Home » Kinder Morgan Energy Partners (KMP) CEO Rich Kinder on Q3 2014 Results – Earnings Call Transcript

Kinder Morgan Energy Partners (KMP) CEO Rich Kinder on Q3 2014 Results – Earnings Call Transcript

Kinder Morgan Energy Partners, L.P. (NYSE:KMP)

Q3 2014 Results Earnings Conference Call

October 15, 2014; 04:30 p.m. ET

Executives

Rich Kinder – Chairman & Chief Executive Officer

Steve Kean – President & Chief Operating Officer

Kim Dang – Chief Financial Officer, Vice President of Kinder Morgan G.P., Inc.

Tom Martin – Vice President & President, Natural Gas Pipelines Group

Jim Wuerth – Vice President & President of CO2 Division

Ian Anderson – President of Kinder Morgan Canada

Analysts

Carl Kirst – BMO Capital Markets

Ted Durbin – Goldman Sachs

Mark Reichman – Simmons & Co.

Darren Horowitz – Raymond James & Associates

Craig Shere – Tuohy Brothers

John Edward – Credit Suisse

Becca Followill – U.S. Capital Advisors

Shneur Gershuni – UBS

Jeremy Tonet – JP Morgan

Operator

Welcome to the quarterly earnings conference call. All lines have been placed on a listen only mode until the question-and-answer portion.

Today’s conference is also being recorded. If you have any objections, you may disconnect. (Operator Instructions).

I would now like to turn the call over to Mr. Rich Kinder, Chairman and CEO of Kinder Morgan. You may begin.

Rich Kinder – Chairman & Chief Executive Officer

Okay, thank you Holly and welcome to everybody to our earnings call. 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 make some introductory remarks, then I’m going to turn it over to Steve Kean, our President and Chief Operating Officer who will talk about operations and our project backlog and then we’ll go to Kim Dang, who will take you through the numbers. And I want you to treat her respectfully, because we just named her as a Member of Office of the Chairman today. So I know you will keep that in mind.

Let me talk about first quarter to third quarter performance. There is really not a lot to report on the quarter or on our projections for the balance of the year. Steve and Kim will take you through it in more detail, except that we do now expect to exceed our $1.72 budget target for dividends at KMI and we expect to meet our targets at KMP, KMR and EPB.

Our natural gas pipelines, particularly the inter-state portion of our group leading the year with a strong performance throughout the year. As an indication of the increased demand for transportation on our natural gas pipelines we now have new singed and pending long term contracts since December of last year, December ‘13 of 6.4 bcf/d and to put that in perspective, that’s about 9% of the total U.S. gas demand and that number, that 6.4 number is up from 5.3 at the end of second quarter. So we continue to make real progress in attaching new throughput agreements to our system. Steve will go into more detail on the operating performance across all of our segments.

More significant for the future probably is the size of our backlog of new projects. We went from 17 billion in backlog at the beginning of the quarter to 17.9 billion at the end of the quarter, even after deducting about $1.1 billion of projects that were completed and placed in service during the quarter and thus removed from the backlog. The third quarter additions include some sizeable projects that Steve will discuss in detail.

To me this growth demonstrates once again the demand from mid-stream energy infrastructure in North America and the size of our backlog, together with the enormous footprint of our Pipeline and Terminal assets is the best predictor of future growth at KM in my judgment.

Now, let me also update you on the transaction in which KMI is proposing to buy the outstanding units and shares in KMP, KMR and EPB. We have now received all necessary regulatory approvals, except our registration statement has not yet been declared effective by the SEC. We except to announce the date of our shareholders and unit holder meetings in the near future and we’re hopeful we will be able to close by Thanksgiving.

To remind you, we expect the resulting consolidated KMI to pay a dividend of $2 dollars in 2015, that’s an increase of 16% over the $1.72 budget target for ’14; to increase that dividend by 10% a year through 2020 and to generate coverage in excess of $2 billion above these increased dividend payments.

And with that I’ll turn it over to Steve.

Steve Kean – President & Chief Operating Officer

All right, good afternoon. So I’m going to review the business segments focusing on year-over-year performance, Q3 of last year to Q3 of this year of each one and the key developments in each segment. Starting off with gas, a very good year. KMP, their earnings before DD&A is up $53 million or 9% year-over-year and we continue to see strong performance at TGP and EPNG, as well as the assets that we picked up in the Copano acquisition.

Transport volume on the KMP assets is up 10% year-over-year. At EPB the DCF is up $23 million or 8% year-over-year, really due to the dropdowns of our interest in Gulf and Ruby that were announced in April this year.

