金德摩根 (KMI) 2013 Q2 法說會逐字稿

Welcome to the quarterly earnings conference call. All participants will be in a listen-only mode until the question-and-answer portion of today's call.

(Operator Instructions)

Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn today's call over to your host, Mr. Rich Kinder, Chairman and CEO of Kinder Morgan. Sir, you may begin.

Thank you, Erin. And, welcome to the Kinder Morgan quarterly investor call. As usual, we'll be making statements that may fall within the Securities Act of 1933 and the Securities Exchange Act of 1934. As usual, I'll give an overview of the quarter.

Kim Dang, our Chief Financial Officer will follow with the financial details. And then Steve Kean, our Chief Operating Officer, Kim, and I, together with the rest of the executive team, will answer any questions that you may have.

The second quarter was good for the Kinder Morgan companies. All three companies increased their distributions or dividends, and all are on track for a successful full year 2013 and beyond. Let me start with KMI. We increased the dividend to $0.40 a share. That's up 14% from the second quarter of 2012, when we distributed $0.35.

Cash available or dividends, actually, in this quarter is down compared to the second quarter of 2012. And, that's the result of the timing of the cash tax payments this year versus last year, which Kim will go into in detail. But we remain on target to meet or exceed our goal of $1.60 declared dividends for full-year 2013. And, that compares with $1.40 in 2012 and with our original '13 budget of $1.57.

The $1.60 equals a 14% increase in dividends declared, comparing full year '13 to full year '12, and an 18% increase in cash available for dividends year-over-year. I think we're also well positioned for future growth. We have about $14 billion now in expansion and JV investments that we are pursuing the building of across the Kinder Morgan companies.

Now, turning to KMP, we raised the distribution there to $1.32 a quarter, that's $5.28 annualized. That's up 7% from the second quarter of 2012. We had segment earnings before DD&A of $1.337 billion, that's up 39% from a year ago.

We had distributable cash flow of $505 million, that's up 38% from a year ago. And we had distributable cash flow per unit of $1.22. That's up from $1.07 in the second quarter of 2012, or a 14% increase.

The growth at KMP was driven by drop-downs associated with the -- KMI's 2012 acquisition of the El Paso companies, by assets acquired in the Copano acquisition, which closed on May 1 of this year, by strong oil production in our CO2 segment, and by good results in our products pipeline segment.

Now, in our certain items net income, you'll see some big numbers, and let me just focus on that for a minute and Kim will go into more detail. You'll see that we totaled a gain of $383 million principally related to two items.

The first is a gain of $558 million related to the re-measurement of KMP's original 50% interest in the Eagle Ford joint venture that we had with Copano before we bought Copano. Now, let me just be very clear. In my judgment, that's meaningless from a cash flow basis, or from a substantial -- substantive standpoint, but it's there and that's one of those places where accounting departs from reality. But that is a big gain that is in the income from certain items area.

The second is more realistic, I think, and that's $162 million loss related to additional legal reserves primarily attributable to a California appeals court decision upholding the previously announced CPUC ruling denying an income tax allowance for our California intrastate products pipeline.

The decision is disappointing to us. It contrasts with federal rulings permitting an income tax allowance -- permitting an income tax allowance for MLPs. But we don't anticipate that the reparations we would pay will have an impact on distributions to our limited partners.

Now, let me turn to the segments, starting with natural gas. This segment more than doubled its segment earnings before DD&A, and we expect it to exceed its plan for the year. The growth was driven by the drop-down of Tennessee Gas Pipeline and El Paso Natural Gas, and by the Copano acquisition closed on May 1. Both TGP and EPNG continued to outperform our acquisition model when we did the El Paso acquisition.

And the Copano assets, particularly those in South Texas, appear to be off to a good start. Segment transport volumes were down 5%. That's primarily attributable to lower power plant gas demand, as gas prices are significantly higher than they were in the second quarter of 2012. But that said, our Texas intrastate sales volumes were actually up 2%, as we continue to connect more customers in the Texas market.

Obviously, we're very bullish on the future of natural gas in America. You've heard me say this before. It has so many advantages. It's domestic, it's clean, it's abundant, and it's reasonably priced. And we see additional medium and long-term increase in use for natural gas for a number of purposes -- domestic industrial use, power generation, exports to Mexico, and volumes to be used in LNG export facilities.

And, with our enormous footprint, we think that will put us in a great position to grow dramatically in this segment over the coming years. Now, I mentioned earlier that across the Kinder Morgan companies, we now have a project backlog of about $14 billion. The backlog in this natural gas segment is about $2.8 billion. That's at both KMP and EPB.

