金德摩根 (KMI) 2008 Q4 法說會逐字稿

Welcome, and I would like to thank you all for standing by and inform you that your lines are in a listen-only during today's conference until the question-and-answer session. Today's call is also being recorded. If we have any objections, you may disconnect at this time. I'd now like to turn the call over to Mr. Rich Kinder. Sir, you may begin.

Thank you, Ed, and welcome to the Kinder Morgan Energy Partners 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 full year 2008 and fourth quarter results, discuss our outlook for 2009 and give an update on major projects and on significant capital raised during the last few weeks. Then I'll turn it over to Park Shaper, our President, who will go through the financial details then we'll take any and all questions that you may have.

We have a lot of news today. I guess the most important thing since particularly in this environment, cash is certainly king. Is the fact that, again, we raised our distribution. This time, we raised our quarterly cash distribution per unit to $1.05, that's $4.20 annualized. Up from $1.02 or $4.08 annualized. That represents a 14% increase over the fourth quarter 2007 cash distribution per unit of $0.92 or $3.68 annualized. Not that anybody's keeping count, but that marks the 35th time that we've increased the distribution since the current Management took over Kinder Morgan in February of 1997.

If you look on an annual basis in terms of distribution, for 2008, our total declared cash distributions were $4.02. That meets our annual published budget and is 16% higher than the declared cash distributions of $3.48 per unit in 2007. During 2008, we produced distributal cash flow before certain items of $1.07 billion, that was up 23% from $865 million for calendar year 2007. More importantly, our distributal cash flow per unit before certain items was $4.15. That's up 14% from the $3.65 that we produced for for 2007. The fourth quarter distributal cash flow per unit was $0.81 compared to $1 for the same period last year.

Now if you look at the results, I think when you consider the tumultuous market conditions that we experienced during the past year and particularly during the fourth quarter, I think we've had a great run. And I'm proud of what we were able to accomplish during 2008. We had total 2008 segment earnings before DD&A of $2.8 billion, that's up 24% from roughly $2.2 billion in 2007. Our $4.15 per unit in distributal cash flow for the year, which I mentioned earlier, gave us excess coverage of distributal cash flow over distributions of about $33 million. And that's about triple, almost triple our published annual budget.

We beat our annual targets, despite fourth quarter results that were impacted by a number of things, some of them were what I would call timing-related and unusual items such as the back end loading of sustaining CapEx and lost business due to the two hurricanes that hit the Gulf Coast. Then we also had some impact from what I would call general economic factors such as lower crude oil prices and a weakened Canadian dollar. The total impact of all of those factors on the fourth quarter was about $65 million or about $0.24 per unit. If you strip out the weakened dollar and the crude oil prices, you get to about $0.10 per unit, just from the lost business due to the hurricanes and the back end loading of the sustaining CapEx. So, those are just some factors to keep in mind when you look at both the full year and the fourth quarter.

Now, as I usually do, let me just kind of give you an overview of the business segment by segment and Park will handle a lot more details on it, obviously. And I'll just talk in terms of earnings before DD&A at each segment. If you look at our products pipeline segment, we were above 2007 for the fourth quarter and above 2007 for the full year if you strip out the North system which was sold at the beginning of the fourth quarter of 2007. We were below our plan for both the quarter and the year almost totally as a result of lower refined products volumes on our pipeline system. We've detailed that in our earnings release and the attachments, but depending on how you count Plantation, we were off for the year between 6% and 7% in total volumes on our product systems for refined products. Although we did see less of a decline in gas throughput in the fourth quarter on a percentage basis, versus what we saw in the earlier quarters of the year.

In this segment, we did complete some pretty extensive modifications to allow handling more ethanol in our products terminals and in our central Florida pipeline. We completed some new storage facilities for the military in California and we acquired a strategic terminal in Phoenix, Arizona. In our natural gas pipeline segment, they really had an outstanding fourth quarter and full year. They were substantially above 2007 for both the quarter and the year. And well above plan for the year, slightly below for the fourth quarter.

The performance was really led, of course, by Rockies Express West which began service in January of '08 and reached full operations in May. And by the Texas Intrastate Group, I know I sound like a broken record there because it seems like every quarter and every year, the Texas Intrastates manage to accumulate a really good record. But we also had good results from both TransColorado and Knight. And I might add on the natural gas pipeline segment that our earnings before DD&A would have been even higher if not for lost business in the Texas Intrastates as a result of hurricane Ike.

What's driving the good performance at the Intrastates for the full year is well increased transportation storage revenue from long-term contracts that we've entered into, from higher sales margins and we had greater processing volume and margins during the year. If you look at the full year overall segment transport volumes were up 26% compared to 2007. Of course, that's primarily due to REX-West being operational. Turning to our CO2 business, that segment was above plan and 2007 for the fiscal year. In fact, for the full year, in fact, it was up over 40% versus 2007 if you look at it on a full year basis. But that segment was below plan and slightly below the fourth quarter of 2007, if you look just at the fourth quarter.

Turning to that fourth quarter, CO2 had a pretty good quarter operationally, but our results there were significantly impacted by two or three factors. The two primary factors were lower oil prices on our unhedged volumes and then we lost some business due to hurricane Ike. Which resulted in a decrease in NGL sales due to a third party fractionation facility being down for a large portion of the quarter.

If you look at the quarter from an operational standpoint, average oil production at SACROC was 29,200 barrels per day. That was up 16% from the same period last year. Average oil production at Yates was 26,700 barrels per day. Down from 27,800 in the fourth quarter of 2007. We had a very nice increase in CO2 delivery volumes. They were actually up 23% compared to fourth quarter last year. And that's due, of course, to our major expansion projects in southwest Colorado that came online and increased our CO2 production.

If you look at the full year, average oil production was 28,000 barrels a day at SACROC. Almost the same, 26,700 barrels per day at Yates. And the CO2 delivery volumes were up 15% from full year 2007. Those SACROC and Yates numbers, as you can see, from the earnings release, were slightly above 2007 in both cases. Turning to our terminals business, the terminals segment was well above 2007 for both the fourth quarter and the full year. And slightly below plan for both.

