Knight Inc. Form 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
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For
the fiscal year ended December
31, 2007
or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from _____to_____
Commission
File Number 1-06446
Knight
Inc.
(Exact
name of registrant as specified in its charter)
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Kansas
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48-0290000
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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500
Dallas Street, Suite 1000, Houston, Texas 77002
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(Address
of principal executive offices, including zip
code)
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Registrant’s
telephone number, including area code (713)
369-9000
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to section 12(g) of the Act:
None
Indicate
by checkmark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act:
Yeso No þ
Indicate
by checkmark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act:
Yes
o No
þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes þ No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one): Large accelerated filer o Accelerated
filer o Non-accelerated
filer þ Smaller
reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No þ
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was $0 at June 29, 2007.
The
number of shares outstanding of the registrant’s common stock, $0.01 par value,
as of March 28, 2008 was 100 shares.
Knight
Inc. Form 10-K
CONTENTS
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2
Knight
Inc. Form 10-K
KNIGHT
INC. AND SUBSIDIARIES
CONTENTS
(Continued)
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209-211
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Note: Individual
financial statements of the parent company are omitted pursuant to the
provisions of Accounting Series Release No. 302.
3
Knight
Inc. Form 10-K
In
this report, unless the context requires otherwise, references to “we,” “us,”
“our,” or the “Company” are intended to mean Knight Inc. (a private Kansas
corporation incorporated on May 18, 1927, formerly known as Kinder Morgan, Inc.)
and its consolidated subsidiaries. All dollars are United States dollars, except
where stated otherwise. Canadian dollars are designated as C$. To convert
December 31, 2007 balances denominated in Canadian dollars to U.S. dollars, we
used the December 31, 2007 Bank of Canada closing exchange rate of 1.012 U.S.
dollars per Canadian dollar. Unless otherwise indicated, all volumes of natural
gas are stated at a pressure base of 14.73 pounds per square inch absolute and
at 60 degrees Fahrenheit and, in most instances, are rounded to the nearest
major multiple. In this report, the term “MMcf” means million cubic feet, the
term “Bcf” means billion cubic feet, the term “bpd” means barrels per day and
the terms “Dth” (dekatherms) and “MMBtus” mean million British Thermal Units
(“Btus”). Natural gas liquids consist of ethane, propane, butane, iso-butane and
natural gasoline. The following discussion should be read in conjunction with
the accompanying Consolidated Financial Statements and related
Notes.
(A)
General Development of Business
We
are one of the largest energy transportation and storage companies in North
America. We own all the common equity of the general partner of Kinder Morgan
Energy Partners, L.P. (“Kinder Morgan Energy Partners”), a publicly traded
pipeline limited partnership, as well as a significant limited partner interest
in Kinder Morgan Energy Partners. Due to our implementation of Emerging Issues
Task Force (“EITF”) No. 04-5, Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited Partnership or
Similar Entity When the Limited Partners Have Certain Rights, we have
included Kinder Morgan Energy Partners and its consolidated subsidiaries in our
consolidated financial statements effective January 1, 2006. This means that the
accounts, balances and results of operations of Kinder Morgan Energy Partners
and its consolidated subsidiaries are now presented on a consolidated basis with
ours and those of our other consolidated subsidiaries for financial reporting
purposes, instead of equity method accounting as previously reported. See Note
1(B) of the accompanying Notes to Consolidated Financial Statements. Additional
information concerning our investment in Kinder Morgan Energy Partners and its
various businesses is contained in Note 2 of the accompanying Notes to
Consolidated Financial Statements and in Kinder Morgan Energy Partners’ 2007
Annual Report on Form 10-K. We operate or own an interest in approximately
37,000 miles of pipelines and 165 terminals. Our pipelines transport natural
gas, gasoline, crude oil, carbon dioxide and other products, and our terminals
store petroleum products and chemicals and handle bulk materials like coal and
petroleum coke. We are also the leading independent provider of carbon dioxide,
commonly called “CO2,” for
enhanced oil recovery projects in North America. Our executive offices are
located at 500 Dallas Street, Suite 1000, Houston, Texas 77002 and our telephone
number is (713) 369-9000.
In
May 2001, Kinder Morgan Management, LLC (“Kinder Morgan Management”), one of our
indirect subsidiaries (we own its only two voting shares), issued and sold its
limited liability shares in an underwritten initial public offering. The net
proceeds from the offering were used by Kinder Morgan Management to buy i-units
from Kinder Morgan Energy Partners for $991.9 million. Upon purchase of the
i-units, Kinder Morgan Management became a limited partner in Kinder Morgan
Energy Partners and was delegated by Kinder Morgan Energy Partners’ general
partner, the responsibility to manage and control the business and affairs of
Kinder Morgan Energy Partners. The i-units are a class of Kinder Morgan Energy
Partners’ limited partner interests that have been, and will be, issued only to
Kinder Morgan Management. We have certain rights and obligations with respect to
these securities.
In
the initial public offering, we purchased 10% of the Kinder Morgan Management
shares, with the balance purchased by the public. The equity interest in Kinder
Morgan Management (which is consolidated in our financial statements) owned by
the public is reflected as minority interest on our balance sheet. The earnings
recorded by Kinder Morgan Management that are attributed to its shares held by
the public are reported as “minority interest” in our Consolidated Statements of
Operations. Subsequent to the initial public offering by Kinder Morgan
Management of its shares, our ownership interest in Kinder Morgan Management has
changed because (i) we recognize our share of Kinder Morgan Management’s
earnings, (ii) we record the receipt of distributions attributable to the Kinder
Morgan Management shares that we own, (iii) Kinder Morgan Management has made
additional sales of its shares (both through public and private offerings), (iv)
pursuant to an option feature that was previously available to Kinder Morgan
Management shareholders but no longer exists, we exchanged certain of the Kinder
Morgan Energy Partners’ common units held by us for Kinder Morgan Management
shares held by the public and (v) we sold some Kinder Morgan Management shares
we owned in order to generate taxable gains to offset expiring tax loss
carryforwards. At December 31, 2007, we owned 10.3 million Kinder Morgan
Management shares representing 14.3% of Kinder Morgan Management’s total
outstanding shares. Additional information concerning the business of, and our
investment in and obligations to, Kinder Morgan Management is contained in Note
3 of the accompanying Notes to Consolidated Financial Statements and in Kinder
Morgan Management’s 2007 Annual Report on Form 10-K.
4
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Items 1. and 2. Business
and Properties. (continued)
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Knight
Form 10-K
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On
November 30, 2005, we completed the acquisition of Terasen Inc., referred to in
this report as Terasen. At the time of acquisition, Terasen’s two core
businesses were its natural gas distribution business, (which we subsequently
sold, see below) and its petroleum pipeline business (part of which, Corridor
Pipeline, we subsequently sold, see below).
On
August 28, 2006, we entered into an agreement and plan of merger whereby
generally each share of our common stock would be converted into the right to
receive $107.50 in cash without interest. We in turn would merge with a wholly
owned subsidiary of Knight Holdco LLC, a privately owned company in which
Richard D. Kinder, our Chairman and Chief Executive Officer, would be a major
investor. Our board of directors, on the unanimous recommendation of a special
committee composed entirely of independent directors, approved the agreement and
recommended that our stockholders approve the merger. Our stockholders voted to
approve the proposed merger agreement at a special meeting held on December 19,
2006. On May 30, 2007, the merger closed, with Kinder Morgan, Inc. continuing as
the surviving legal entity and subsequently renamed “Knight Inc.” Additional
investors in Knight Holdco LLC include the following: other senior members of
our management, most of whom are also senior officers of Kinder Morgan G.P.,
Inc. and of Kinder Morgan Management; our co-founder William V. Morgan; Kinder
Morgan, Inc. board members Fayez Sarofim and Michael C. Morgan; and affiliates
of (i) Goldman Sachs Capital Partners; (ii) American International Group, Inc.;
(iii) The Carlyle Group; and (iv) Riverstone Holdings LLC. This transaction is
referred to in this report as “the Going Private transaction.” We are now
privately owned. See Note 1(B) of the accompanying Notes to Consolidated
Financial Statements for a discussion of our new basis of accounting as a result
of this transaction. Upon closing of the Going Private transaction, our common
stock is no longer traded on the New York Stock Exchange.
In
February 2007, we entered into a definitive agreement to sell our Canada-based
retail natural gas distribution operations to Fortis Inc., for approximately
C$3.7 billion including cash and assumed debt, and as a result of a
redetermination of fair value in light of this proposed sale, we recorded a
goodwill impairment charge in the fourth quarter of 2006. This sale was
completed in May 2007 (see Notes 6 and 7 of the accompanying Notes to
Consolidated Financial Statements). In prior periods, we referred to these
operations principally as the Terasen Gas business segment.
In
March 2007, we entered into an agreement to sell the Corridor Pipeline System to
Inter Pipeline Fund in Canada for approximately C$760 million, including debt.
This sale was completed in June 2007. Inter Pipeline Fund also assumed all of
the debt associated with the expansion taking place on Corridor at the time of
the sale.
Also
in March 2007, we completed the sale of our U.S. retail natural gas distribution
and related operations to GE Energy Financial Services, a subsidiary of General
Electric Company, and Alinda Investments LLC for $710 million and an adjustment
for working capital. In prior periods, we referred to these operations as the
Kinder Morgan Retail business segment. In accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the financial results of the Terasen Gas,
Corridor and Kinder Morgan Retail operations have been reclassified to
discontinued operations for all periods presented. Refer to the heading
“Discontinued Operations” included elsewhere in Management’s Discussion and
Analysis for additional information regarding discontinued
operations.