And we expect that backlog to continue to add projects as we go throughout the rest of 2013 and beyond. We detailed about 10 of those ongoing projects in the other news section of our earnings release at KMP. And I won't go through them all, but I would just mention that our northeast upgrade project on TGP is on target for its 11/1/13 startup and that among several projects allowing additional exports to Mexico during this quarter, we signed new long-term contracts with three customers in Mexico for in excess of 200 million cubic feet a day of capacity on our Kinder Morgan Texas and Monterey Pipeline systems. The cost of accommodating that additional throughput will be about $115 million.

And we've already received an amended presidential permit to increase the border crossing capacity at that particular point on the Texas-Mexico border to 700 million a day from about 425 million a day. During the quarter, we averaged almost 1.8 billion cubic feet a day of gas exported into Mexico across all of our Kinder Morgan systems, and in fact, last week, we were actually over 1.9 Bcf a day.

That's significant at the present time and we think will get even bigger as we bring these various expansions into fruition over the coming months and years. Also, in our natural gas segment, on TGP we executed a precedent agreement for our proposed Cameron expansion. That's about a $140 million project and would provide 900,000 dekatherms a day of additional capacity to LNG export customers in Louisiana.

Turning to the CO2 segment, we had a very good quarter in that segment and we expect it to be slightly above its plan for the full year of '13. Oil production continued to increase compared to a year ago. It was up about 2,600 barrels a day on a gross basis.

SACROC gross production was up 6%, 1,600 barrels a day, to 30,000 barrels per day of production. And Katz increased from 1,800 barrels a day to 2,500 barrels a day. Our NGL production was also strong, despite a maintenance turnaround at our Snyder Gas Plant in May.

Now, on the negative side, we continue to be impacted by lower NGL prices, which are down about 11% when you compare the prices in the second quarter of '13 to the equivalent periods a year ago. Looking forward, we have a backlog in the CO2 segment of projects which total about $2.7 billion. And that's an area where I think we probably understated what our real opportunities are and I'll get to that in just a minute.

We had two important developments in this segment during the second quarter. The first is that we acquired the Goldsmith Landreth San Andres unit from Legado Resources for about $285 million. That's presently producing about 1,250 barrels a day of oil. We expect that production to increase to a peak of over 10,000 barrels per day within the next 10 years. It will be a long ramp-up with a lot of increased production.

In addition, in that transaction, we obtained a long-term CO2 supply contract that will potentially benefit not just this asset, but all of our oil production activities in the future. Secondly, in this segment we continue to see very robust demand for CO2 from our customers in the Permian Basin, and the expansion opportunities we see are increasingly obvious.

Right now, we believe they could lead to capital expenditure opportunities, on an [8H] basis, of well over $2 billion over the next few years and would result in increasing our CO2 sales and transport volumes by about 800 million cubic feet a day by 2017, taking them up from around 1.2 Bcf a day moving to the Permian Basin to about 2 Bcf a day.

Now, that's an increase from our earlier estimate. We've talked in the past of spending between $1 billion and $1.5 billion to get to about 400 million cubic feet a day of additional capacity. So, we think we'll have the opportunity to spend more now at very good returns and to provide more CO2 for the use of our customers. Right now, we are still pro rating the system, that's how strong the demand is.

We've provided details of our current operations that are underway to increase our CO2 production at our Southwest Colorado McElmo Dome and Doe Canyon sites. And those are detailed in our earnings release. Turning to our products pipeline segment, they are having a good year.

We expect that segment to slightly exceed their plan for the full year 2013, even after a reduction in revenue as a result of the current year's impact from this California court of appeals decision on the income tax allowance that I referred to earlier. Even after that is taken into account, we expect them to be slightly above their plan for the year.

Refined product volumes are up pretty nicely for the quarter. They were up 3.5% across our system versus the second quarter of 2012. And, that compares to the EIA national numbers, which were up 0.7%, or a little less than 1% across the nation, for the same period of time.

Gasoline demand on our system was especially strong. It was up about 5.9%, while jet fuel was down by 3.8%, largely as a result of reduced military flight activity in California and Nevada, on our SFPP system. And we think that's caused probably by the sequestration efforts now in effect.

NGL volumes were up 12% and biofuels in this segment were up 26%. We have a number of important new projects underway in our products pipeline segment, and we've detailed a number of those in our earnings release. Those listed in the release total over $900 million net to KMP and the total backlog in this segment is actually just north of $1 billion. Again, all part of the $14 billion that we've been talking about.

