金德摩根 (KMI) 2012 Q1 法說會逐字稿

Welcome to the quarterly earnings conference call. All lines have been placed on a listen-only mode until the question and answer portion. (Operator Instructions). Today's conference is also being recorded. If anyone has any objections, you may disconnect at this time. (Operator Instructions).

And I'll now turn the call over to Rich Kinder, Chairman and CEO of Kinder Morgan. You may begin, sir.

Okay. Thank you, Holly, and welcome to the first-quarter analyst call. We'll be talking about Kinder Morgan, Inc., or KMI; and Kinder Morgan Energy Partners, or KMP. We will be talking about first-quarter results and the outlook for the rest of the year and beyond.

As usual, we'll be making statements within the meaning of the Securities Act of 1933 and Securities and Exchange Act of 1934. I'll give an overview. Kim Dang, our CFO, will give the detailed financial results. And then Park, Steve and I, and others of the management team, will be available to answer any and all questions that you might have.

Let me start with KMI, and it's a very simple story. It begins and ends with cash flow. We get 99% of our cash from our GP and LP interests in KMP. We pay our taxes on that. We pay the interest on a relatively low amount of debt that we have. And we distribute the balance to the KMI shareholders in the form of dividends.

The metric that we think is the most important here is cash available to pay dividends. And for the first quarter of 2012, that number was $303 million. That's up 14% from the $267 million in quarter one of 2011, and is slightly ahead of our budget. We have increased the quarterly dividend of $0.32 a share or $1.28 annualized. By way of comparison, that's an increase of 10% from the $0.29 per share in the first quarter of 2011.

As we've said previously, we expected to declare dividends of at least $1.35 per share for full-year 2012. And that's without the impact of the El Paso merger, which should increase our cash available for dividends on a post-closing basis.

Now let me give you an update on the El Paso acquisition, because I know that's a subject that everybody's interested in, and I'll make several points. First, as we've said all along, we expect the acquisition to be nicely accretive to KMI. As a result of that, and the normal growth rate that we have, KMI expects its dividends per share to grow at an average annual rate of 12.5% through 2015 from its budgeted 2011 dividend per share of $1.16.

Secondly, one of the things we set out to do early on was to make sure that we are marching along on the integration efforts to put these two great companies together. That's proceeded very much on schedule. Enormous effort by lots of people on both the Kinder Morgan and the El Paso side. We are now far enough along that we are very confident that we will meet or exceed the $350 million per year target in cost savings and other synergies that we pegged at the beginning of the process.

Third point is, as you all know, shareholders of both companies have overwhelmingly approved the merger.

Fourth point is that we, as promised at the beginning of the promise process, have entered into a definitive agreement to sell El Paso's E&P business for approximately $7.15 billion to a group led by Apollo Global Management. We expect to close that transaction at about the same time as the merger closes. And, importantly, we expect El Paso's NOL carryforwards to largely offset any taxes from the sale; and, therefore, we'll be able to use virtually the entire proceeds to reduce the debt which KMI incurred for the cash portion of the merger consideration.

Next point is that we have, as you know, reached agreement with the FTC staff to divest certain KMP assets as a necessary step to receive regulatory approval of the transaction, subject to final approval by the Commission. We've agreed to sell Kinder Morgan Interstate Gas Transmission; our Trailblazer system; certain Wyoming processing and treating facilities; and our 50% interest in the REX pipeline. We expect to close that sale in the third quarter of 2012.

The final point I would make is with regard to drop-downs. We intend to offer, or drop down, El Paso assets to KMP to replace the divested assets. All those divested assets I mentioned belong to KMP. And we expect to offer to KMP all of Tennessee Gas Pipeline and a portion of El Paso Natural Gas.

We hope to close that transaction, or drop-down, contemporaneously with the close of the divestiture of the KMP assets, which again we believe will occur in the third quarter of this year. We expect the combination of the divestiture and drop-downs will be neutral to KMP's distribution per unit in 2012, and accretive to KMP's distribution per unit thereafter.

El Paso also has offered to sell the remaining 14% of Colorado Interstate Gas, and all those Cheyenne Plains pipelines to El Paso Pipeline Partners, obviously subject to final approval of both the El Paso and EPB Boards. We expect that drop-down to close contemporaneously with the close of the KMI-El Paso transaction. And we expect it to be immediately accretive to the distribution per unit at El Paso Pipeline Partners.