On
April 30, 2007, Kinder Morgan, Inc. sold the Trans Mountain pipeline system to
Kinder Morgan Energy Partners for approximately $550 million. The transaction
was approved by the independent members of our board of directors and those of
Kinder Morgan Management following the receipt, by each board, of separate
fairness opinions from different investment banks. The Trans Mountain pipeline
system transports crude oil and refined products from Edmonton, Alberta, Canada
to marketing terminals and refineries in British Columbia and the State of
Washington. An impairment of the Trans Mountain pipeline system was recorded in
the first quarter of 2007; see Note 1(I) of the accompanying Notes to
Consolidated Financial Statements.
On
July 27, 2007, Kinder Morgan Energy Partners’ general partner, Kinder Morgan
G.P., Inc., a Delaware corporation and our subsidiary, issued and sold 100,000
shares of Series A fixed-to-floating rate term cumulative preferred stock due
2057, receiving net proceeds of $98.6 million. The consent of holders of a
majority of these preferred shares is required with respect to a commencement of
or a filing of a voluntary bankruptcy proceeding with respect to Kinder Morgan
Energy Partners, or either of two of Kinder Morgan Energy Partners’
subsidiaries: SFPP, L.P. and Calnev Pipe Line LLC.
On
December 10, 2007, we entered into a definitive agreement to sell an 80%
ownership interest in our NGPL business segment to Myria Acquisition Inc.
(“Myria”), a Delaware corporation, for approximately $5.9 billion, subject to
certain adjustments. The sale closed on February 15, 2008. We will continue to
operate NGPL’s assets pursuant to a 15-year operating agreement. Myria is
comprised of a syndicate of investors led by Babcock & Brown, an
international investment and specialized fund and asset management
group.
Our
business strategy is to: (i) focus on fee-based energy transportation and
storage assets that are core to the energy infrastructure of growing markets
within North America, (ii) increase utilization of our existing assets while
controlling costs, operating safely and employing environmentally sound
operating practices, (iii) leverage economies of scale from
5
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Items 1. and 2. Business
and Properties. (continued)
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Knight
Form 10-K
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incremental
acquisitions and expansions of properties that fit within our strategy and are
accretive to cash flow and (iv) maximize the benefits of our financial structure
to create and return value to our stockholders as discussed
following.
We
intend to maintain a capital structure that provides flexibility and stability,
while returning value to our shareholders. During 2007, we utilized cash
generated from operations (including cash received from distributions
attributable to our investment in Kinder Morgan Energy Partners) to pay common
stock dividends (prior to the Going Private transaction), finance our capital
expenditures program and pay down debt. We also made significant asset sales
during 2007, including the sale of our U.S. retail natural gas distribution and
related operations, the Terasen Gas business segment, the Corridor pipeline
system, and the TransMountain pipeline system, which we sold to Kinder Morgan
Energy Partners. We used the proceeds from these sales to pay down debt. In
addition, during 2007, we announced the sale of our Colorado Power assets and an
80% interest in our Natural Gas Pipeline Company of America business segment.
These sales closed in the first quarter of 2008 and the proceeds from these
sales were also used to pay down debt. We expect to benefit from accretive
acquisitions and capital expansions (primarily by Kinder Morgan Energy
Partners). Kinder Morgan Energy Partners has a multi-year history of making
accretive investments, which benefit us through our limited and general partner
interests. This strategy is expected to continue, although we can provide no
assurance that such investments will occur in the future.
We
(primarily through Kinder Morgan Energy Partners) regularly consider and enter
into discussions regarding potential acquisitions and are currently
contemplating potential acquisitions. Any such transaction would be subject to
negotiation of mutually agreeable terms and conditions, receipt of fairness
opinions and approval of the respective boards of directors, if required. While
there are currently no unannounced purchase agreements for the acquisition of
any material business or assets, such transactions can be effected quickly, may
occur at any time and may be significant in size relative to our existing assets
or operations.
It
is our intention to carry out the above business strategy, modified as necessary
to reflect changing economic conditions and other circumstances. However, as
discussed under “Risk Factors” elsewhere in this report, there are factors that
could affect our ability to carry out our strategy or affect its level of
success even if carried out.
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·
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Going Private
Transaction
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As
discussed above, on May 30, 2007, we completed the Going Private transaction,
which was financed through a combination of debt and equity financing. The debt
financing consisted of senior secured credit facilities provided by a credit
agreement and related security and other agreements. Our obligations under the
credit agreement are secured by liens on the capital stock of each of our wholly
owned subsidiaries and substantially all of our and our subsidiaries’ assets
(excluding those of Kinder Morgan G.P., Inc., Kinder Morgan Energy Partners,
Kinder Morgan Management and their respective subsidiaries). See Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Significant Financing Transactions”
for further details regarding the debt financing.
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·
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Sale of U.S. Retail
Operations
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In
March 2007, we completed the sale of our U.S. retail natural gas distribution
and related operations to GE Energy Financial Services, a subsidiary of General
Electric Company, and Alinda Investments L.L.C. for $710 million and an
adjustment for working capital. The financial results of these operations have
been reclassified to discontinued operations for all periods
presented.
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·
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Sale of Terasen Gas Business
Segment
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In
May 2007, we completed the sale of our Canada-based retail natural gas
distribution operations to Fortis Inc. for approximately $3.4 billion (C$3.7
billion) including cash and assumed debt. The financial results of these
operations have been reclassified to discontinued operations for all periods
presented.
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·
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Sale of Corridor Pipeline
System
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In
June 2007, we completed the sale of the Corridor Pipeline System to Inter
Pipeline Fund for approximately $711 million (C$760 million) plus assumption of
all construction debt. The financial results of these operations have been
reclassified to discontinued operations for all periods presented.
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·
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Sale of 80% Ownership Interest
in NGPL Business Segment
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On
December 10, 2007, we entered into a definitive agreement to sell an 80%
ownership interest in our NGPL business segment to Myria for approximately $5.9
billion, subject to certain adjustments. The sale closed on February 15, 2008.
We will continue to operate NGPL’s assets pursuant to a 15-year operating
agreement. Myria is comprised of a syndicate of investors led by Babcock &
Brown, an international investment and specialized fund and asset management
group.
6
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Items 1. and 2. Business
and Properties. (continued)
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Knight
Form 10-K
|
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·
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Debt Securities
Buyback
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On
February 21, 2008, we commenced a cash tender offer to purchase up to $1.6
billion of Knight Inc.’s outstanding debt securities. In March 2008, we paid
$1.6 billion in cash to repurchase $1.67 billion par value of debt securities.
Proceeds from the completed sale of an 80% ownership interest in our NGPL
business segment were used to fund this debt security purchase.
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·
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Repayment of Senior Secured
Credit Facilities Debt
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In
June 2007, we repaid the borrowings outstanding under the $455 million Tranche C
term loan portion of our senior secured credit facilities. On February 15, 2008,
we used a portion of the proceeds from the above-referenced sale of an interest
in our NGPL business segment to repay the remaining $4.6 billion outstanding
under our senior secured credit facilities.
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·
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NGPL Re-Contracting
Transportation and Storage
Capacity
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In
2007, NGPL extended long-term firm transportation and storage contracts with
some of its largest shippers. Combined, the contracts represent approximately
0.44 million Dth per day of annual firm transportation service.
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·
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NGPL Storage
Expansions
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In
April 2007, NGPL placed into service a $72.3 million expansion at its North
Lansing field in East Texas that added 10 Bcf of natural gas storage service
capacity. On December 7, 2007, NGPL filed an application with the Federal Energy
Regulatory Commission, referred to in this report as the FERC, seeking approval
to expand its Herscher Galesville storage field in Kankakee County, Illinois to
add 10 Bcf of incremental firm storage service for five expansion shippers. This
project is fully supported by contracts ranging from five to ten
years.
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·
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NGPL Amarillo-Gulf Coast Line
Expansion
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NGPL
added a new compressor station to Segment 17 of its Amarillo-Gulf Coast line
that provides 140 MMcf per day of additional capacity. The $17 million project
was placed in service January 6, 2007, and all of the additional capacity is
fully contracted.
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·
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NGPL Louisiana Line
Expansion
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In
October 2006, NGPL filed with the FERC seeking approval to expand its Louisiana
Line by 200,000 Dth per day. This $88 million project is supported by five-year
agreements that fully subscribe the additional capacity. On July 2, 2007, the
FERC issued an order granting construction and operation of the requested
facilities. NGPL accepted the order on July 6, 2007. This expansion was placed
in service during the first quarter of 2008.
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·
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Kinder Morgan Illinois
Pipeline
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In
July 2007, Kinder Morgan Illinois Pipeline received FERC approval to build
facilities to supply natural gas transportation service for The Peoples Gas
Light and Coke Co., who has signed a 10-year agreement for all the capacity. The
$18 million project, which has a capacity of 360,000 Dth per day, was placed in
service in December 2007.
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·
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Products Pipelines – KMP North
System Sale
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Effective
October 5, 2007, Kinder Morgan Energy Partners sold its North System natural gas
liquids and refined petroleum products pipeline system and its 50% ownership
interest in the Heartland Pipeline Company to ONEOK Partners, L.P. for
approximately $298.6 million in cash. We accounted for the North System business
as a discontinued operation for all periods presented in this
report.
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·
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Products Pipelines – KMP
Pacific Operations East Line
Expansion
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In
December 2007, Kinder Morgan Energy Partners completed a second expansion of its
Pacific operations’ East Line pipeline segment. This expansion consisted of
replacing approximately 130 miles of 12-inch diameter pipe between El Paso,
Texas and Tucson, Arizona with new 16-inch diameter pipe, constructing
additional pump stations, and adding new storage tanks at Tucson. The project,
completed at a cost of approximately $154 million, will increase East Line
capacity by 36% (to approximately 200,000 barrels per day) to meet the demand
for refined petroleum products, and will provide a platform for further
incremental expansions through horsepower additions to the system.
