across into that area, at kind of the Trans Mountain to make a Y then. That would be a massive project and would take certainly long term shipper commitments to do it, and we're not projecting that that is going to happen. But we do have that availability. We are, of course, right now the only conduit for Oil Sands production to get to the West Coast, and we think that's very important, and, of course, with our Express Flat, we are the major conduit into the Rocky Mountain so-called Pad 4 in the U.S. coming out of Alberta. So we think we have two very good conduits, both of which we can expand in the future.

Okay. So the -- just to clarify, then, when you're running at the 123 million EBITDA, what is the associated volume?

The associated volume is based on the 300,000 barrels a day with some land after the fact you never run completely full, obviously.

Okay. Got it. Obviously we keep seeing in the industry press, you know, there's not enough take away capacity in the Rockies, and obviously, you know, Rockies Express is a huge part of addressing that. I mean, have you guys already started looking at, you know, expanding or, you know, having more take away on Rockies Express? I mean maybe you could just comment a little bit on that.

Well, you're right, of course, you are reading that in the press, and we will continue to look at all avenues of solving that problem to the extent people have it. Again, I think the main thing right now is to get Rockies express built, and we'll see what the demand is after that.

I think that part of what all of this is about, part of this can also be solved through storage and hub services. In other words, if you can have more storage capabilities at the supply end of the system or even midway down the system, you can obviate some of the problems with take away capacity. And we're looking very seriously at additional storage opportunities and additional hub services at several points on Rockies Express. And I think those will prove to be helpful to the shippers. But certainly as we've shown, if there is demand in the end that shippers are willing to sign up for, for more capacity out of the Rockies, we will work with them to try to build that capacity, whether it's a Rex expansion or a new project going someplace else.

I think if you really look at, John, the broadest sense -- and I've used this phrase many times. All we try to do is ride the tsunamis, and, you know, if you look at natural gas supply in North America, the three major sources of additional natural gas for America are whatever comes ashore through L&G in the 2009/2010 time frame. As you know, I'm a contrarian, I'm not quite as bullish some of those volumes as some of the other industry experts are, but there will be significant volumes and that's our [INAUDIBLE]/Louisiana line. I think we'll have some additional opportunities there, but only if shippers are willing to sign up for capacity.

Second big area is the whole area of Texas. Bosure, the Barnet shale, big, big production increases, and there is our Mid Continent Express, and I think we are in the process of looking very seriously at some additional expansion at our Texas intrastate system to handle more of that.

And then the third major area is, of course, the Rockies, and that's Rex. Also, of course, we've now made Trans Colorado bi-directional. We can move it north or south. We talked about this modest expansion off of K-MIGHT. I think we'll have some additional expansions to serve the ethanol market off of K-MIGHT, and so there are a lot of opportunities, but those are the tsunamis of the national gas supply side we're trying to ride.

Okay. Great. And then just last question. You know on the terminal, the Vancouver Wharves, is there a -- I didn't see a price in EBITDA associated with that. Can you talk about that?

Well, I think that we didn't announce a price, but I think that the government -- this was a Crown Corporation -- announced that the cash price was $40 million, and that's correct. Plus commitments over several years to do a lot of inclusion capital that the Crown Corporation wanted done, both for an environmental and an expansion standpoint. And I really don't want to get into the exact numbers there, because it depends on when you think these expenditures are going to be made. But there are significant additional expenditures that we figured into this that will be made over a period of several years. And I think that the EBITDA is -- we have not announced officially, but it is off of a $40 million investment is very strong, obviously, and a good return, even when you add in the present value of everything else we'll be doing. And Park did you want to add anything to that?

No, I think that covers it.

Yes. Okay. Thank you very much.

Our next question comes from Alex Meier. Please state your company name and ask your question.

Zimmer Lucas Capital. Good afternoon. Congratulations on the quarter.

Hi, Alex.

Just one question on SACROC. Where do you guys think you're going to end up for the year, and is going to be some kind of back ended year-end volume ramp up?

Well, I have my SACROC expert, Tim Bradley who runs the CO2 section sitting right here, and I'll let him comment on that.

Yes, we expect toward the end of the year our production to pick up. The current challenge that we face is about 20% of our submersibly pumped wells are having mechanical difficulties and are down at the present, and therefore average production rate is around 28,500 barrels a day. We are replacing these existing pumps, not with repaired equipment, but with new equipment. This will take us a period of a couple of quarters to get this issue behind us, and we will also start activating new patterns this month, and we have not done that sense January. So I expect production may go through a bit of a soft period here through April, May, and then start to pick up towards the end of the year and be a little bit stronger. We expect it will get up towards of 31,000 barrels a day towards the end of the year.

