金德摩根 (KMI) 2007 Q2 法說會逐字稿

Good morning, good afternoon, or good evening, and thank you, all, for holding. I would like to remind all parties that your lines have been placed on a listen-only mode until the Q&A session of today's call. The call is also being recorded. If anyone has any 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.

Okay. Thank you, Holly, and welcome to the Kinder Morgan Energy Partners' Second Quarter Analyst Call. 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 results for the quarter and significant developments during the quarter. Park Shaper, our President will then give you the financial details and then, as usual, we'll take any questions which you may have.

It was a very good quarter for KMP. We increased the quarterly distribution to $0.85, from $0.83, and we produced distributable cash flow per unit of $0.87 versus $0.77 a year ago, which is an increase of 13%. As -- based on the YTD results and our outlook for the balance of the year we now believe we will meet or exceed the $3.44 distribution per unit target which was in the budget for 2007.

KMP reported second quarter distributable cash flow before certain items of almost $205 million, up 19% from the $172 million for the same period in 2006. Total segment earnings before DD&A increased by 13% to over $553 million versus the same period last year, and well above our plan in the budget for the second quarter.

Our results were delivered -- were driven by outstanding performances from the products pipeline and natural gas pipelines business segments, and we have solid contributions from our recently acquired Trans Mountain Pipeline. These positives were somewhat offset by continuing below budget oil production for the Sacroc unit and our CO2 business segment.

Also, during the quarter we continued to make a lot of progress on new projects and expansions. I'll remind you that KMP intends to invest about $2.7 billion in 2007 on new projects, all of which are expected to result in significant future growth for KMP. And in addition to that $2.7 billion, we've already made about $600 million in acquisitions this year, the largest by far of which was the Trans Mountain [drop-down.] For the first six months of 2007 total segment earnings were about $1,060,000,000, up 9% YTD.

Now, let me talk briefly about each business segment. I'll start with the products pipeline. They generated second quarter earnings that were 15% higher than a year ago, well above their plan for the quarter. We believe they're on track to exceed the published annual budget for this segment. Virtually all the assets in the group produced higher earnings before DD&A than the comparable quarter a year ago, and the results were really driven by particularly strong performances from the Pacific operations and our Transmix operations, together with the Cochin Pipeline.

I always like to talk a little bit about volumes on the products system. Volumes were up 2.7% for the quarter. If you exclude Plantation Pipeline, which is impacted by a competing pipeline that began service midyear of 2006, total refined products excluding Plantation increased by 4.7% and that compares to about a 1.8% national increase per the [EIA] number. So good growth in volumes in our products pipeline. Again, excluding Plantation for the quarter gasoline volumes were up over 3%, and diesel volumes up about 6%, jet volumes up a little over 8%.

We kind of use as the bell cow our Pacific System and the revenues there were up 5.9% for the quarter, and in fact during June we set an all-time record throughput of about 37 million barrels through the system. A lot of that was driven by Arizona volumes, which were up almost 15% for the quarter, and this primarily reflects the fact that about this time last year we brought on the expansion of the East Line in Arizona, and that drove the increase in Arizona volumes. But volumes in California were up by over 3.5% for the quarter. So products pipeline had an exceptionally good quarter. Really hard to quarrel with anything there. Performance well above last year, well above plan.

The natural gas pipeline segment grew its earnings by 10% compared to the second quarter of 2006, and again it's well above its plan for the quarter, and we believe it's on track to exceed its published annual budget. The driving force in the natural gas pipeline segment was our [Texas Intrastate Pipeline.] That portion of the pipeline group produces more than half of the segment's earnings, and their earnings before DD&A were up 36%, that is the earnings of the Texas Intrastate Group. That was driven by higher sales margins as we renewed and signed new contracts. We had increased transportation revenue as a result of higher volumes, and we had very good value from our storage activities in the State of Texas. Transport volumes for the natural gas pipeline segment increased by about 14% compared to the second quarter last year.

Now, let me go to the CO2 segment. They produced earnings which were up about $2 million or almost $3 million from last year or about 2%, but the segment was well below its plan for the quarter, and we expect it to be substantially short of their published annual budget. Overall, if you break apart that CO2 segment it continues to perform pretty well, with the exception of oil production at the Sacroc unit. So we had an increase in oil production at Yates, we had higher NGL sales, we had improved CO2 sales and transport business. Our average oil production for the second quarter was 27,000 barrels per day at Yates, that was up 3% compared to a year ago, and we produced 28,000 barrels per day at Sacroc which was a decline of 9% versus the second quarter of 2006. On the bright side NGL sales volumes were up about 8%.

The segment is doing well, I think, except for Sacroc. There we continue to work on our sub pump failure rate and on our down hole conformance issues in an effort to improve production. I'll remind you, again, this has been a great asset for us over the last several years. We still expect great things from it, and the years that we've owned it we've increased the oil production from 8,500 barrels per day when we took over, to the level that we have today.

In our terminal segment we had earnings that were up about [80%] from the second quarter a year ago, and basically on plan, just slightly under our plan for the quarter. We believe that segment is on track to meet its annual budget target. We had growth in the terminal segment compared to last year, driven by both organic opportunities and some acquisitions, but internal growth accounted for well over half of the growth in the quarter, and a lot of that internal growth came from our huge Pasadena Galena Park liquids complex on the Houston ship channel. We've been continuously expanding that, as you know, and we have a lot more expansion to go, so we continue to grow our revenues and earnings from that asset.

We also had organic growth coming out of our shipyard River Terminal, which we expanded last year. That's in Charleston, South Carolina, and we had good news from both our [IMP] and Harvey terminals in Louisiana, and we continue to experience higher ethanol volumes, particularly at our [Argo] Terminal in the Chicago area.

Our final segment of KMP as presently constituted is our Trans Mountain Pipeline. As you recall, that's the Canadian pipeline that we acquired on April 30th. It delivered earnings before DD&A of over $20 million this quarter. It was above its plan for the quarter, and it's on track to meet its annual budget or perhaps exceed it by a bit.

The driver there is that Trans Mountain is experiencing significantly higher volumes when you compare it to the second quarter last year, due in part to a pump station expansion that we have completed now. It was actually completed in the first quarter, and this boosted the capacity on Trans Mountain to approximately 260,000 barrels per day. We've started on an additional expansion that will increase capacity on the pipeline to approximately 300,000 barrels per day and that expansion is expected to be in service by late 2008.

As I said earlier at the start of the call, KMP is on track to meet or exceed its budgeted $3.44 in cash distributions per unit for the full year, and to sum it all up, in essence, the strong performance of our products pipeline and natural gas pipeline segments are more than overcoming the shortfall in the CO2 segment.

Now, let me talk about some strategic developments that occurred during the second quarter. Earlier this month we agreed to sell our North System to Oneok Partners for approximately $300 million, and that's a -- an NGL and refined product system that runs from Kansas up to the Chicago area. Let me make two or three comments about that.

