金德摩根 (KMI) 2010 Q1 法說會逐字稿

Welcome and thank you for holding for the quarterly earnings conference call. Your lines are in a listen-only mode until the question and answer session of today's conference. At that time, to ask a question, you'll press star one on your touch tone phone. Today's call is being recorded. If you have any objections you may disconnect. I'd now like to turn the call over the to Rich Kinder, Chairman and CEO of Kinder Morgan. Sir, you may begin.

Okay, thank you Ed and welcome to the Kinder Morgan quarterly conference call. As usual, we'll be making statements within the meaning of the Securities act of 1933 and the Securities Exchange Act of 1934. Also, as usual, I'll give an overview of the quarter, then Park Shaper, our President, will get into the financial details and then as we always do, we'll take any and all questions that you might have. Let me start out by of course announcing that we did raise our quarterly distribution to 107 per unit from 105. By my calculation, at least, that's the 36th increase since we formed Kinder Morgan back in 1997. The distributable cash flow before certain items was up 36% from the first quarter of 2009. The distributable cash flow per unit before certain items was $1.18 which was up $0.22, 22% excuse me, from a year ago and we consider that to be the most important way of judging our performance.

The certain items totaled a loss of about $156 million. Essentially all of that is attributable to rate case litigation involving our products pipeline on its West Coast. We'll discuss more of that later, but let me emphasize that we expect that reserve to have absolutely no impact on the distribution to the limited partners. All five of our business segments produced substantially higher earnings before DD&A than in the first quarter of 2009 and we currently expect all five of our business units to meet or exceed their budgets for fiscal year -- for full year 2010. Now, Park will go into the financial details but let me just kind of give you an overview of the operations in each segment and then turn to some other significant events that have occurred since the beginning of January.

Starting with the Products Pipeline group we had strong results across the segment. We benefited in our California products terminals from the California mandate to increase ethanol as a percentage of gasoline from 5.7% to 10%, which took effect on January 1st of this year. That helped cause an increase in the ethanol volumes that we handled in our Products Pipeline segment by 41%. On the Pipeline volume side, if you adjust the throughput volumes to reflect this increased ethanol blending in California, gasoline volumes for the quarter were flat to modestly up, depending on whether you include Plantation or not. But gasoline -- so gasoline looks good. Jet and diesel were still weak. Volumes in March across the system did pick up somewhat with total Refined Products throughput for the month of March up 1% from the same month in 2009, even before any adjustment for the higher ethanol blend in California. So you might want to call it a trend. I'd be hesitant to do that at this point, but at least it seems like we bottomed up and we may be seeing some modest upturn in Products volumes, but one month certainly does not make a trend.

On the Natural Gas Pipeline segment we benefited there from Midcontient Express and Kinder Morgan Louisiana that came online after the first quarter of 2009 and also from results from our treating business that we acquired from Crosstex in October of last year. And I would add that that treating business is modestly -- is doing modestly better than what we expected when we bought it. The results for the quarter for this group were above plan, even though they had to overcome a $15 million negative impact from the forced Missouri shutdown of Rockies Express. As you may recall, extended through January 26. So they overcame that and still ended up above plan for the quarter.

Our CO2 business had a strong quarter in comparison to last year, as Park will take you through. Now, we benefited from higher crude and NGL prices. Those certainly helped. We also benefited from a 9% increase in NGL volumes compared to the quarter, first quarter of 2009. Average oil production SACROC was essentially flat to the first quarter of 2009, and slightly above our plan for the first quarter. Volumes at Yates were down 3% from 2009, or slightly below the plan for the first quarter.

In our Terminals segment, they had a nice increase, about 60% of that increase in earnings before DD&A came from internal growth, the other 40% came from acquisitions. Let me just highlight a couple of points there. On the bulk side, as you can see from our volume page, we had an 11% increase in bulk tonnage. That came from increased exports of soda ash and ag products on our West Coast Terminals and from improving steel volumes. Steel volumes were about 5.1 million tons for the quarter, versus 3.6 million tons in the first quarter a year ago. But I want to emphasize that steel volumes remained below their prerecession levels, but have nicely improved from their run rate in 2009.

On the Liquids Terminal side, the revenues grew due to some recent expansions that we've had in our Houston ship channel facilities, and from increased ethanol and chemical throughput at various of our Terminals. The ethanol volumes in the whole Company -- in the Terminals group were up almost 80% from the first quarter a year ago, and if you look at all of the Company, we handled in the first quarter an average of over 250,000 barrels per day of ethanol across America or over 30% of all the US ethanol produced in this country during that quarter. That's up from the estimate we gave you just a quarter ago, when we estimated that post the USD acquisition, we expected to handle about 218,000 barrels per day for all of 2010. So ethanol remains a growth area for us, given all the factors that are in play across the country. In Canada, really not a lot of news there. A very nice increase from the first quarter of 2009. They had increased throughput on Trans Mountain which was driven largely by strong ship traffic at the Port of Vancouver but we also had the positive impact of a strengthening Canadian dollar. Now, let me talk about some of the other things that have happened since we last spoke with you.

Let me start -- again, I'll do it on a segment by segment basis and I'll start with the Products Pipeline. As we announced last Friday, SFPP which is a wholly owned subsidiary of KMP reached a settlement agreement on April 16th, with 11 of the 12 shippers regarding numerous rate challenges filed with the Federal Energy Regulatory Commission, some of which date back to as early as 1992. This settlement will resolve 31 dockets that are outstanding and we believe it's certainly a reasonable settlement and in the best interest of the Company and our unit holders. Once it's approved, we anticipate paying out a total of approximately $205 million to the 11 settlings shippers, due to the support of our general partner, KMP does not expect the distribution to the limited partners to be impacted at all by this settlement. That's because the general partner has agreed to forego a portion of its incentive distributions in order for KMP to maintain the distributions to its limited partner, and preserve the Company's cumulative cash flow that we have accumulated which is in excess of all of our distributions made. So that's a result that we think is good for the Company. We settled with all parties but one, and that party is Chevron, that still remains outstanding.