If you look a little deeper in what happened there, the terminals business would have virtually met its annual budget if not for lost business associated with the hurricanes. And actually would have exceeded its budget had it not also incurred higher operational costs for much of the year due to higher diesel price. It is also important, I think, that all of this segments growth in the fourth quarter came from organic opportunities and two-thirds of its growth for the full year came from organic opportunities.

Some of the growth drivers in terminals were a nice increase in coal volumes, a nice increase in throughput at the Company's New York Harbor Terminals. And the fact that we measurably increased our capacity at the Houston ship channel facilities due to tank expansions we've done over the last couple of years. In fact, if you look at KMP's total leasable capacity on its product side, it is now up 14% from a year ago to 54 million barrels of capacity.

Looking at Kinder Morgan Canada, they were above 2007 for both the fourth quarter and the full year. And almost on plan for the full year in Canadian dollars, but fell short of their annual budget targets once you took into account the weakened Canadian exchange rate. That results in Kinder Morgan Canada really resulted primarily from the completion of the Anchor Loop expansion of the Trans Mountain pipeline. As you recall that, boosted the capacity of that line to 300,000 barrels per day and also resulted in a higher tariff on volumes that moved through it. So, Kinder Morgan Canada basically on plan for the year and well above 2007.

Now, let me turn just a little bit to the outlook for 2009. And we're going to go into a lot more detail on this at next week's investor conference. But just to sort of refresh your recollection, we previously announced that we expect to declare cash distributions of $4.20 per unit for 2009. That would be a 4.5% increase over the $4.02 we declared in 2008. We think we're well-positioned for future growth. We expect that our business segments will generate over $3 billion in earnings before DD&A during 2009.

Now, the real growth driver here is the continuation of our substantial capital investment program. And obviously that program includes both expansions of existing assets along with our new projects. As an example, we have three major natural gas projects scheduled to begin at various points during 2009. Let me be very clear, that when we put this budget together back in the fall, we assumed WTI price of $68 per barrel for the year. As most of you know, the overwhelming majority of cash generated by KMP is fee-based and not sensitive to commodity prices.

And even in the CO2 segment, we hedge the majority of our oil production, but we do is have some exposure as we've always said to unhedge volumes, most of which are natural gas liquids. And we previously said that for 2009, every $1 change in the average WTI price is expected to impact the CO2 segment by about $6 million or about two-tenths of 1% of our combined business segments anticipated distributal cash flow. The sensitivity to WTI price I might add is virtually identical, very similar to what we experienced during 2008.

Now, $68 was obviously much closer to the '09 forward strip when we did the budget than it is today. And our CO2 operations are now taking steps to further reduce their costs in response to lower prices. And that strip today at today's close is just a shade under $50. Overall, KMP should also benefit from lower interest rates than we projected in our plan so we have some upside there. And we have some other savings and benefits that we'll take you through in much more detail next week at the investor conference.

Now, turning from the outlook to our projects. And certainly making progress on our key projects is very key and actually, as I said, completing three of the major projects as well as numerous smaller projects during calendar year 2009. Now, as we look at those, I think the important thing to share with you is we give you an estimate every quarter on total capital expenditures on our large natural gas projects. And if you compare what we're estimating today with what we estimated a quarter ago, back in October when we put out our third quarter earnings release, our net share of capital expenditures remain virtually unchanged quarter to quarter.

We had some modest increases. We had some modest decreases, but if you net them all together, pretty much unchanged. Now, let me remind you these projects are still being constructed. We're in a winter construction season on some of them. And nothing -- the game is not over until the fat lady sings. But right now, we have not experienced any significant changes from the numbers we shared with you at the end of the third quarter.

We've got details on numerous projects in our earnings release, but let me just cover some of the most significant. In our products pipeline segment, this past quarter, we began transporting ethanol on our central Florida pipeline from Tampa over to Orlando. In addition, we've approved and begun to implement over $90 million in ethanol and biofuel projects. And these are modifications of tanks and truck racks and other infrastructure to allow us to handle more ethanol as our customers want us to do in both the southeast and Pacific northwest. I think these will be good return projects for the foreseeable future.

Also, in our products segment as I alluded to earlier, we did close on the purchase of a liquids terminal in Phoenix, Arizona, from ConocoPhillips. Total price was about $29 million including some upgrades we're going to do. That facility has a capacity of about 200,000 barrels of storage. And equally importantly, it is adjacent to our own Phoenix terminal. So it is a strategic acquisition for us.

Now, turning to natural gas pipelines where the majority of our construction dollars are being spent. Let me just take you through our four major projects there. On REX-East, we're continuing with construction and subject to a last batch of regulatory approvals, almost all of which has already been received. We expect initial service on the pipeline to commence in April 2009 with capacity of 1.6 billion cubic feet per day. Service to Lebanon, Ohio, is expected to commence in mid June 2009. And service of a fully powered REX-East pipeline, in other words, the completion of the project, to Clarington, Ohio, is expected for November, 2009. Current estimate of total construction costs there has gone from about $6 billion to $6.2 billion. We obviously are 50% owners, but that's an overall increase of around 3% from the prior period.

If you look at Midcontinent Express, including a fully subscribed expansion that was recently added to the project and that expansion, of course will, increase available pipeline capacity and cash flow, including all of that, the MEP budget remains at $1.9 billion. Interim service on the first portion of that pipeline which runs to eastern Louisiana is expected to be in service in early April of 2009 and the second phase is expected to be available by August of 2009.

And that second phase takes it on over to the Transco Interconnect, just on the Alabama side of the Alabama, Mississippi border and that pipeline capacity is fully subscribed with long-term binding commitments, as is REX, of course.. On our Kinder Morgan Louisiana pipeline, we continue construction there. The project has been revised downward to approximately $950 million from $1 billion. All of that capacity is also fully subscribed. And the pipeline is expected to be fully operational during the third quarter of 2009.