In particular, we continue to expand our Kinder Morgan crude and condensate line deeper into the Eagle Ford play in Texas. And we are now beginning construction on both our Cochin Reversal Project and our 100,000 barrel per day petroleum condensate processing facility located on the Houston Ship Channel. In addition, our parkway refined products pipeline project is expected to come online on September 1, consistent with our original target.

Turning to our terminal segment, it continues to show growth over 2012, but we expect it to be slightly below budget for the full year 2013, which called for 12% growth. Our liquid terminals are performing well and this reflects new and restructured contracts with higher rates. But, on the bulk side, both coal and steel volumes declined for the second quarter, compared to the second quarter a year ago, although coal volumes and revenue should pick up over the next several quarters as our expanded coal export facilities come online. And those, of course, are underpinned by long-term take or pay agreements with our customers. This segment has a backlog of projects totaling about $2.1 billion, several of which are described in our earnings release.

Especially noteworthy, I think, is the additional tank capacity expansion at our BOSTCO facility. Now, this is a facility that won't even be -- the first phase won't even be completed until this fall. And we're already in the process of expanding it and the expansion will come online in the fall of 2014.

With the expanded tankage, the terminal, when completed, will now consist of 7.1 million barrels of tanks fully subscribed under long-term contracts. We're also expanding our Edmonton terminal in Alberta to 9.4 million barrels of capacity. And we're building significant new facilities adjacent to our Pasadena and Galena Park terminals on the Houston Ship Channel.

All these projects are supported by long-term contracts with credit-worthy customers, truly examples of our toll road philosophy. In addition, we now have four crude by rail terminals in operation. Two more where we have -- the Board has approved, with signed agreements with our customers, and two more under development with customer agreements backstopping the initial capital costs. Turning to Kinder Morgan Canada, this segment is running slightly below the results of the second quarter of 2012.

And we expect it to come in for the full year slightly below the budget because of our sale earlier this year of the Express-Platte pipeline. In that sale, you may recall, we received approximately $400 million of gross proceeds for our interests, which delivered a little less than $20 million a year to us. So, if you look at the impact of the sale on the overall KMP bottom line, the sale is expected to be modestly accretive for the year. But, in the segment, it is a negative.

We continue to see strong throughput on Trans Mountain. And, very importantly, in this quarter -- in the second quarter, we crossed a significant threshold when the National Energy Board of Canada approved the commercial terms on our $5.4 billion Trans Mountain expansion. And we expect, as we have previously said, to file our facilities application with the NAB later this year.

Now, turning to El Paso Pipeline Partners, EPB, we increased the distribution per unit there to $0.63, that's $2.52 annualized. That's a 15% increase over the second quarter of 2012. DCF and DCF per unit were above 2012 year to date, but slightly below, as we expected, for the second quarter. We expect to declare a distribution of $2.55 per unit for the full year 2013 and that will be a 13% increase over the full year 2012.

We've entered into agreement with our customers to settle the WIC Section 5 proceeding and the SMG rate case. And the latter settlement was approved by the FERC last week without modification. Both settlements have been taken into account in our '13 distribution guidance.

We have a number of projects under way at EPB and we've detailed them in the earnings release. The most significant is the joint venture with Shell to build a natural liquefaction facility at our terminal near Savannah, Georgia. Phase I is not conditional on any non-FTA approval. And we already have our FTA approval, so this is a go project, pending only the FERC certificate to build.

EPB's investment in the project, including the ancillary facilities to service this new liquefaction facility, is about $850 million and we expect to be in service in late '16 or early '17. So, to sum up, the Kinder Morgan companies are performing well this year.

To put it in perspective, we've said, when asked, that our long-term growth rate at KMI is 9% to 10% a year and at KMP is 5% to 6% a year. We're on target this year to substantially exceed those targets, 14% growth at KMI and 7% growth at KMP.

On top of that, we have an enormous backlog of future projects already nailed. And we have an expectation of continuing to better serve our customers and increase our cash flow by exploiting our extensive asset base of 82,000 miles of pipeline and 180 terminals. So, that's the overview. With that, I'll turn it to Kim.

Thanks, Rich. I'm going to start on the KMP numbers, I'll do EPB second, and then KMI last. The first page of KMP numbers is the GAAP income statement. As we've said many, many quarters, we don't find that overly meaningful.

But I see that the press has already picked out that our profit multiplied seven-fold. And, as you can see, our income is up 658% in the quarter. So, let's turn to the second page and let me tell you what we really think happened in the quarter. And this is our look at distributable cash flow.

Distributable cash flow per unit for the quarter was $1.22, up 14% in the quarter; year to date, it's $2.67, up 9%. Year to date, we are ahead of our original budget. And we expect to be ahead of our original budget for the full year on DCF per unit as a result of the Copano acquisition. And all of this is consistent with our revised guidance that we put out in May at the time we closed Copano, of $5.33 in distributions per unit for the year.