First of all, this is an accretive transaction for us. This is an asset that in 2006 produced about $16 million of distributable cash flow for us. We're doing considerably better than that in 2007 because we had more winter demand for propane, and so at those kind of multiples it -- it was a good decision for us to sell. And now let me say the buyer, Oneok has marketing up side and synergy with storage that it owns in the area that I think they can do better with this asset than we have, but I would leave you with the impression that this was -- was a very good transaction for us, and we hope and expect to close it in the third quarter of this year.

Now, we have an awful lot of construction going on, and that construction and those new projects virtually all of which are fully subscribed from a commercial standpoint, those projects are really huge drivers of future growth at KMP, so I think it's important to talk about them, at least a little bit every quarter. The biggest by far, of course, is our Rockies Express project, or the REX Project, as we call it.

To refresh your recollection a little bit, that's about a $4.4 billion project that will carry natural gas from the Rockies, all the way across the Midwest, ending in Clarington, Ohio, basically on the Ohio-Pennsylvania border. We completed the first phase of it and put it into service in January. That was the so-called [Atrega] phase, and that gets us to western Colorado, up through Wyoming, to the Cheyenne Hub, which is on the Colorado-Wyoming border.

We have now begun construction on REX West which will run from that hub to near Mexico, Missouri, in Audrain County, which gives a lot of pipeline connectivity coming across the Midwest. We are building that in seven spreads, all of them are started, they seem to be off to a good start, and we expect to have REX West in service on the target date at the end of this year.

REX East, of course, is the segment that goes from Audrain County, Missouri, across Illinois, Indiana, and Ohio, to the end point of the REX system. We expect to start that construction next spring and have that completed as far as pipeline construction is concerned by the end of the year of 2008. We'll still be adding some compression in early 2009 so that the whole system will be complete in mid-2009. Again, it will move 1.8 billion cubic feet a day across America. It's a huge project, and it will be very nicely profitable for us and our partners.

The second project that also has had some positive developments during the quarter is our Kinder Morgan Louisiana Pipeline. That's a pipeline we own 100% of. About a $500 million project, 135 miles of mostly large diameter 42-inch pipe. It will take regasified LNG from the Cheniere Sabine pass terminal, move it across what we call Pipeline Alley in Louisiana. All of this capacity is fully subscribed by 20 -- for 20 years by Chevron and [Totale,] and we expect this pipeline to be operational no later than April 1st, 2009, and we have now received final approval from the FERC during the month of June to build that project.

Another large pipeline project that we had is our MidContinent Express Project, which runs from East Texas across Louisiana and Mississippi, in slightly inside Alabama. Again, we're on track there for a 2009 startup and the great majority of the capacity there is also subscribed under long-term contracts.

During the quarter, actually in the month of May, we announced what's not a large project in dollar terms, but I think pretty significant to our Intrastate operations in Texas, and that's our plan to build what we call the "Goodrich Pipeline," which is a 70 million plus pipeline designed to bring new natural gas supplies out of east Texas to markets in the Houston and Beaumont areas. This will significantly increase the overall capacity of our Texas Intrastates in this particular and important area of our market.

We've now entered into a long-term binding agreement with CenterPoint Energy Services, one of our best customers, to provide firm transportation for a significant portion of the initial 225 million cubic feet per day of project capacity, so that's a go and I think that's going to be very important for our Intrastate pipelines.

Moving on to the terminal section, we've had a number of developments there, and in Louisiana we've recently announced a commitment to spend over $40 million. We're acquiring an additional terminal, building a new facility to help meet the growing need for additional terminal services along the Gulf Coast.

Very importantly, in May we closed the Vancouver Wharves transaction, that's a bulk terminal in Vancouver, British Columbia that handles over 3.5 million tons of cargo annually. Also has a lot of significant rail infrastructure. We think it could be used for multiple purposes, and we think that will be a very good project for us. And we continue to make progress on our new large scaled terminal in Edmonton, which is about $115 million project that will store over 2 million barrels of products in -- in the Edmonton area of Alberta, Canada.

Another thing that I think counts as a significant development but is not really within any of these groups, and that is the opinion of the District of Columbia Circuit Court of Appeals during the quarter in a case that involved us, which allowed the income tax allowance for MLPs. I think this is generally good for KMP, and I think it's generally good for the rest of the segment -- sector.

So I think if you look at the quarter in terms of these strategic developments, I feel like we continue to make significant progress in adding assets at very attractive returns on invested capital, which should lead to excellent long-term growth and distributable cash flow over the next several years at KMP. So we had a good quarter and we're glad to be moving ahead with these projects.

With that, I'll turn it over to Park.

Okay. Thanks, Rich. I'm going to go through the numbers. Hopefully, everybody has the press release in front of them. And I will be dealing with the last three pages there, which are the financial statements, or preliminary financial statements for KMP.

The first page is the page with the income statement, and this quarter we have a tremendous number of accounting treats that we believe do not reflect the real performance of the asset, and for that reason the face of the income statement is not overly meaningful.

If you'll go to the second page, we attempt to break all of those accounting items out for you, and we can go through the true performance of the asset, and then we can talk about what those accounting items are, as well.

And so on the second page, a little below halfway down, you'll see DCS per unit before certain items, and that's -- that Rich mentioned and are detailed in the press release, that compares to the $0.85 distribution, and so we have covered $0.02 -- it's a hair under $5 million. It compares to $0.77 of distributable cash flow per unit for the second quarter of 2006, so that's up about 13% from where we were last year.

Before I go on, I want to point out a couple of things that we talked about last quarter, and then one new thing that's here in our distributable cash flow calculation. As you'll recall from the first quarter, we started at that point to include in our distributable cash flow totals, the DD&A from REX and the sustaining CapEx from REX, and that's basically because while REX is accounted for under the equity method, and so really in the consolidated income statement all that shows up is a single line, equity and earnings of Rockies Express, and that's because we only own 50% of it and really after construction we will only own 50% of it.

But because it's a new pipeline and it is significant, there is a really, it's not that big a deal this year, but beginning next year when some more of the pipe is in service, there'll be a rather large difference between the DD&A and the sustaining CapEx, so beginning in the first quarter we started to include those amounts, again in our DD&A and in our sustaining CapEx.

The second thing that we did in the first quarter is we started to add the difference between book and cash taxes, and so that's a line. Again, both of these changes we did in the first quarter, I just wanted to remind you that they are in there.

Now, there is one new thing, this quarter, it's small, it's called Cochin imputed interest expense. What this represents is part of the Cochin acquisition, really the remaining 50% that we acquired from BP in the first quarter. We agreed to pay them about $55 million, but $50 million of that is deferred over five years.

From an accounting perspective, what you do is you put a payable on your balance sheet for less than the $50 million and then you accrete that amount up for the $50 million over time. Well, that's not really a cash expense, it's related to this acquisition that we have acknowledged from the beginning, it's a $55 million acquisition. I guess at its present value it'd be less than that, but again just getting to that full $55 million, that amount shows up in interest expense. We're backing it out down here because it doesn't really relate to distributable cash flow. Now, it's small, $600,000. In the second quarter it was also $600,000 in the first quarter, so you'll see those amounts again there in the total or the sum that add up to distributable cash flow.

