KMP’s budget assumed an average WTI crude oil price of approximately $93.75 per barrel in 2012, which approximated the forward curve at the time the budget was prepared. The overwhelming majority of cash generated by KMP’s assets is fee based and is not sensitive to commodity prices. In its CO 2 segment, the company hedges the majority of its oil production, but does have exposure to unhedged volumes, a significant portion of which are natural gas liquids. For 2012, the company expects that every $1 change in the average WTI crude oil price per barrel will impact the CO 2 segment by approximately $6 million, or slightly over 0.1 percent of KMP’s combined business segments’ anticipated segment earnings before DD&A.
KMR also expects to declare dividends of $4.98 per share for 2012.
Impact of El Paso Corporation Acquisition on KMP
KMI reached an agreement with Federal Trade Commission (FTC) staff in the second quarter to divest certain KMP assets in order to receive regulatory approval of its acquisition of El Paso. In August, KMP entered into an agreement with Tallgrass Energy Partners to sell Kinder Morgan Interstate Gas Transmission, Trailblazer Pipeline Company, its Casper-Douglas natural gas processing and West Frenchie Draw treating facilities in Wyoming, and the company’s 50 percent interest in the Rockies Express Pipeline. KMP will receive approximately $1.8 billion in cash from the transaction. Including the proportionate amount of REX debt, this amount is equivalent to a value of $3.3 billion. Subject to FTC approval, this transaction is expected to close in November. Also in August (and previously announced), KMP acquired all of Tennessee Gas Pipeline and 50 percent of the El Paso Natural Gas pipeline for $6.22 billion from KMI to more than replace the cash flow from the divested assets. It is expected that the combination of the divestitures and the dropdowns will be slightly accretive to KMP’s distributable cash flow in 2012 and nicely accretive thereafter.