Our Fayetteville Express Pipeline project development of that is also underway. As you recall, that's a joint venture with Energy Transfer Partners and it is a 42 inch, roughly 200 mile pipeline that begins in Conway County, Arkansas and ends in Panola County, Mississippi. We've secured ten-year binding commitments on 1.85 Bcf per day of capacity; that's out of an initial capacity of 2.0 billion per day. So, the great bulk of it is already subscribed before we put pipe in the ground. Pending regulatory approvals, we expect to be in service by late 2010 or early 2011. And the cost estimate of that project has been reduced by about $50 million. It now rounds down to $1.2 billion from the $1.3 billion that we put forth in the third quarter earnings release.

Moving to the CO2 segment, we're now virtually complete with our approximately $290 million southwest Colorado expansion. That will ultimately increase CO2 supplies by about 300 million cubic feet per day. And current deliveries on our Cortez pipeline are at an all-time record of 1.26 billion cubic feet per day. In Kinder Morgan Canada, we have now completed our Anchor Loop project. That was our major Canadian expansion. That went into service around November 1st of last year. That increased the capacity of that line from two 300,000 barrels per day and the total cost of that project which has now been completed was about $544 million. So that gives you an update on the more significant projects.

Let me just conclude my part of the call by addressing a concern that I know a lot of people have expressed, namely the ability of MLP's to raise capital in this kind of market. And given those concerns, I thought it was important that we spend a couple of minutes bringing you up to date on where we stand. During the last five weeks, KMP has raised over $1 billion by issuing debt equity and by unwinding interest rate swaps. With regard to the debt, we issued $500 million in ten-year senior notes with a put in year three which were priced to yield 9%. Let me say that today our ten-year paper is trading significantly better than that yield. In other words, a lower yield.

We also issued 3.9 million units of KMP equity in a common unit offering in December, raising approximately $177 million in net proceeds. And additionally, we reversed fixed to floating interest rate swaps and received almost $340 million in cash, including a swap unwound earlier this month. It is important to note, I think, that even after those unwindings, KMP's interest rate swap portfolio is still worth over $600 million as tabulated on January 16th, close of business last Friday. I think all of this demonstrates conclusively that KMP can raise capital even in a difficult market.

I would also mention to you and probably most of you noticed it, that last Friday we filed for an at the market program for KMP and we also filed an S1 which would allow us to issue KMR equity over the course of 2009. As we've often said, over the long-term, we expect to fund all of our expansion CapEx at 50% equity, 50% debt. And we expect to put out equity in 2009, even though we don't have to.

We have other sources of liquidity that would allow us to go through 2009 without accessing the equity markets at all, including the commitment of course of our parent, our general partner, Knight, to take up to $750 million of KMP equity if necessary. But we're still want to have as many arrows in our quiver as we possibly can and I think that's exactly what we're doing.

So, with that, I'll turn it over to Park who will give you more details on the financial results. Park?

Yes. Thanks, Rich. And we'll go to the financial sections of the press release. The first page there is the GAAP income statement.

At the bottom, I guess right above the bottom section, you'll see the declared distribution as Rich mentioned and laid out in the press release, $1.05 for the fourth quarter. That's up 14% from the $0.92 of the fourth quarter of 2007. That puts us at $4.02 for the year up 16% from the $3.48 in the full year 2007. And consistent with our budget of $4.02. One thing to note there, our distributions to our limited partners will total over $1 billion in 2008. So, at that $4, we got north of $1 billion in distributions just in the limited partners in 2008. That's the cash flow strength of these assets.

Now, with that, I will go to the next page where we really lay out, we think, an easier way to look at the income statement and understand what's going on. I'll start a couple of lines from the bottom, above the footnote. You'll see DCF per unit, $0.81 for the quarter versus $1 a year ago, $4.15 year-to-date or for all of 2008, up from $3.65 for 2007. So, for the year, our DCF per unit is up 14%. You may recall our budget was $4.07 of DCF per unit so our $4.15 is $0.08 above our budget. We have about $33 million of excess coverage in 2008.

Now, as Rich mentioned, the fourth quarter looks a little bit weak. It is impacted by timing on the sustaining Cap Ex, by the impact of the hurricanes and then by the foreign exchange and crude prices. Moving up from there, you see the net income per unit, again, we think DCF per unit is a more meaningful measure than that. It is at $0.24 for the year. It is $2.07 and again we think DCF per unit is a more meaningful measure. That is a little bit above our budget. Our budget was $2.05 compared to the $2.07.

And additionally, in the fourth quarter, it was impacted by an adjustment to reserves which we had to take largely because of GAAP accounting and the way that you account for reserves. When you run your reserve report at the end of the year, you have to use for future prices, the actual price on that last day of the year. Then for future operating costs or production costs, you have to use your average costs over the last 12 months.

Well, I think most of you are familiar with commodity markets. And what happened in 2008. You had a low price at the end of the year, but you had high prices during the year which meant that production costs during the year were relatively high. They were especially high relative to the price at the end of the year.

That results in fewer reserves on the books and then actually even though you do that at the end of the year and it shows up in the 10-K, you go back to the fourth quarter of the prior year and you adjust to your DD&A as a result. That led to higher DD&A at our CO2 operations, again, at our oil production. And so that impact as a net income per unit for the quarter. Again, we don't believe that to be overly meaningful. We would focus on the DCF per unit as a better representation of the cash that's generated by the asset.

So, DCF per unit before certain items, total dollars there, $211 million, $1.067 billion for the year. For the year, we're up 23%. Sustaining capital expenditures about $61 million for the quarter. $181 million for the year. That is a little bit under our budget. Our budget was $196 million. As things got pushed back to the fourth quarter, you can see the fourth quarter as it was was one-third of the total year.

As things got pushed back to the fourth quarter, there were some things that just didn't get done in 2008. And we'll get done in 2009. Moving up, you have to booked cash tax differences, DD&A as you can see is up $74 million from where it was in '07 for the quarter. It's up $180 million for the year. Then you have your limited partners net income and the general partners share getting to your total net income.