So you're probably going to do something like 30 a day, but the reserves are still there. So it's just going to take a little longer to do?

That is our belief, yes.

Okay. Great. Thanks.

Thank you.

[OPERATOR INSTRUCTIONS]

Okay. Well, it appears that we have no more questions. So, again, we want to thank you very much, for listening to us this afternoon. And again, if you have any further questions, you can call Kim Dang, and she'll be happy to answer them for you. Thank you very much.

[OPERATOR INSTRUCTIONS] Our first question comes from Dan Jenkins. Please state your company name, sir.

Good afternoon. Dan Jenkins, State of Wisconsin Investment Board.

Good afternoon.

I just was wondering if you would give us a little more color on what you're expecting for this year in terms of expansion CapEx and the acquisition expenditures, and then, you know, how you intend to finance that and maybe some of the timing around that, and then kind of what your target at the EBITDA is related to that.

Yes, let me start with the latter two, and then I'll ask Park to give you a more detailed update on where we expect to be on expansion CapEx for the year.

From an acquisition standpoint, as we said in our January conference, aside from the Cochin acquisition, which we had planned on, and felt would close in the first quarter, we didn't have any other acquisitions in there except for a place holder for what turned out to be Vancouver wharves. We had anticipated in the budget that we would do that. I think we had $70 million for an acquisition in terminals group. So essentially we've done those acquisitions, so we have nothing else in our budget for acquisitions.

Now that said, we will continue to look at potential acquisitions if they make sense, and if we have the correct opportunities to get them at the right price, and by that I mean the right multiple of distributable cash flow, we'll do so. But we don't have anything else budgeted for our acquisition at this point, although we are looking at a number of other things, particularly in the terminal area. With regard to EBITDA targets, as we've said consistently, what we do is not rocket science, and if I would not give us good grades on everything we do, but I would give us good grades on our financial discipline. And then what we do is we know what our cost to capital is at KMP, and it's about 8.5%, and if you figure 50% debt at about 6.25.and a distribution yield today, so a hair under 6%, so say 6%, and divide that by .57, because the general partner is getting 43% of the cash flow, you get to a cost of equity that, you know, is between 10.5 and 11%. Average it out, you get to about 8 .5%.

We think generally we can do expansions and acquisitions so that our unlevered return, based on distributable cash flow, is in the 13 to 14% range. In other words, about 500 basis points better than our cost to capital. And if we can do that, and as we show you every January, as Park goes through in laborious detail, our return on invested capital is actually north of that number.

For instance, we were just reviewing, as we do every April with our Board today, all of the transactions, acquisitions of any size that we've done at KMP over the last several years. We found that we've done $4.8 billion of acquisitions and add on expansions to those acquisitions, and as a multiple of EBITDA, the actuals have come out at about 6.3 times the DCF multiple has been about 6.7 times. In other words, a little bit better than this 13 to 14% range that I'm talking about.

So that's our game plan, and that's what we use. Obviously, Dan, we vary what we're willing to pay for an acquisition or what we're willing to do an expansion for, based on how certain the cash flows are, the credit worthiness of the shippers, et cetera, et cetera. But in general, that's our target, to have a nice distance between what we expand or buy assets at, versus what our cost to capital is.

Now in expansion CapEx, Park, you want to do that for this year

If I'm remembering correctly, I think it's around 1.6 billion is the number for expansion CapEx. That does not include Rockies Express and does not include Mid Continent. It doesn't include Rockies Express because that's essentially a self-financing entity and doesn't show up on our balance sheet. It doesn't include Mid Continent Express, because we expect that that will be a self-financing entity, but it wasn't incorporated in our budget at all, that project came along after we did the budget. So about a 1.6 billion is expansion CapEx budget for the year. We may find some opportunities to invest even more than that, and it is greater than that if you include those two acquisitions.

As far as how we will finance it, we'll finance it the same way we have historically, with about equal amounts of debt and equity, and so that's how we expect to do it going forward.

And I think you might have had a question about whether we have a target debt to EBITDA ratio. I think we're comfortable anywhere under 4, and truthfully, I'd say we'd even be comfortable in the low 4's. If I remember correctly, I think at the end of 2007 when we looked at it, we were probably approaching 4, but we were not north of 4 times debt to EBITDA. I still expect that's around where we will end up, and I expect following that, it will probably decline a little bit from that level.