In a second development, related to SFPP, on April 6th an administrative law judge with the California Public Utilities Commission issued a proposed decision which includes findings on issues such as our entitlement to an income tax allowance that are contrary to both CPUC policy and precedent and established regulatory policies for pipelines, regulated by the FERC. Now, this proposed decision is just advisory in nature. It can be rejected, accepted or modified if we're not satisfied with the way it turns out, the CPUC, we can certainly appeal to the federal courts. But at any rate, we intend to fully assert our rights there. We think that decision, although preliminary, is flawed, and we do not expect the final resolution of this matter to have an impact on the distribution to the limited partners. As I said, we've increased the accounting reserve by the numbers I mentioned earlier this quarter to reflect all of these litigation matters.

On other developments in our Products Pipelines segment, we intend to invest approximately $77 million to further increase the storage capacity at our Carson Terminal facility just outside of Los Angeles. We've entered into a long-term agreement with a major oil Company to lease six of the seven new tanks and five of the tanks will come in service in 2013 with the other two in 2014. All of this expansion is in addition to the $63 million project that is building out six tanks in the present expansion project that will come online in August of this year. So very significant expansion development for us. I think shows the strength of the need for storage capacity, particularly on the West Coast.

In our Natural Gas Pipeline segment, as we announced last week, the most significant single development there was that we entered into a definitive agreement to purchase a 50% interest in Petrohawk Energy's Natural Gas gathering and treating business in the Haynesville for $875 million in cash. This will create the largest gathering and midstream business in the Haynesville Shale of northwest Louisiana. Eventually we expect to have approximately two billion cubic feet per day of mainline throughput capacity. We think that will make it one of the largest gathering and treating systems in the United States. This will be run by a joint venture called KinderHawk with 50% Board representation from the two parties. We expect it to be accretive to cash available to unit holders beginning in 2011, and significantly accretive thereafter. The general partner of KMP has agreed not to take incentive distributions related to this transaction through year-end 2011. And we expect that transaction to close by the end of May.

Let me just say -- pause for just a minute to talk a little bit about our exposure to the shale play. We think that's increasingly important to our country and to the Natural Gas infrastructure and here's where we play in all these shale plays. With regard to the Barnett, of course, we access that through our 50% ownership of Midcontient Express which is up and operating. The Fayetteville Shale play we will access that by the end of this year through our 50% ownership in the Fayetteville Express pipeline. In the Eagleford Shale, in south Texas, we have long line capacity already coming out of that on our Texas Intrastate and we previously announced a joint venture to extend and expand the gathering system down there in conjunction with Copano, which will bring certain processing abilities and assets to the joint venture. The Petrohawk transaction will give us an entree into the Haynesville and then we just announced yesterday to the trade press really a different point of entry into the Marcellus.

We announced yesterday that we're looking into a project which would potentially involve about 250 miles of new pipeline which would allow us to move NGLs from the Marcellus to an interconnect with our 100% owned Cochin pipeline system in Michigan and from there we could move the volumes on Cochin over to Windsor, Ontario and then on to Sarnia on the open access Windsor to Sarnia line. Or east on Cochin to the Chicago area. We could handle 75,000 barrels a day of NGLs initially. It's expandable to 175,000 barrels per day, and we will be holding an open season on that project later this quarter. I want to emphasize, it's very preliminary at this point but in our analysis, it seems to be the quickest and most effective way of moving NGLs from the Marcellus to the mid Western United States and Canada. So we think that's a -- potentially another significant development on how we play the shale plays around the country.

Speaking of the Fayetteville, we're now under construction on our Fayetteville Express project. If you remember, that's a joint venture with Energy Transfer Partners. It's about a 42 -- it is a 42-inch, 187-mile pipeline, begins in northwestern Arkansas, ends in Mississippi. Has capacity of 2 Bcf a day. We already have ten year binding commitments on 1.85 Bcf a day of that. Pending regulatory approvals we expect to begin interim service in the fourth quarter of this year and to be fully in service by year-end. The joint venture's cost estimate for the project is now expected to be below $1.2 billion, versus an original budget of $1.3 billion.

Turning to our CO2 segment, during the quarter actually in February, we began construction on our Eastern Shelf Project and the Katz oilfield project in the eastern portion of the Permian Basin in west Texas. That project as you may recall involves of building about a 91-mile, 10-inch diameter CO2 distribution pipeline and then in addition, the development of new CO2 floods in the Katz field near Knox City, Texas. We anticipate the project will unlock about 25 million barrels of incremental oil to be produced over the next 15 to 20 years. And will provide a platform for future enhanced oil recovery operations in the region, both on our behalf and on behalf of third party customers. We expect the pipeline to be completed and the floods to begin early in 2011. So that project is on schedule at this point in time.