The gas group added on a net basis $100 million to the project backlog. That’s after putting into service about $270 million. The biggest piece of that was the expansion of our Huston Central plant and some associated pipe expansions around that asset for about $250 million.

We had a net add at TGP of about $175 million, about the same number at the mid-stream assets and those were really both associated with LNG markets, as well as Mexico, so a net add of $100 million to the backlog in the gas group.

We continue to see strong demand for natural gas infrastructure as Rich mentioned. We’ve seen it in the shale’s, LNG exports and Mexico. Our assets are well positioned for all of that as evidenced by the 6.4 Bcf of signup that we’ve had. So the trends that we’ve been talking about for a long time are now turning themselves into long-term firm transport commitments.

And that’s just mostly the supply side and some LNG and Mexico exports. That’s before we’ve really seen the demand side of this picture with power conversion in the U.S. and industrial and PetChem. on the U.S. Gulf Coast. And to illustrate that point, if look at our backlog you don’t see anything in there, for those developments yet to come just yet, but we can see them over the horizon.

If you break our backlog out in the gas group, call it producer push projects are about $800 million out in the shale’s. What I’ll call first party LNG, which is really the Elba Island and related transportation expansions, about $1.6 billion. What I’ll call second party LNG, which is where we’re investing in infrastructure to serve other peoples LNG facilities is another $750 million.

Mexico is over $900 million and processing and gathering primarily in the Eagle Ford is about $300 million, so that’s about 4.4 or so of the total backlog and you can see we still got more to come with these other developments. Still haven’t seen the full effect of power and industrial PetChem. on the U.S. Gulf Coast and I think we’ll also see some additional LNG and all of those things are things that we are well positioned for.

You would also think with all of this demand side growth and what’s happening on the supply side, that we are going to see an enhanced value on our storage assets as well and that is I think also is still to come.

And also a remainder, the backlog that we have in the gas group does not yet include Northeast direct of Gulf LNG projects, which we continue to actively work. So again, more to come on our well positioned gas network.

Turning to CO2; earnings before DD&A is up $14 million or 4% year-over-year. On the volume side SACROC is up 12%, a huge performer. NGL’s are also up 7% year-over-year. Yates is down a little bit, 3.4%. Katz volumes are up 27.3% and Goldsmith is basically flat. Overall volumes on a net basis are up 9% year-over-year and really great performance in SACROC with nearly every program that we’ve put in place there for 2014, exceeding our expectations.

The disappointment from a production standpoint is Goldsmith, which is essentially flat year-over-year. I would characterize the issues here as being less about geology then they are about operations. The oil is there, it’s down the well bore, but we’ve had outages at the wells and outages associated with our pumps there. These are similar, but not identical problems that we have solved in other places, including SACROC, so we’ve got a full court press to turn things around here.

The other even bigger disappointment in the CO2 group is net oil prices taking the Midland Cushing differential into account. That differential alone more than explains CO2’s entire shortfall to its plan this year. So very strong volume performance at SACROC and the NGL’s year-over-year up-ticks at Katz. Work to be done at Goldsmith in particular.

Turning to the backlog it’s evenly split now in CO2 between the S&T and EOR parts of our business with about $2.1 billion each. We added this proportionately to the S&T portion of the backlog in the quarter-over-quarter change that we had.

Looking ahead, we are going to be focusing our attention on Goldsmith and we’ve begun hedging and looking at other physical sales strategies that we can use to manage the Midland Cushing spread issue.

On the product side, earnings before DD&A are up $20 million or 10% year-over-year. The increase came from our year-over-year earnings growth on our less refined products lines. KMCC had a big up-tick year-over-year, Southeast Terminals and Cochin and those positives more than offset declines at West Coast Terminals and Transmix.

Interestingly, refined products volumes here were up 6.8% year-over-year and up 4.1% if you exclude parkway, which we put into service late in Q3 of last year. Contrast that with the EIA, where nation wide, the increase in refined products was only 0.8% on a year-over-over basis. Plantation volumes really led the way here as demand to move U.S. Gulf Coast refined products to our markets remains very strong.

In addition, the nice increase we saw in refined products volume, the backlog shows strong demand for additional NGL condensate and crude infrastructure. If you look at the composition of the backlog here, there is a little over $0.5 billion that’s associated with UTOPIA and Cochin. Those projects and another 550 associated with crude and condensate at KMCC, including our splitter project there and another 20 or so on miscellaneous refined products and blending operations. So a good chunk of demand for crude and condensate in NGL’s in particular.