At the top of that page, you have the segments. Rich has already covered a lot of this and it is also covered in the press release. I'll go over it again just briefly. Product pipelines up about $15 million compared to the fourth quarter of '07. It appears here like it is down $14 million for the full year '08 versus '07. But, as Rich mentioned, the North system generated about $28 million in 2007. If you back that off then product pipelines actually up $14 million, '08 versus '07. Now it was about $40 million under our budget. Again, driven by lower volumes which were a function of high product prices earlier in the year and then a recessionary environment later in the year.

Natural gas pipeline, a very strong year. Up about $20 million in the quarter versus '07. Up $146 million for the year versus '07. Above budget. Now, performance versus '07 largely driven by the addition of Rockies Express and growth at the Intrastate for the relative to budget, it was the Intrastates that were above plan.

CO2 down about $4 million in the quarter. Up $223 million for the year. Almost 42% growth in the CO2 segment. Again, the quarter is impacted by the hurricanes which drove the lower NGL volumes and then by lower prices. For the year, we were the beneficiary of higher prices and our volumes were on budget in terms of oil production. The NGL volumes were lower throughout the year as a result of the hurricanes and some pipeline curtailment that impeded our ability to sell all of the NGLs that we could have produced.

On the terminal side, up about $16 million for the quarter, up almost $97 million for the full year. A little bit shy of its budget. And again, as Rich mentioned, impacted by the hurricane and also by higher diesel costs throughout the year. If you back those two impact out, terminals would have been above their budget. Kinder Morgan Canada up significantly from last year. Both as a function of the expansion at Trans Mountain and the addition of Express. Up for the year about $84 million. A little bit under its budget in terms of Canadian dollars when you back out Express, but then also hurt a little bit by FX which took it a little bit more under its budget.

Total segment earnings before DD&A of $670 million in the quarter up $70 million from the fourth quarter of '07. $2.76 billion for the year up from $2.22 billion or about a $535 million increase year-over-year or 24% growth in segment earnings before DD&A. Now, dropping down, I'll actually go to G&A which is in the -- underneath the segment earnings contribution section. You'll see it is up about $17 million for the quarter. Although it was actually a little bit under our quarterly budget by almost $3 million.

For the year, it is up about $57 million to $302 million. That is about $14 million above our budget. Driven by higher legal costs and by higher G&A at Kinder Morgan Canada, which was a function of higher insurance costs and higher benefits costs. On the interest line, it is up about $5 million for the quarter, up about $10 million for the year. Our balance is up significantly. Average about $1.4 billion for the quarter and the year. But our rate on average is down about 75 to 100 basis points. That's why you see only a modest increase in interest relative to '07.

For the year, we're almost $60 million or over $60 million favorable to our interest budget and similarly, for the quarter, we're about $17 million favorable to our interest budget. The certain items below that, I think are fairly self-explanatory. A number of them relate to 2007. Especially the Trans Mountain amount that related to the period prior to the acquisition of Trans Mountain. Again, Trans Mountain was dropped down in the second quarter of 2007, but accounting required that KMP reflect on its income statement performance prior to the drop-down. We back that out here in certain items.

There is a new item there called Trans Mountain tax rate adjustment. It is positive for the quarter. That's a function of deferred taxes and so a slightly lower tax rate going against your deferred tax balance creates that gain. We're not taking credit for it. We back it out here in certain items. And then various smaller items including some is additions to environmental reserves and some additions to legal reserves and settlements.

The mark to market of certain upstream hedges. We started talking about this with the second quarter results. It is a positive in the fourth quarter although again, that's just a timing issue. All of that will be reflected in the segment at the time that the transaction that these hedges apply to are concluded. Hurricanes and fires, what shows up here are the actual recovery costs associated with the hurricanes and fires as opposed to the lost business.

We've talked about the impact in the segments of the lost business and again, that shows up, lost business shows up in the segments. We only put in the certain items, those one-time costs associated with dealing with and recovering from the hurricanes. And in other, is an amalgamation of a few smaller items. So, for the quarter, the certain items are actually a positive $4 million for the year; they're a negative almost $15 million. Again, that all totals up to our DCF per unit for the year, $4.15 compared to our distribution of $4.02.

With that, I'm going to move on to the balance sheet. Which is the last page there. And the financial numbers. I'll go through this. Cash and cash equivalents unchanged. Other current assets unchanged. PP&E is up as a function of capital expenditures. I'll talk a little bit more about that in a minute. Offset by accumulated depreciation. Investments are up largely that's the contribution to Rockies Express.

Deferred charges and other assets, the change there is largely related to the hedges, which just impact certain balance sheet line items. Total assets about $17.9 billion, up from about $15.2 billion at the beginning of the year. Notes payable and other current maturities, we did not have any borrowings on our credit facilities at the end of 2008. This is for the most part, current maturities of long-term debt. Other current liabilities are -- is down almost $500 million. That's largely the mark to market on the hedges. Long-term debt, I'll discuss that in just a minute.

Value of the interest rate swap shows up here as $962 million. A few things to keep in mind there. This was as of the end of December. We did unwind a swap for $144 million in the month of January. And then the unamortized gain associated with swap unwind will stay in this line item while that gain is being amortized. And so essentially, until the maturity of the debt that the swap was on. So, that amount will stay in here. As we said, in the press release and Rich mentioned, if you look at the current economic value or at least economic value as of close of business last Friday, on the remaining interest rate swaps, it was $600 million. Other -- that declines largely are a result of the hedges.

In Partners Capital, the accumulated other comprehensive loss has come down significantly because of the hedges. Other Partners Capital is up as a result of equity issuance which total almost $680 million during 2008. If you go down to total debt, about $8.5 billion, that's up from about $7 billion at the end of '07. It is also up from the third quarter balance of about $8.3 billion. You look at debt to EBITDA, it's essentially flat. Still right about 3.4 times which is where it was at the beginning of the year and where it was at the end of the third quarter.