In our Terminals segment we had a number of developments. In March, during the quarter, we closed on two terminal acquisitions that we originally announced in our January call. We acquired three unit train ethanol handling Terminals from US Development Group for about $195 million, including the issuance of $80 million as part of that consideration. And then we also acquired four Terminals in the Midwest from Slay Industries for approximately $98 million that gave us entry into strategic St. Louis, Missouri market. Both of these are immediately accretive to distributable cash flow at KMP. So that gives you an overview of some of the significant developments and I think just in summing up, we think we had a good first quarter. We're on track to meet our previously announced target of $4.40 per unit in distributions. We expect to meet or exceed our initial plan, our budget for 2010 in terms of distributable cash flow per unit. But I think equally important or maybe even more importantly, we continue to lay the foundation for sustained, long-term growth in distributions at KMP and that's the way you create real value for our thousands of unit holders. And with that I'll turn it over to Park.

Okay. Thanks, Rich. And as usual, I will be going through the financial pages that are attached to the press release and so if you go behind the text of the press release to the first financial page, that is the GAAP income statement. You'll see up one section from the bottom the declared distribution per unit, as Rich mentioned $1.07. That's up from $1.05. It's about 2% growth rate. It puts us at $4.28 annual run rate and it's also consistent with our budget of hitting $4.40 in distributions per unit for the year.

With that really I'll turn to the next page. I think it's a better way to look at overall performance. And the second line from the bottom above the note is the DCF per unit. Again as Rich mentioned $1.18, it's actually $1.184, it's up from $0.965 a year ago and the growth is 23% in the distribution per unit. And so very nice growth in the quarter. Now in truth, it was a very strong quarter. We overcame, as Rich mentioned, the $15 million of hurt from REX being out of operation and a portion of the segment, the very end of REX, for essentially the month of January. So that cost us $15 million but we achieved all this even in the face of that. And so $1.18 of distributable cash flow per unit compared to $1.07 distribution, we had $34 million of excess coverage for the quarter, up significantly from a year ago, and very attractive for the year.

And as we look at the full year, our original budget was for $32 million of excess cash flow above our distributions for the year. If we currently look at that, we expect it to be significantly in excess of that. That's primarily due to our base operations. But also factored into that is the impact of the Petrohawk JV. Stepping up from the Bcf per unit you'll see net income per unit, about $0.43 compared to $0.22 a year ago, so up significantly. DCF before certain items, $354 million, up 36% from the quarter a year ago, above that, sustaining capital expenditures, about $33 million, up from $29 million a year ago. Our budget calls for $207 million of sustaining capital expenditures. We currently expect we'll come in right around that, maybe a hair below it. The Express and Endeavor contribution, again here what we're doing is backing out book earnings and adding back in cash earnings. That's a little bit under where we thought we would be. We may be a little bit under due to timing on that line for the year, but it's not going to be anything significant. And then you have book cash taxes, which a year ago we had a source of cash, in essence cash taxes were less than book. This year, cash taxes are little bit in excess of book. That's largely because book taxes are down. DD&A is up from a year ago and you can see that broken down by segment, up above that. And then you get to the limited partners's net income and the total net income.

Let me talk about the certain items before we move on to the segments. So continuing to move up the page, you'll see the certain items detailed there. Really, it's all the legal reserves which primarily relate to the SFPP settlement. So that's $158 million. Absent that, the certain items actually would have been a positive number in the quarter. But that's essentially what's going on for this quarter. And so with that, let's talk about what's really driving the growth. Rich touched on a number of these things. But if you go up to the top and you look at segment earnings before DD&A starting with Products Pipelines, $164 million, up about $18 million from the first quarter 2009, that's about 12% growth. It was just a little bit below its budget for the quarter. And when we look at Products Pipeline for the year, we expect it to be right on its budget for the year. When you look at the assets within that segment, all were above 2009 with the exception of Cochin. Cochin had a little bit lower volumes and had some one-time items in 2009 that were not repeated in 2010. And as we look forward for the year, Pacific will be close to its plan, maybe a little bit down on volumes and on little bit lower product gains. Southeast Terminals, West Coast Terminals, Calnev, we expect all be above their plan. Cochin will probably end up a little bit below its plan and Plantation, a little bit below because of a one-time item that we recorded in the first quarter. But again, products overall, we expect to be on its budget for the year.

Natural Gas Pipelines, $219 million. It's up $17 million or 8.5% from the first quarter of 2009. It was above its budget for the quarter, which is even more impressive, given, again, the $15 million reduction in demand charge credits on Rockies Express from January. And so the other assets within the Natural Gas Pipeline segment performed very well, above budget where KMIGT, in the Intrastates - Red Cedar, Casper, Douglas, again, overcoming that shortfall at Rockies Express. When you look at the Natural Gas Pipelines for the year, we expect even without the KinderHawk joint venture that the Natural Gas Pipeline segment would essentially be on its budget and when you add in the impact of the KinderHawk joint venture, then the Natural Gas Pipeline segment should finish the year above its budget. CO2, $248 million in segment earnings before DD&A. Up $80 million from where it was a year ago. That's 48% growth. It was just a hair below its budget for the quarter. And what's going on in CO2, clearly prices are higher than they were a year ago. But for the first quarter, they were actually a little bit below our budget.

And then as Rich mentioned, SACROC volumes are running slightly ahead of plan. Yates volumes are a little bit behind plan and NGL volumes are a little bit behind plan. We expect essentially those factors to continue throughout the year with the one exception of price. Price we actually currently expect to be a benefit to plan for the year. And so as we look at CO2 for the year as it currently stands, we would expect it to come in above its budget. Terminals, about $151 million, up about $16 million from the first quarter a year ago. That's about 12% growth. A little bit behind its first quarter budget. That was largely related to the acquisition that we completed in the quarter. We actually completed a little bit later than we had in our budget. But if we look at Terminals for the full year we expect it to come in right now just a little bit above its budget for the year. Kinder Morgan Canada, nicely above last year for the quarter, almost $11 million. It was a little bit above its budget for the quarter as well. It did benefit from changes in foreign exchange rates. We expect Kinder Morgan Canada will come in at or above its budget for the year.