Did that answer your questions, Dan?

Mostly, but I just wonder if you could add a little bit on maybe what the timing will be with coming to partner with say new partnership units or new debt with the various projects and acquisition. Do you have any sense of that?

We don't know when during the year it will be. We'll just determine that as we go along.

Okay. Thank you.

Thank you.

Our next question comes from Sam Arnold. Ask your question and please state your company name.

This is Sam Arnold with Credit Suisse. Just a couple quick questions for you on TMX, you guys had mentioned that after you do the expansion of 300,000 barrels a day that the EBITDA run rate would be 123 million. Could you walk me through the CapEx, because I know you're paying 550 for it, and then how much -- what's the total expansion CapEx and then how much has been incurred by KMI and will KMP have to reimburse them?

Yes, the price that KMP is paying KMI 550, and we're talking U.S. dollars here.

Right.

It's a little confusing on it. 550 includes the moneys spent on the expansion to date. Okay?

Okay.

And the additional expansion that needs to be done between now and the completion of this TMX1 that gets us to 300,000 barrels a day is approximately 450 million additional U.S., and that would get us to right at the dollars that KMP will have in this when it's finished.

Okay. Great. Another question. I guess this asset, under the NLP definition, does it matter what country of origin these products are located in, and I guess my question is there is no risk of putting TMX into this type of structure and have that 90% NLP asset threshold being broken. Correct?

That's correct. The -- it's not an issue of qualifying income, because it's irrelevant to here because it is a tax payer in Canada.

Got you. Okay. That's what I thought. Okay. One other question. That 344 per unit, that includes -- because it says in the language in the press release that it may not include any type of other unidentified projects, but I assume that includes the TMX. Right?

Yes, it includes the TMX, Cochin, and then again, a place holder which turned out to be Vancouver Wharves in terminals.

What we said is it didn't include any unidentified acquisitions. At the time of the budget, we were already working on Vancouver Wharves and Cochin and Trans Mountain.

Okay. Thank you very much.

Thank you.

Our next question comes from John Edwards. Please state your company name and ask your question.

Yes, this is John Edwards at Morgan Keegan.

Hi, John.

How are you?

Fine.

Rich, just on the Trans Mountain, you know, you mentioned you're going to get to 123 million in EBITDA by the end of '08, and then what is your longer-term expectations for growth?

I said we'd be at 123 million when all the expansions are finished and online for a full year, and just to correct that, this is a ramping up because the next expansion, it's 300,000 barrels doesn't fully come online until late '08. So it's really more like an '09 and '10 type of thing. But go ahead, I'm sorry.

I'm sorry. thank you for clarifying that.

But beyond that, John, what we will be doing is we would intend to do further expansions there. In fact, the beauty of some of what we're doing now is to, are -- for instance, part of this expansion will take us to the 300,000 barrel level -- is actually doing all of the construction through the National Parks. So that will be done, and it will position us to do the rest of the expansion more cheaply, and so we would anticipate and certainly hope that we, as demand for crude coming out of the Oil Sands continues to increase, and that's demand pull, and as the supply continues to increase, supply push, that we will have the need for more capacity, and that our shippers will be willing to sign up for it on a long term basis. We think they will at some point in time, but we're not going to build it unless we do have that demand there. But we have talked in the past, in terms of the TMX 2, that would add another 100,000 barrels, and then a TMX3 that would add another 300,000 barrels, which would take us to 700,000 barrels, all on that southbound line running from Edmonton across the mountains down to Vancouver, and then on into Washington State.

Now, again, the -- there is, and we're also constructed with that in mind -- we also would have the ability, if there were demand in the Chinese market or elsewhere in Asia for a deep water port in [Kittimat] or in that are, we could run straight across into that area, at kind of the Trans Mountain to make a Y then. That would be a massive project and would take certainly long term shipper commitments to do it, and we're not projecting that that is going to happen. But we do have that availability. We are, of course, right now the only conduit for Oil Sands production to get to the West Coast, and we think that's very important, and, of course, with our Express Flat, we are the major conduit into the Rocky Mountain so-called Pad 4 in the U.S. coming out of Alberta. So we think we have two very good conduits, both of which we can expand in the future.

Okay. So the -- just to clarify, then, when you're running at the 123 million EBITDA, what is the associated volume?

The associated volume is based on the 300,000 barrels a day with some land after the fact you never run completely full, obviously.