So that's an update on the El Paso situation. Now let me turn to KMP. And clearly, all the numbers at KMP that we're talking about now are pre- the El Paso merger.

At KMP, as we've said so many times, the real important metric there is distributable cash flow per unit. And for the first quarter this year it's $1.37 per unit versus $1.21 a year ago, or up 13%. And overall, as I'll go through, I think we had a very nice quarter at KMP.

Four of our five business segments outperformed the same quarter in 2011. The only exception to that was the Products Pipeline group, which was down slightly, primarily due to lower tariffs as a result of the prior FERC decision and FERC decision 511-A, and settlements with customers that we made since the first quarter of last year. We anticipated this, and actually this segment is mildly positive to plan for the first quarter.

But, turning to that segment, it's pretty apparent to me that refined products volumes are clearly down from a year ago, but consistent with the EIA. You'll see from our volume numbers attached to our release for the quarter, overall refined products at Kinder Morgan are down 1.6%. Now that compares to the EIA numbers recently released of 2.7% negative, but I think you have to adjust our 1.6% to account for the leap year. And if you do that, we're actually at 2.7% also.

Now frankly I don't expect any measurable increase in volumes in the foreseeable future, in terms of refined products, due to a number of industrywide factors. The growth in this segment is going to come from four over five other factors that we think are very important. And we have examples of all of these concepts in play right now.

The first is, we are clearly increasing the amount of biodiesel and ethanol that we're handling -- at a tremendous increase off a relatively small base on the biodiesel, I might add -- in the first quarter of this year.

We also see a lot of opportunities for this segment in the shale plays. Obviously, two examples of that are the Kinder Morgan crude and condensate line that will take Eagle Ford volumes from the Eagle Ford Shale play up to the Houston Ship Channel. And once there, another example of what we can do is the fractionator that we now believe will probably start out at around 50,000 barrels per day. And we will build that fractionator to help handle some of the condensate coming out of the Eagle Ford.

Another opportunity for this segment is selected, targeted expansions for our particular customers. Probably the best example of that is the Parkway project, about a $220 million pipeline that will connect a refinery in southern Louisiana to the mainline Plantation system in southern Mississippi. That's going along on schedule, and that's a good new project for us.

And then, finally, we have a lot of associated terminals with our Products Pipeline segment. And a lot of those terminals have expansion capabilities and possibilities. Best example of that probably is our Carson 7 project in Los Angeles, where we're building seven new tanks. Two are already online. The rest will come online at the end of 2012 and early 2013. All of those tanks are under long-term agreements with our customers.

So while we don't expect the volumes run through our products pipeline, in terms of refined products to increase, we do expect to still continue to be able to grow that segment due to these other factors.

Now, turning to our natural gas segment -- I think the story here is that, no secret to any of you on this call, there is less activity in the dry gas plays, and there's more activity in the richer plays. So for example, as Kim will take you through the numbers, KinderHawk is not seeing the volume that we would have thought we would've seen in our budget, year to date. On the other hand, it's still above the acquisition plan numbers that we had when we made this acquisition in the second half -- in the middle of 2011.

On the other hand, in places like the Eagle Ford, we see activity continuing to ratchet up. For example, in the Eagle Ford we have a joint venture with BHP. That rig count and drilling activity is increasing rapidly. And we think it will continue to increase throughout 2012, and certainly beyond.

Our treating business has also performed very well, particularly the part of it that manufacturers facilities for sale, known as the SouthTex operation, which we bought last December. Again, we are benefiting largely from activity in shale plays like the Eagle Ford.

And then, finally, we think we're -- in the natural gas segment -- building the infrastructure of the future, as we've said so many times, particularly with the El Paso merger. We're handling the product that we think is going to be really the base load fossil fuel product for America for the next several decades. As we've said so many times, it's clean, it's cheap, and it's domestic.

We think there will be a lot of additional opportunities that will come in play as a result of having the size of network that we certainly will have after the El Paso acquisition. But one opportunity right now that we see, even pre- the El Paso merger, is as we see these opportunities for liquefaction facilities to be built along the Gulf Coast, we have extraordinarily good connectivity to those plays that would be providing the natural gas to be liquefied and to the terminals for the liquefaction would be done; for example, the Cheniere project outside of Lake Charles. So we will take advantage of our interconnecting pipelines, if and when these projects get built.