Total segment earnings before DD&A, $827 million, up from $685 million. That's an increase of $142 million first quarter of 2010 versus first quarter 2009. 21% growth over the year. Again, showing very strong growth coming from our segments and as we currently look at it, we actually expect our segments to be above budget for the year in terms of total segment earnings before DD&A. So again, strong performance from essentially all of our assets. I'm going to jump down. I'll skip over the DD&A and skip over the segment earnings contribution which is just after DD&A. And you'll see G&A a little above the middle of the page. For the quarter it was about $99 million. That's an increase from about $84 million a year ago. This was a little bit ahead of our budget, largely because of a couple of one-time items related to legal and insurance costs and then related to timing.

And so as we look at G&A for the full year, we expect it to be slightly ahead of budget, so slightly unfavorable to our budget, largely as a result of these one-time items that we took in the first quarter. Interest right below that, $116 million, compared to $104 million a year ago. Our total balance is up almost $2 billion. Our average rate is down about 50 basis points. That causes that variance of about $12 million. Now, we do expect over the course of the year interest will be higher than our budget, largely as a result of the KinderHawk joint venture. So financing the acquisition of our 50% of that joint venture. And so again, that drops down really to the DCF before certain items in terms of total dollars, growth of 36%, in terms of DCF per unit, growth of 23%. So very strong performance again for the quarter. Really, there's not much else to look at on the first page, skipping back. The one thing I'll point out is in the operating expense line, when you're looking at the GAAP income statement, that is where the settlement reserve of $158 million shows up, so again, if you were going to back out that one-time item, those expenses would be lower by $158 million.

With that, you'll see the volumes on the next page and I will skip over to the balance sheet and go down that quickly. Cash and cash equivalents, essentially flat. Other current assets is down about $60 million, that's largely Accounts Receivable. So reduction in Accounts Receivable. PP&E is up almost $200 million. You have the impact of the acquisition, the impact of capital expenditures, offset by DD&A. Investments are up about $84 million. That's really all Rockies Express. Deferred charges and other assets, up about $188 million. It's really acquisitions that are driving that. It's some goodwill and some intangibles primarily related to the Slay and US Development acquisitions that were closed during the quarter. Total assets, $20.7 billion, up about $400 million from the beginning of the year. Notes payable and current maturities of long-term debt, about $1.7 billion. I'll talk about that in just a minute.

Other current liabilities is up about $133 million. It's a combination of -- sorry, it's down $133 million, the balance has gone down. Accounts Payable is down and accrued interest is down. The first and the third quarters are the quarters where we have larger interest payments and so accrued interest is lower at the end of the quarter than it was at that time beginning of the quarter. Long-term debt again I'll discuss in just a minute. The value of the interest rate swaps just fluctuates with the forward curve for interest rates. On the other line, you'll see an increase of about $70 million. That's largely a function of the rate case reserve, offset some by the mark-to-market of the hedges that occurred on the balance sheet. Similarly, the change in accumulated other comprehensive loss again is just our hedging program fluctuation in value there flow through the balance sheet. Other partners capital is down about $160 million. That's largely the difference between distributions and earnings but we did issue some units during the quarter as a function of the acquisition of US Development. And I'll give you a little bit more information on that in just a minute.

Otherwise, dropping down to total debt, about $10.9 billion at the end of the quarter. That's an increase in debt from the $10.4 billion at the beginning of the year or a change in debt of about $436 million. I'll reconcile that in just a moment, but first, looking at our debt to EBITDA, the ratio is actually about 3.77 times. It is down from about 3.80 times at the beginning of the year. So headed in the right direction, consistent with our expectation that by year-end we'll be around 3.6 times. And so the change in debt as I mentioned was $436 million. The uses of cash in the quarter, expansion capital, about $164 million. Acquisitions, about $309 million. Now, a portion of that $309 million was paid in units and I'll get to the amount in just a minute. But the total compensation for the acquisition is about $309 million. Again, that's US Development, Slay and the Shell Mission Valley Terminal and then contributions to joint ventures, about $136 million. So those were all uses of cash.

Again, of the $309 million, about $83 million of that was paid for with units and so reduced the $309 million by $83 million. And then the KMR distributions essentially allow for retained cash or maybe a better way to think about it is, it was effectively an equity issuance. The total's about $90 million. So again those five things total to the increase in debt of $436 million, really what it means is working capital and other items were essentially flat for the quarter. Now, while they were flat, there were some movements within and so on a working capital and other items side, the difference between AR and AP, they both were down but they were actually a source of cash of about $40 million. Other current assets and other current liabilities were a use of cash of $141 million. That's primarily the interest payments. The difference between distributions and earnings from equity investments was about $50 million source of cash. On margin deposits, we got back about $16 million in cash during the quarter. And then other items including settlements for legal issues or insurance totaled about $25 million. And again, those things effectively all cancel each other out. And then last thing I'll go over is just the capital expenditures. I mentioned that's about $164 million in the quarter.