I'll go through the change in debt. As I mentioned, it was a little over $200 million change for the quarter. It was right about a $1.5 billion for the year. Expansion Cap Ex for the quarter was about $600 million. And for the year, about $2.4 billion. Acquisitions in the quarter were about $31 million. And year-to-date, about $160 million. And in contributions to joint ventures were about $25 million in the quarter. And about $340 million year-to-date. So, those were all uses of cash.

Sources of cash to offset that, equity issuance in the quarter about $177 million. Year-to-date almost $680 million. KMR distributions, for which we retain the cash, about $78 million in the quarter. Almost $290 million year-to-date. We did get about $53 million back from NEP when we put in place the credit facility there. That was for the year. No impact on the quarter.

We also got a $50 million from the sale of Thunder Creek. Again, that was earlier in the year. No impact on the quarter. Change in margin deposits about $30 million in the quarter. About $70 million for the year.

We did generate from swap reversals or unwinding of interest rate swaps about $194 million in the fourth quarter. Now again that doesn't include the swap that we unwound in January. So, that's $194 million in the quarter and year-to-date. And then Trans Mountain, there was an additional contribution, a true up contribution from Knight. And then a little bit of cash came over with the Express transaction. Those two total about $30 million. And you have about a use of cash of around $30 million for working capital for the quarter. And a source of around $20 million year-to-date. Which is all associated with [ALR/AP] or other current assets or other current liabilities.

Just to give you a little sense of the CapEx, I talked about expansion CapEx of about $600 million for the quarter. About $2.4 billion for the year. A product was about $30 million for the quarter. About $150 to $160 million for the year. And those were tanks, a lot out in California, also some of the renewable projects in Florida and a variety of smaller projects.

On the natural gas side, we spent about $290 million in the quarter. A little under $1 billion for the year. The Louisiana pipeline was the biggest piece of that. About $235 million for the quarter. About $700 million for the year. Then we had other pipeline expansions like the Goodrich pipeline, the Colorado lateral and then storage expansions at Markham, North Dayton, and a variety of other smaller projects. Now, again, those numbers do not include REX and NEP, they don't include the joint venture pipelines.

At REX Cap Ex for 2008 was right about $2 billion, at NEP was a little under $800 million. On the CO2 side, we spent about $165 million expansion CapEx in the fourth quarter. About $560 million for the year. A fair amount of that, or the largest piece of that was at SACROC. We also completed the southwest Colorado expansion or essentially completed the southwest Colorado expansion and then a little bit of expansion CapEx at Yates. On the terminal side, a little under $90 million in the quarter, over $360 million for the year. We completed the North 40 terminal in Edmonton, Canada.

We spent a fair amount of capital at Pasadena and Galena Park over the course of the year. Built a new terminal in Geismar, Louisiana. And had a variety of other smaller projects. And then at Kinder Morgan Canada, we spent about $28 million expansion capital in the quarter. Up $340 million for the year. Anchor Loops by far the biggest piece of that. A little bit in our Puget Sound system and then a few tanks and other smaller projects here and there.

So, again, that's a high level view on expansion CapEx. We'll clearly be giving you more detail a little bit on '08 but especially on '09 at the investor conference next week.

I'll give it back to Rich.

Okay. With that, Ed, if you'll come back on. We'll take any questions that you all may have.

Thank you very much, sir. (Operator Instructions) One moment, please. First question comes from Brian Zarahn. Your line is open. State your affiliation please.

Barclays Capital.

Hi, Brian. How are you doing?

Good, Rich. How are you?

Okay.

Could you comment on how the weak economic conditions may impact your bulk storage business in 2009?

Sure. I think it is a mixed bag. On our bulk storage, we do have contracts on a great many of our facilities. For instance, on our coal import and export facilities, we have what I would call take or pay contracts. They're a minimum throughput contracts. We get paid regardless of whether the product actually moves through the terminals. So, we're protected to a large extent.

I think we do have some exposure, particularly in some of our steel terminals, where we handle for large steel producers on a requirements basis. In other words, we're entitled to handle everything they bring in or send out. But to the extent they cut back, we do have some exposure there. I don't think it will be significant over the course of the year but that is -- that's probably the biggest single headwind that we have in our terminals group if you look forward to 2009.

On the liquids terminal side, of course, as you all know, storage, given the [Contango] market is in short supply and every bit of the storage that we have is fully contracted. So, there, we feel very good about the liquid side of the business. And we feel good about pet coke side of the business where we do have some minimum contracts, but a number of requirements contracts. Because there again, our refinery customers are running and we are getting the pet coke.

In fact, as they burn more heavier crudes, we're actually seeing more volume on the pet coke side. We have the exposure you alluded to on the bulk side. I don't think it is material in the sense of the overalls terminals operation but that is a headwind we'll face this year.

I guess looking at other potential headwind are lower CapEx spending in Alberta, how would that impact your Canada business?

It really doesn't. I think if I were looking at our five business segments, I don't think there is much downside exposure because the way our tariffs are set. As you may recall, on our Trans Mountain pipeline, our agreement with our shippers provides for essentially a 92.5% throughput that we are basically the tariff contemplates that we will get reimbursed as if 92.5% goes through.

Now, above that, we share the upside with our producers if we go to 94%, 95%. And occasionally, we might have two or three months a year where we would anticipate going above that 92.5%. So, on the margin, it would have a little bit of positive impact for us. But not much downside there. And on the Express pipeline, we have take or pay agreements for the overwhelming majority of that throughput, which go out most of them, I think through 2013. So, we really don't have much exposure on the Canadian pipeline side.

Rich, the only thing I'll add to that, it is more of a general concept on what you were pointing out and we'll talk about this a little bit next week. We always highlight, as a risk, the regulated nature of our assets which really caps in many cases, what we can charge, the tariffs that we can charge. But it should be recognized, especially in times like these, that that also offers protection. And just what Rich was getting at, he's describing not necessarily an overall regulatory construct but rather a settlement that we've entered into with our [shippers] which is an agreement on how we're going to operate within that construct. But again, in this environment, that regulated asset protection is very valuable.

Okay. One final question. Can you give us an update on how much availability is on your revolver and what is the remaining CapEx on REX, MidContinent Express and Louisiana pipeline?