In the quarter, the $1.22 of DCF versus $1.32 distribution, we had negative coverage of a little over $40 million. That was consistent with what we told you at the time of the budget and consistent with what we told you on the first quarter call, that we expect KMP to have positive coverage in the first quarter and the fourth quarter and negative coverage in the second and the third, with coverage for the full year.

The DCF -- the total number of DCF, $505 million, up $139 million, 38% for the quarter, for the six months, $1.055 billion, up $227 million. So, let's look at where the $139 million in the quarter and the $227 million of growth is coming. If you look up at the segments, segment earnings before DD&A for the quarter, up $378 million, and for the six months, up $625 million.

Now, just a little under 90% of that, about 87% of that, both in the quarter and the year, is coming from natural gas. Natural gas is up $328 million in the quarter and $546 million year to date, and Rich went over the reasons for that. Year to date, natural gas is above its budget. And we expect them to end the year above their budget, largely as a result of the Copano acquisition.

When you look at the full year for natural gas, absent the Copano acquisition, they would be slightly below their budget, primarily because of lower than expected performance on some of our treating assets and a little bit slower sales there. CO2 in the quarter up $31 million, year to date up $34 million. We are on budget year to date. And, for the full year, as Rich said, we expect to slightly exceed.

That's a function of two things. One, the Goldsmith acquisition that we completed in June, and two, price. Now, price is not as much of a benefit as you would expect. For the full year, we typically tell you that for every $1 increase in WTI equates to about $6 million in DCF.

But that metric is, it's -- we are doing -- the price is having a little bit less impact benefit than that, primarily because NGL prices are going to be -- right now we're projecting to be about 6% below our budget. Products pipeline is up $13 million in the quarter, up $37 million year to date. Year to date, products pipelines are on their budget. For the full year, we expect them to slightly exceed.

And that's outperformance on trans mix and Cochin. And, that's going to be somewhat offset by the impact of the California court of appeals decision and the lower rates on our California intrastate system. Terminals in the quarter, down -- I'm sorry, up $8 million, up $8 million year to date. They are below their budget year to date.

We expect them to end the year about 2% below their budget. And that's a function of the weaker bulk business, primarily on the coal and steel side, as well as a little bit on ethanol. Kinder Morgan Canada is relatively flat both in the quarter and year to date.

For the full year, as Rich mentioned, we expect to be below our budget, probably about 5% due to the Express sale. Again, the Express sale is a benefit to KMP overall, but the benefits show up in reduced interest and reduced equity issuance. G&A, in the quarter up $33 million, year to date it's up $48 million. And, that is all a function of the drop-downs and the Copano acquisition.

Versus our budget year to date, we are about 4% over our budget year to date on G&A. We expect to end the year pretty close to budget, probably within about 1%, maybe -- or less than 1%, maybe being slightly over on G&A. On interest, interest is up $76 million in the quarter, up $124 million year to date.

That is largely a function of balance, although we do have some impact of rates. And that's -- our average rate is up both in the quarter and year to date. It's a function of the debt that we assumed on the drop-down assets. That debt had a higher average rate than the existing KMP portfolio.

Year to date, interest is very close to our budget. For the full year, we expect it to be over budget as a function of the Copano acquisition although some of that impact is being mitigated by the lower interest as a result of applying Express proceeds to reduce our debt.

Sustaining CapEx, we're about $18 million over 2012 in the current quarter, $22 million year to date. Year to date versus our budget, we actually have a benefit. But, for the full year, we expect to be over our budget on sustaining CapEx, largely as a result of the Copano acquisition. Absent the Copano acquisition, we would expect to be slightly under on sustaining CapEx.

Turning to the certain items, as Rich mentioned, they total a gain of $383 million in the quarter. $558 million gain on the re-measurement of the -- of our initial 50% interest in the Eagle Ford JV. And we had to basically re-measure this asset to the amount of the $5 billion Copano purchase price that we allocated to their 50%. And that's what generates the gain.

That's offset by the $162 million increase in reserves that we took related to the California court of appeals decision. Now, what you see in the certain items is the prior years. So, the prior year's reserve is impacting the certain item. The current year impact of the lower rates, and the reserve that we're taking there, is reflected in the segment.

The other two certain items of any significance are the acquisition costs on Copano of about $28 million, and then the gain on insurance, which is we received about $16 million in insurance proceeds during the quarter related to damage we incurred during Hurricane Sandy. So, that is, that is it on KMP's DCF.