Just to give you a sense of how that broke down, Products Pipeline segment about $30 million, ongoing expansion at Carson and our Transmix facility in St. Louis where we relocated and a variety of smaller projects made up that that $30 million. On the Natural Gas side for the quarter it was about $17 million. There was a little bit that went out on the Louisiana pipeline, and then our ongoing storage expansion. CO2 side is about $70 million. That was primarily at SACROC. Although we did as Rich mentioned kick off the Eastern Shelf Pipeline and get prepared for the Katz CO2 flood. So we spent money on both of those in the quarter. The Terminals side it's about $45 million. Ongoing expansions in the Houston ship channel in our Pasadena and Galena Park facilities, we did install the new ship loader at Vancouver wharves. We do now have in place our ethanol facility in Richmond, California. And then again a variety of smaller projects there and then in Kinder Morgan Canada we spent about $3 million in CapEx for the quarter and that's it. I will hand it back to Rich.

Okay, Ed we'll take any questions that people may have.

Thank you, sir. (Operator Instructions) Our first one comes from Darren Horowitz. Your line is open. State your Company, please.

Good afternoon, guys. Darren Horowitz, Raymond James.

Hi Darren, how you doing?

Hi, good, thanks Rich, just few quick questions for you on the CO2 side of the business. What percent of your 2010 overall oil production is hedged as it sits today?

If you just isolate oil production only, it's about -- it's now up to about 85%. If you include NGLs, it's about 72%, 73%.

75%.

72% was before last weekend, it's 75% now.

75% now.

Okay. And then from a Yates perspective, and Park, you mentioned this, what leads you to believe that the volumes there are going to track lower? Is it a geologic issue? Because I think you had initially forecast Yates to contribute about $245 million for full year 2010 DCF. I'm just curious as to your updated target now.

Yes, I mean, I haven't looked at Yates specifically relative to the full year. The segment, again, overall, we do expect to be above its budget for the year as we currently look at it. What we're seeing right now at Yates is a little bit less production from our horizontal drilling program. Now, we've seen those programs fluctuate over time. We've done over the last three or four years, probably three separate programs a year. And so we're seeing that right now. We would like to see that turn around. We have no assurances necessarily that it will so we'll just see what happens.

Okay, and Park, last question. I believe that your growth capital projections for that business initially was around $415 million. I think about $260 million of which was devoted toward SACROC. Has there been any shift there in capital and are you still planning to spend about $75 million this year on Katz.

If I'm remembering correctly, there were some items that came down on the CO2 expansion CapEx and then some other things that we added in. I think we might be a little bit above that forecast right now in total expansion CapEx at CO2. But it hasn't changed significantly.

Okay, thank you --

Again, the lower volumes at Yates projected for the rest of the year, and it's just modestly below plan, are all in the estimates that Park was sharing with you when he said for the overall segment we expect it to be a bit above plan.

Thanks, Rich, I appreciate it.

Okay.

Next question will come from Ted Durbin. Your line is open. State your Company, please.

Yes, it's Goldman Sachs.

How you doing?

Good, thanks. In terms of what you're doing with the general partner and some of the -- foregoing the IDRs for KinderHawk and SFPP, how are you thinking about the criteria that you'll use to make that decision? Is it the type of assets or sort of the settlement being one-time, how are you thinking about that?

Well, I think it is a case by case decision and obviously at the GP level, we look at KMP as absolutely the critical asset, obviously, and where there are ways that the general partner can help expedite growth and help preserve distribution to the limited partners, we're going to look very seriously at that and these are two ways we decided to support the MLP. Now, I will remind you of course that back in the heart of the financial problems back in the fall of 2008, the general partner at that time said it would step forward and buy up to $750 million of units, if necessary. It didn't have to. We had no problem getting out equity during the year. So this is not the first time we've in essence backstopped -- the general partners backstopped KMP. But that's the kind of criteria we would look at.

Okay. That's helpful. Thank you. If I could just ask about your -- I realize it's early days for the Marcellus NGL pipeline. Do you have a sense of the type of costs, the returns, how you get the right of ways, things like that?

Yes, let me -- it is preliminary as I said but from a cost standpoint we said in our release to the trade rags yesterday that we expected to come in under $0.14 a gallon to our customers, which we think is a very competitive rate. And it would require only about 250 miles of right of way and it's hard to explain over the phone, but what you have is Cochin is a gigantic loop running down from Alberta, through the Midwest wrapping around back into Ontario, ending at Windsor. The NEB, National Energy Board in Canada released its decision within the last few days, affirming that the line from Windsor on up to Sarnia is an open access pipeline and we have certain rights to ship on that pipeline.

So we can easily get -- and we think that would primarily be ethane -- ethane up to the facilities in Sarnia where there's a large Petro Chemical complex and at the same time we would anticipate just reversing the eastern part of Cochin and being able to run into the Chicago area. We plan to spend some dollars to interconnect with all the significant Petro Chemical complexes there that we are not connected with, but we're connected with some. Then we'll be using the western part of Cochin, continue to use it for propane into the upper Midwest and potentially some as we talked about before, potentially some Bakken crude moving down that part of the line also. So a lot of things going on there. As far as acquiring right of way, I mean, we have the right of eminent domain. If we're successful in our open season and working out binding agreements, we'll be acquiring necessary right of way through eminent domain.

Okay. Thanks a lot.

Our next question comes from Yves Siegel from Credit Suisse. Your line is open.

Hi Yves, how are you doing?

Great, thank you. Just to stick on Marcellus for a second, what's the variable costs? $0.14 a gallon to get it there. Any sense of how to sort of back into some of these numbers?

I'm not sure I'm following you, Yves. $0.14 we think is the tariff we would charge the Marcellus NGL producers or less is our estimate, yes.

Right. I'm just thinking the cost to move it, is it a penny a gallon or just trying to figure out what it could mean to you in terms of profitability.