Sure, Park or Kim.

On the KMP revolver, as of 12-31, we had a $1.653 billion available. Now, since that time, we've unwound some additional swaps for 144. So, there would be 144 of additional capacity available on top of the 1.6.

You're talking about net of cash. That's not all revolver availability. That's cash on hand plus revolver availability.

Yes. Offset by any letters of credit we have outstanding. So I reduced it for the letters of credit we have outstanding so that's our net borrowing capacity on the revolver. And did you ask about MEP? We have a little over $400 million of capacity and REX is about the same.

And I think you were asking about CapEx requirements. We'll go through that in detail next week. All of that information will be laid out for you.

Okay. Thank you.

And your next question comes from Gabe Moreen. Your line is open. State your affiliation, please.

Banc of America -- Merrill Lynch. How are you guys doing?

Hi, Gabe. How you doing?

Doing all right. Couple of questions for you on the interest rate swaps and the decision to monetize some of those. I think obviously that's a change from your approach historically, just if you could give us some color in terms of your thinking. If you're calling the low on interest rates here? It certainly does seem like an attractive source of cash given all things considered.

And then also, how should we think about the $600 million in economic value that's left there? The decision to monetize the rest of it potentially and whether you consider that a source of avoided equity issue or avoided debt issued or some combination thereof?

Ok, well, we look very carefully at the interest rate swaps, of course, it is a complicated decision as to whether you do unwind them or not. We thought this was an appropriate time to unwind given the tremendous value. And we looked at it based on what the ongoing cost of higher interest rate is. If you just swap back to floating now versus what we had then, I think that's the right way to look at it. But as a secondary screening process, we also looked at the debt that -- and any equity that we would avoid issuing as a result of bringing that cash in.

Now, to your last question, we actually, in our process, our budgeting process which we'll take you through next week, we applied all of this against the debt. So, just for planning purposes. But it was -- we think it was the right thing given these circumstances. It is not an easy call. We'll just make the decision on the other $600 million as we go.

Part of it, of course, depends on there are always some friction costs in getting to the net number. And so that's an important consideration. It is something that we watch on a daily basis.

Park, anything you want to add to that? David?

No. I think that's covered.

Okay. And second question, in terms of reducing costs on the CO2 business, whether -- are you talking about capital costs there in terms of drilling around the CO2 segment? And just more color there. I'm sure you'll give more next -- in two weeks. Just wanted --

Yes. No, we would be happy to address that. And we're talking both from an expense standpoint and from a capital expenditures standpoint. I think an interesting graph if you were here in front of us, you could see is if you chart the cost of various service facilities or various services performed by all services companies over the last few years against the crude oil prices, you see a tremendous run up in the cost, for instance, the cost daily rate per drilling rigs, for example. And you compare that, it tracks the crude oil price up pretty much.

Now, we are facing crude oil prices that are back down where they were in the 2004-2005 time frame. Those prices have not yet come down. And so what we're doing to that extent, what we're doing is making what I would term a Herculean effort to bring the prices back in-line, the price of these services back in-line with the lower oil costs, oil in price environment that we're in today. I don't know that we get all of the way there and some of these things are under long-term contracts.

But our CO2 Management has already reported significant reductions on the cost side. I think they'll get a lot more. And we will have at least some horseshoes and hand grenades number for you next week at the conference and then it will be trued up as we go on further in the year. But this is something that we have already started. I want to add that some of our suppliers have voluntarily recognized the situation. I guess voluntarily is the word. And have come to the table and just offered up reductions. And in many cases, we've said thank you very much, but that's not enough.

And if you really look at it in the broadest sense, I would argue that not only should those oil fuel service costs come down to a level where they were before, but in some instances, giving the fact, for example, that we have a lot more drilling rigs available than we did and these rigs are being laid down every day, they should actually come down.

Now, in addition to all of the savings on the expense side, which we think will be considerable and will offset part of whatever decline we face in revenues from the oil price decline, in addition to that, we're also looking at what I would call a high grading situation at SACROC that will allow us to keep our production about where we expect it in the budget. But to prioritize, for example, the thicker pay prospects that we have, which should have a pretty significant reduction which should lead to pretty significant reduction in our capital expenditures in the CO2 segment.

We're not ready to quantify that yet but again, we hope by next week, that we'll have a rough number on that also. So, in other words, we would savings there in the capital expenditure program for the year which, of course, would lead to even lower interest costs than we currently expect.

Great. And final one for me is just on the sales and transportation side of the CO2 segment, whether you're seeing any sort of slacking in demand given the falloff in oil prices from your third party customers?

Again, all we can say right now is what I said earlier that we are -- every Mcf of CO2 that we can move down from Colorado into the Permian is being used. And in fact, we have a couple of other customers who are actually increasing their utilization and wanting more CO2. So, we have not seen any impact thus far in terms of utilization of CO2.

Now, part of that $6 million of impact from every $1 in crude oil price changes, part of that is on the S&P business in terms of the price we get. Because if you recall of some our CO2 contracts with third parties involve -- we have a forward price, but we have some adders. If crude oil prices go above certain levels. As those crude oil prices come down and they're generally determined on a quarterly basis looking forward.

Based on the price for the last quarter. We do have some deterioration in the price for Mcf we get for that CO2. But CO2 buy is running very strong. We're at all-time record production in both southwest Colorado and in throughput on the Cortez pipeline.

Great.

Ok.

Appreciate it. Thanks, Rich.

Thank you, Gabe.

Next question comes from John Edwards. Your line is open. State your affiliation please.

Hi, everybody. With Morgan Keegan.

Hi, John. How you doing?

Oh, pretty good. Just, on the cost decreases that you're seeing now on a couple of your pipeline projects, are you seeing that mostly on the labor contractor side?

Steve? Steve Kean will handle that.

Yes. It is a mix of things. If you look at the Louisiana project, for example, that is an improvement in the contract structure with our primary contractor on that project. That's driving that. The other matter that's driving that is the claim against the vendor for some amounts that they owe us.