The products group also increased their backlog over $100 million, while placing into service over $400 million worth of projects during the quarter. The two big ones being Cochin and the completion of a number of KMCC related expansions and the big addition being the UTOPIA project moving ethane and ethane propane mix for NOVA, as well as potentially some other customers up to Cochin and then into the Windsor-Sarnia area. We also had another $50 million plus of additions to KMCC related expansion projects.

And I have to say overall, both in gas and especially in products, the project, the execution on the projects in this segment remains very good. They think their numbers are better with a notable exception schedule wise of a delay in the first phase of the splitter project in the Huston Ship Channel, but from a cost stand point they are hitting their numbers better.

And a remainder here too, that the backlog does not yet include the Y-Grade project UMTP or Palmetto. We continue to work on those prospects. Palmetto is in the middle of an open season right now until the end of this month and on a combined basis these projects if they come to fruition would add another $4 billion to the backlog.

Terminals; turning to Terminals. Earnings before DD&A year-over-year are up $48 million or 25%. That is the biggest; I believe the biggest ever year-over-year up-tick in performance for the terminal segment. About 70% of that is organic placing a number of projects into service versus 30% on the acquisition side, which is primarily the APT acquisition.

We did experience weakness on our coal export volumes though we do have some protection in our contracts with minimum payments, but we continue to see on the plus side very strong demand for liquids infrastructure and that’s evidenced by a net increase to the backlog of about $300 million, even while putting $200 million worth of projects into service.

The current backlog is predominantly liquids related. It breaks down – there’s about $600 million worth of crude by rail projects that are in the backlog; about $400 million associated with building out the APT tankers; another $1.4 billion that’s other liquids tankage and dock and piping infrastructure and the bulk is only about $80 million of our backlog currently.

Looking ahead, here we expect to continue to see growth in demand for the liquids infrastructure. I think that demand extends also to our existing assets in Houston and Edmonton where we continue to see nice renewal rates on that, but also extends to expansions. On the downside, we except to see continued weakness in coal volumes in the next year.

Lastly Kinder Morgan Canada and the big story here continues to be the Trans Mountain Expansion. Just a remainder here, this is fully under contract. We’ve got NEB approval of the commercial and economic terms of those contracts. Our development costs are almost entirely covered on this project and we do have good cost protection on the most difficult parts of the built.

Last quarter when we had this call we had just received word of a six month, three-week delay in the deadline for an NEB decision. So they moved it from July of 2015 to January of 2016, but at that time we had not yet assessed the full impact of that to the schedule. Other than to note that we would be moving from late 2017 to a 2018 in service date, we’ve spent the intervening time assessing the routs, alternatives in Burnaby. We’ve looked at our construction schedules very closely and can tell you that we expect now a Q3 and frankly a late Q3 of 2018 in the service for Trans Mountain now.

The main thing that’s going on there is a separate proceeding for the NEB to assess the alternative routes between Burnaby Mountain and the dock, where our terminal facility is down to the dock. We are in the middle of that process and in the middle of a dispute with Burnaby over how to assess that. We had to examine our construction schedule closely, looking at things like the effect on clearing schedules as fish and wildlife considerations etc., and that pushed us to a Q3, 2018 in service.

Not withstanding the local disputes, we continue to make good progress to the application process and we still expect to get our permit on this project and build this expansion. So that’s the run down on the business units and the major projects.

And with that, I’ll turn it over to Kim for a more detailed look at the numbers.

Kim Dang – Chief Financial Officer, Vice President of Kinder Morgan G.P., Inc.

Thanks Steve. So starting with KMP and the GAAP income statement, you could see there today the KMP Board declared a distribution per unit of $1.40; that’s a $0.05 increase or 4% from the three months in 2013. As a result, we will declare distribution over nine months of $4.17 or an increase of 5%.

Now you can see on income from continuing operations that we’re up 40%. If you want to look at it on a per share number, we are up 78%. We don’t think that these are the right numbers to focus on, because we don’t think it gives you an accurate picture of what’s going on at KMP.

So if you turn to the second page and numbers, you can see that we – DCF per unit for the quarter is $1.31. That compares to the declared distribution of $1.40. So we have about 0.9, 4 times coverage about $42 million short of coverage.

As we told you last quarter and we told you on almost every quarter, that we expect negative coverage in the second and the third quarter, positive coverage in the first and the fourth and for the year to have positive coverage.