Again, I don't have those numbers but we would expect that we would earn a reasonable return on this investment.

Okay. And then just the way to think about it, 75,000 barrels a day initial capacity, that would be split between the two markets? Theoretically?

Yes, the people who shipped on it, Yves, could make their decision as to where they wanted it to go and we think would be offering a large degree of optionality and again it could be easily expanded up to 175,000 barrels per day.

Got it. And then just two other ones. This might sound really silly so I apologize in advance.

You never sound silly. Always intelligent.

Just wait. Why did you release it to the trade press as opposed to just a normal press release the way that you normally go about doing these things?

I think we just decided that that's where the customers were and we wanted to get it out to them.

Yes, Yves, I think the another thing is this is pretty early. I mean, we typically don't talk about projects, we're going to go do projects until we have customer commitment. We don't have them yet on this project. We think we have a very good project to offer. We wanted everybody to know that we had this opportunity and so we released it to the trade press. Hopefully we'll talk about it more from kind of an investor perspective once we have the commitments lined up.

When would the earliest that you think this could be in service?

Well, just depends on when we got the customer commitments and when we started building. But we think it would be in service in time to be coordinated with the ramp-up of production in the Marcellus, and we've had a number of those producers out there and they can read a map too and they see Cochin coming down there and saying is there some way we could work with you to get it into Cochin because the prevailing view at least from what we're hearing is those NGLs need to move west and particularly there's a lot of need for them, we know in Sarnia and in Chicago, the Chicago area is a significant user of NGLs. So that's kind of the impetus of it. But we would coordinate the start-up. We think the timing would work such as to be in service when it's needed by the producers.

And I think the real key from our perspective is we believe we have the quickest option, because of the existing assets that we already have, we think we can get it to service quicker than anyone else can.

I think you may also be the only guys that are offering that optionality as well.

I think that's right.

And then just a clarification on Park. I think you said in terms of excess cash flow for the full year, you expect to be significantly above the $32 million that was your initial guidance and I think you said it was because of the Petrohawk JV. Is that correct?

No, you're correct in that our current forecast does have us significantly above the $32 million in the budget but it's largely just because of outperformance at our assets. There is a little bit of an impact from the Petrohawk JV but the big amount, the big increase is just from our base assets.

Great. Okay. Thanks, guys.

Our next question comes from Brian Zarahn from Barclays Capital. Your line is open sir.

Hi Brian.

Hi Rich, how are you?

Okay.

Just to beat a dead horse, on the Marcellus, obviously there are a lot of proposals out there. Do you think you can get the project built faster? What are you hearing from potential customers about -- are they looking at other options as well from the other MLPs?

Well, I think anybody is going to look at all the options, any customer, and there are two other proposals that have surfaced out there. One that proposed to build a line to Chicago. And one that proposed to build a line up through Michigan and across into Sarnia, actually well north of Windsor. So two separate projects. One accessing Ontario, one accesses Chicago, because of our asset base with Cochin we can access both.

And we don't have to build as much pipeline because it would come into Cochin in southern Michigan, I never can remember where we call it, Rega or Riga, anyway, R-I-G-A in Michigan, so that gives us an advantage. But we said all along, talk's cheap so we'll just have to see what the customers prefer. We think we can offer them a reasonable price and a lot of optionality but in no way am I saying that this is a lock cinch. I brought it up because it could be a very significant project for us and because, again, I think it demonstrates that we really are beginning to get our tentacles into just about -- well, not just about, all the shale plays in one way or another.

Can you provide a rough cost estimate for the project?

I think it would be premature at this point because it depends on exactly how much -- whether our customers prefer to go to Sarnia or to Chicago, and how much in the way of interconnects in the Chicago area we've got to spend to connect them with where they want to go.

Fair enough. On the ethanol your handling volumes are higher than you expected. What was the driver behind that?

It's really across the board. If you look at our increase, we've got a significant portion of it from the acquisition of US Development but again, we anticipated that when we did it, when we released our last quarterly earnings. I think most of it is just we're just seeing more ethanol being moved, particularly of course we're getting the advantage from an ethanol perspective of the increase of blend requirements under the California mandate. Again, we anticipated that. It's really just across the board in a number of our Terminals. Again I'm not even sure exactly why we specified 218,000 but that's what we did in our last earnings release. To be specific, for the first quarter we averaged across the whole Company 252,000, so it's a nice pick-up. Really, it's about 32% in our calculation, anyway, of all the ethanol production in the United States. So just comes from a number of our Terminals. I think we are beginning to see the benefits of the fact that we now have a nationwide presence from a terminally and a rail unloading standpoint for handling ethanol.

All the way from Southern California to our new facility in Richmond, just outside of San Francisco, to Dallas, across the New York Harbor at Linden to our facilities in Florida, so we really have the country pretty well blanketed and we're hopeful that in the future we will be able to offer customers like a big customer like an ADM the ability to just pick and choose where they want to move their product and we'll offer them national service for a set fee. And that's the kind of thing we're working with. So I think some of it just comes from the advantage of having a bigger footprint and more size in the market.

Finally, can you give the availability on your revolver?

David? Yes. At the end of the quarter, we had a little over 700 outstanding and then at the end of the quarter.

Yeah, 740 at the end of the quarter.

740s all we had drawn and then you have the LCs on top of that.

250.

So call it a billion of utilized and our facilities, about $1.8 billion in total size so about $800 million available.

Okay. Thank you.

Our next question comes from John Tysseland from Citi. Your line is open, sir.

Good afternoon.

Hi, John, how you doing?