So, again, to go back to the quarter, $0.87 versus $0.77 a year ago, $0.85 distribution versus $0.81 distribution a year ago, distribution is up about 5%. For the first half of the year, we generated $1.69 of distributable cash flow, and we're going to distribute $1.58. The distribution for the first quarter was $0.83. Again, for the second quarter it's $0.85.

For the second quarter in terms of total distributable cash flow, you'll see it's about $205 million, up from $172 million a year ago, that's 19% growth in total distributable cash flow. So what drove that growth -- again, Rich has mentioned a lot of this, but I'll jump up to the top of that page, where we go through the segment earnings before DD&A.

You'll see the products pipelines for the quarter up about $19 million or almost 15%, for the six months up $36 million or about 14%, driven by, as Rich mentioned, record volumes at Pacific, which in part were driven by the expansion of the East line going into Arizona, so Pacific was both above our plan and above 2006. Cochin was also both above our plan and above 2006, as were West Coast Terminals and the Transmix operation. So those assets really drove this strong performance in the product pipeline segment, and we do expect the product pipeline will be above its budget for segment earnings before DD&A for the year, even after you pull out the North system, so again very strong performance by the product pipeline.

Natural gas pipeline, up about $14 million for the quarter relative to last year, up about $6 million YTD relative to last year, nicely above their budget, driven primarily by the Texas Intrastate, which were significantly above their budget and significantly above last year, but also had nice performance from Casper-Douglas and from KMIGT, that was offset a little bit by the addition of Rockies Express, and as we talked about in January and in the first quarter, Rockies Express is actually a negative in 2007, it'll be a significant positive in the coming years, but it's a negative in 2007. [Red Cedar] is a little bit below last year and a little bit below its budget, as is [Trail Blazer.] But those three items are relatively small compared to the significant outperformance of the Intrastate and the other assets. So the natural gas pipeline is also having a very strong year, and will end up the year above its budget in terms of earnings before DD&A.

CO2, this is the one area where we are underperforming but, again, it's -- it's focused on a [back rock] volume. The [S&P] business is above its plan. The Yates business, at least the volumes are above the plan. They're a little bit hurt on price relative to our budget. And then the [back rock] volumes are low. Now, Rich talked about the volumes, they're also laid out down below, back rock oil production for the quarter was about 28,000 barrels a day, that's down from where we were in the second quarter a year ago, about 30.8 thousand barrels a day. For the six months it was 28.9 thousand barrels a day, down from 31,000 barrels a day in the first half of 2006.

Yates's volumes meanwhile are up nicely to 27,000 versus 26.2 for the quarter, and 26.6 versus 25.6 for the YTD. So, again, consistent with what we've talked about. Now CO2 is actually ahead of last year in terms of segment earnings before DD&A by about $3 million for the quarter and about $7 million YTD. Although, again, it is under its budget and will be under its budget for this year.

Terminals is essentially on budget, it's above last year, about $8.5 million up for the quarter. It's about $17 million up for YTD, that's right about where we expected it would be. There are some ins and outs in our various terminals, some of the liquids terminals, especially in the Houston ship channel, are performing very well. Some of the boat facilities, especially some of the steel facilities in the Midatlantic are a little bit under their budget, but when you net it all out, again, terminals is basically where we expected them to be, and we think they will be on their budget for the year.

Trans Mountain you'll see generated almost $21 million in earnings before DD&A for the quarter. Of course, that's its total for the year, as well. That transaction closed at the end of April. We did pick-up one extra month relative to where -- when we thought the transaction would close. Again, the budget, but even beyond that Trans Mountain's volumes, as Rich mentioned, are stronger than we expected and so the asset, itself, is outperforming, and we expect it will outperform its budget for the year.

Total segment earnings before DD&A, about $553 million, up 13% for the quarter, and they're north of $1,050,000,000 for the six months, an increase of almost $87 million, up about 9% for the first half of 2007. So, again, segment performance is very strong across the board, save the one piece of CO2 which is [inaudible.]

With that, I'll drop down, actually, all the way below the segment earnings contribution, and you'll see a general and administrative line there, that's G&A expense. It increased about $5 million for the quarter. It's up about $6 million YTD. It is over our budget a little bit YTD. Primarily, it is some timing on capitalized overhead which is a function of timing on capital expenditures, a little bit of increment from having Trans Mountain for an extra month, and some higher legal expenses. But we do expect that G&A will be over for the year.

Interest net is up, you'll see about $15 million from where it was a year ago. For the quarter it's up about $29 million for the first half of 2007, but it is dead on its budget. This is exactly where we thought the interest would end up. Our balance is greater, and that's a function of expansion CapEx and acquisition, the biggest acquisition being the acquisition of Trans Mountain. Our rate is a little bit higher, as well, probably about 30 to 35 basis points compared to where it was a year ago.

Interest will likely be below our budget for the year. That's largely a result of forecasting the sale of the North System, which wasn't a part of our budget, and so clearly will be a benefit to the capital that we have deployed for the year. Minority interest is essentially unchanged.

Let me skip over the certain items, and go down to the net income before certain items. You'll see $250 million, up from $242 million, and the reason it's not up more is really a function of DD&A, and you can see in the DD&A section up above, DD&A is up about $37 million, driven by the CO2 segment, DD&A is up about $29 million. But DD&A has no impact on cash, and so really it will be added back to get to distributable cash flow.

Then you have the general partners interest and the net income, takes you to limited partners interest and net income, add back the DD&A, you see a significant increase in DD&A there, and then you add any booked cash tax difference -- now, that difference in the second quarter is very small, $600,000. YTD it's about $6 million. The Cochin imputed interest expense also very small, about $600,000.

And then you take off sustaining capital expenditures, about $36 million for the quarter, about $63 million for the first half. That's consistent with our budget with one exception. Our budget was about $156.5 million of sustaining CapEx for the year. The budget was done before we finalized the Cochin transaction, and actually as a result of the way that transaction ended up Cochin's sustaining tax actually is going to be lower than budget by about $4.5 million, and so we now believe that we will end up sustaining CapEx right around $152 million. And so that's what our forecast is now, just $4.5 million under what our budget was, all driven by the reduction at Cochin.

And so that, again, gets us to the [DTS] before certain items, $205 million, up 19% for the quarter. It was $393million, up about 9% for the first half. And so that's what the assets really did, that was how they performed, that's what we believe they will be able to do going forward with, of course, continued growth from both organic sources and any acquisitions.

Now, but what's not included in those numbers are these items that are labeled "certain items." And I'm going to go through those and explain them to you. They are reflected on the first sheet, and this is the reason why I skipped right over the first sheet, and said it doesn't have much meaning, because I don't believe that any of these items are meaningful, but for accounting purposes we have to include them.