On KMP's balance sheet, we look at our total debt. We ended the quarter at $18.6 billion. That translates into debt to EBITDA of about 3.9 times. We expect to end the year between 3.8 and 3.9 times. That's up from what I mentioned in the first quarter call and also up from our budget, which were both 3.7 times. And that's due to the Copano acquisition, where we only have a partial year benefit from those earnings.

The change in debt for the quarter was $1.4 billion. Year to date, it's $3.2 billion. In the quarter, we spent about $6 billion on acquisitions, expansions, and contributions to equity investments, with the largest piece of that being $5 billion that we spent on the -- on the Copano acquisition. And we spent about $650 million on expansion CapEx, which is the second largest piece of the $6 billion.

We issued equity of a little under $4.5 billion, $3.7 billion of that issued in the Copano transaction. We issued $522 million, and that's actually the proceeds that we received in the quarter. I think when you read the press release, the number is $585 million. There are some of those sales that closed after the quarter end.

$522 million in proceeds under the ATM. The KMR dividend generated $158 million in cash and then the GP contribution composed the balance. And then, we had about $150 million in other items, with the largest of that being a little under $100 million we received on the swap unwind.

Year to date, debt is up $3.2 billion. Cash out the door on acquisitions, expansions, and contributions to equity investments, $8.75 billion. Acquisitions are $7.5 billion year to date. And, that is primarily the $1.655 billion drop down and $5 billion on the Copano acquisition.

And then, in addition, it reflects the $558 million of debt that we assumed associated with the first 50% of El Paso that came on to our books when we bought the second 50%. So, we started consolidating that debt that when we originally owned 50% was not on our balance sheet.

Expansion CapEx was $1.1 billion in the quarter and we contributed about $140 million to equity investments. We issued $5.1 billion year to date. Again, $3.7 billion of that was associated with Copano. We received $400 million of proceeds from the sale of Express.

And then, we have $17 million in other items, the largest piece is the swap unwind. And then, we had working capital outflows associated with timing on accounts receivable, accounts payable, and inventory. So, that's KMP.

I'll now move to EPB. EPB, again, first page is the income statement, which we don't think is overly useful for investors. Second page is the DCF. DCF per unit in the quarter, $0.60, that's down $0.08 versus a year ago.

As we discussed at the time of the budget, for the full year we expect DCF at EPB to be down. And that's largely caused by the increase in the distribution. Just to give you an example of that, if in the quarter we kept the distribution flat, at the prior year distribution of $0.55 then DCF per unit would have been up 3% in the quarter. Year to date, DCF, $1.38, which is up 2%.

Coverage in the quarter, the $0.60 of DCF versus the $0.63 of distribution results in negative coverage of about $7 million, similar to KMP and what we told you in the first quarter and also at the time of the budget. We expect negative coverage in the second and the third quarter, excess coverage in the first and the fourth quarter. Year to date, we actually have positive coverage of over $25 million.

DCF in total was down $6 million in the quarter. It was up $20 million, or 7% in the year -- or year to date. So, I'm going to reconcile the $6 million down and the $20 million up. For the quarter, the assets generated about $10 million in incremental earnings. That's primarily the Cheyenne Plains acquisition and the Elba Express Pipeline project, which came online on April 1 of this year.

G&A is a benefit in the quarter, meaning it was lower than a year ago, primarily due to the cost savings that we implemented after the merger. Interest expense was an increase of $5 million in the quarter, largely as a function of rate. We turned out some debt that was on the revolver, as well as some Cheyenne Plains debt. So, floating rate debt moved to fixed rate debt at a higher rate.

Sustaining CapEx was a $2 million increase in the quarter. And then, the GP incentive was about a $19 million increase associated with the increase in the distribution. That gets you to $6 million for the quarter. Year to date, up $20 million.

The assets generated about $52 million in incremental earnings. That's the $44 million that you see in increase in earnings before DD&A. And, in addition, because EPB has acquired partial interest in assets, you see part of that benefit down below in reduced non-controlling interest expense.

That gets you the other $8 million to get to the $52 million. That's associated -- the $52 million is associated with the acquisitions, or the drop-downs, and it's associated with the expansions on Southern Natural Gas and also the Elba Express Pipeline expansion.

G&A is down $19 million in the quarter. So, decreased expense, which is a benefit of $19 million versus year to date last year. Interest is up $11 million for the same reasons as I mentioned in the quarter. And then, the GP incentive is up about $43 million, largely related to the increased distribution, which should get you to about $20 million increase.