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·
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Products Pipelines – KMP CALNEV
Pipeline System Expansion
|
On
July 23, 2007, following the FERC’s expedited approval of Kinder Morgan Energy
Partners’ CALNEV Pipeline’s proposed tariff rate structure, Kinder Morgan Energy
Partners announced its continuing development of the approximate $426 million
expansion of the pipeline system into Las Vegas, Nevada. The expansion involves
the construction of a new 16-inch diameter pipeline, which will parallel
existing utility corridors between Colton, California and Las Vegas in order to
minimize environmental impacts. System capacity would increase to approximately
200,000 barrels per day upon completion of the expansion, and could be increased
as necessary to
7
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Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
over
300,000 barrels per day with the addition of pump stations. The CALNEV expansion
is expected to be complete in early 2011.
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|
·
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Products Pipelines – KMP Cochin
Pipeline System Ownership Interest Increased to
100%
|
Effective
January 1, 2007, Kinder Morgan Energy Partners acquired the remaining
approximate 50.2% interest in the Cochin pipeline system that it did not already
own from affiliates of BP for an aggregate consideration of approximately $47.8
million, consisting of $5.5 million in cash and a note payable having a fair
value of $42.3 million. As part of the transaction, the seller also agreed to
reimburse Kinder Morgan Energy Partners for certain pipeline integrity
management costs over a five-year period in an aggregate amount not to exceed
$50 million. Upon closing, Kinder Morgan Energy Partners became the operator of
the pipeline.
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·
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Natural Gas Pipelines – KMP
Rockies Express Pipeline
|
On
February 14, 2007, the first phase of the Rockies Express pipeline system, the
327-mile REX-Entrega Project, was placed in service at a cost of approximately
$745 million and provided up to 500 million cubic feet per day of natural gas
capacity from the Meeker Hub in Rio Blanco County, Colorado and Wamsutter Hub in
Sweetwater County, Wyoming to the Cheyenne Hub in Weld County,
Colorado.
The
Rockies Express pipeline project is an approximate $4.9 billion, 1,679-mile
natural gas pipeline system, which is owned and currently being developed by
Rockies Express Pipeline LLC. The Rockies Express pipeline project is to be
completed in three phases: (i) a 327-mile, $745 million pipeline running from
the Meeker Hub to the Cheyenne Hub with a nominal capacity of 500 million cubic
feet per day; (ii) a 713-mile, $1.6 billion pipeline from the Cheyenne Hub to an
interconnect in Audrain County, Missouri, transporting up to 1.5 billion cubic
feet per day; and (iii) a 639-mile, $2.6 billion pipeline from Audrain County,
Missouri to Clarington, located in Monroe County, Ohio. When fully completed,
the Rockies Express pipeline system will have the capability to transport 1.8
billion cubic feet per day of natural gas, and binding firm commitments have
been secured for all of the pipeline capacity. On January 12, 2008, interim
service on the REX-West Project (second phase) commenced. Full service on the
REX-West system for 1.5 billion cubic feet per day of contracted capacity is
expected to commence in mid-April 2008. See Items 1 and 2 Business and
Properties, (C) Narrative Description of Business, Natural Gas Pipelines – KMP,
Rockies Express Pipeline for more information.
|
|
·
|
Natural Gas Pipelines – KMP
Texas Intrastate Pipeline
Project
|
On
May 14, 2007, Kinder Morgan Energy Partners announced plans to construct a $72
million natural gas pipeline designed to bring new supplies out of East Texas to
markets in the Houston and Beaumont, Texas areas. The new pipeline will consist
of approximately 63 miles of 24-inch diameter pipe and multiple interconnections
with other pipelines. It will connect the Kinder Morgan Tejas system in Harris
County, Texas to the Kinder Morgan Texas Pipeline system in Polk County near
Goodrich, Texas. In addition, Kinder Morgan Energy Partners entered into a
long-term binding agreement with CenterPoint Energy Services, Inc. to provide
firm transportation for a significant portion of the initial project capacity,
which will consist of approximately 225 million cubic feet per day of natural
gas using existing compression and be expandable to over 400 million cubic feet
per day with additional compression.
|
|
·
|
Natural Gas Pipelines – KMP
Kinder Morgan Louisiana
Pipeline
|
On
June 22, 2007, the FERC issued an order granting construction and operation of
the Kinder Morgan Louisiana Pipeline project, and Kinder Morgan Energy Partners
officially accepted the order on July 10, 2007. The Kinder Morgan Louisiana
Pipeline is expected to cost approximately $510 million and will provide
approximately 3.2 billion cubic feet per day of take-away natural gas capacity
from the Cheniere Sabine Pass liquefied natural gas terminal, located in Cameron
Parish, Louisiana, to various delivery points in Louisiana and will provide
interconnects with many other natural gas pipelines, including NGPL. The project
is supported by fully subscribed capacity and long-term customer commitments
with Chevron and Total and is expected to be in service by January 1,
2009.
|
|
·
|
Natural Gas Pipelines – KMP
Kinder Morgan Interstate Gas Transmission Colorado Lateral
Project
|
On
August 6, 2007, Kinder Morgan Interstate Gas Transmission LLC filed for
regulatory approval to construct and operate a 41-mile, $29 million natural gas
pipeline from the Cheyenne Hub to markets in and around Greeley, Colorado. When
completed, the Colorado Lateral expansion project will provide firm
transportation of up to 55 million cubic feet per day to a local utility under
long-term contract. On February 21, 2008, the FERC granted the certification
application.
|
|
·
|
Natural Gas Pipelines – KMP
Midcontinent Express
Pipeline
|
On
October 9, 2007, Midcontinent Express Pipeline LLC filed an application with the
FERC requesting a certificate of public convenience and necessity that would
authorize construction and operation of the approximate 500-mile
8
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
Midcontinent
Express Pipeline natural gas transmission system. Kinder Morgan Energy Partners
currently owns a 50% interest in Midcontinent Express Pipeline LLC and Energy
Transfer Partners L.P. owns the remaining interest. The Midcontinent Express
Pipeline will create long-haul, firm natural gas transportation takeaway
capacity, either directly or indirectly, from natural gas producing regions
located in Texas, Oklahoma and Arkansas. The total project is expected to cost
approximately $1.3 billion, and will have an initial transportation capacity of
approximately 1.4 billion cubic feet per day of natural gas.
The
Midcontinent Express Pipeline will originate near Bennington, Oklahoma and
terminate at an interconnect with Williams’ Transcontinental Gas Pipe Line
Corporation’s natural gas pipeline system near Butler, Alabama. It will also
connect to NGPL’s natural gas pipeline and to Energy Transfer Partners’ 135-mile
natural gas pipeline, which extends from the Barnett Shale natural gas producing
area in North Texas to an interconnect with the Texoma Pipeline near Paris,
Texas. The Midcontinent Express Pipeline now has long-term binding commitments
from multiple shippers for approximately 1.2 billion cubic feet per day and, in
order to provide a seamless transportation path from various locations in
Oklahoma, the pipeline has also executed a firm capacity lease agreement with
Enogex, Inc., an Oklahoma-based intrastate natural gas gathering and pipeline
company that is wholly owned by OGE Energy Corp. Subject to the receipt of
regulatory approvals, construction of the pipeline is expected to commence in
August 2008 and the pipeline is expected to be in service during the first
quarter of 2009.
In
January 2008, in conjunction with the signing of additional binding
transportation commitments, Midcontinent Express Pipeline LLC and MarkWest
Pioneer, LLC (“Mark West”) entered into an option agreement that provides
MarkWest a one-time right to purchase a 10% ownership interest in Midcontinent
Express Pipeline LLC after the pipeline is fully constructed and placed into
service. If the option is exercised, Kinder Morgan Energy Partners and Energy
Transfer Partners will each own 45% of Midcontinent Express Pipeline LLC, while
MarkWest will own the remaining 10%.
|
|
·
|
Natural Gas Pipelines – KMP
Kinder Morgan Interstate Gas Transmission Pipeline System
Expansion
|
On
October 17, 2007, Kinder Morgan Energy Partners announced that it will invest
approximately $23 million to expand its Kinder Morgan Interstate Gas
Transmission pipeline system in order to serve five separate industrial plants
(four of which produce ethanol) near Grand Island, Nebraska. The project is
fully subscribed with long-term customer contracts, and subject to the receipt
of regulatory approvals filed December 21, 2007, the expansion project is
expected to be fully operational by the fall of 2008.
|
|
·
|
Natural Gas Pipelines – KMP
TransColorado Gas Transmission
Expansion
|
On
December 31, 2007, TransColorado Gas Transmission LLC completed an approximate
$50 million expansion to provide up to 250 million cubic feet per day of natural
gas transportation, starting January 1, 2008, from the Blanco Hub to an
interconnect with the Rockies Express pipeline system at the Meeker
Hub.
|
|
·
|
CO2 – KMP Carbon Dioxide Expansion
Projects
|
On
January 17, 2007, Kinder Morgan Energy Partners announced that its CO2 business
segment will invest approximately $120 million to further expand its operations
and enable it to meet the increased demand for carbon dioxide in the Permian
Basin. The expansion activities will take place in southwest Colorado and
include developing a new carbon dioxide source field (named the Doe Canyon Deep
Unit that went in service during the first quarter of 2008) and adding
infrastructure at both the McElmo Dome Unit and the Cortez Pipeline. The entire
expansion is expected to be completed by the middle of 2008.
|
|
·
|
Terminals – KMP Biodiesel
Liquids Terminal Expansion
|
On
February 28, 2007, Kinder Morgan Energy Partners announced plans to invest up to
$100 million to expand its liquids terminal facilities in order to help serve
the growing biodiesel market. Kinder Morgan Energy Partners entered into
long-term agreements as lessor with Green Earth Fuels, LLC to build tankage that
will handle biodiesel at Kinder Morgan Energy Partners’ Houston Ship Channel
liquids facility. Green Earth Fuels, LLC completed construction on an 86 million
gallon biodiesel production facility at Kinder Morgan Energy Partners’ Galena
Park, Texas liquids terminal in the fourth quarter of 2007.
|
|
·
|
Terminals – KMP Vancouver
Wharves Terminal Acquisition
|
On
May 30, 2007, Kinder Morgan Energy Partners purchased the Vancouver Wharves bulk
marine terminal from British Columbia Railway Company, a crown corporation owned
by the Province of British Columbia, for an aggregate consideration of $57.2
million, consisting of $38.8 million in cash and $18.4 million in assumed
liabilities. The Vancouver Wharves facility is located on the north shore of the
Port of Vancouver’s main harbor, and includes five deep-sea vessel berths
situated on a 139-acre site. The terminal assets include significant rail
infrastructure, dry bulk and liquid storage, and material handling systems which
allow the terminal to handle over 3.5 million tons of cargo
annually.