And one thing I want to note, and this is consistent with what we have done historically, some of these things in here actually help us. They would be a boost to earnings, or a boost to distributable cash flow if we were to include them, but we don't believe that we should include them. We don't believe that they're appropriate to include in distributable cash flow. So we're not just pulling out negative items that we don't want to count at first, we're pulling out all items that we believe are noneconomic in nature.

And so the first two relate to Trans Mountain, and this is complicated and it complicates the balance sheet, as well, which we'll get to in just a minute. But because KMI now consolidates KMP, and that happened a little over a year-and-a-half ago, this is -- Trans Mountain is the first drop-down transaction we have done since that change in accounting took effect.

Accounting says that when you transfer an asset from one controlled entity to another and the control is basically dictated by whether or not it consolidates, then the new entity, if it has essentially bought this asset from another controlled entity, has to reflect on its financial statement like it has owned the asset historically.

So even previous to the transaction, and so, in other words, KMP bought Trans Mountain at the end of April of this year, but in our financial statements KMP now has to reflect Trans Mountain on its financial statement as if it has owned it since the beginning of 2006. And that includes balance sheet amounts and income statement impact, and so that means that if we didn't back this out, we would be reflecting Trans Mountain income in the quarter for the month of April, which KMP was not entitled to and for the six months for January through April which, again, KMP is not entitled to.

It did not own the asset at that point in time, but the accounting rules are what the accounting rules are, and we have to follow them. So we follow them on the income statement, but what we're doing here is backing that out for you. And so what you see on the first line is Trans Mountain net income, $5.8 million, that's the amount for April of 2007, that's the amount in the quarter that relates to the time period in which KMP did not own Trans Mountain. Now, again, we had to go back and add it in in 2006, as well, and you'll see it's $7.3 million that we backed out there.

One thing I'll point out, this is not segment earnings before DD&A, which is the number that we reflect up above for this segment, this is net income, and so the numbers are a little bit different, you can't compare it to the number that's reflected up above.

Okay, and then for the six months we pulled out about $15 million, which is the time period from January through April 2007. We pulled out about $13.5 million for 2006. Now, that's the full six months for 2006, but again KMP didn't own this asset, at all, in 2006, so we're backing that out.

Now, the line right below that actually reflects an impairment of goodwill that KMI took in the first quarter of 2007, but now because KMP has to reflect like it's owned Trans Mountain since the beginning of 2006, all of a sudden this amount shows up on KMP's income statement, as well. And KMP never had this goodwill on its books. It never took this impairment, it happened at KMI, but accounting says it has to be reflected here. That's $373 million negative, and now again that was in KMI's income statement when it filed its Q in the first quarter of this year, if you want to go back and check it, feel free, but again we are backing that out. That is not a charge that KMP has to take.

And, in truth, and this is how crazy this accounting is, KMP essentially had to assume KMI's basis in Trans Mountain, so KMP now reflects Trans Mountain on its balance sheet at a carrying value that is even greater than what KMP paid. KMP paid $550 million for Trans Mountain, but because of this accounting rule KMP is carrying Trans Mountain on its balance sheet like it paid $840 million. It doesn't make any sense to get economically all that KMP has paid for this asset is $550 million, but the accounting rules dictate that it has to carry it at that higher amount.

Now, that higher amount is even after this $373 million comes off, and so that higher amount is where it was after, at the time of the drop-down after KMI had taken this writeoff. So sorry this is so confusing. It doesn't make any sense to us either, but we're trying to back it all out so that you could see, again, what the true performance is.

The next couple items, the gain on the sale is really a 2006 item that was in there a year ago. Gain on notes payable, this is another accounting treat. I talked about the [note] payables that we have to BP, because of the Cochin acquisition. This is the $50 million that is spread over time.

Well, a portion of Cochin is in Canada. Now, our agreement with BP states that we will pay them U.S. dollars. We generate U.S. dollars. We have U.S. dollars to pay them. We have no currency exposure there from an economic perspective. From an accounting perspective, because a portion of Cochin is in Canada, a portion of that note payable is associated with the Canadian operations, and then from an accounting perspective you have to run currency fluctuation through the income statement. Again, there's no economic impact in here. We owe BP U.S. dollars. We generate U.S. dollars. We'll pay them U.S. dollars. But from an accounting perspective we have to run these currency fluctuations through the income statement.

What you see here is, again, we could have not backed it out, and we would have shown $800,000 more income or more distributable cash flow, but we don't think we should get credit for that, it's not economic, it doesn't generate cash, it doesn't have any meaning, and so we're backing it out here.

The next item, environmental reserves, now there was a large adjustment to the environmental reserves a year ago, and again that shows up $18 million in the quarter. Now, in this quarter we had a small [win] of $2 million, a little over $2 million related to a specific incident in California. This is the amount that we believe we're going to have to spend to clean-up that specific incident. It's a onetime charge, and so we're identifying it here as such.

The loss on debt retirement was really a first quarter 2007 issue. We talked about it at the time. It's related to a new or some debt at [West Cedar] that was refinanced. So, again, that was a first quarter item that we discussed at that time.

The next one is another real accounting treat. Allocated acceleration of noncash long-term compensation. It's part of the [NBO] transaction, which closed in the second quarter. All unvested stock options and restricted stock were cashed out as part of that transaction. That cost was borne by the NBO Group, and so the [inaudible] at KMI, all of the cash to pay employees for their restricted stock and their options was paid by the NBO Group. It was factored into the transaction, always understood that it would be that way.

But accounting says that you have to extend the unvested portions and accounting says that even if KMP is not paying for any of that, KMP has to take its share of expense. So, once again, this is an item that has zero economic impact at KMP. KMP is not paying any cash for these items, it's not issuing any units, it's not issuing any equity, there is no liability, no payment that comes from KMP, but accounting says that we have to reflect this expense at KMP. $22 million in the quarter is about $24 million of -- for the YTD, for the six months. And so, again, we are backing that out. You might be able to tell that we get a little bit frustrated when accounting principles completely ignore economic reality.

Hurricanes, this is, again, a first quarter item, and relatively small, but again it was in there and we discussed that in the first quarter. The other line is really a 2006 item, and you can see down in the footnote that's related to some settlement, again, all positive, but onetime items that we were not taking credit for.

That gets you to, again, the subtotal of certain items in total is almost $18 million negative for the quarter, but, you know, if you take out the $22 million which is related to the acceleration of the long-term compensation, the rest of the items actually totaled to a positive.

Similarly, if you look at the six months, the total is about $386 million, and almost all of that is the Trans Mountain goodwill impairment that, again, was taken at KMI, not at KMP, that's $373 million. And then if you take out the $24 million, again, that's associated with the long-term compensation, again, the remaining items total to a positive.

I'm only pointing that out because I do want to make it clear that what we are doing here is identifying the accounting items that we don't believe have any economic meaning, and we're trying to back all of those out, whether they benefit us or hurt us, we're trying to back out the accounting items that don't have economic meaning.

Again, with that, you can look at the front page of the income statement, again, that's the GAAP income statement, the certain items are all throughout there, including this large writeoff that shows up in the six months, including the compensation expense that shows up in there, but again KMP has no economic responsibility for and never will have to pay for. And so, I'll say again, I don't think that the front page of the income statement is overly meaningful.