Good. Just had a quick clarification question on the CO2 segment. You had mentioned that you expect Katz to provide about 25 million barrels of recoverable reserves. I wanted to know if you expect that full reserve impact to show up in the 2010 reserve report. If not, what type of I guess time line do you expect those reserves to begin to show up in reserves?

Yes, I think the reserves, what we added at least as proved developed reserves as the patterns are activated so you'll see them come on into proved developed over time. Now when they moved into proved undeveloped and the other classifications, I can't exactly recall. It will be more gradual than sudden.

If you've calibrated John, what you've got is if those numbers are roughly right, 25 million over 15 to 20 years, that works out to be an average, which is what we said before, of about 4,000 barrels a day over the whole course of it. And the current estimate, and it's preliminary, is we would peak at about 7,000 barrels a day a few years into the project. Certainly wouldn't start out at that level. But that's the kind of reserves that we're talking about and the kind of production we're talking about.

And then that production on Katz, do you expect that to provide some growth in the CO2 production or is that more -- do you look at it more to fill in potential declines out of Yates or SACROC over the next few years?

I mean, I think the right way to look at it is -- Tim Bradley who runs our CO2 operations has a phrase I like, which is big fields get bigger. We have tremendous quantities of oil in place at both SACROC and Yates. At SACROC, these are just numbers we're accessing through our CO2 flooding, about 2 billion barrels original oil in place and at Yates, over 5 billion barrels original oil in place. So we would hope that as we continue with infill programs, as we continue adding patterns, that we'll be able to continue to sustain production at both of those fields at a very acceptable level. But there are no guarantees and we'll just have to see. The other advantage of Katz of course, it's not just this -- the other advantage of this CO2 pipeline coming up there, the Eastern Shelf Pipeline, it's not just the flooding at Katz but we think we will have additional opportunities to deliver significant amounts of CO2 to third parties who have CO2 floodable reserves in the general area where this pipeline goes through, number one.

Number two, we think we'll have the opportunity to acquire additional prospects like Katz and do some of our own CO2 flooding. So while it's a nice return to us as we previously said, just building the 91 miles of pipeline and flooding Katz, it's far more strategic than that because like almost everything we do, that pipeline can be expanded pretty dramatically and we can handle a lot more CO2, whether it's for our own account or for somebody else that's in that general area so we think it's got a lot of strategic advantages and the ability to add additional production if everything works out right.

And then last question. Are any of the Katz reserves currently on annual reserve report or is that -- or will those come on as you build the pipeline, the CO2 pipeline to it?

Well --

There will be a little bit of those reserves because we do have some current production there. Now, I mean, I think they're relatively small. Again, the truth is, we don't focus on reserves that much. We focus more on production and cash flow. But I think they're pretty small.

We produce a few hundred barrels a day right there. Whatever the reserves backing that would be on. But again, the rest of it, the reserves that are attributable to the CO2 as Park said earlier would come on as you start doing your patterns and your floods and you have more data for your consultants to rely on.

Great. Thank you.

Our next question comes from Noah Lerner from Hertz Capital. Your line is open.

Noah, how you doing?

Good, yourself?

Fine.

Quick question, I just want to clarify something from the investor standpoint. When you're mentioning the $4.40 distribution that you still expect to make that, that's the actual cash distribution, not the run rate as of December, correct?

Yes, correct. It is the actual cash distribution. The one distinction that you should recognize is for the four quarters, and so it's what's declared in the first, second, third and fourth quarter, what is declared in the fourth quarter doesn't get paid until the first quarter of the next year. But you are right, it's the sum of what is actually declared in those four quarters.

Right. So in other words, by not -- I guess the follow-up question or point is, by not raising the distribution from $1.05 right to $1.10 to hit the $4.40, then effectively looking out to 2011, there's going to be a built-in distribution increase even if any additional cash -- if there's not any additional increase to the then fourth quarter distribution, just as the run rate catches up, correct?

That's correct.

1% or 2% a year for the year but still something built into the back pocket already for 2011.

You're right, we would be at a run rate in the fourth quarter that would be in excess of $4.40.

Just as if you look at the run rate for 2009 by going with $1.05, we were at $4.20 for the year, versus $4.05 for 2008. Same type of thing.

Okay. Great. Appreciate the clarification.

All right. Thanks.

Our next question comes from John Edwards from Morgan Keegan. Your line is open, sir.

Hey, John, how you doing?

I'm doing well. How are you?

Good.

You mentioned on the SFPP settlement, $205 million, and how's -- what's the decision now on how that's going to be -- what kind of contributions coming from the GP and what's going to be borrowed, that kind of thing?

Yes, I mean, effectively the way it will work is the entire settlement payment will reduce the distributions and then we will make as we discussed in the press release that we put out on Friday essentially an interim capital transaction in order to maintain the distribution to the limited partners and the general partner doesn't get any of that interim capital transaction. Where you end up there is the general partner effectively funds half of it and then essentially KMP finances the other half, combination in the long run of debt and equity.

Okay. Great. That's clears that up. And then the accounting reserve, you talked about for California, how much was that going to be?

The total accounting reserve is to update the SFPP settlement with the 11 parties, the estimate for remaining 12th party that's out there and very preliminary estimate on where we think the CPUC decision could lead. We certainly hope we would do better than that on it but we did put some of that reserve reflects that and that's how we arrived at that number.

So the 158, that's effectively -- that's what you're reserving? Is that -- ?

No we had an existing reserve for these items and other items as well.

Okay. And then I guess on this Marcellus back hauling, it's obviously very interesting. You're not -- you're not really clear yet on when you think that would happen in terms of timing?