9
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
|
|
·
|
Terminals – KMP Louisiana
Terminal Assets Expansion
|
On
July 10, 2007, Kinder Morgan Energy Partners announced a combined $41 million
investment for two terminal expansions to help meet the growing need for
terminal services in key markets along the Gulf Coast. The investment consists
of (i) the construction of a terminal that will include liquids storage,
transfer and packaging facilities at the Rubicon Plant site in Geismar,
Louisiana; and (ii) the purchase of liquids storage tanks from Royal Vopak in
Westwego, Louisiana. The tanks have a storage capacity of approximately 750,000
barrels for vegetable oil, biodiesel, ethanol and other liquids products. The
new terminal being built in Geismar will be capable of handling inbound and
outbound material via pipeline, rail, truck and barge/vessel. Construction is
expected to be complete by the fourth quarter of 2008.
|
|
·
|
Terminals – KMP Steel Terminals
Acquisition
|
Effective
September 1, 2007, Kinder Morgan Energy Partners acquired five bulk terminal
facilities from Marine Terminals, Inc. for an aggregate consideration of
approximately $101.5 million, consisting of $100.3 million in cash and an
assumed liability of $1.2 million. The acquired assets and operations are
primarily involved in the handling and storage of steel and alloys, and also
provide stevedoring and harbor services, scrap handling, and scrap processing
services to customers in the steel and alloys industry. The operations are
located in Blytheville, Arkansas; Decatur, Alabama; Hertford, North Carolina;
and Berkley, South Carolina. Combined, the five facilities handled approximately
13.7 million tons of steel products in 2006. Under long-term contracts, the
acquired terminal facilities will continue to provide handling, processing,
harboring and warehousing services to Nucor Corporation, one of the nation’s
largest steel and steel products companies.
|
|
·
|
Terminals – KMP Petroleum Coke
Terminal Project
|
On
January 16, 2008, Kinder Morgan Energy Partners announced that it plans to
invest approximately $56 million to construct a petroleum coke terminal at the
BP refinery located in Whiting, Indiana. Kinder Morgan Energy Partners has
entered into a long-term contract to build and operate the facility, which will
handle approximately 2.2 million tons of petroleum coke per year from a coker
unit BP plans to construct to process heavy crude oil from Canada. The facility
is expected to be in service in mid-year 2011.
|
|
·
|
Trans Mountain – KMP Sale of
Trans Mountain to Kinder Morgan Energy
Partners
|
On
April 30, 2007, we sold the Trans Mountain pipeline system to Kinder Morgan
Energy Partners for $549.1 million. The Trans Mountain pipeline system, which
transports crude oil and refined products from Edmonton, Alberta, Canada to
marketing terminals and refineries in British Columbia and the state of
Washington, currently transports approximately 260,000 barrels per day. An
additional expansion that will increase capacity of the pipeline to 300,000
barrels per day is expected to be in service by November 2008.
|
|
·
|
Trans Mountain – KMP Trans
Mountain Pipeline Expansion
|
On
August 23, 2007, Kinder Morgan Energy Partners announced that it has begun
construction on the approximately C$485 million Anchor Loop project, the second
phase of the Trans Mountain pipeline system expansion that will increase
pipeline capacity from approximately 260,000 to 300,000 barrels of crude oil per
day. The project is expected to be complete by November 2008. In April 2007,
Kinder Morgan Energy Partners commissioned 10 new pump stations which boosted
capacity on Trans Mountain from 225,000 to approximately 260,000 barrels per
day.
|
|
·
|
Kinder Morgan Management Public
Offering
|
On
May 17, 2007, Kinder Morgan Management closed the public offering of 5,700,000
of its shares at a price of $52.26 per share. The net proceeds from the offering
were used by Kinder Morgan Management to buy additional i-units from Kinder
Morgan Energy Partners. Kinder Morgan Energy Partners used the proceeds of
$297.9 million from its i-unit issuance to reduce the borrowings under its
commercial paper program.
|
|
·
|
Kinder Morgan Energy Partners
Public Offerings
|
In
December 2007, Kinder Morgan Energy Partners completed a public offering of
7,130,000 of its common units, including common units sold pursuant to the
underwriters’ over-allotment option, at a price of $48.09 per unit, less
underwriting expenses. Kinder Morgan Energy Partners received net proceeds of
$342.9 million for the issuance of these 7,130,000 common units, and used the
proceeds to reduce the borrowings under its commercial paper
program.
On
February 12, 2008, Kinder Morgan Energy Partners completed an additional
offering of 1,080,000 of its common units at a price of $55.65 per unit in a
privately negotiated transaction. Kinder Morgan Energy Partners received net
proceeds of $60.1 million for the issuance of these 1,080,000 common units, and
used the proceeds to reduce the borrowings under its commercial paper
program.
10
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
In
March 2008, Kinder Morgan Energy Partners completed a public offering of
5,750,000 of its common units, including common units sold pursuant to the
underwriters’ over-allotment option, at a price of $57.70 per unit, less
commissions and underwriting expenses. Kinder Morgan Energy Partners received
net proceeds of $324.2 million for the issuance of these common units, and used
the proceeds to reduce the borrowings under its commercial paper
program.
|
|
·
|
Kinder Morgan Energy Partners
Debt Offerings
|
On
January 30, 2007, Kinder Morgan Energy Partners completed a public offering of
senior notes. Kinder Morgan Energy Partners issued a total of $1.0 billion in
principal amount of senior notes, consisting of $600 million of 6.00% notes due
February 1, 2017 and $400 million of 6.50% notes due February 1, 2037. Kinder
Morgan Energy Partners received proceeds from the issuance of the notes, after
underwriting discounts and commissions, of $992.8 million, and used the proceeds
to reduce the borrowings under its commercial paper program.
On
June 21, 2007, Kinder Morgan Energy Partners closed a public offering of $550
million in principal amount of 6.95% senior notes. The notes are due January 15,
2038. Kinder Morgan Energy Partners received proceeds from the issuance of the
notes, after underwriting discounts and commissions, of $543.9 million, and used
the proceeds to reduce its commercial paper debt.
On
August 28, 2007, Kinder Morgan Energy Partners closed a public offering of $500
million in principal amount of 5.85% senior notes. The notes are due September
15, 2012. Kinder Morgan Energy Partners received proceeds from the issuance of
the notes, after underwriting discounts and commissions, of $497.8 million, and
used the proceeds to reduce its commercial paper debt.
On
February 12, 2008, Kinder Morgan Energy Partners completed a public offering of
$900 million in principal amount of senior notes, consisting of $600 million of
5.95% notes due February 15, 2018, and $300 million of 6.95% notes due January
15, 2038. Kinder Morgan Energy Partners received proceeds from the issuance of
the notes, after underwriting discounts and commissions, of approximately $894.1
million, and used the proceeds to reduce the borrowings under its commercial
paper program.
|
|
·
|
Kinder Morgan Energy Partners
Cash Distribution Expectations for
2008
|
On
November 26, 2007, Kinder Morgan Energy Partners announced that it expects to
declare cash distributions of $4.02 per unit for 2008, an almost 16% increase
over cash distributions of $3.48 per unit for 2007. This expectation includes
contributions from assets owned by Kinder Morgan Energy Partners as of the
announcement date and does not include any potential benefits from unidentified
acquisitions. Additionally, this expectation does not take into account any
capital costs associated with financing the payment of reparations sought by
shippers on Kinder Morgan Energy Partners’ Pacific operations’ interstate
pipelines. The expected growth in distributions in 2008 will be fueled by
incremental earnings from Rockies Express-West (the western portion of the
Rockies Express Pipeline), higher realized prices on crude oil production
inclusive of hedges (budgeted production volumes for the SACROC oil field unit
in 2008 are approximately equal to the volumes realized in 2007), and an
anticipated strong performance from Kinder Morgan Energy Partners’ remaining
business portfolio.
|
|
·
|
Kinder Morgan Energy Partners
2007 Capital Expenditures
|
During
2007, Kinder Morgan Energy Partners spent $1,691.6 million for additions to its
property, plant and equipment, including both expansion and maintenance
projects. Capital expenditures included the following:
|
|
·
|
$480.0
million in the Terminals – KMP segment, largely related to expanding the
petroleum products storage capacity at liquids terminal facilities,
including the construction of additional liquids storage tanks at
facilities in Canada and at facilities located on the Houston Ship Channel
and the New York Harbor, and to various expansion projects and
improvements undertaken at multiple terminal
facilities;
|
|
|
·
|
$382.5
million in the CO2 –
KMP segment, mostly related to additional infrastructure, including wells
and injection and compression facilities, to support the expanding carbon
dioxide flooding operations at the SACROC and Yates oil field units in
West Texas and to expand Kinder Morgan Energy Partners’ capacity to
produce and deliver CO2 from
the McElmo Dome and Doe Canyon source
fields;
|
|
|
·
|
$305.7
million in the Trans Mountain – KMP segment, mostly related to pipeline
expansion and improvement projects undertaken to increase crude oil and
refined products delivery volumes;
|
|
|
·
|
$264.0
million in the Natural Gas Pipelines – KMP segment, mostly related to
current construction of the Kinder Morgan Louisiana Pipeline and to
various expansion and improvement projects on the Texas intrastate natural
gas pipeline systems, including the development of additional natural gas
storage capacity at natural gas storage facilities located at Markham and
Dayton, Texas; and
|
11
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
|
|
·
|
$259.4
million in the Products Pipelines – KMP segment, mostly related to the
continued expansion work on the Pacific operations’ East Line products
pipeline, completion of construction projects resulting in additional
capacity, and an additional refined products line on the CALNEV Pipeline
in order to increase delivery service to the growing Las Vegas, Nevada
market.
|
Including
its share of capital expenditures for both the Rockies Express and Midcontinent
Express natural gas pipeline projects, Kinder Morgan Energy Partners’ capital
expansion program in 2007 was approximately $2.6 billion. Including all of its
business acquisition expenditures, Kinder Morgan Energy Partners’ total spending
in 2007 was $3.3 billion. Kinder Morgan Energy Partners’ capital expansion
program will continue to be significant in 2008, as it expects to invest
approximately $3.3 billion in expansion capital expenditures (including its
share of capital expenditures for both the Rockies Express and Midcontinent
Express natural gas pipeline projects), which will help drive its earnings and
cash flow growth in 2009 and beyond.