With that, I'll go to the third page, the last page, of the press release, and it's the balance sheet. And here we get into some more fun. As I've said, Trans Mountain has to be included in KMP's financial statements, beginning in January of 2006. What that means is our December 31, 2006 numbers that are listed in this column are actually different from what was in our 10-K for December 31, 2006, and for what was in our first quarter 10-Q for December 31, 2006. They've been adjusted to include Trans Mountain's carrying value and, again, KMI's carrying value for Trans Mountain as of that date, that one other portion, I mean not only has Trans Mountain been added in there, but in -- on December 31 it was added in at a higher carrying amount because KMI took the goodwill write-down in the first quarter of 2007, and so then that reduction is reflected in the change from December to June.

So let me go through this and talk about what changed. Cash and cash equivalents is up a little bit, that's just normal fluctuations in those value. Other current assets is up about $38 million, that's largely accounts receivable, a little bit of gas in storage, offset a little bit by mark-to-market hedges which, again, we go -- we have hedge accounting on those transactions that just flows through the balance sheet.

PP&E, that's up about $636 million, largely a function of expansion CapEx and acquisitions. Now, the big acquisition was clearly Trans Mountain, but remember December 31, 2006 on this page has already been adjusted to include Trans Mountain and so that particular transaction does not show-up in this change from December 31 to June 30th.

Investments, a change of about 10, just a few things moving around. Deferred charges and other assets, now you'll see this has gone down by about $433 million. That's a function of the goodwill writeoff that, again, happened at KMI in the first quarter but because of this accounting now has to be reflected at KMP, so $373 million of that change is a function of that goodwill writeoff, again, that happened at KMI. And then there's the mark-to-market of the hedges flow through on this line, as well. Total assets, about $13.9 billion, up from about $13.6 billion at the end of December.

Now, liabilities and capital, notes payable and current maturities -- I'll talk about that when we talk about debt. Other current liabilities down about $222 million. What's driving this, there's a $224 million intercompany note payable that was associated with Trans Mountain that was on the books, on KMI's books on January 31. Now, we had been removed by the time of the drop-down, but again remember KMP had to reflect Trans Mountain as it was reflected on KMI's books on 12-31, so it shows up there and then it goes away, so that reduction is the elimination of that intercompany payable.

Long-term debt -- I'll talk about in a minute. The value of the interest rate swap just moves with the forward curve for interest rate. Other, you can see other liabilities of almost $120 million. That's largely the mark-to-market on the hedges.

Partners capital, other comprehensive loss is basically unchanged. Other partners capital looks like -- well, it has, on these numbers, gone down by $384 million. But, again, this is getting caught up in this Trans Mountain accounting.

What did happen in other partners capital, you know, from December 31 and these numbers to June 30th is you did have a $373 million writeoff that was at KMI but now gets reflected at KMP. Now, it also went up, other partners capital was increased by the $224 million elimination of the intercompany note payable that went from a note payable to equity.

Now, then it was decreased because while December 31, 2006 reflects Trans Mountain in there, in truth, at the end of April of 2007 KMP paid $550 million for Trans Mountain, so you have to account for that $550 million somehow. It was an increase in debt at that point in time, and that reduction came out of equity, so it was a reduction in equity at that point in time. And then it also went up by a $300 million equity offering that we had in May. That totals about $400 million, and that's really this change in other partners capital. So you look at that and you think, "Wow, partners capital went down, this is not a good thing, what's going on here?"

Now, partners capital is $5.4 billion. Partners capital at the end of December 31, 2006, as we originally reported it, not including Trans Mountain was less than $4.9 billion. Partners capital has actually gone up by over $500 million, apples-to-apples at KMP, and that is really a function of two things. I mean one is the equity offering, which is $300 million of [KMR] shares, that increases partners capital.

The second is we have magically created equity through this accounting. I told you before that KMP is carrying, has to carry Trans Mountain at a higher carrying value than what it paid. Well, the difference between those two numbers shows up in equity, and so KMP is carrying Trans Mountain at about $840 million. That was what it was at the time of the transaction, when it only paid $550 million, so KMP magically created almost $300 million of equity. So that's what's going on there in the partners capital line.

Now, getting down to, well, debt to cap, we've told you before that we don't think that's the most meaningful measures. What's going on here with Trans Mountain [SKUs] this calculation even more. You'll see the December 31 calculation implies that we were at 49% debt to cap at the end of 2006. For those of you, you know, who have been following us, you'll probably say, "Well, hey, that's a little bit low." What we actually reported at the end of the year was about 54% debt to cap. The reason it's changed is because of that addition of Trans Mountain which magically created equity.

Now, you'll see that debt to cap now is about 54%, that's probably -- I mean that is a little bit lower than where we would be, because we wouldn't have this magic $300 million of equity that was created as part of this Trans Mountain transaction. But, again, we don't think debt to cap is the most meaningful measure of our credit, of our balance sheet quality anyway.

Look at the measure directly below that, the debt to EBITDA, the 3.64, up from about 3.32. Those numbers and so it's basically just a ratio of debt to EBITDA, those numbers are unimpacted by the Trans Mountain accounting, and so our debt has not been changed because our EBITDA has not been changed because of it, and so these numbers did not change as a result of this accounting, so they are a true reflection of the strength of our balance sheet. Again, we believe it's very strong, still under, well under four times debt to EBITDA. It has gone up since the beginning of the year. That's consistent without expectations for this year because we have a tremendous amount of expansion capital, so it's directly in line with where we thought we'd be.

Now, total debt -- again, total debt is unimpacted by this accounting [noise,] you'll see it is about $6.6 billion. It's up from about $5.7 billion at the beginning of the year, so it's up about $835 million. For the quarter, at the end of March, we were a little over $6 billion, we're up about $550 million for the quarter. What's driven those increases, expansion CapEx for the quarter is about $335 million, for the first half it's about $583 million. We've had contributions to equity investment largely the MidContinent Express Pipeline of about $39 million in the quarter, about $44 million in the first half. We've had acquisitions, and so this is including the cash that went out for Trans Mountain, $593 million for the quarter, $598 million for the first half. We assumed about $43 million of debt associated with the Cochin transaction, really once we owned 100% that came on to our balance sheet, that was $43 million, not in the quarter because it happened in the first quarter, but that happened in the first half. And so all of those were uses of cash or increased debt.

Going the other way, we had the equity offer which generated $300 million of cash in the quarter and for the first half. We had our KMR distributions, which are equivalent to equity offering, generated about $53 million in the quarter, $105 million in the first half. And then we had a source of cash, some working capital and other items that was relatively small, about $28 million in the first half, that was all really from accounts receivable versus accounts payable.