Turning to our CO2 segment, I think the story there in the first quarter, the pluses were high prices from a WTI standpoint and record NGL production during the quarter. If you look at the oil volumes, we had a combination -- SACROC was down to last year, as we expected. Yates was a mild positive to our plan, down a bit from last year. Katz, obviously, very positive to last year and ramping up significantly as we go forward. And, if you put all that together, we are down about 900 barrels per day from where we were a year ago, or about 3%. Overall, the segment's about on-plan for the quarter in terms of bottom-line performance, and we expected to be on-plan for the year.

But the really big story for the future, I think in our CO2 segment, is the growth in additional CO2 sales. And I think one of the most significant stories at Kinder Morgan in the first quarter of this year was the fact that our CO2 segment signed contracts for 2.1 trillion cubic feet of new CO2 to be supplied to various customers in the Permian basin. We think these are done at good prices to us that allow us to earn a decent return on the capital we will invest. And they're all long-term, with an average life of 16 years.

They will peak. If you look at this 2.1 Tcf and how it ramps up, it'll peak at an additional 450 million cubic feet a day in the peak years of these contracts. And that's significant when you think that right now we're at about 1.25 billion cubic feet a day. In order to supply these additional CO2 contracts -- and we think we will have additional contracts signed in the future -- we're going to work at expanding our source fields to accommodate that increased demand.

We've already approved, and talked about before, the roughly $250 million that we're spending in Southwest Colorado. We expect -- and that's just at the Doe Canyon facility that we have -- we expect to spend someplace in the $1 billion to $1.5 billion eventually in expanding our production capabilities and our network capacity, if the kind of demand we've experienced now continues for the future. And we think it will.

So all put, we're talking about a great growth opportunity here for CO2 that's a very predictable return over a long period of time. And of course that will involve, as part of this, the development of our new St. Johns field that we just closed on early in the first quarter, which is on the Arizona and New Mexico border. So, good future for CO2, particularly in the supply of CO2 to our customers.

On our terminal side, just had an extraordinary quarter. And you just look at it up and down the line, and you have to be -- as we are -- very pleased with the performance. We had growth on both the liquid side and the bulk side, just to give you a few numbers. Our throughput on the liquid side was up by 9%, compared to the first quarter of 2011. Our tonnage on the bulk side was up by 6%. Some of the drivers on the bulk side -- we had a tremendous ramp up in demand for export coal. So even though we had a downturn in some of our domestic coal handling, as you would imagine, given the situation across the country and the warm winter, nevertheless the total coal volumes were up by 5%, driven largely by record export quantities.

Our steel volumes were up 16% in the first quarter of 2012 compared to 2011.

If you look at the future, we've now authorized and have in progress $1.2 billion worth of capital expenditures in our terminals group. Those are projects that are in progress, have been approved by our Board. That number that we also shared with you, those of you who were present at our analyst day back in January, at that time it was $860 million. So we've increased by $350 million or so just in the last three months since we had our analyst conference.

What's driving a lot of this is the coal export business. And when we finish the projects that we've authorized now, we will have increased our capacity to handle export coal to about 45 million tons per year. Now, when you think that the whole export coal market is someplace between -- there's a lot of differences on this, but most people think it was settled in someplace between 110 million and 150 million tons a year, we are handling -- will be handling a very significant part of that.

Then on the liquids side, the main projects there are the big BOSTCO terminal on the ship channel and our large Edmonton South terminal at the beginning of Trans Mountain in Edmonton, Alberta. So great potential for growth in the Terminals segment for years to come.

Turning to Canada, they have solid performance in the first quarter. We are seeing really good demand from both Washington state and across the dock in Vancouver. We were hampered slightly in the first quarter by pressure restriction on Trans Mountain. And that was lifted on March 16, so that will not be an issue the rest of the year.