(B)
Financial Information about Segments
Note
15 of the accompanying Notes to Consolidated Financial Statements contains
financial information about our business segments.
(C)
Narrative Description of Business
We
are an energy infrastructure provider. Our principal business segments are: (1)
Natural Gas Pipeline Company of America and certain affiliates, referred to as
Natural Gas Pipeline Company of America or NGPL, a major interstate natural gas
pipeline and storage system; (2) Power, a business that owns and operates
natural gas-fired electric generation facilities; (3) Express Pipeline System,
the ownership of a one-third interest in a crude oil pipeline system, which we
operate and account for under the equity method; (4) Products Pipelines – KMP,
the ownership and operation of refined petroleum products pipelines that deliver
gasoline, diesel fuel, jet fuel and natural gas liquids to various markets plus
the ownership and/or operation of associated product terminals and petroleum
pipeline transmix facilities; (5) Natural Gas Pipelines – KMP, the ownership and
operation of major interstate and intrastate natural gas pipeline and storage
systems; (6) CO2 – KMP, (i)
the production, transportation and marketing of carbon dioxide (“CO2”) to oil
fields that use CO2 to
increase production of oil, (ii) ownership interests in and/or operation of oil
fields in West Texas and (iii) the ownership and operation of a crude oil
pipeline system in West Texas; (7) Terminals – KMP, the ownership and/or
operation of liquids and bulk terminal facilities and rail transloading and
materials handling facilities located throughout the United States and (8) Trans
Mountain – KMP, the ownership and operation of a pipeline system that transports
crude oil and refined petroleum products from Edmonton, Alberta, Canada to
marketing terminals and refineries in British Columbia, Canada and the state of
Washington, U.S.A. During 2006 and 2007, we reached agreements to sell certain
businesses and assets in which we no longer have any continuing interest,
including Terasen Gas, Corridor, North System and our Kinder Morgan Retail
segment. Accordingly, the activities and assets related to these sales are
presented as discontinued items in the accompanying consolidated financial
statements (see Note 7 of the accompanying Notes to Consolidated Financial
Statements). Notes 5 and 15 of the accompanying Notes to Consolidated Financial
Statements contain additional information on asset sales and our business
segments. As discussed following, certain of our operations are regulated by
various federal and state regulatory bodies.
Natural
gas transportation, storage and retail sales accounted for approximately 88.1%,
90.3%, 91.2% and 92.8% of our consolidated revenues in the seven months ended
December 31, 2007, the five months ended May 31, 2007, and in 2006 and 2005,
respectively. During the seven months ended December 31, 2007, the five months
ended May 31, 2007, and in 2006 and 2005, we did not have revenues from any
single customer that exceeded 10% of our consolidated operating revenues. Our
equity in the earnings of Kinder Morgan Energy Partners (before reduction for
the minority interest in Kinder Morgan Management) constituted approximately 54%
of our income from continuing operations before interest and income taxes in
2005. The following table gives our segment earnings, our earnings attributable
to our investment in Kinder Morgan Energy Partners (net of pre-tax minority
interest) and the percent of the combined total each represents, for the seven
months ended December 31, 2007, the five months ended May 31, 2007 and in
2006.
12
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
|
Successor
Company
|
Predecessor
Company
|
||||||||||||||||||||
|
Seven
Months Ended
December
31, 2007
|
Five
Months Ended
May
31, 2007
|
Year
Ended
December
31, 2006
|
|||||||||||||||||||
|
Amount
|
%
of Total
|
Amount
|
%
of Total
|
Amount
|
%
of Total
|
||||||||||||||||
|
(Dollars
in millions)
|
(Dollars
in millions)
|
||||||||||||||||||||
|
Net
Pre-tax Impact of Kinder Morgan Energy Partners1
|
$
|
412.0
|
47.8
|
%
|
$
|
255.2
|
47.5
|
%
|
$
|
582.9
|
47.5
|
%
|
|||||||||
|
Segment
Earnings:
|
|||||||||||||||||||||
|
NGPL
|
422.8
|
49.0
|
%
|
267.4
|
49.8
|
%
|
603.5
|
49.2
|
%
|
||||||||||||
|
Power
|
13.4
|
1.5
|
%
|
8.9
|
1.7
|
%
|
23.2
|
1.9
|
%
|
||||||||||||
|
Express
|
14.4
|
1.7
|
%
|
5.4
|
1.0
|
%
|
17.2
|
1.4
|
%
|
||||||||||||
|
Total
|
$
|
862.6
|
100.0
|
%
|
$
|
536.9
|
100.00
|
%
|
$
|
1,226.8
|
100.00
|
%
|
|||||||||
__________
|
1
|
Represents
Knight Inc.’s general partner incentive and earnings from its ownership of
limited partner interests in Kinder Morgan Energy Partners, net of
associated minority interests.
|
During
the seven months ended December 31, 2007 and the five months ended May 31, 2007,
NGPL’s segment earnings of $422.8 million and $267.4 million, respectively,
represented approximately 49.0% and 49.8%, respectively, of total segment
earnings plus net pre-tax impact of Kinder Morgan Energy Partners. On December
10, 2007, we entered into a definitive agreement to sell an 80% ownership
interest in our NGPL business segment to Myria for approximately $5.9 billion,
subject to certain adjustments. The sale closed on February 15, 2008. We will
continue to operate NGPL’s assets pursuant to a 15-year operating agreement.
Myria is comprised of a syndicate of investors led by Babcock & Brown, an
international investment and specialized fund and asset management
group.
Through
NGPL, we own an interest in and operate approximately 9,500 miles of interstate
natural gas pipelines, storage fields, field system lines and related
facilities, consisting primarily of two major interconnected natural gas
transmission pipelines terminating in the Chicago, Illinois metropolitan area.
The system is powered by 57 compressor stations in mainline and storage service
having an aggregate of approximately 1.0 million horsepower. NGPL’s system has
837 points of interconnection with 35 interstate pipelines, 36 intrastate
pipelines, 38 local distribution companies, 32 end users including power plants,
and a number of gas producers, thereby providing significant flexibility in the
receipt and delivery of natural gas. NGPL’s Amarillo Line originates in the West
Texas and New Mexico producing areas and is comprised of approximately 4,200
miles of mainline and various small-diameter pipelines. Its other major
pipeline, the Gulf Coast Line, originates in the Gulf Coast areas of Texas and
Louisiana and consists of approximately 4,500 miles of mainline and various
small-diameter pipelines. These two main pipelines are connected at points in
Texas and Oklahoma by NGPL’s approximately 800-mile Amarillo/Gulf Coast
pipeline. In addition, NGPL owns a 50% equity interest in and operates Horizon
Pipeline Company, L.L.C., a joint venture with Nicor-Horizon, a subsidiary of
Nicor, Inc. This joint venture owns a natural gas pipeline in northern Illinois
with a capacity of 380 MMcf per day. Also, NGPL operates Kinder Morgan Illinois
Pipeline LLC, an affiliate of NGPL that owns a natural gas pipeline in northern
Illinois with a capacity of 360 MMcf per day.
NGPL
provides transportation and storage services to third-party natural gas
distribution utilities, marketers, producers, industrial end users and other
shippers. Pursuant to transportation agreements and FERC tariff provisions, NGPL
offers its customers firm and interruptible transportation, storage and
no-notice services, and interruptible park and loan services. Under NGPL’s
tariffs, firm transportation customers pay reservation charges each month plus a
commodity charge based on actual volumes transported, including a fuel charge
collected in-kind. Interruptible transportation customers pay a commodity charge
based upon actual volumes transported. Reservation and commodity charges are
both based upon geographical location and time of year. Under firm no-notice
service, customers pay a reservation charge for the right to have up to a
specified volume of natural gas delivered but, unlike with firm transportation
service, are able to meet their peaking requirements without making specific
nominations. NGPL has the authority to discount its rates and to negotiate rates
with customers if it has first offered service to those customers under its
reservation and commodity charge rate structure. NGPL’s revenues have
historically been somewhat higher in the first and fourth quarters of the
calendar year, reflecting higher system utilization during the colder months.
During the winter months, NGPL collects higher transportation commodity revenue,
higher interruptible transportation revenue, winter-only capacity revenue and
higher rates on certain contracts.