Last two points on this page, if you look at the certain items for EPB, they total about $8 million in the quarter. $2 million in a tax reserve, which is noncash and related to capital projects, and $3 million is amortization that for regulatory purposes gets captured in other income as opposed to DD&A, and then a small amount of offshore repair costs. As Rich said, we still expect at K -- at EPB to declare $2.55 per unit in distributions for the full year.

EPB's balance sheet, we ended the quarter at $4.1 billion in debt. That translates into debt to EBITDA of about 3.6 times. Debt is down $15 million for the quarter and down $108 million year to date. In the quarter, we spent $22 million on expansion projects. We raised $65 million in equity under the ATM.

And then, we had $28 million in other items, which primarily relates to timing on accrued interest. Year to date, we spent $43 million on expansions. We've raised 87 million in EPB's ATM. And then, we have positive coverage of about $28 million. And then, also a benefit on working capital of about $36 million related to timing on AP and AR and accrued interest.

Now, looking at KMI. KMI, we declared the dividend of $0.40 in the quarter. We generated cash available to pay the dividend of about $0.28. So, similar to KMP and EPB, and consistent with what we've told you of the budget in last quarter, we had negative coverage in the second quarter.

As we said, we expect negative coverage in the second quarter and the third quarter, and excess coverage in the first and the fourth. Cash available to pay dividends in the quarter, $294 million. That was down $13 million versus a year ago. And that's primarily related to timing on cash taxes, which I'll take you through in just a second.

So, looking at how you get to the $13 million change, the distribution from KMP generated -- that goes from the GP interest and LP interest, generated $95 million in additional cash, largely associated with the 7% increase in KMP's distribution. The distribution from -- that we received from EPB, an incremental $26 million.

So, the MLP's delivered an incremental $120 million, a little over $120 million of incremental cash flow. G&A and interest was up about $9 million. And then, cash taxes were up $69 million in the quarter, and a lot of that is timing on the full year. If you -- sorry, timing related versus 2012.

For the full year, we expect cash taxes to be up, as we showed you in our budget, about a little under $100 million. And so, what you're seeing is about 70% of the full-year variance hitting in the second quarter. And so, that's what Rich and I mean when we talk about the timing on the cash taxes.

Cash from -- available from other assets is down about $56 million. And that's a function of the drop-down. So, the drop-downs, we lose the income from those assets that were previously at KMI. You pick up a benefit, but the benefit that you pick up shows up in the distributions coming from the MLPs.

And it also shows up in decreased interest expense, which you can see in the quarter we have lower acquisition debt interest expense. And we've also paid down some of the debt that is up at KMI with these proceeds. And so, when we get to the year to date numbers, you'll see a benefit there as well.

In the six months, cash available to pay dividends is up $197 million. If you look at the cash coming from the MLPs, that is -- that generated $320 million of incremental cash. G&A and interest expense is actually a benefit of $6 million. Cash taxes are up $61 million year to date. And then, the cash available from other assets is down $68 million, largely as a function of the drop-downs.

Year to date, on cash available to pay dividends, we are above our originally published budget as a result of Copano. For the full year, we also expect to be ahead of our budget. And we expect that cash available to pay dividends will be up about 18% versus 16% in our original budget. And\ all that is consistent with the increase in guidance to declare $1.60 per share in dividends that we gave at the time of the Copano acquisition.

Looking at KMI's balance sheet, KMI ended the quarter with $9.5 billion in debt. We still expect KMI to end the full year around 5 times on a fully consolidated basis. Debt is up a little over $100 million, $111 million from last quarter, but it's down $1.9 billion since the end of last year.

In the quarter, we spent $51 million on warrant repurchase, $48 million were contributions spent -- or contributions made to the two MLPs for KMI to maintain its ownership percentage, its 2% ownership. And then, we had negative coverage of $121 million. And then, we had cash inflows of about $110 million associated with other items.

The most significant of these is that the cash taxes that we use in the metric are higher than the cash taxes that we actually pay. And that's because we are utilizing more of the NOL than we assume that we can use in the metric. In the metric, we assume that we can utilize $300 million of the NOL and we're actually utilizing more than that.

Year to date, again, decrease in debt $1.9 billion. We received $2.2 billion on asset sales between the drops, or $2.2 billion in proceeds plus debt that was moved, or assumed in conjunction with the acquisitions by KMP. And so, that's a reduction in debt of $2.2 billion. Warrant repurchase was $131 million year to date. We made pension contributions of $50 million.

We made about a $65 million contributions to the MLP, $50 million in contributions to other equity investments, and then we had other items of $25 million, the most significant was the benefit that I talked about on cash taxes. We have that similar -- a similar scenario in the year-to-date. And then, also, that's slightly offset in the year-to-date numbers by timing on distributions from equity investments. And so, with that, that gets us through the numbers.