I think when you look at Fayetteville, really, the issue there is that we came into that project with a fully price against the experience we had with some overruns. And that kind of topped that up some more. And as we've gotten into it, gotten our steel ordered, our pipe ordered, gotten the compression lined up, things like that, I think we're seeing we jumped the gun a little bit on where we topped the cost estimate out to. So , we're starting to see a little bit of improvement from what we were seeing it earlier in

Okay, then on the product volumes in 2009, are you expecting sort of a similar drop-off like we've seen here this last couple of quarters? I think you said you were 6% to 7% for fourth quarter. You were expecting mid single digits in '09 as well in.

No, we're not. We're expecting the -- to average out to at least a level we had for all of 2008. We think 2008 was a very depressed year. And actually, particularly on the gasoline side, we see a little bit of that demand coming back is what we're projecting for 2009.

Okay. That's encouraging. What's left to spend now on REX, KM Louisiana and MEP?

On REX, we spent 4.5.

These are all [88's numbers that we have]

$4.5 billion to date. And so the total cost is 6.2. That gives you the remaining spending. On MEP, we spent about $840 million. To date. And on FEP, we spent about $18, $20 million to date. Those are all 88 numbers.

Then on Kinder Morgan Louisiana?

On Kinder Morgan Louisiana, we've spent about $750 million. 800.

Okay. So, that's -- you're down there. Okay, great. And then, could you talk a little bit about -- give a little bit more detail on the direct issuance versus conventional underwriting?

How -- I mean I take it you would -- on the direct issuance, you would have roughly 10% or so, not exceed 10% of daily volumes, that kind of thing. And you would be able to do it periodically. Is that the idea? Maybe you could expand on that a little bit.

Sure. That's exactly the idea. It is not to be disruptive to the stock. So, you don't want to be a large portion of the daily volume. And it is based on our instruction to the underwriter. So, it could vary from day to day.

Okay. Great. Okay, thanks very much.

Thank you, John.

Next question comes from Stephen Maresca. Your line is open. State your affiliation, please.

Morgan Stanley.

Hi Steve. How are you doing?

Good. How are you guys doing?

Okay.

Couple of quick questions. When taking a look at some of your projects, like Fayetteville, I mean given the credit markets, weaker economic outlook, lower gas prices, I mean what is -- can you just talk to what the possibility is if something like this doesn't get completed? I realize you have shipper compliments in place but how ironclad are those? And maybe you could just talk to that because it is certainly some pushback we've been getting.

Well, we expect all of the projects to be completed. Obviously, everything but Fayetteville is just about finished. The other three major projects will be completed in the next few months. We have ironclad agreements on all of them and we expect to complete all of them.

I mean, again, the one thing I say probably difference between when we talk about projects and maybe when other people talk about projects, I mean we tend not to count on a project until we have customer commitments that are pretty much locked in. And we won't pursue it ourselves unless we feel like we have an adequate return. And so when we're moving forward with a project, we're moving forward with a project.

Okay. In terms of the equity issuance that was talked about, Kim was talking about before, is there an expiration date on that? Is that something that has to be done before a certain date in '09 and then it's over or how does that work?

There is no expiration date.

Okay. Last question. You also filed something on KMR which was, I think, just an S3. But can you talk to the thoughts on using that vehicle again and maybe at what discount level you would consider using KMR, for equity?

Yes, we would much prefer a smaller discount and truthfully think there is a reasonable argument that KMR should trade at a premium to KMP given the tax characteristics of the two securities. As Rich mentioned earlier, we filed the KMR offering really to give us another arrow in the quiver. That's something that we'll continue to monitor. Because Knight is a registrant in that offering and Knight is now a private entity, it takes more lead time to make a KMR offering happen. Meaning, we can't just pull it off the shelf.

And so, what we're doing here is putting in place what we would need to put in place in case we wanted to pursue that offering. We will evaluate at the time the market conditions and whether or not we want to do one and what size that offering might be if we decided to do one.

Okay. That's all I have. So, thanks for the time.

Thanks, Steve.

Next question comes from Xin Lou. Your line is open. Please state your affiliation, ma'am.

JPMorgan. A couple of questions. On CO2, would you expect reserve negative reserve revision? And what percentage of your last year reserve would be revised down?

There will be a negative reserve revision and the report's still preliminary at this point. We'll have those final numbers. But there will be a reduction in crude reserves as a result of pricing in the pricing and those costs we need to use.

Park had mentioned that ironically, of course, the whole mechanism is being changed effective with 2009. And now instead of having this one-time, year-end pricing mechanism on the price side, but cost over the whole -- or the preceding 12 months, now beginning in 2009, it will be an average annual price across the board. So, that will change the whole game plan.

It will match up the oil price with the cost.

We think it is likely that most of the reserves that we lose this year will be recovered basically as a result of that change.

Okay. Would you expect to book any possible and probable?

Impairment?

No. No, she said possible and probable. No, we don't expect it.

Okay. On your SACROC and you have a nice production in the fourth quarter, anything going on there, should we expect the growth to continue?

We have a number that's very similar to 2008 numbers or 2009 for production. We'll share all of that with you all at the investor conference next week. I think there have been some very good developments on the operational side. And part of that is we've alluded to earlier, the fact that we had issues with submersible pumps. We brought in a new contractor there, have really revamped that and we now have our failure rate for submersible pumps for the last several months has been at an all-time low.

That's very important because, of course, that's what really helps force the oil out of the ground. So, that really improves the productivity. And at one time, given the downtime of various submersible pumps, I think shared this with you all that we had, from 1,000 to 2,000 barrels a day that was off production because we couldn't -- the submersible pumps were being repaired. Now that we've substantially reduced that rate, I don't know what the average would be today but it is a couple hundred barrels. So, it is a very good improvement.

In addition, our patterns, we're targeting about five patterns a month for our calendar year of '08. We actually put into place 52 patterns in SACROC. And generally speaking, not always but generally speaking, if you keep up to speed on your patterns, that's what drives additional production out. So, I think from an operational standpoint, things are going pretty well. Now, it is a complicated situation as always.