NGPL’s
principal delivery market area encompasses the states of Illinois, Indiana and
Iowa and secondary markets in portions of Wisconsin, Nebraska, Kansas, Missouri
and Arkansas. NGPL is the largest transporter of natural gas to the Chicago
market, and we believe that its transportation rates are very competitive in the
region. In 2007, NGPL delivered an average of 1.88 trillion Btus per day of
natural gas to this market. Given its strategic location at the center of the
North American natural gas pipeline grid, we believe that Chicago is likely to
continue to be a major natural gas trading hub for growing markets in the
Midwest and Northeast.
13
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
Substantially
all of NGPL’s pipeline capacity is committed under firm transportation contracts
ranging from one to six years. Approximately 63% of the total transportation
volumes committed under NGPL’s long-term firm transportation contracts in effect
on January 31, 2008 had remaining terms of less than three years. NGPL continues
to actively pursue the renegotiation, extension and/or replacement of expiring
contracts, and was very successful in doing so during 2007 as discussed under
“Recent Developments” elsewhere in this report. Nicor Gas Company, Peoples Gas
Light and Coke Company, and Northern Indiana Public Service Company (NIPSCO) are
NGPL’s three largest customers in terms of operating revenues from tariff
services. During 2007, approximately 50% of NGPL’s operating revenues from
tariff services were attributable to its eight largest customers. Contracts
representing approximately 18.3% of NGPL’s total long-haul, contracted firm
transport capacity as of January 31, 2008 are scheduled to expire during 2008.
In addition to these long-haul transportation agreements, NGPL also transports
significant volumes for redelivery to other pipelines. These deliveries
are primarily in Louisiana and Texas.
NGPL
is one of the nation’s largest natural gas storage operators with approximately
600 Bcf of total natural gas storage capacity, approximately 265 Bcf of working
gas capacity and approximately 4.3 Bcf per day of peak deliverability from its
storage facilities, which are located in major supply areas and near the markets
it serves. NGPL owns and operates 13 underground storage reservoirs in eight
field locations in four states. These storage assets complement its pipeline
facilities and allow it to optimize pipeline deliveries and meet peak delivery
requirements in its principal markets. NGPL provides firm and interruptible gas
storage service pursuant to storage agreements and tariffs. Firm storage
customers pay a monthly demand charge irrespective of actual volumes stored.
Interruptible storage customers pay a monthly charge based upon actual volumes
of gas stored.
Competition: NGPL
competes with other transporters of natural gas in virtually all of the markets
it serves and, in particular, in the Chicago area, which is the northern
terminus of NGPL’s two major pipeline segments and its largest market. These
competitors include both interstate and intrastate natural gas pipelines and,
historically, most of the competition has been from such pipelines with supplies
originating in the United States. NGPL also faces competition from Alliance
Pipeline, which began service during the 2000-2001 heating season carrying
Canadian-produced natural gas into the Chicago market. However, at the same
time, the Vector Pipeline was constructed for the specific purpose of
transporting gas from the Chicago area to other markets, generally further north
and further east. The overall impact of the increased pipeline capacity into the
Chicago area, combined with additional take-away capacity and the increased
demand in the area, has created a situation that remains dynamic with respect to
the ultimate impact on individual transporters such as NGPL.
NGPL
also faces competition with respect to the natural gas storage services it
provides. NGPL has storage facilities in both market and supply areas, allowing
it to offer varied storage services to customers. It faces competition from
independent storage providers as well as storage services offered by other
natural gas pipelines and local natural gas distribution companies.
The
competition faced by NGPL with respect to its natural gas transportation and
storage services is generally price-based, although there is also a significant
component related to the variety, flexibility and reliability of services
offered by others. NGPL’s extensive pipeline system, with access to diverse
supply basins and significant storage assets in both the supply and market
areas, makes it a strong competitor in many situations, but most customers still
have alternative sources to meet their requirements. In addition, due to the
price-based nature of much of the competition faced by NGPL, its proven track
record as a low-cost provider is an important factor in its success in acquiring
and retaining customers. Additional competition for storage services could
result from the utilization of currently underutilized storage facilities or
from conversion of existing storage facilities from one use to another. In
addition, existing competitive storage facilities could, in some instances, be
expanded.
Power’s
earnings for the seven months ended December 31, 2007 and the five months ended
May 31, 2007 represented approximately 1.5% and 1.7%, respectively, of each of
our total segment earnings plus net pre-tax impact of Kinder Morgan Energy
Partners and our income from continuing operations before interest and income
taxes. On November 20, 2007, we entered into a definitive agreement to sell our
interests in three natural gas-fired power plants in Colorado to Bear Stearns.
The sale closed on January 25, 2008, effective January 1, 2008, and we received
net proceeds of $63.1 million. Prior to this sale, we held interests in three
Colorado assets, including ownership interests in two natural gas-fired
electricity generation facilities and a net profits interest in a third. We
continue to have an ownership interest in a natural gas-fired electricity
generation facility in Michigan and an operating agreement with a natural
gas-fired electricity generation facility in Texas. The Michigan facility is
operated under a tolling agreement. Under the tolling agreement, purchasers of
the electrical output take the risks in the marketplace associated with the cost
of fuel and the value of the electric power generated. During 2007,
approximately 68% of Power’s operating revenues represented tolling revenues of
the Michigan facility, 21% was derived from the Colorado facility operated as an
independent power producer under a long-term contract with XCEL Energy’s Public
Service Company of Colorado unit, and the remaining 11% was primarily for
operating the Ft. Lupton, Colorado power facility and a gas-fired power facility
in Snyder, Texas that began operations during the second quarter of 2005
and
14
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Items 1. and 2. Business
and Properties. (continued)
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Knight
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provides
electricity to Kinder Morgan Energy Partners’ SACROC operations. In recent
periods, we have recorded impairment charges associated with our power business
activities; see Item 6 Selected Financial
Data.
Kinder
Morgan Power previously designed, developed and constructed power projects. In
2002, following an assessment of the electric power industry’s business
environment and noting a marked deterioration in the financial condition of
certain power generating and marketing participants, we decided to discontinue
our power development activities.
In
February 2001, Kinder Morgan Power announced an agreement under which Williams
Energy Marketing and Trading agreed to supply natural gas to and market capacity
for 16 years for a 550 megawatt natural gas-fired electric power plant in
Jackson, Michigan. Effective July 1, 2002, construction of this facility was
completed and commercial operations commenced. Concurrently with commencement of
commercial operations, (i) Kinder Morgan Power made a preferred investment in
Triton Power Company LLC (now valued at approximately $15 million); and, (ii)
Triton Power Company LLC, through its wholly owned subsidiary, Triton Power
Michigan LLC, entered into a 40-year lease of the Jackson power facility from
the plant owner, AlphaGen Power, LLC. Bear Energy LP (successor to Williams
Energy Marketing and Trading) supplies all natural gas to and purchases all
power from the power plant under a 16-year tolling agreement with Triton Power
Michigan LLC.
Competition: With respect to
Power’s investment in the Jackson, Michigan facility, the principal impact of
competition is the level of dispatch of the plant and the related (but minor)
effect on profitability.
We
own a one-third interest in the Express Pipeline System. The Express Pipeline
System’s earnings for the seven months ended December 31, 2007 and the five
months ended May 31, 2007 represented approximately 1.7% and 1.0%, respectively,
of each of our total segment earnings plus net pre-tax impact of Kinder Morgan
Energy Partners and our income from continuing operations before interest and
income taxes. The Express Pipeline System is a batch-mode, common-carrier, crude
pipeline system comprised of the Express Pipeline and the Platte Pipeline. The
Express Pipeline System transports a wide variety of crude types produced in
Alberta to markets in Petroleum Administration Defense District IV, comprised of
the states in the Rocky Mountain area of the United States (“PADD IV”) and
Petroleum Administration Defense District II, comprised of the states in the
central area of the United States (“PADD II”). The Express Pipeline System also
transports crude oil produced in PADD IV to downstream delivery points in PADD
IV and to PADD II.
The
Express Pipeline is a 780 mile, 24-inch diameter pipeline that begins at the
crude pipeline hub at Hardisty, Alberta and terminates at the Casper, Wyoming
facilities of the Platte Pipeline, and includes related metering and storage
facilities including tanks and pump stations. At Hardisty, the Express Pipeline
receives crude from certain other pipeline systems and terminals, which
currently provide access to approximately 1.3 million bpd of crude moving
through this delivery hub. The Express Pipeline is the major pipeline
transporting Alberta crude into PADD IV. The Express Pipeline has a design
capacity of 280,000 bpd, after an expansion completed in April 2005. Receipts at
Hardisty averaged 213,477 bpd during the year ended December 31, 2007, compared
with 226,717 bpd during the year ended December 31, 2006.
The
Platte Pipeline is a 926 mile, 20-inch diameter pipeline that runs from the
crude pipeline hub at Casper, Wyoming to refineries and interconnecting
pipelines in the Wood River, Illinois area, and includes related pumping and
storage facilities (including tanks). The Platte Pipeline transports crude
shipped on the Express Pipeline, crude produced in PADD IV and crude received in
PADD II, to downstream delivery points. It is currently the only major crude
pipeline transporting crude oil from PADD IV to PADD II. Various receipt and
delivery points along the Platte Pipeline, with interconnections to other
pipelines, enable crude to be moved to various markets in PADD IV and PADD II.
The Platte Pipeline has a capacity of 150,000 bpd when shipping heavy oil and
averaged 110,757 bpd east of Casper during the year ended December 31, 2007,
versus 151,552 bpd for the year ended December 31, 2006.
The
current Express Pipeline System rate structure is a combination of committed
rates and uncommitted rates. The committed rates apply to those shippers who
have signed long-term (10 or 15 year) contracts with the Express Pipeline System
to transport crude on a ship-or-pay basis. Uncommitted rates are the rates that
apply to uncommitted services whereby shippers transport oil through the Express
Pipeline System without a long-term commitment between the shipper and the
Express Pipeline System. Committed rates vary according to the destination of
shipments and the length of the term of the transportation services agreement,
with those shippers committing to longer-term agreements receiving lower
rates.