Now, on the expansion CapEx numbers, again, rather large, $335 in the second quarter, $583 in the first half, actually below our budget, lower than what we expected to spend at this point in time. Some of that was in the product segment, about $50 in the quarter, almost $100 YTD. Most of that is on [EPS,] the next El Paso to Phoenix expansion. On the natural gas side about $70 million in the quarter, about $94 million YTD. A lot of that on the [Markham] storage expansion, a little bit on the [Trans Colorado] expansion, some on the Intrastate expansion in East Texas, the [NGPL,] and a little bit on the Louisiana pipeline. At CO2 we spent about $70 million a quarter, almost $160 YTD, that's largely Sacroc. A little bit at Yates, and then, of course, our southwest Colorado expansion where we are increasing our production and our ability to transport CO2.

On the terminal side we have a whole bunch of projects going on, spent about $108 million in the quarter, almost $190 million YTD, a lot of that is here in the Houston ship channel, in Pasadena and Galena Park. Continued expenditures on our Edmonton [North 40] terminal and the expansion at [Pier 9.] And then, of course, we had Trans Mountain in the quarter and spent about $60 million on the ongoing expansion there, it's primarily [anchor blue] and that, of course is the YTD number, also. So that is the financial statements for KMP.

Okay. Thank you, Park. And, Holly, we'll go back to you, and open it up for any questions.

[OPERATOR INSTRUCTIONS.]

Dan Jenkins, you may ask your question, and please state your company name.

Hi. Dan Jenkins. State of Wisconsin Investment Board.

Hey, Dan. How are you?

Pretty good. I was wondering if you could just expand a little bit on, you know, the continued underperformance at Sacroc? Is that, again, just -- you expect that to pick-up later and when you get to other parts of the field, or is that -- does the field look like it's going to produce less, or what kind of underlying issues at Sacroc?

Well, I think we talked about it, and we -- last time we had Jim Bradley on the call, last quarter, and it's continuing issues with sub pumps. We have about 2,000 barrels a day shut-in due to the submersible pumps. We have well over 300 wells that have submersible pumps and, as we pointed out last time, our failure rate is higher than we had projected and that's leading to less production.

Overall, we still think this is a field that has about 2 billion barrels of original oil in place, and we still think we're on target to have a very good recovery range as a percentage of the original oil in place, but there are a lot of moving parts. And primarily it's a matter of the sub pumps and what we call "down hole conformance issues," which we also talked about last time. Both of which we are working to -- to correct, and I think we're on the right -- right wavelength, but we don't, you know, again, as Park said and I said, that we expect CO2 for the full year to be substantially under its plan solely because of Sacroc volumes, everything else is fine.

So we do see the balance of the year -- some uptick from the volumes where they were in the second quarter but there's no magical silver bullet in the second half of the year. I think the important thing is that, of course, if you look at '07, as we've said, the strong performance of the rest of the Company is more than overcoming that versus our budget.

And then if you look at -- ahead to '08, of course, CO2 has old hedges rolling off, new hedges going on, and that's a tremendous up side because we will have our average oil price there next year, even if the volumes stayed constant, and we don't think they will, we think they'll go up in 2008, but even if they stayed constant we would have enormous up side as -- as those hedge prices, average hedge prices move-up, and the same thing happens in '09, '10, and '11, you're going from an average hedge price in the 30s to an average hedge price out in '11 of about $70 a barrel. So you have enormous up side even if the volumes just stayed flat in terms of actual distributable cash flow. Now, again, we -- we expect to have up side in volumes but we -- we still expect it to fall short of its plan for the year. Does that help you?

Yes, that helps. I also was wondering as far as, you know, capital needs in the second half, you know, obviously, you have a lot of projects going on and so forth, you know, what kind of is the plan as far as any new units issued or debt issuance, and so forth?

Yes, it's consistent with what we talked about in January, and we will continue to fund our expansions and acquisitions with 50% debt and 50% equity, and we'll continue to issue equity and term-up debt when -- when we think the time is right.

Okay. And only -- the last thing I was wondering is we're still investors in the old KMI bonds, and I was wondering will -- just the SEC issuances for us to get any financial information about -- about that unit?

Yes, the -- a Q will be filed in the beginning of August.

Okay. Thank you.

Next question?

Thank you. John Edwards, you may ask your question, and please state your company name.

Yes, good afternoon, everybody. It's John Edwards with Morgan Keagan.

Hi, John. How are you doing?

Oh, pretty well. Nice quarter.

Thank you.

And I was wondering, Rich, can you give a little more detail on, you know, you had a significant outperformance, you know, with the Texas Intrastate Pipelines. Could you give a little more what was -- what was driving that?

Yes. We're delighted with the way that entity is performing. First of all, as is true in all our pipelines, you have contracts with various term lengths, and as those roll over we were able to renew those contracts at -- at slightly higher transportation rates, so that was a positive. While we're not a huge processor, as part of our operations we do have some processing and treating facilities on our system, and we benefitted there from the spread between natural gas and NGL prices, which is continuing into this quarter.

And then, finally, as we showed, our overall volumes were just up. You know, it's a tremendous asset that we have because as all of you know, I think, Texas is both the largest producer of natural gas and the largest consumer of natural gas in the United States, and our idea is to own as much of that market as we can in terms of connecting the supply with the demand.

And I think that's probably going to continue to increase as we face all these refining capacity issues and expansions of refinery capacity, particularly over in the Port Arthur and Beaumont area, that's going to drive the need for more natural gas. And again particularly with this new system that we're building in east Texas we're going to be able to access massive volumes from south Texas, which we've always been able to do, and now increasingly additional volumes from east Texas, which as you know is a rapidly growing oil production area.

So I think this is the kind of success we're going to continue to have, but it was a wide range of things. We did very well with our storage in the quarter, our storage is in high demand, not just in Texas but everyplace. And, again, I think that's going to continue to grow in terms of demand on a going forward basis. So I think, you know, the old [song] about nothing like having good assets, in the right place at the right time, and I think that's just what we have with our Texas Intrastate, and it was a very good performance.

And then, Rich, did you have any, you know, with all the rain that we've been getting in Texas, you know, did that -- I mean would it have been even stronger had you, you know, had there not been, you know, some of the adverse weather we've been experiencing in the State of Texas.

Certainly, John, I think that there would have been more absolute throughput on the system if we had had a more normally hotter front, particularly the last month or six weeks. But, again, I don't know how much impact that would have had, but I would say that is -- that's probably a negative, that it would have been an even stronger performance if we'd have had hotter weather.

Okay. And then just, you know, with the North System sale, you know, that, obviously, you got a very good price for that and some of the EBITDA numbers you're -- you know, you were putting, you were discussing, you know, obviously a very high multiple. Is that, I mean in terms of your budget this year, is that basically going to be -- considered incremental to the budget or do you -- do you adjust for that?

We will adjust when we sell the North System, if that's what you mean? In other words --

Uh-huh.

-- if we complete that sometime in the third quarter, we certainly hope and expect to, then at that point in time the EBITDA from the North System will disappear from KMP and in return for that we'll take in $300 million of cash, which will initially go just to pay-down debt.

Right.