Now, in terms of net income per unit, when you strip out the certain items, we are at $0.57. I’ve seen a couple of notes out there that we’ve missed the consensus earnings. Let me point out that even though we don’t think earnings is the right thing, earnings per unit is the right thing to focus on. We do give you a budget every year of earnings per unit. We also provide a distribution of how that number breaks out across the year.

So if you take our number of $2.57 and multiply by the percentage, you would get $0.57 per unit. So we are right on top of our budget at KMP and if you look at the other two companies, those which I still know that we missed the consensus, EPB is $0.001 short of that calculation as for our publish numbers, budget publish budget numbers and KMI is $0.001 above. So I can’t really comment on where the consensus earnings are coming from, but they are obviously not consistent with the budget that we put out, which we have been very consistent in achieving over time.

DCF in total for KMP is $607 million, up $53 million or 10% in the quarter, so nice growth in total DCF in the quarter for the nine months $1.861 billion, up $252 million or 16%. And so let me reconcile for you the $53 million that were up for the quarter and the $252 million that were up for the nine months.

If you look at segment earnings before DD&A, we are up $141 million or 10%. About 72% of that is coming from two segments, Natural Gas and Terminals. But we also had nice increases coming out of CO2 and products. Our Natural Gas is up about $53 million and Terminals was up about $48 million. Steve took you through all the reasons for that, so I won’t reiterate that, but nice growth coming out of the segments.

Then you focus on the expense side of the equation. G&A is actually – there was an expense of $129 million on the quarter that’s a reduction. So G&A expense is lower than it was in the third quarter of ’13 by about $8 million and that’s the result of higher capitalized overhead as a result of our capital expansion program.

Interest was an expense of $238 million in the quarter. That’s about an increase of $17 million over the third quarter of 2013 and that is the result of higher average balances as a result of acquisitions and expansion capital, slightly offset so by some lower rate.

Then sustaining CapEx was increased $29 million in the third quarter of this year versus the third quarter 2013. That’s within about 2% of our budget and it’s actually about $3 million higher than our budget, but as I’ll tell you in a minute, year-to-date we are slightly behind our budget, so it’s largely timing.

So if you take the segment’s up 141, G&A is a positive $8 million, interest expense negative $17 million, sustaining CapEx $29 million, the GP incentive is up $37 million as a result of higher distributions per unit and more units outstanding and then we have some other items that are a negative $13 million and that’s largely just in our calculation at DCF we make some adjustments for things that are not cash that are in earnings and so $13 million there that gets you to the $53 million.

If you look at the nine months, the $252 million, our segments are up $575 million or 14%. 83% of that growth again is coming out of Natural Gas and Terminals, with gas being up $355 million, Terminals being up $125 million, but we also saw nice growth coming out of CO2 and products.

On the expense side of the equation, G&A is an increased expense versus the nine months last year of about $20 million. Interest is up about $74 million, again a higher balance slightly offset by lower rate. The sustaining CapEx is about $82 million, but year-to-date we are about $23 million lower than our plans on sustaining CapEx.

So we budgeted for sustaining CapEx to increase, but some of that is timing. Actually for the year, we are going to be about $16 million positive to our plan. Some of that, about half of that is just a reclassification to OpEx. So OpEx is higher than we would have expected. Sustaining CapEx is a little bit lower than we would have expected. That explains about half of the $16 million variance.

But back to the nine months, $82 million and increased sustaining CapEx; the GP incentive up $137 million for the same reasons higher distribution per unit, higher units outstanding and then other items of about $10 million gets you to the $252 billion.

So versus our budget where we currently expect to end up the year, we currently expect to end up on budget in terms of DCF and DFC per unit. But let me give you a little more insight into that.

The segments are going to be very, very close on a percentage basis. On an absolute dollar basis they are going to be slightly below and that’s a result of nice increases in GAAP versus our budget, primarily as a result of new contracts and increased transport revenue on TGP and EPNG. It’s a result of contributions from and Terminals from the APT acquisitions. And then these positives are more than offset negative impact of the Midland Cushing differential as Steve mentioned, weaker coal volumes than we would have expected, some project delays and lower condensate volumes.

The slightly below on the absolute dollars from the segment is being offset by positive variances on G&A interest, GP incentive and sustaining CapEx to leave us on budget overall for the year.

Now in terms of KMP’s balance sheet, we ended the quarter at $21.5 billion in debt. That results in a debt to EBITDA of about 3.8 times. The debt increased in the quarter $817 million and it increased almost $2 billion, $1.99 billion for the nine months. So I’ll take you through the change in debt, the drivers of the change in debt.