We try to do it in Kinder time so as soon as these damn customers sign up we'll be ready to get moving, John. But no, seriously, we really don't. It just depends on -- what we're going to do is having -- we're talking to customers now. We'll have an open season. Then we'll go to obviously the standard proceeding agreements and then we'll go to binding agreements and then we'll get started but our customers will have a say in this too because the play is still in its infancy and of course they will be looking at -- they're likely to say look, I don't want -- I may want to take X thousand barrels eventually but I may want to take 20,000 barrels eventually but I want to start at 10 in such and such a year and then go to 15 and 20 and we'll look at all that information and decide when's the appropriate time to really bring it into service. So a lot -- we'll just be working with our customers on it.

Ballpark, I mean, assuming you -- I'm just trying to get -- are we talking kind of 2012 potential time frame?

I think it could be as early as 2012, could be 2013, something like that. Again, it's just very preliminary. We've got to see what the customer demand really is. It usually takes -- once you get your customers signed up, you've got to do engineering work. It usually takes about a year to permit it and then this will not be a big build. I'm sure it will be built in one building season so you could kind of relate that. Again, it's really too preliminary to forecast an exact date.

Okay. All right. Great. Well, that's all I had. Thank you very much.

Okay.

(Operator Instructions) And our next one comes from Jeremy Tonet. Your line is open, from UBS.

Hi, Jeremy.

Hi, how are you?

Fine.

Good. Just a couple of questions. As far as the Santa Fe settlement, are you guys able to provide any color on the 12th customer that hasn't settled yet and potential size of that settlement or is that something that you couldn't really comment on?

We said in our release that the non-settling party was Chevron but no we would not be able to give you any color on the size of that. We've incorporated in the accounting reserve that we took and in our own projections what we think is a reasonable settlement with them.

Okay. And then last I saw, I think the revolver matures in August of this year. Is that still the case?

That's still the case.

I didn't know if you guys were looking to renew that and if you could provide any color on the current environment now and how you expect the new revolver might compare in terms versus the old one.

We'll ask our Treasurer to take that question, David? Yes, overall, Jeremy, we will look to put a new revolver in place in the second quarter. We talked to banks and gotten a decent idea I think overall what the market will bear right now from a pricing perspective and I think that will actually come in inside of our budget that we put together. We've seen the market come in as far as overall pricing, so that's been a good thing and I think size wise it will be pretty comparable to where we are right now, probably around $1.8 billion in size and again we've had good receptivity from the banks up to now.

Okay. Great. Thanks a lot.

Thank you.

Our next question comes from Yves Siegel from Credit Suisse. Your line is open sir.

All right Yves, you've got another question.

Yes, a couple. Rich, could you give some color on the Intrastate Texas market in terms of what you saw in the quarter and perhaps what margins look like?

Well, for the quarter, they were actually above their budget. For the year we project them to be sort of right on their budget. We are still seeing -- I think this is a trend throughout the United States. We are seeing a compression of basis differentials, in other words the spreads between various points in Texas have compressed and that's a negative on any intrastate pipeline. On the other hand, we have pretty good processing presence, processing has held up very well. It's above budget. Our storage has held up very well. You still have a contango market on natural gas prices. So it's a moving set of factors and that's what -- as we look out over the year, we expect to be essentially on plan with our intrastate. Tom Martin's here. Do you want to add anything, Tom?

I think that's a fair comment. As to the other thing, we have a fairly modest exposure to the basis locations that have really compressed the most, i.e., the West. We're very, very modest compared to our competitors.

Okay. And then last question, A and B. Any thoughts for additional pipeline expansions as it relates perhaps to ethanol or CO2? And the part B of that is can you just give us an update on what the growth CapEx budget looks like new for now for the full year?

Yes, let me -- Tim or David you want to take that growth CapEx budget for the full year now? As far as ethanol, we're moving ethanol across our roughly 110-mile pipeline in Florida, been doing that for some period of time. We are looking at moving ethanol potentially on parts of Plantation. There we have separate lines, so wouldn't even have to be on a batch basis necessarily there. We don't have anything definitive to say but we are looking at other opportunities, but I don't expect that this will be -- that you'll see just a flood of ethanol being moved through pipelines. I think most of it will still be handled for the foreseeable future by ship or by unit trains.

And with regard to CO2 pipelines, if I understood the question correctly, like I said, clearly we are looking for new opportunities there and again, that just depends on customer demand, whether we're our own customer or whether other parties want to see us move CO2 for them. Obviously, the firming up of the oil prices that's occurred over the last couple of quarters has generated a lot of interest and in fact, as we pointed out I think in our release, while we actually at the SACROC used a bit less CO2 than we did last year, in other words, we're recycling more now than we were, actually our deliveries to third party customers were up from the first quarter a year ago and all the signs we're seeing there are pretty positive from customers in the Permian Basin, signing up to take more CO2 and as you recall, we deliver about three quarters of all the CO2 that's consumed in the Permian Basin. So we're in a good position there. We just expanded our system and if need be, we could add power and expand it some more if we got to that point. Now, Kim, do you have --

Sure, on the -- you were talking about expansion CapEx --. On expansion CapEx we currently think it will be about $100 million more than budget and that's primarily timing coming in where some dollars shifted from 2009 to 2010 and then more of it, though, is from new projects. So and then that does not include Petrohawk and so I think there will be some amount for half a year of Petrohawk.

Okay. Thank you.

Okay.

At this time, I show no further questions, sir.

Okay, well, thank you all very much and we hope you have a good evening and if you have further questions, feel free to call Kim or David. Thank you.

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