And then, obviously, it will also, again as Park said, we fund everything around here 50/50 debt equity -- it will also in the longer term whenever we put out additional equity it will decrease the need for -- for -- modestly for equity, so if you look at it, we think of it as eventually 50% of it goes to debt reduction and 50% of it goes to reduction in the amount of units outstanding that you will have. They're pretty modest in the scheme of the whole -- the whole thing, but based on that it is accretive on a going forward basis.

John, if you're asking if we go back and adjust our base budget and pull out North System --

No.

-- we're not adjusting our base budget, as [Park said.]

Yes. Yes, around here and, again, we probably have a lot of peculiarities, but one thing is once we do a budget we stick with that budget for the whole year and then we just explain for you, for our employees because our bonus system is based on this, for any of our constituencies what all the variations are off of that budget, but it's kind of a slippery slope if you start redefining.

Okay. And then I'll ask one more and then I'll get back in line because I don't want to, you know, monopolize all the time here. But on the -- in terms of your volumes now for Sacroc, you know, what do you -- what are you expecting for the second half?

Well, our current estimate is that we will have some modest improvement to this number and mostly in the fourth quarter. We -- we have a lot of patterns, that's the pattern of both injection wells and recovery wells, a number of patterns that we have completed that will be coming online and, again, we are going through all these sub pumps, we have a new contract, a new contractor doing the sub pumps for us and we're replacing those sub pumps as we go, and the combination of those two things we think will lead to higher volumes, particularly in the fourth quarter.

I might also add about Sacroc, we're not just -- you know, we are a very cash driven company and we're not just throwing money at this problem. Actually, we now estimate that our total expansion capital budget for Sacroc is -- will be down about $40 million this year from what it was in the original budget, so we're actually spending a little less, we're being very careful about how we attack the sub pump and down hole performance issues.

Okay, great. I'll -- I'll get back in line.

Thank you. Good questions.

Okay. Thank you.

[OPERATOR INSTRUCTIONS.]

[Alex Meyer,] your line is open. Please state your company name.

[Inaudible.] Just one real quick question?

Sure.

I just wanted to see if you guys had an update on MidContinent Express, just around the contracting or the potential to merge your project with another potential competitor of MidContinent?

Well, first of all, as I said, I may have skipped over it too quickly, the MidContinent Express is largely subscribed. We have a little bit of volume left that we're working with two or three producers to tie-up, but the great bulk of it is subscribed, mostly with ten-year contracts, and it's a very viable project with reasonably good returns. So we anticipate going forward and do not anticipate merging it with -- with any other project.

You know, the -- and, of course, we have a pretty good handle on the production and the demand for pipeline capacity coming out of that part of Texas because we own the Texas Intrastate System and then, of course, we have NGPL which crisscrosses the northern part of that. And what we're finding is that given the increases in the Barnett Shale production, really just kind of pushing like a tidal wave to the east, that the bottlenecks were just occurring further and further east, but there's a lot of these producers and I think justifiably so, want optionality and they want to be able to get into pipelines that are going to the Midwest, to the southeast and to the northeast. And I think that's why you have the tremendous need that underpins projects like CenterPoint's Project, which is already in service, like our project, and like the Boardwalk competing project. I think that at least from our standpoint with the commitments we've got we anticipate there's going to be room for all of those projects. There's just tremendous need to move the gas about.

And I think that in the long term, and I've been in this business almost 30 years, the most important single thing that's happening on the natural gas side is this tremendous change in the supply sources for gas across the United States, and so we're seeing, if you really think about it, three big areas of new supply. We aren't going to see much new supply coming out of Canada, we've talked about that, that's a function of using natural gas to recover additional oil and the oil sands play and the decline in the western Canadian sedimentary basin, so we're not going to see additional volume, we think we're going to see a decline there, I think that's the prevailing view in the industry. We're seeing a decline in offshore Gulf of Mexico, particularly some of the shallower areas.

But where the three areas of growth over the next five or ten years are going to be Rocky Mountain area, and that's what we're serving with our REX expansion and, of course, also with our Trans Colorado System and our other systems coming out of the Rockies. The second area is the Barnett Shale in Texas which has tremendous growth and is experiencing it now, and that's what's led to MidContinent, the need for a system like the MidContinent. And, again, people wanting to push as far east and into the northeast as they'd come -- as they can, which is the highest margined business. And then the third is, which is longer term, is the LNG that's going to come ashore along the Gulf Coast as -- as time goes on, probably primarily in the '10 and '11 timeframe. Our response to that, if you will, is the Kinder Morgan Louisiana line.

But those, because you have all these shifting supplies, coupled with a pretty nice growth, you know, a little over 1 to 1.5% growth over the next many years, I think, the natural gas demand largely driven by power demand, you're going to have the need for a lot of new systemic improvement, and I think we're in the forefront of that -- I'm sure not the other one -- a lot -- not the only one -- a lot of other pipelines are doing improvements, too, but I think we're in a very good position with our footprint to continue to expand our system. And I think you'll see us having new follow-on projects even when REX, MidContinent, and the Louisiana line are completed.

And when do you think you're going to have to make a decision, a final decision about whether you move forward? I guess that'd be probably when you [pipe] or compression; right?

Which project are you talking about?

Oh, just from MidContinent Express?

We've already made the final decision to go forward and we've already ordered pipe.

Okay.

Yes.

Our next question comes from Barret Blaschke. Your line is open, please state your company name.

Yes, this is Barret Blaschke at RBC. I wondered if you could talk a little bit more about the use of the proceeds from the sale of the North System?

Yes, initially the money will go to pay-down debt and, but again longer term we would look at it, again, as I said, we're 50/50 and our target is always to be 50/50 debt equity in terms of financial expansions, and so in the long run we'll put out $150 million less equity and pay-down $150 million of debt. So, but short term when we get the $300 million we'll simply be paying down debt.

Thank you.

Yes.

[Dave Munno,] your line is open, please state your company name.

Hi. Merrill Lynch. Afternoon, everyone.

Hi. How are you doing?

Good, thanks. I've got a quick question on competing project taking refined products into the Las Vegas market, was wondering if that would have any impact on your plans for expanding [Cal Nav?]

Well, obviously, we'll look at the total situation. We're on the FERC agenda tomorrow for a decision on the -- the rate treatment that we've asked for. We'll see what that decision is. If it's favorable and addresses the issues that we're concerned about we would plan to go ahead with our project. We have tremendous economies of scale, we're a lot -- a lot closer to Las Vegas than Salt Lake City is. We already have a system up and running, including terminals and delivery system into the airport and everyplace else. So I think that in the end we have enormous advantages of scale and customer relationships and Las Vegas infrastructure, but again anybody can spend money and build whatever they want, so whatever our competitors do or don't do I wouldn't want to comment on -- that's their business.

Sure. And as a follow-up to Rich, there, in terms of what you're looking for out of that FERC hearing, is it pertaining to rates of return or is it, you know, securing volume metric commitments, or?

No, it's primarily similar to what the FERC granted Colonial recently in terms of looking at the additional expenditure as an additional project and being able to charge appropriately for that expenditure.