One the quarter we spent about $1.16 billion in terms of acquisitions, expansion CapEx and contributions to equity investments. We raised about $328 million in equity and then we had a contract buyout that was about $200 million positive, and that was the main certain item back on the income statement, it was the benefit, the earnings benefit of that buyout, but we also received cash for that. And then we have working capital and other items that were a use of capital of about $181 million.

Now let me say, there are tons of moving parts under here given the size of the company that we are, but they net out and so what you’re left with is primarily a use of working capital associated with accrued interest, because we make our interest payments on our debt, primarily in the first quarter and the third quarter. Accrued interest was a use of working capital, of about $186 million in the quarter.

Year-to-date, $1.99 billion increased in the debt balance. We spent about $3.7 billion in terms of acquisitions, expansion CapEx and contributions to equity investments. We had 1.1 of acquisitions with the largest one being the APT acquisition of $961 million that we did in the first quarter. Expansion CapEx was $2.3 billion and then we had about $300 million of contributions to equity investments.

We raised $1.7 billion in equity. We had a little under a $200 million receipt of cash from the contract buyout, and then we had a use of working capital and other items of $178 million. Again, a lot of moving pieces, but the primary use of working capital was accrued interest. So that’s it for KMP.

Looking at EPB, EPB for the quarter is declaring a distribution of $0.65. That is flat with the third quarter of 2013; that result and a declared distribution of $1.95 for the nine months, which is a 3% increase versus the nine months of 2013.

When you look at EPB’s DCF in the quarter, its DCF was $0.65 versus the declared distribution of $0.65 to write out one times coverage. The DCF per unit is up 12% versus the third quarter of last year, so very nice growth in DCF per unit. Year-to-date, DCF per unit is $2.02 versus the distribution of $1.95 and so about $15 million of positive coverage for the nine months on EPB. The $2.02 was up about 3% from the nine months in 2013.

DCF in total $150 million was up $23 million or 18% for the three months. For the nine months $454 million, up $29 million or 7%. Well, let me reconcile for you the $23 million increase in DCF for the quarter and the $29 million increase in DCF for the nine months.

The top line of the page you can see earnings before DD&A, $3 million. That generally is where you expect to see the increase in cash coming from our assets. But because the drop downs that we did were both joint ventures, as you know we adjust our DCF calculation to add back JV DD&A and subtract our share of sustaining CapEx. And the reason we do that is to more closely reflect the cash distributions that we receive from these investments.

So if you add back the JV DD&A, the change in JV DD&A from the quarter in 2013 to the third quarter in 2014, that’s a $31 million increase, and then we have a $3 million adjustment down in our DCF calculation to adjust out some of the non-cash items, primarily differed revenues and AFUDC, that’s about a $3 million negative in the quarter.

So really the assets contribution is up about $31 million. The may drop down contributed about $46 million and then we had some degradation in S&G and WIC associated with the rate cases and also WIC associated with lower rates on contract renewals.

On the expense side of the equation G&A interest sustaining CapEx, G&A is actually down $1 million versus the third quarter of 2013. Interest is up, so increased expense about $3 million is associated with interest expense from financing the drop. Sustaining CapEx is up about $3 million and that gets you to about $26 million of improved cash flow. The GP incentive is up $3 million because of more units outstanding. That gets you to $23 million increase in DCF in the quarter.

Year-to-date, the $29 million earnings before DD&A, again up $6 million, similar story here. You also have to add back the change in the JV DD&A, its about $52 million and then take out items that we adjust that are non-cash to get to DCF, which is a negative $9 million. That gets you to about a $49 million increase coming from the assets. They drop about $77 million benefit in the quarter and then again in the year-to-date, and then again similar story on WIC and S&A down versus the nine months of 2013 on the rate cases and on the case of WIC as a lower contract renewal.

If you look at G&A interest in sustaining CapEx, the change in those is about a $2 million increase in total combined for the nine months. Take that off of the $49 million from the assets. That gets you to a $47 million increase. The GP incentive was up about $18 million on Morgan for higher distribution to get you to the $29 million.

EPB is having a good year. EPB we expect to be in our budget right now. On a DCF we are running slightly ahead of our budget and that’s coming from basically a little bit better performance across the board. Better performance from the assets, a little bit lower G&A, lower interest and lower sustaining CapEx.