But the big news, in terms of our Canadian operations, is the Trans Mountain expansion. There, we received -- and we released all of this earlier -- we received binding bids for 660,000 barrels per day for 20-year contracts. So, we had originally -- as you may recall -- thought that we had the potential to upsize Trans Mountain, which currently has a capacity of about 300,000 barrels a day. Our original thought was, we could go from 300,000 barrels to 600,000 barrels a day. Given the high volume of nominations that came in, we've decided to upsize the project, to go to 850,000 barrels a day, or a net increase of 550,000 barrels over the current capacity. That drove an increase in project costs to our current estimate of about $5 billion, up from the $3.8 billion that we had estimated when we were talking about expanding this pipeline to 600,000 barrels per day.

Obviously, we have to get regulatory approval from the NEB. We expect to have this pipeline expansion in service in 2017. We think this is a very important development for our Canadian oil sands producer customers, and their customers. We think it services a real need to get more of the oil sands production to the West Coast of Canada, and from there either go into Washington state or across the water.

So, lots happening; we think it's a great time to be in the midstream energy business, and look forward to a very strong year, and look forward to closing the El Paso merger.

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

Okay. If you turn to your KMP release or stay in the KMP release -- and this is the first page of numbers, which is our GAAP income statement. At the bottom you can see the declared distribution, $1.20 for the first quarter of 2012. That's consistent with our budget, and about 5% above what we declared in the first quarter of last year. The only other thing I'll point out on this page is the assets which are subject to the FTC staff agreement have been classified as discontinued operations, consistent with GAAP. And so you can see the income from discontinued operations, and then also be non-cash loss on remeasurement there of $322 million.

On the -- when we flip to the next page, I'll just point out that the income from these assets we have included in our DCF calculation. We do not pull that out of our DCF calculation. As Rich mentioned, we expect to replace these assets with drop-downs, such that KMP -- on a coverage basis or a DCF basis -- would be neutral for the year.

Looking at the second page, all the way at the bottom. As Rich mentioned, $1.37 in DCF per unit in the first quarter; that's up $0.16 or 13% versus last year. We are on-budget for the quarter and on-budget for the full year. Two lines above that, DCF before certain items, which is effectively the total cash available to the limited partners -- $462 million in the quarter. That's up $80 million or 21% from -- since last -- versus last year. We are on-budget for the quarter and on-budget for the year.

Given that the DCF per unit available and the declared distribution of $1.20, that gives us coverage of $58 million in the quarter. As we said at the time, at the analyst conference when we presented the budget, we expect to have excess coverage in the first quarter, and in the fourth quarter, and for the full year. And we would expect to have negative coverage in the second quarter and the third quarter. And so, next quarter when we present, we would not expect to have coverage. Again, we will have coverage for the full year.

Looking up at the total segment earnings before DD&A, $1.029 billion in the first quarter of this year. That's up $150 million, or 17% versus last year. On Products Pipelines, as Rich mentioned, we're down $4 million, primarily as a result of regulatory agreements. For the full year -- I mean for the quarter, we are slightly ahead of our budget, primarily because of some better volumes on [Cochin]. And for the full year, we expect to end -- we expect Products Pipelines to end on-budget.

Natural gas is up $56 million for the quarter or 25%. And that's a function of the KinderHawk acquisition; the higher contractual volumes on FEP; and then, the trading acquisition and -- and in addition, better results than we expected from that trading acquisition that we refer to as SouthTex. In the quarter, Natural Gas is about 3% below their budget. And for the full year we expect them to end about 2% below their budget. As Rich mentioned, as drilling has shifted from the dry basins to the richer areas, we have seen some volume impact on our KinderHawk acquisition. And that is really what is causing Natural Gas to be below its budget for the year.

On CO2, up $79 million in the quarter, or 31%. As Rich mentioned, higher oil price and higher NGL volumes are driving that. They were slightly below plan in the quarter, and that was a function of -- we were a little bit -- we were below budget on SACROC volumes. That was somewhat offset by the help that we got on price. But the help on price was not as much as you would expect. You know, we've outlined our metric, which is about $6 million in DCF per $1 change in the price of oil. The reason it's not as much as you would expect is because NGL prices got hit.

For the full year, we expect that CO2 will be on its budget. We expect that the SACROC volumes will recover, and that they will only end a couple of hundred of barrels below their budget.

Terminals is up $17 million for the quarter, or about 10%. They are on-budget for the quarter, and we expect that they will meet or exceed their budget for the full year. KMC is up $2 million in the quarter. They are on -- they're on-budget for the quarter, and we expect that they will come in slightly below their budget for the full year, on earnings before DD&A basis. But if you look at that on a DCF basis, we would expect that they would meet their budget for the year.