Express
Pipeline received 105,000 bpd of additional firm service commitments to the
pipeline starting April 1, 2005, bringing the total firm commitment on Express
to 235,000 bpd, or 84% of its total capacity. In May 2007, contracts for 4,000
bpd expired, thereby reducing the total firm commitments to 231,000 bpd. The
remaining contracts expire in 2012, 2014 and 2015 in amounts of 40%, 11% and 32%
of total capacity, respectively. The remaining contracts provide for committed
tolls for transportation on the Express Pipeline System, which can be increased
each year by up to 2%. The capacity in excess of 231,000 bpd is made available
to shippers as uncommitted capacity.
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Uncommitted
rates were established on a cost of service basis and can be changed in
accordance with applicable regulations discussed below. See “Regulation”
elsewhere in this report. The table below
provides a selection of tolls at December 31.
|
Toll
Per Barrel (US$)
|
|||||
|
2007
|
2006
|
||||
|
Hardisty,
Alberta to Casper, Wyoming
|
$
|
1.869
|
$
|
1.612
|
|
|
Hardisty,
Alberta to Casper, Wyoming (committed)
|
$
|
1.340
|
$
|
1.313
|
|
|
Casper,
Wyoming to Wood River, Illinois
|
$
|
1.562
|
$
|
1.497
|
|
Competition: The
Express Pipeline System pipeline to the U.S. Rocky Mountains and Midwest is one
of several pipeline alternatives for Western Canadian petroleum production, and
throughput on the Express Pipeline System may decline if overall petroleum
production in Alberta declines or if tolls become uncompetitive compared to
alternatives. The Express Pipeline System competes against other pipeline
providers who could be in a position to establish and offer lower tolls, which
may provide a competitive advantage in new pipeline development. Throughput on
the Express Pipeline System could decline in the event of reduced petroleum
product demand in the U.S. Rocky Mountains.
The
Products Pipelines – KMP segment consists of Kinder Morgan Energy Partners’
refined petroleum products and natural gas liquids pipelines and associated
terminals, Southeast terminals and transmix processing facilities.
Pacific
Operations
The
Pacific operations include Kinder Morgan Energy Partners’ SFPP, L.P. operations,
CALNEV Pipeline operations and West Coast Liquid Terminals operations. The
assets include interstate common carrier pipelines regulated by the FERC,
intrastate pipelines in the state of California regulated by the California
Public Utilities Commission, and certain non rate-regulated operations and
terminal facilities.
The
Pacific operations serve seven western states with approximately 3,000 miles of
refined petroleum products pipelines and related terminal facilities that
provide refined products to some of the fastest growing population centers in
the United States, including California; Las Vegas and Reno, Nevada; and the
Phoenix-Tucson, Arizona corridor. For 2007, the three main product types
transported were gasoline (59%), diesel fuel (23%) and jet fuel
(18%).
The
CALNEV Pipeline consists of two parallel 248-mile, 14-inch and 8-inch diameter
pipelines that run from Kinder Morgan Energy Partners’ facilities at Colton,
California to Las Vegas, Nevada, and which also serves Nellis Air Force Base
located in Las Vegas. It also includes approximately 55 miles of pipeline
serving Edwards Air Force Base.
The
Pacific operations include 15 truck-loading terminals (13 on SFPP, L.P. and two
on CALNEV) with an aggregate usable tankage capacity of approximately 13.7
million barrels. The truck terminals provide services including short-term
product storage, truck loading, vapor handling, additive injection, dye
injection and oxygenate blending.
The
Pacific operation’s West Coast Liquid terminals are fee-based terminals located
in the Seattle, Portland, San Francisco and Los Angeles areas along the West
Coast of the United States with a combined total capacity of approximately 8.3
million barrels of storage for both petroleum products and
chemicals.
Markets. Combined,
the Pacific operations’ pipelines transport approximately 1.3 million barrels
per day of refined petroleum products, providing pipeline service to
approximately 31 customer-owned terminals, 11 commercial airports and 14
military bases. Currently, the Pacific operations’ pipelines serve approximately
100 shippers in the refined petroleum products market; the largest customers
being major petroleum companies, independent refiners, and the United States
military.
A
substantial portion of the product volume transported is gasoline. Demand for
gasoline depends on such factors as prevailing economic conditions, vehicular
use patterns and demographic changes in the markets served. If current trends
continue, we expect the majority of the Pacific operations’ markets to maintain
growth rates that will exceed the national average for the foreseeable future.
The volume of products transported is affected by various factors, principally
demographic growth, economic conditions, product pricing, vehicle miles
traveled, population and fleet mileage. Certain product volumes can experience
seasonal variations and, consequently, overall volumes may be lower during the
first and fourth quarters of each year.
Supply. The
majority of refined products supplied to the Pacific operations’ pipeline system
come from the major refining centers around Los Angeles, San Francisco, El Paso
and Puget Sound, as well as from waterborne terminals and connecting pipelines
located near these refining centers.
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Competition. The
two most significant competitors of the Pacific operations’ pipeline system are
proprietary pipelines owned and operated by major oil companies in the area
where the Pacific operations’ pipeline system delivers products and also
refineries with terminals that have trucking arrangements within the Pacific
operations’ market areas. We believe that high capital costs, tariff regulation,
and environmental and right-of-way permitting considerations make it unlikely
that a competing pipeline system comparable in size and scope to the Pacific
operations will be built in the foreseeable future. However, the possibility of
individual pipelines being constructed or expanded to serve specific markets is
a continuing competitive factor.
The
use of trucks for product distribution from either shipper-owned proprietary
terminals or from their refining centers continues to compete for short haul
movements by pipeline. The Pacific terminal operations compete with terminals
owned by its shippers and by third-party terminal operators in California,
Arizona and Nevada. Competitors include Shell Oil Products U.S., BP (formerly
Arco Terminal Services Company), Wilmington Liquid Bulk Terminals (Vopak),
NuStar and Chevron. We cannot predict with any certainty whether the use of
short haul trucking will decrease or increase in the future.
Plantation
Pipe Line Company
Kinder
Morgan Energy Partners owns approximately 51% of Plantation Pipe Line Company,
referred to in this report as Plantation, a 3,100-mile refined petroleum
products pipeline system serving the southeastern United States. An affiliate of
ExxonMobil owns the remaining 49% ownership interest. ExxonMobil is the largest
shipper on the Plantation system both in terms of volumes and revenues. Kinder
Morgan Energy Partners operates the system pursuant to agreements with
Plantation Services LLC and Plantation. Plantation serves as a common carrier of
refined petroleum products to various metropolitan areas, including Birmingham,
Alabama; Atlanta, Georgia; Charlotte, North Carolina; and the Washington, D.C.
area.
For
the year 2007, Plantation delivered an average of 535,677 barrels per day of
refined petroleum products. These delivered volumes were comprised of gasoline
(63%), diesel/heating oil (23%) and jet fuel (14%). Average delivery volumes for
2007 were 3.5% lower than the 555,060 barrels per day delivered during 2006. The
decrease was predominantly driven by (i) the full year impact of alternative
pipeline service (initial startup mid-2006) into Southeast markets and (ii)
changes in production patterns from Louisiana refineries related to refiners
directing higher margin products (such as reformulated gasoline blendstock for
oxygenate blending) into markets not directly served by Plantation.
Markets. Plantation
ships products for approximately 30 companies to terminals throughout the
southeastern United States. Plantation’s principal customers are Gulf Coast
refining and marketing companies, fuel wholesalers, and the United States
Department of Defense. Plantation’s top five shippers represent approximately
80% of total system volumes.
The
eight states in which Plantation operates represent a collective pipeline demand
of approximately two million barrels per day of refined petroleum products.
Plantation currently has direct access to about 1.5 million barrels per day of
this overall market. The remaining 0.5 million barrels per day of demand lies in
markets (e.g., Nashville, Tennessee; North Augusta, South Carolina; Bainbridge,
Georgia; and Selma, North Carolina) currently served by another pipeline
company. Plantation also delivers jet fuel to the Atlanta, Georgia; Charlotte,
North Carolina; and Washington, D.C. airports (Ronald Reagan National and
Dulles). Combined jet fuel shipments to these four major airports increased 3%
in 2007 compared to 2006, with the majority of this growth occurring at Dulles
Airport.
Supply. Products
shipped on Plantation originate at various Gulf Coast refineries from which
major integrated oil companies and independent refineries and wholesalers ship
refined petroleum products. Plantation is directly connected to and supplied by
a total of ten major refineries representing approximately 2.3 million barrels
per day of refining capacity.
Competition. Plantation
competes primarily with the Colonial pipeline system, which also runs from Gulf
Coast refineries throughout the southeastern United States and extends into the
northeastern states.
Central
Florida Pipeline
The
Central Florida pipeline system consists of a 110-mile, 16-inch diameter
pipeline that transports gasoline and an 85-mile, 10-inch diameter pipeline that
transports diesel fuel and jet fuel from Tampa to Orlando, with an intermediate
delivery point on the 10-inch pipeline at Intercession City, Florida. In
addition to being connected to Kinder Morgan Energy Partners’ Tampa terminal,
the pipeline system is connected to terminals owned and operated by
TransMontaigne, Citgo, BP, and Marathon Petroleum. The 10-inch diameter pipeline
is connected to Kinder Morgan Energy Partners’ Taft, Florida terminal (located
near Orlando) and is also the sole pipeline supplying jet fuel to the Orlando
International Airport in Orlando, Florida. In 2007, the pipeline system
transported approximately 113,800 barrels per day of refined products, with the
product mix being approximately 69% gasoline, 12% diesel fuel, and 19% jet
fuel.