Okay. Got it. Obviously we keep seeing in the industry press, you know, there's not enough take away capacity in the Rockies, and obviously, you know, Rockies Express is a huge part of addressing that. I mean, have you guys already started looking at, you know, expanding or, you know, having more take away on Rockies Express? I mean maybe you could just comment a little bit on that.

Well, you're right, of course, you are reading that in the press, and we will continue to look at all avenues of solving that problem to the extent people have it. Again, I think the main thing right now is to get Rockies express built, and we'll see what the demand is after that.

I think that part of what all of this is about, part of this can also be solved through storage and hub services. In other words, if you can have more storage capabilities at the supply end of the system or even midway down the system, you can obviate some of the problems with take away capacity. And we're looking very seriously at additional storage opportunities and additional hub services at several points on Rockies Express. And I think those will prove to be helpful to the shippers. But certainly as we've shown, if there is demand in the end that shippers are willing to sign up for, for more capacity out of the Rockies, we will work with them to try to build that capacity, whether it's a Rex expansion or a new project going someplace else.

I think if you really look at, John, the broadest sense -- and I've used this phrase many times. All we try to do is ride the tsunamis, and, you know, if you look at natural gas supply in North America, the three major sources of additional natural gas for America are whatever comes ashore through L&G in the 2009/2010 time frame. As you know, I'm a contrarian, I'm not quite as bullish some of those volumes as some of the other industry experts are, but there will be significant volumes and that's our [INAUDIBLE]/Louisiana line. I think we'll have some additional opportunities there, but only if shippers are willing to sign up for capacity.

Second big area is the whole area of Texas. Bosure, the Barnet shale, big, big production increases, and there is our Mid Continent Express, and I think we are in the process of looking very seriously at some additional expansion at our Texas intrastate system to handle more of that.

And then the third major area is, of course, the Rockies, and that's Rex. Also, of course, we've now made Trans Colorado bi-directional. We can move it north or south. We talked about this modest expansion off of K-MIGHT. I think we'll have some additional expansions to serve the ethanol market off of K-MIGHT, and so there are a lot of opportunities, but those are the tsunamis of the national gas supply side we're trying to ride.

Okay. Great. And then just last question. You know on the terminal, the Vancouver Wharves, is there a -- I didn't see a price in EBITDA associated with that. Can you talk about that?

Well, I think that we didn't announce a price, but I think that the government -- this was a Crown Corporation -- announced that the cash price was $40 million, and that's correct. Plus commitments over several years to do a lot of inclusion capital that the Crown Corporation wanted done, both for an environmental and an expansion standpoint. And I really don't want to get into the exact numbers there, because it depends on when you think these expenditures are going to be made. But there are significant additional expenditures that we figured into this that will be made over a period of several years. And I think that the EBITDA is -- we have not announced officially, but it is off of a $40 million investment is very strong, obviously, and a good return, even when you add in the present value of everything else we'll be doing. And Park did you want to add anything to that?

No, I think that covers it.

Yes. Okay. Thank you very much.

Our next question comes from Alex Meier. Please state your company name and ask your question.

Zimmer Lucas Capital. Good afternoon. Congratulations on the quarter.

Hi, Alex.

Just one question on SACROC. Where do you guys think you're going to end up for the year, and is going to be some kind of back ended year-end volume ramp up?

Well, I have my SACROC expert, Tim Bradley who runs the CO2 section sitting right here, and I'll let him comment on that.

Yes, we expect toward the end of the year our production to pick up. The current challenge that we face is about 20% of our submersibly pumped wells are having mechanical difficulties and are down at the present, and therefore average production rate is around 28,500 barrels a day. We are replacing these existing pumps, not with repaired equipment, but with new equipment. This will take us a period of a couple of quarters to get this issue behind us, and we will also start activating new patterns this month, and we have not done that sense January. So I expect production may go through a bit of a soft period here through April, May, and then start to pick up towards the end of the year and be a little bit stronger. We expect it will get up towards of 31,000 barrels a day towards the end of the year.

So you're probably going to do something like 30 a day, but the reserves are still there. So it's just going to take a little longer to do?

That is our belief, yes.

Okay. Great. Thanks.

Thank you.

[OPERATOR INSTRUCTIONS]

Okay. Well, it appears that we have no more questions. So, again, we want to thank you very much, for listening to us this afternoon. And again, if you have any further questions, you can call Kim Dang, and she'll be happy to answer them for you. Thank you very much.