Got it. And, Rich, one final question from me. In terms of the DC Circuit Court ruling, clearly a positive, but thinking about bringing some sort of finality to the litigation around SFPP does that really move you any closer or are we still just I think a long way aways to this issue being settled in any sort of final form?

Well, again, this is a rate case, as you know, it started in 1992, which was six years before we even bought SFPP. We would always be happy to settle it, and we think that if you look at what the FERC has done and what the DC Circuit has done and people can appeal and argue about it, but the DC Circuit has essentially taken our position on a tax allowance, and the FERC in the past has essentially taken the shippers' position on the ungrandfathering, if you will, of the rates on the west line, which we ungrandfathered pursuant to their order May 1st of last year.

So we kind of think that where the rates are today is where the FERC and the DC Circuit have said is the right thing, and we would be willing to -- to go forward on that kind of basis and saying, and pay the reparations that flow out of that. As you know, we've already reserved on the -- on the books $105 million for that. So, you know, we would be prepared to -- to move forward, but again it just depends on what the shippers on the other side would want to do. I'd be happy to settle this thing and put it behind us but I sure can't predict what -- what they're going to do.

Got it. Thanks very much.

Thank you. [Dennis Coleman,] your line is open. Please state your company name.

[Bank of America Securities.] Thanks.

Hi, Dennis.

Hi. How are you? A quick question or maybe a little bit more strategically, we spend a lot of time on these calls talking about Sacroc and whether we're going to hit production or not. One of the things that we've all kind of been paying attention to, I think, is the rise of the E&P focused MLP, and I mean is there any structure that -- that kind of helps get that problem away from you a little bit or kind of spinoff or sale, or anything like that that you're looking at with regard to the capital that's flowing into these E&P focused MLPs?

Dennis, it's Park. I mean I think that's a good question, and there's no doubt that we have been looking at those structures, but I would not expect us to do anything differently. I don't think we'd do any spinoff or separate MLP. What I would say is that if people are interested in E&P MLPs, I think KMP is the best one that's out there. I think it's probably the largest. I haven't necessarily looked at their size. I think it has "the" best assets to be held in E&P and [LP.]

When you talk about the oilfields that we own, the amount of production in the ground there, the billions of barrels of reserves that we have, the proven technology for getting them out and the long-term nature of that production, you know, we don't believe that there's a better asset out there from a production perspective that, you know, would be appropriate for MLPs. For years we talked about, "Well, you know, it doesn't quite fit the MLP, it's not as favorable as the pipeline, but we still believe that it's a -- that it's a good investment." All of a sudden a lot of people have gone all the way beyond this. But, again, we believe that as far as production assets in an MLP you don't get any better than the fields that we own.

Okay, thanks.

Thank you. Our last question comes from John Edwards. Your line is open. Please state your company name.

Hey, John.

Yes, hi. Just I had a few more. What's the -- the mix now at Sacroc or, you know, I guess in the [inaudible] segment, the mix you're experiencing between, you know, hedged and unhedged volumes, you know, given how productions come off a little from budget? And then, also, if you can comment on the margin per barrel that you're experiencing?

We actually have [Jim Worth,] who is the CFO of the CO2 Group, sitting here. Jim?

I think on the Sacroc side we're close to 100% hedged, at this point this year. That'll come down, obviously next year with lower hedged volume and hopefully a higher production volume. And Yates we're probably running about 65, 70% hedged. And then, again, as Park had mentioned earlier, we're talking about the -- the NGL prices, none of that is hedged.

Okay.

And I think the NGL equivalent production at Sacroc is 35 --

3,700.

3,700 barrels a day, so that's all unhedged. And then, again, about a third of our volume at Yates is unhedged. So, but if you look at just the oil volumes of Sacroc about 100% hedged, and then we have strict policy guidelines and that declines in the out years as far as percentage hedge.

Okay. And then the margin per barrel you're experiencing on the production?

Yes, I mean I think on the margin question I think in the January conference, materials, I think [inaudible] again this year, I know we have in years past, and we are very close to what shows up there, and you can refer back to that and that'll show you where we are on margin.

Okay. Fine. I mean that's -- that's what I've been using, I just wanted to see if there was any deviation from that.

Yes.

And -- and have any -- in terms of any -- any weather impacts on your construction schedule?

You mean on our pipeline construction?

Yes, on your pipeline construction?

No, as a matter of fact, we're very pleased. The FERC gave us the final orders to proceed on, on REX West. We have seven spreads going, it's such a huge project, seven spreads going. And they -- they started this sequentially during the month of June, with the last one starting the last week of June, the first one I think around the 10th of June. So we're just, you know, six weeks into it, but so far it looks very good. We have not had weather problems, and actually amazingly we're already starting to weld pipe at a couple places. So I just talked with our people this morning on this and they're feeling very good about the progress of construction so far.

Now, we're a long way from being finished but, again, the REX West, you know, is going largely across other pipeline right of ways and it's fairly sparsely populated areas, so I think we're, barring some kind of major weather issue we're poised to deliver that system on time.

Okay, great. And then on the Vancouver Wharves transaction, I didn't -- did you disclose a number on that, or not?

I think we did, but I think it will show up in the Q, and we -- we paid about -- about $50 million --

$37, $38.

About $40 million up front. Now, we are committed to spend some inclusion capital in some of the out years and we've, obviously, taken into account the present value of that for some various cleanup that we committed to do as part of the transaction. And, again, that -- that has about 3.5, handles about 3.5 million barrels -- I mean 3.5 million tons of -- of bulk, and we're very hopeful that we will be able to increase those volumes substantially on a going forward basis, so we're -- that's a great asset and we're delighted to have it in the Kinder Morgan Family.

We're really making some real progress in our terminal segment in Canada. Not only that, but again the Edmonton North 40, that Park referred to, you know, we're on -- we're on schedule there, with that construction. And, again, that's all fully subscribed with a fairly long-term contract, so -- and we think we've got a couple of other projects pretty close to moving forward on the terminal side in Canada. So I think we can do this.

Okay. Then, lastly, you know, on the Plantation Pipeline, you know, volumes have been off a bit. What's the -- what -- what -- I mean in terms of comparison year-over-year what are we -- what have the -- what was it this quarter?

Well, it was that the [Bingo Pipeline] went into effect which took the [Motiva] volumes off of Plantation, it's a new pipeline that came up --

Uh-huh.

-- and hooked into Colonial as opposed to baseloading Plantation. And that went into service about this time I think last year, sometime around midyear, so those comparisons should be getting -- the impact of the Bingo Pipeline will be in the numbers beginning in the third quarter, so you'll have easier comparisons. But that took, I want to say 60,000 to 70,000 barrels of throughput that was going to Plantation that is not now.

Okay, great. All right. Thanks a lot.

Yes.

And, sir, I'm showing no further questions.

Okay. Well, listen, thank you all very much. And, again, we're delighted that you spent some time with us, and if you have further questions feel free to call Kim Dang and she'll answer all of them for you.

Thank you.

Bye.

Thank you. This does conclude the conference call. You may disconnect at this time.