Thank you, Kim. And, before we go to questions, I'll also mention, I neglected to do this in the opening comments, our Board today at KMI also approved a share and warrant repurchase program authorizing us to repurchase in the aggregate up to $350 million of either common stock or warrants.

And that's -- there's no minimum repurchase obligation. That's just a maximum that we can do, but the Board has granted us that discretion. So, we'll be looking at buying back either warrants or shares in the future. And, with that, I'll turn it back to Erin and we'll take any and all questions you may have.

Great, thank you.

(Operator Instructions)

Darren Horowitz, Raymond James.

Good afternoon, Rich, I've got two quick questions. The first, Rich, and you referenced this, your thoughts around ramping Eagle Ford condensate volumes, and more specifically the opportunities for the export of the products like Naphtha. You scaled up your investment to accommodate the second split or your storage capacity is going to be over 7 times the current splitting capability just from a throughput perspective.

How big of an issue do you think that that's going to be on the Gulf Coast? And, specifically, do you guys have a view as to when Canada might hit a blend wall for condensate to be used as diluent and maybe that impacts volumes on Cochin or Southern Lights?

Let me start with -- if I understood your question on the Eagle Ford condensate. First of all, I think it's pretty obvious, every quarter we are expanding our reach into the Eagle Ford and the ability to handle more and more condensate and crude coming out of the Eagle Ford.

Of course, post the Copano acquisition, we can move that either across our Kinder Morgan crude and condensate line to the Houston Ship Channel or down to Double Eagle line, which is a joint venture with Magellan, down to Corpus Christi. So, we're giving people like Conoco and Anadarko and others tremendous optionality. So, our volumes are ratcheting up -- will be ratcheting up on these facilities and that's a very good thing.

Obviously, as you look at the, what happens downstream, like on the natural gas side, the tendency is that you move the bottlenecks downstream. And then, free enterprise being what it is, that bottleneck gets solved. So, I think there will be additional export of products.

Certainly, we're looking at that partially in conjunction with this BOSTCO facility. That's not the original purpose of it. But we certainly have land down there that we will be able to participate in export facilities.

As far as the blend wall and the diluent, I really don't know. As you know, we are reversing Cochin. That project is now under way. It's about a $260 million project. And we are fully subscribed, except for the portion that we have to leave open for spot volumes. But everything else is taken up under long-term contracts there.

To us, that's the big indicator that people are very interested in the ability to move diluent across our line or across Southern Lights. So, I think you're going to see continued interest in doing all that. Beyond what they are shipping on us, I really don't know what the future holds. But we're very happy that we're locked in on our investment on reversing Cochin.

That's all I had. Thanks, Rich.

Thanks.

Bradley Olsen, Tudor Pickering.

Hi, good afternoon, everyone. Quick question on the announcement you made earlier this quarter about potentially acquiring coal royalty assets. Just wanted to hear your thoughts on why you would make that announcement? Whether or not there are specific assets that you have your eye on or whether you're just telegraphing to the market that this is an area that you might get more involved with in the future?

Well, let me just say a couple sentences and then I'll turn it over to John Schlosser who runs our terminals group and he can talk in a little more detail about our thoughts. But, basically, as you know, Kinder Morgan is hugely optimistic about the role of natural gas in the future in this country. And, to a large extent, it will displace coal in electric generation.

That said, coal is always going to be an important fossil fuel both in the US and around the world for the foreseeable future. By that, I mean decades and decades. So, whether it's 40% of electric burn in the United States or 30%, there's still going to be a lot of coal to be handled. And, if you look at it internationally, it's now I think 43% of the total fossil fuel use around the world. So, there's still opportunities there.

What's happened is that most of the coal producers are needing cash infusions, looking for sources of cash. And we think this is a good time to be able to serve those customers. And, with that, I'll turn it over to John, who will talk about -- we're going to be very conservative about how we do this. I'll turn it over to John.

I'll tell you what it's not. It's not that we opened up a big teller window with a sign saying bring us your reserves. We're looking strategic investments where there's low mine cost reserves that are highly competitive, where there's high quality reserves that are uniquely positioned, and the more versatile, the better.

If it can go export and domestic or if it can be tied to a Kinder Morgan terminal, all the better. We're going to use the same disciplined approach that we do with all of our KM investments. We're looking at guaranteed minimum returns on each of these projects and we're not taking product or market risk.

So, would it be safe to interpret those comments as indicating that you would only look for something with a long-term fixed price take-away agreement?

Yes. I think that's a good analysis.