But we know the oil is there obviously. And it is a question of getting out of the ground. I think the real issue is pricing and these constraints on the NGL production or the ability to get the NGL production away from the field, that we're dealing with.

Okay. That's helpful. Last question, your 4.2 [dispersion] targets for 2009, what's your assumption on equity assurance?

We'll go through that next week but yes, there are assumptions in there that we'll issue equity. And as we said before, I mean we have capacity such that we don't have to. If we didn't, that distribution would be higher.

Let me say one thing on the capacity. I think before you said we should take off the 144. I had already did that so it is a 1.6 billion, already adjusting for that. So, you guys should think about our capacity as being 1.6 billion on our revolver.

Do you need any equity contribution to REX or MIP?

Yes, we will have contributions to the joint ventures during the year. We'll go through that next week as well. Total capital plan and we'll go through what our financing expectations are.

We'll sketch out for you in the presentation basically just a detailed sources and uses slide.

Sure. Thank you.

(Operator Instructions) I have another question from [Michelle Marvin]. Your line is open ma'am. Please state your affiliation.

I'm with [Center Coast Capital]. And most of my questions on the offering have been answered but I just wanted to get a little more color on the rationale for doing it kind of via this dribble out mechanism versus a more traditional kind of underwritten placement.

Well, I think -- go ahead, Park.

We're not saying we won't do an underwritten offer. We're just saying this is another option.

Okay.

I think the main thing, Michelle, is we're huge believes of belts and suspends or put another way, having a lot of arrows in the quiver. And that's what we're simply trying to do. So, again, as you'll see on the sources and uses page, we actually have enough firepower that we wouldn't have to put out equity next year. Or this year. But in all likelihood, we will. And we have various sources including the KMR issuance which is in essence like a really dividend reinvestment program and that should be, Park, about 350 this year of that alone.

We have the commitment from Knight. If we choose to use it in the end. Don't think that that will be necessary the way we look at things, but we have that commitment. And now we have this ATM proposal also. So, I think we, as well as the capability as we showed in December to do an underwritten offering. So, I believe we have plenty of firepower for the year to take care of any and all needs that we have.

And the direct placement, the agreement with UVS is just for KMP, it is not for KMR, is that correct?

That's correct.

Okay, thanks.

You're welcome.

And our last question comes from Ross Payne. Your line is open. State your affiliation, please.

Ross Payne with Wachovia. Just --

Hi, Ross, how are you doing?

I'm doing fine. How are you guys?

Fine.

Quick question here. How much was unhedged for '08 and going into '09. What does that number look like?

Oil production?

Yes, percentage, yes.

In terms of BOE which means you include the NGLs in there, then we were mid-80s I think was the number in 2008. And it is mid-70s in 2009.

Okay. And --

Difficult as you recall, Ross, to hedge NGLs, it is a pretty dirty hedge. So, that's where most of our unhedged volumes are.

Okay, just remind me, too. I know you had a nice step up from '07 to '08 in realized hedges. What does that look like going from '08 -- what was that for '07 to '08 and what does it look like going into '09?

44 in '08, 49 in '09 so a $5 pickup per barrel.

And '07 was about 38.

Okay, very good. Also, when you did the Knight transaction, didn't you have some kind of agreement with Goldman on posting collateral? Is that still in place? And just refresh my memory.

Yes, it is. It is still in place. We did have that agreement which does not require posting collateral and that's still in effect.

Okay. On maintenance CapEx, it seems like it is back end loaded every year. Is there a reason for that?

I wish I knew, Ross. No, what happens I think is that you put together a budget in the fall of one year and you look ahead to what you're going to spend. Those numbers have gone up.

If you look back, we went from about these are actually spent numbers from about 124 in '06 to in the 150s in '07. To -- we actually had a budget of 196 for '08. Came in the low 180s, as Park told you. We have a budget that's around $200 million for '09. I expect we'll see the same thing again that it will be back-end loaded.

When you get toward the end of the year, some of this stuff just physically can't get done, particularly if you have winter weather in some of the areas. So that's what generally happens. Things generally get pushed back to the fourth quarter and then generally, we have tended to under spend our sustaining CapEx budget. Not because we intend to unders pend it, it just doesn't get done within the 12 month period.

Okay. Also, on Interstate, it is exceeding almost all the time. Can you -- I mean is it volumes? Is it basis differentials? What's really driving the fundamental there?

Well, I think several things as we say in the earnings release. First of all, I think we're in a very good position in the Texas market. We've continued to expand in dribs and drabs. Both our ability to connect the supply in and the demand in. The Goodrich pipeline is one example. Allows us to get more natural gas out of the east Texas field down in the ship channel area.

Then we've also, I think done a pretty good job with our customers. We've been able to expand and extend contracts with our customers. We've been able to provide them with a wide range of balancing services, for example. I think we made good use of our storage and we're expanding our storage again in fairly small incremental steps. But the storage again in these kind of markets is a pretty valuable commodity.

So, I think it is just a game of singles and maybe some doubles. As opposed to home runs, but we continue to do very well in the Texas Intrastate market and think we'll do well again this year.

Okay. Thanks, Rich.

Okay.

Mr. Kinder, I do have one more question that just came in, sir. From John Edwards. Your line is open. State your affiliation please.

Morgan Keegan.

Same as last time, right?

Same as last time.

Alright, John. Go ahead.

I missed I think Park, you gave it. The Cap Ex, the growth Cap Ex for the quarter? I missed the number. What was that again?

Total expansion CapEx for the quarter was right at $600 million.

Okay. And the maintenance Cap Ex for the quarter was?

Maintenance CapEx was 60.

Okay, great. That's right, it's in the press. Ok. All right, great. Thanks. That's all I had.

You bet.

Alright, Ed, is that it?

I show no further questions, sir.

Okay. Thank you, all, very much. Have a good evening, and we hope we'll see you or you'll listen to us at least at the Investor conference next week. Thank you.

At this time, that would conclude today's conference. You may disconnect and thank you for your attendance.