If you drop down to general and administrative line, which is about in the middle of your page, $108 million for the quarter, that's $8 million higher than last year. It's a few million dollars higher than our budget. But we actually -- for the quarter -- but we actually expect, for the full year, that we will do a little bit better than our budget, meaning a lower G&A expenses in our budget.

The next line, interest expense, is up $7 million in the quarter. It's actually slightly favorable in the quarter to our budget, primarily because our balance at the end of last year came in a little bit lower than we budgeted. For the full year, we expect to be positive on interest expense, and that's a more a function of lower rates.

The last thing I will mention on this page is sustaining CapEx. Sustaining CapEx in the quarter was $44 million, up $8 million versus last year. It is actually a positive versus our budget, and we expect that it'll be a positive 3% or 4% for the full year.

Turning to the balance sheet -- just from a high level, if you look at the balance sheet, you can see there's a decrease in total assets. And basically what's happening on the asset side of the ledger, is that you're seeing that write-off come through there. In addition, we are moving the discontinued operations -- again, the assets that are subject to the FTC agreement to assets held for sale. So you see movements out of beginning PP&E, investments, and goodwill into other current assets. And then, the other thing, as you see every quarter happening on the asset side of the balance sheet, is just the investment that we are making and the spending in CapEx.

On the liability side of the balance sheet, the big movements are really in the debt -- which I will reconcile in a minute -- and on the value of interest rates lost, which just moves with the forward curve for interest.

We ended the quarter at $12.556 billion of debt. That's up $168 million from the end of the year. And just to reconcile that $168 million, we spent over -- a little bit over $300 million on expansion CapEx; about $30 million on acquisitions -- that was our CO2 St. Johns acquisition; about $49 million was contributed to equity investments; and then we issued about $239 million in equity. About $125 million through the KMP at the [market], and then these KMR dividend was about $114 million.

We had coverage of about $58 million, as I mentioned earlier. And then we have working capital items that were about a negative $77 million. And the two big pieces on the working capital were interest; was the use of working capital, because our most significant interest payments are in the first quarter and in the third quarter. And then also, we purchased some inventory in our Transmix business as we took over a contract from Shell. Those two items were offset by positive -- or sources of working capital on margin and taxes, and then AP and AR.

Where that leaves us, in terms of debt-to-EBITDA for the quarter, is at 3.5 times, which is an improvement over 12/31. That was at 3.6 times.

With that, I'll move to KMI. The first page of the numbers in KMI is the cash available to pay dividends. Rich mentioned we generated $303 million in cash available to pay dividends in the quarter. That is on our budget. And $36 million, or 14% above last year; and as you look up at the top, that's driven primarily by the GP interest in KMP, which is up $41 million or 14% from last year.

Based on a declared dividend of $0.32, we have coverage for the quarter of $76 million, similar to KMP. On KMI we expect that we have coverage in the first quarter and the fourth quarter and for the full year, and that we would have negative coverage in the second quarter and the third quarter. And at KMI, that's primarily a function of the timing on interest and tax payments.

For the full year, we expect to be slightly ahead of our budget of $985 million in cash available to pay dividends. And that $985 million, as we said at budget time, does not include any impact from the acquisition of El Paso.

The income statement, which is our next page at KMI -- similar to KMP, you can see the discontinued operations in the middle of the page. Again, the asset subject to the FTC agreement has been classified as discontinued ops. The loss number is different here because KMI has a different basis in -- or records KMP's assets at a different level than where KMP reports. That was a function of the purchase accounting that was done at the time of the 2007 MBO, just so that people can understand what's going on.

At KMI, on the balance sheet, again you see the same thing happening on the asset side of the balance sheet that I just went through, with respect to KMP. If you look down at KMI's debt, we ended at $3.21 billion of debt, and that's down $26 million for the end of the year.

That change in debt, $26 million -- let me reconcile that for you quickly. Our cash available for dividends that I just went over was $303 million. That is based on the dividends declared by KMP, so -- but what was received from KMP during the quarter was about $19 million lower than that. So you take off that $19 million.