Yes, also, I think John was getting at this, too. We're not taking mine operating risk on these investments either.

Got it, okay. And so, are you looking specifically at one basin or another? Or is this something that where you would be looking to develop a diversified portfolio in coming years?

There are some that are more preferable than others.

Okay.

And that's one reason that we brought on board an ex-CEO with 35 years, or whatever, experience in the industry to lead this team because we're going to look very carefully. And I will say that post our announcement, we have had a lot of discussions already with people who have come forward. And we'll continue to look at what makes sense for us and if it doesn't make sense, we won't do it. So --.

Fair enough.

We're looking very carefully. And, this is -- we're going to construct, if we are successful on it, we're going to construct a very conservative portfolio.

I think the interesting part, too, is this could be a great platform to look at our other 1000-some-odd products we handle. Right now, we're initially going to focus on just coal. But we hope to get into some of the other commodities that we touch today, some of the other customers we touch.

Great. That's great color. Thank you. And a follow-up around the Freedom Pipeline. Apparently refiners in California expressed a preference for rail.

But, given the recent incidents that we've seen in the news where I would say the safety of crude by rail has been maybe brought into renewed scrutiny, does that -- as well as the fact that the Brent WTI spread is seeming to be more favorable to pipeline projects, at least where it is today, than it would be to rail. Do you think that this brings pipeline projects that maybe had been discarded in favor of rail back into the money?

Well, I think it's too early to opine on that, Brad. What I will say is that clearly, as I said earlier on a previous call, the Freedom Pipeline did not get sufficient customer backstopping to do at this time. On our Trans Mountain expansion in Canada, we went out twice with open seasons over the years and didn't get sufficient throughput to build it. The third time we get 708,000 barrels of throughput commitment.

So, a lot just depends on a whole bunch of factors, all of which you mentioned are important, but we've got it on the shelf. We know what it costs, both from the standpoint of tariff and from the standpoint of what our returns will be based on the construction costs and the conversion costs. And, if the California refiners and/or the Permian producers demonstrate they want to go forward with the project, we're certainly there to accommodate them.

Great. That's all for me. Thank you.

Thank you.

John Edwards, Credit Suisse.

Hi, John. How are you doing?

Doing well, Rich. Just a couple real quick ones. You gave a backlog number on natural gas. I think it was for KMP and EPB combined. I think you said $2.7 billion or thereabouts.

$2.8 billion, it rounds to $2.8 billion, yes.

$2.8 billion. What's the breakout between KMP and EPB on that?

Well, it's about, about $1.8 billion to $1.9 billion at KMP --

About $1 billion.

About $1 billion at EPB. The biggest at EPB is the joint venture with Shell, that, as I said, is about $850 million.

Okay, great. And then, just real quick, could you remind us the number of warrants outstanding at KMI?

$400 million and -- hang on a second. $441 million.

$441 million, roughly.

Okay, great. Thanks. That's all I had.

Oh, it's $414 million, sorry. 4-1-4.

4-1-4. Okay, thank you.

From $505 million starting, right?

Okay.

Brian Zarahn, Barclays.

Good afternoon.

Brian, how are you?

Doing well. I guess following up on the warrant, on the buyback, just to clarify, that $350 million in a new authorization and replace, and in addition the $250 million it seems like you just completed?

Right. The $250 million is complete.

Okay. And then, looks like this authorization includes buying back stock. Can you talk a little bit about the -- looking at stock versus the warrants?

Right, and so we're going to look at the prices of the relative securities and give them what our view is on future stock price, decide which one is more economic for KMI to buy.

Okay. And then, on your long-term 9% and 10% dividend growth guidance at KMI, just to confirm, that includes the impact of the warrants?

It includes the impact of the original $250 million.

Yes, to the extent we buy back more warrants, that would tend to make our growth a little higher.

The $350 million is not included.

Right.

Okay. But it includes eventual conversion of the warrants that --?

It does.

Yes.

It does.

That's correct.

Okay. And then, I guess on drop-downs, any additional color as to completing the process in 2014?

Yes, we think we're still on target to do that, and really nothing new on that now.

Is it reasonable to assume the next drop would, to KMP, would probably not be until next year?

Just have to look at it.

We'll just have to look at it as we go along. But, certainly we anticipate it will be done by next year.

We didn't budget anything additional for this year. But that doesn't mean that we wouldn't do something later in the year. We'll just have to look at it.

Thank you.

And, we have no further questions in queue, sir.

Okay. Well, Erin, thank you, very much. And thanks to all of you for calling in. Have a good evening. And again, we're happy with the quarter we had and look forward to a very strong 2013. Thank you.

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