Kinder Morgan Energy Partners LP's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Kinder Morgan Energy Partners LP (KMP)

Q1 2012 Earnings Call

April 18, 2012 4:30 pm ET

Executives

Richard D. Kinder - Chairman of Kinder Morgan GP Inc and Chief Executive Officer of Kinder Morgan GP Inc

Kimberly A. Dang - Chief Financial Officer of Kinder Morgan GP Inc, Principal Accounting Officer of Kinder Morgan GP Inc and Vice President of Kinder Morgan GP Inc

Richard Tim Bradley - President of Co2 Pipelines for Kinder Morgan GP Inc and Vice President of Kinder Morgan GP Inc

Ian Anderson - President of Kinder Morgan Canada

C. Park Shaper - President of Kinder Morgan GP Inc and Director of Kinder Morgan GP Inc

Analysts

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Brian J. Zarahn - Barclays Capital, Research Division

Jeremy Tonet - JP Morgan Chase & Co, Research Division

S. Ross Payne - Wells Fargo Securities, LLC, Research Division

Curt N. Launer - Deutsche Bank AG, Research Division

Presentation

Operator

Welcome to the Quarterly Earnings Conference Call. [Operator Instructions] Today's conference is also being recorded. If anyone has any objections, you may disconnect at this time. [Operator Instruction] And I'll now turn the call over to Rich Kinder, Chairman and CEO of Kinder Morgan. You may begin, sir.

Richard D. Kinder

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'll 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 the Securities 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 at 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, and we get 99% of our cash from our GP and LP interest 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 1 of 2011 and 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 said previously, we expect 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 2 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, but we're 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 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 dropdowns. 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 the dropdowns will be neutral to KMP's distribution per unit in 2012, and accretive to KMP's distribution per unit thereafter.

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