KMR -- we did not choose to sell the KMR shares at this time, so that's a negative $17 million coming out of that $303 million. We made pension contribution of $20 million and we paid dividends of $220 million. And that should get you to the $26 million change in the debt.

The debt to cash available we ended at 2.2 times; and that, obviously -- that's an improvement from the end of last year, when we ended at 2.3 times. That's it.

Okay, and with that, Holly, we'll go back to you. And we'll take any and all questions that you might have.

Thank you, sir. (Operator Instructions). Darren Horowitz, Raymond James.

Two quick questions from me -- the first on terminals, on the coal side; and then on CO2. As it relates to the $1.2 billion in authorized CapEx that you guys are going to be spending, is it fair to assume that that should materialize at somewhere between a 5.5 or 6 times EBITDA multiple? Or possibly, a better way to think about it, around a 16% or 18% cash-on cash-return.

You know, each project is a little bit different, but that's probably within the range.

Okay. And then on the CO2 side, supply and transport -- Rich, can you just give us some color on the 2.1 Tcf of contracts that you signed? What's the return on capital there? And when do you expect to hit that peak that you referenced? Because I would imagine, at that point in time, that's when your return on investment is going to also reach its peak.

Yes, and I've -- Tim Bradley, our CO2 head, is right here. And he will be happy to answer that question for you.

We executed five contracts that are, in the aggregate, 2.1 Tcf. One of them was substantially larger than the others. And it starts making deliveries of on the order of 300 million cubic feet a day starting in 2016, 2017, if I'm recalling correctly. So that is when the peak would likely occur. Without having specific detail of all the contracts in front of me, that's a representative estimate as to when that would occur.

And the other question on the return on capital, it really is a function of what happens with other supply contracts as well; contracts that we have that expire over the next five years get renewed. That will require incremental investment on our part to grow CO2 production. If they don't get renewed, and these contracts basically come in in their place, then we would not have to invest significant capital in order to support these contracts.

Another additional point on top of that would be in that the price that we're securing under these new contracts are higher, as a percentage of oil price, than they've ever been historically. And they also have higher price floors. So as these new contracts come in, the returns just get higher.

I appreciate it. Thanks.

Brian Zarahn, Barclays.

Congratulations on Trans Mountain. I just have a couple questions on the project. Obviously a large project to undertake, it won't be for a couple of years. But could you talk a little bit about your sensitivity to changes in cost estimates, and how you expect to lock in some of those costs?

Yes, it's a complicated formula that's agreed to. And there will be a sharing of costs with the shippers. And there are certain parameters that gets shared. A certain portion gets shared, a certain portion is dumped. And that's the way it will be on a going-forward basis.

Ian, you want to add -- Ian Anderson, who runs our Canadian operations, is here. Whenever somebody brings forward a $5 billion project, we bring him down to the board meetings, so -- (laughter).

Thanks, Rich. The only thing I think I'd add is that certainly the contracts that we've entered into do have cautionary provisions and reset provisions. When we file the commercial terms of this expansion with the regulator this summer, that information would come out at that time.

And then in terms of end markets, I'm assuming the majority of those volumes are going overseas. Can you talk a little bit about where you expect those volumes to go? Will anything come to the West Coast of the US?

Of the 660,000 barrels a day that has been committed, a portion of that is for the BC market; a portion of that is for Washington state market. The bulk of it is for our Westward stock facility in Vancouver. Once it loads on the tankers, we really don't know where it's going to end up. We know barrels do go into Washington state and California today. I would expect that to continue and to grow. Having said that, we would expect a good portion of the volume that's going over the dock to be destined for Asian markets.

Okay, and in terms of -- I know it's early on, but is it reasonable to assume similar historical returns on the expansion as you had in the KM -- Canada segment?

Yes. Hey, it's Park. And I'm happy to take that. And I think what we can say about this project is it clearly very appealing economically to shippers, by virtue of the fact that they signed up to 660,000 barrels a day of commitments. And it will also generate a fair return to us, as is evidenced by the fact that we're willing to commit $5 billion to it.

Okay. Thanks.

Jeremy Tonet, JPMorgan.

Just a question on the sales, Tennessee Gas replacing the assets that would be divested. It seems like the EBITDA stream there is larger than the assets being divested. So I wonder if you could talk a bit about some of the drivers there, as far as Tennessee Gas being bigger than those other assets being divested, and how that comes out as being cash flow neutral.