Looking at EPBs balance sheet, EPB totaled into the quarter with total debt of $3.642 billion. That is a debt to EBITDA of about four times and so up from the end of the year, but consistent with EPB’s budget. The change in debt in the quarter is a reduction of $99 million for the year. Its an increase of $464 million.

In the quarter we spent about $23 million in terms of expansion CapEx and contributions to equity investments. We issued about $76 million in equity and then working capital and other items were sources of cash of $46 million, which is primarily accrued interest and accrued taxes.

Year-to-date acquisitions expansion CapEx and contributions to equity investments was a use of cash of $1.28 billion with the biggest component of that being the $972 million for the dropdown. We issued a little under $500 million of equity, $498 million, and then we have a little over $66 million source of working capital in other same factors as on the quarter, primarily accrued interest and accrued taxes.

Retuning to KMI. KMI, we are declaring, the Board declared a dividend today of $0.44 per share. That is $0.001 above where we would have expected to be for the third quarter and that is why you see our guidance that we expect to exceed our $1.72 budget.

That result and a declared distribution for the nine months of $1.29, which is an 8% increase over the nine months in 2013. The $0.44 compares to cash available of $0.42, so we are slightly negative on coverage as we would have expected similar to KMP and as we tell you almost every quarter, we expect negative coverage in the second and the third quarter, positive coverage in the first and the fourth and to be approximately one time for the full year. For the nine months, the cash available of $1.29 is equivalent to the declared distribution of $1.29, so right at one times coverage.

Cash available to pay dividends, $435 million in the quarter up $11 million or 3% for the nine months, $1.34 billion up $109 million or 9%. So let me reconcile the $11 million increase in the quarter and the $109 million increase for the nine months.

In the quarter the cash coming from KMI’s investments in the MLPs, so from its GP and LP interest it was up $48 million or 8%. The cash generated from other assets was down $47 million as a result of the dropdowns, and then the combination of interest G&A and taxes was a benefit of about $10 million, meaning we had less expense in the third quarter of this year than we did in the third quarter of last year and that leaves you up about $11 million.

On the nine months, the cash coming from the MLP’s up $182 million or 10%. The cash generated from other assets are down $76 million. Again, this is a function of dropping down assets to EPB and to KMP.

And then interest G&A and taxes, the expense items are a benefit of $3 million; that’s lower G&A and interest more than offsetting higher taxes, leaving you up $109 million in the quarter. Versus our budget, we are slightly ahead of our budget in terms of cash available to pay dividends and as we said, we expect to exceed the dividends per share of $1.72.

Looking at KMIs balance sheet, we ended the quarter at $9.3 billion of debt. If you look at the fully consolidated number of $35.5 billion, that is 4.9 times on a fully consolidated basis debt to the last 12 months EBITDA and we are on target for when we closed the transaction to be at about 5.6 times as we laid out in the Investor Presentation.

The change in debt in the quarter is up $54 million. It’s down a little under $500 million, $493 million year-to-date. On the $54 million we posted margins of about $60 million and then we had a whole host of other items that comprise the difference to get you to $54 million increase in debt.

Those include the fact that KMR that we included in the metric as cash. We did not choose to sell those shares and so that’s a $23 million use of cash. We have a $63 million benefit from the fact that we actually paid lower capital taxes, that’s what in the metric, because we straight lined if you will the NOL that we got in the El Paso acquisition versus on a true cash tax purpose of the metric versus on a true cash tax basis we are using that up as quickly as we can.

We had about $18 million in one-time items primarily, the legacy El Paso environmental and marketing and then we had some transaction costs associated with putting the bridge in place and with the SEC filings and banking fees.

For the year-to-date, $493 million, we received $875 million in dropdown proceeds. Year-to-date we’ve repurchased $192 million between warrants and shares. We had about a $60 million margin call. This is where we posted cash instead of LCs, because there is a benefit. It was cheaper to post the cash and so we converted it from an LC to cash.

We made a pension contribution of $50 million and then we had about $83 million in working capital and other items. So again KMR was about $69 million. The difference between the cash taxes and the metric was $189 millions. Of course the one-time items were $89 million use on distributions we receive and dividends we paid, about a $72 million use and then we had about $39 million in terms of transaction costs, debt issue cost associated with refinancing our revolver earlier in the year and then the financing on the bridge and the revolver for the transaction.

So with that, I’m done.

Richard Kinder

Okay. Thank you Kim and I might add that this will get a lot simpler. Hopefully by the next time we talk we’ll be one company instead of three. And with that Holly, we’ll open the floor for questions.

Question-and-Answer Session

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