Well, let me be real clear. We had always intended, obviously, to have a drop-down from KMI to KMP of El Paso assets as soon as possible after the merger closes. The difference here is that now, as it turns out, KMP is divesting a chunk of assets. They will have that cash available for them, and then they will have access to the markets that they otherwise would've used to do a purchase absent the divestitures.

So, yes, it's a -- we would be selling all of Tennessee Gas and a substantial portion of El Paso Natural Gas, EPNG, which will be much larger than the assets divested, both from a valuation standpoint and from a cash flow standpoint. And what we said is, to be very clear about it, is that we will make certain that that combination of the drop-down and the divestitures, which will occur simultaneously, will be neutral to KMP for the year 2012, and accretive in 2013 and thereafter.

And that's on a distributable cash flow per unit basis, Brian.

Okay, great. And I was just curious if you guys could comment at all as far as the net operating losses that El Paso has right now. How much of that might be consumed in the E&P sales? How much might be available thereafter? If that's something that you can even talk about.

I think our expectation is that that there will be access NOLs beyond what is used in the sale of the E&P business.

Okay, great. That does it for me, thanks.

Ross Payne, Wells Fargo.

The sale of Rockies Express, Trailblazer and Kinder Interstate is coming sooner than I would've thought. Can you help us think about what strategic purchasers might be thinking about the assets, and how they may be utilized over time?

Well, I think you'd have to ask the purchasers. Right now, we have a lot of people who have signed -- who've already gone out with confidentiality agreements. So those of been signed. We've already sent the detailed books out to these people. And we will start getting responses to that in the next few weeks. And then we'll know more about exactly what they plan to do. I think it's fair to say that in the people who signed up to get the books, that they are numerous. That there are some strategic players and some financial planners, and we would expect a spirited bidding contest. And we'll just see where it heads.

The only thing I'd add to that is, it's an attractive set of assets. And each of the assets, we would much prefer not to sell. But this was the agreement that we struck. And as you said, we'll execute on.

And you are pretty confident on a Q3 closing on those?

Yes, we feel good about that.

Okay, great. Thanks, guys.

(Operator Instructions). Curt Launer, Deutsche Bank.

I wanted to just continue on this same topic a bit, of the FTC-mandated sales, and ask for you run through the calculation of the discontinued operations. It's confusing to me at this point, just looking at the numbers that you've reported, how you end up with a significant loss on the discontinued operations, given the nature of what you expect in terms of bidding for those assets going forward.

The loss on the discontinued operations is just a function of our book value, and then where we mark those assets. And so, I think you'll remember that REX costs us about $6.7 billion to bid. So the basis on that asset is relatively high.

Okay, so that was going to be the next question. And is most of that loss related to REX, as opposed to the other assets?

Yes, I mean, I don't think we want to get into a lot of detail on this, in terms of --

Clearly, there were pluses and minuses that got to taking the write-down that we did, Curt.

Okay, thank you. And one more just clarification, just to be sure. You did say that you would project a dividend of $1.35 for all of 2012 at KMI. That is on a pro forma basis for the share count after the deal closes with El Paso, is that correct?

No. We would say, if we were never doing the El Paso deal, we would at least do $1.35. And we might do better than that, given the fact that -- as we've shown you -- if you can multiply 707 times $1.35, you get to $956 million or $957 million. And as Kim already said, our budget calls for $985 million absent El Paso, and we're doing -- we project that we will do slightly better than that at KMI.

So that's where we are without El Paso. With the El Paso transaction closed -- when that closes, we intend to come back around that time and put forward what we always said we would do, which is to adjust that dividend in light of the benefits of the El Paso merger. And we would expect that dividend to be higher than $1.35. We've said that consistently since the time that we announced the merger. And that higher dividend than $1.35 will certainly take into account the additional 300 million-plus shares that we will be putting out.

Did that answer the question?

Yes, very clearly. And thank you very much.

And I'm showing no further questions, sir.

Okay. Well, we appreciate the questions and appreciate your interest. And if you have further questions, don't hesitate to contact us. Thank you and have a good evening.

Thank you. This does conclude the conference. You may disconnect at this time. Have a great day.