Kinder
Morgan Energy Partners also owns and operates liquids terminals in Tampa and
Taft, Florida. The Tampa terminal contains approximately 1.5 million barrels of
storage capacity and is connected to two ship dock facilities in the Port of
Tampa. The Tampa terminal provides storage for gasoline, diesel fuel and jet
fuel for further movement into either trucks or
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into
the Central Florida pipeline system. The Tampa terminal also provides storage
and truck rack blending services for ethanol and bio-diesel. The Taft terminal
contains approximately 0.7 million barrels of storage capacity, for gasoline and
diesel fuel for further movement into trucks.
Markets. The
estimated total refined petroleum products demand in the state of Florida is
approximately 800,000 barrels per day. Gasoline is, by far, the largest
component of that demand at approximately 545,000 barrels per day. The total
refined petroleum products demand for the Central Florida region of the state,
which includes the Tampa and Orlando markets, is estimated to be approximately
360,000 barrels per day, or 45% of the consumption of refined products in the
state. Kinder Morgan Energy Partners distributes approximately 150,000 barrels
of refined petroleum products per day, including the Tampa terminal truck
loadings. The balance of the market is supplied primarily by trucking firms and
marine transportation firms. Most of the jet fuel used at Orlando International
Airport is moved through Kinder Morgan Energy Partners’ Tampa terminal and the
Central Florida pipeline system. The market in Central Florida is seasonal, with
demand peaks in March and April during spring break and again in the summer
vacation season, and is also heavily influenced by tourism, with Disney World
and other attractions located near Orlando.
Supply. The vast
majority of refined petroleum products consumed in Florida are supplied via
marine vessels from major refining centers in the Gulf Coast of Louisiana and
Mississippi and refineries in the Caribbean basin. A lesser amount of refined
petroleum products is being supplied by refineries in Alabama and by Texas Gulf
Coast refineries via marine vessels and through pipeline networks that extend to
Bainbridge, Georgia. The supply into Florida is generally transported by
ocean-going vessels to the larger metropolitan ports, such as Tampa, Port
Everglades near Miami, and Jacksonville. Individual markets are then supplied
from terminals at these ports and other smaller ports, predominately by trucks,
except the Central Florida region, which is served by a combination of trucks
and pipelines.
Competition. With
respect to the Central Florida pipeline system, the most significant competitors
are trucking firms and marine transportation firms. Trucking transportation is
more competitive in serving markets close to the marine terminals on the east
and west coasts of Florida. Kinder Morgan Energy Partners is utilizing tariff
incentives to attract volumes to the pipeline that might otherwise enter the
Orlando market area by truck from Tampa or by marine vessel into Cape Canaveral.
We believe it is unlikely that a new pipeline system comparable in size and
scope to the Central Florida Pipeline system will be constructed, due to the
high cost of pipeline construction, tariff regulation and environmental and
right-of-way permitting in Florida. However, the possibility of such a pipeline
or a smaller capacity pipeline being built is a continuing competitive
factor.
With
respect to the terminal operations at Tampa, the most significant competitors
are proprietary terminals owned and operated by major oil companies, such as
Marathon Petroleum, BP and Citgo, located along the Port of Tampa, and the
Chevron and Motiva terminals in Port Tampa. These terminals generally support
the storage requirements of their parent or affiliated companies’ refining and
marketing operations and provide a mechanism for an oil company to enter into
exchange contracts with third parties to serve its storage needs in markets
where the oil company may not have terminal assets.
Federal
regulation of marine vessels, including the requirement under the Jones Act that
United States-flagged vessels contain double-hulls, is a significant factor
influencing the availability of vessels that transport refined petroleum
products. Marine vessel owners are phasing in the requirement based on the age
of the vessel and some older vessels are being redeployed into use in other
jurisdictions rather than being retrofitted with a double-hull for use in the
United States.
Cochin
Pipeline System
The
Cochin pipeline system consists of an approximate 1,900-mile, 12-inch diameter
multi-product pipeline operating between Fort Saskatchewan, Alberta and Windsor,
Ontario, including five terminals.
The
pipeline operates on a batched basis and has an estimated system capacity of
approximately 70,000 barrels per day. It includes 31 pump stations spaced at
60-mile intervals and five United States propane terminals. Underground storage
is available at Fort Saskatchewan, Alberta and Windsor, Ontario through third
parties. In 2007, the pipeline system transported approximately 40,600 barrels
per day of natural gas liquids.
Markets. The
pipeline traverses three provinces in Canada and seven states in the United
States and has historically transported high vapor pressure ethane, propane,
butane and natural gas liquids to the Midwestern United States and eastern
Canadian petrochemical and fuel markets. Current operations involve only the
transportation of propane on Cochin.
Supply. Injection into the
system can occur from BP, Provident, Keyera or Dow facilities, with connections
at Fort Saskatchewan, Alberta and from Spectra at interconnects at Regina and
Richardson, Saskatchewan.
Competition. The
pipeline competes with railcars and Enbridge Energy Partners for natural gas
liquids long-haul business from Fort Saskatchewan, Alberta and Windsor, Ontario.
The pipeline’s primary competition in the Chicago natural gas
18
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liquids
market comes from the combination of the Alliance pipeline system, which brings
unprocessed gas into the United States from Canada, and from Aux Sable, which
processes and markets the natural gas liquids in the Chicago
market.
Cypress
Pipeline
Kinder
Morgan Energy Partners’ Cypress pipeline is an interstate common carrier natural
gas liquids pipeline originating at storage facilities in Mont Belvieu, Texas
and extending 104 miles east to a major petrochemical producer in the Lake
Charles, Louisiana area. Mont Belvieu, located approximately 20 miles east of
Houston, is the largest hub for natural gas liquids gathering, transportation,
fractionation and storage in the United States.
Markets. The
pipeline was built to service Westlake Petrochemicals Corporation in the Lake
Charles, Louisiana area under a 20-year ship-or-pay agreement that expires in
2011. The contract requires a minimum volume of 30,000 barrels per
day.
Supply. The
Cypress pipeline originates in Mont Belvieu where it is able to receive ethane
and ethane/propane mix from local storage facilities. Mont Belvieu has
facilities to fractionate natural gas liquids received from several pipelines
into ethane and other components. Additionally, pipeline systems that transport
natural gas liquids from major producing areas in Texas, New Mexico, Louisiana,
Oklahoma and the Mid-Continent region supply ethane and ethane/propane mix to
Mont Belvieu.
Competition. The
pipeline’s primary competition into the Lake Charles market comes from Louisiana
onshore and offshore natural gas liquids.
Southeast
Terminals
Kinder
Morgan Energy Partners’ Southeast terminal operations consist of Kinder Morgan
Southeast Terminals LLC and its consolidated affiliate, Guilford County Terminal
Company, LLC. Kinder Morgan Southeast Terminals LLC, Kinder Morgan Energy
Partners’ wholly owned subsidiary referred to in this report as KMST, was formed
for the purpose of acquiring and operating high-quality liquid petroleum
products terminals located primarily along the Plantation/Colonial pipeline
corridor in the southeastern United States.
The
Southeast terminal operations consist of 24 petroleum products terminals with a
total storage capacity of approximately 8.0 million barrels. These terminals
transferred approximately 361,000 barrels of refined products per day during
2007 and approximately 347,000 barrels of refined products per day during
2006.
Markets. KMST’s
acquisition and marketing activities are focused on the southeastern United
States from Mississippi through Virginia, including Tennessee. The primary
function involves the receipt of petroleum products from common carrier
pipelines, short-term storage in terminal tankage, and subsequent loading onto
tank trucks. KMST also offered ethanol blending and storage services in northern
Virginia during 2007. Longer term storage is available at many of the terminals.
KMST has a physical presence in markets representing almost 80% of the
pipeline-supplied demand in the Southeast and offers a competitive alternative
to marketers seeking a relationship with a truly independent truck terminal
service provider.
Supply. Product
supply is predominately from Plantation and/or Colonial pipelines. To the
maximum extent practicable, we endeavor to connect KMST terminals to both
Plantation and Colonial.
Competition. There
are relatively few independent terminal operators in the Southeast. Most of the
refined petroleum products terminals in this region are owned by large oil
companies (BP, Motiva, Citgo, Marathon, and Chevron) who use these assets to
support their own proprietary market demands as well as product exchange
activity. These oil companies are not generally seeking third-party throughput
customers. Magellan Midstream Partners and TransMontaigne Product Services
represent the other significant independent terminal operators in this
region.
Transmix
Operations
Kinder
Morgan Energy Partners’ Transmix operations include the processing of petroleum
pipeline transmix, a blend of dissimilar refined petroleum products that have
become co-mingled in the pipeline transportation process. During pipeline
transportation, different products are transported through the pipelines
abutting each other, and generate a volume of different mixed products called
transmix. At transmix processing facilities, pipeline transmix is processed and
separated into pipeline-quality gasoline and light distillate products. Kinder
Morgan Energy Partners processes transmix at six separate processing facilities
located in Colton, California; Richmond, Virginia; Dorsey Junction, Maryland;
Indianola, Pennsylvania; Wood River, Illinois; and Greensboro, North Carolina.
Combined, its transmix facilities processed approximately 10.4 million barrels
of transmix in 2007 and approximately 9.1 million barrels in 2006.
In
2007, Kinder Morgan Energy Partners increased the processing capacity of the
recently constructed Greensboro, North Carolina transmix facility to better
serve the needs of Plantation. The facility, which is located within KMST’s
refined
19
|
Items 1. and 2. Business
and Properties. (continued)
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Knight
Form 10-K
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products
tank farm now has the capability to process approximately 8,500 barrels of
transmix per day. In addition to providing additional processing business, the
facility continues to provide Plantation a lower cost alternative compared to
other transmix processing arrangements that recover ultra low sulfur diesel, and
also more fully utilizes current KMST tankage at the Greensboro, North Carolina
tank farm.
Markets. The Gulf
and East Coast refined petroleum products distribution system, particularly the
Mid-Atlantic region, is the target market for Kinder Morgan Energy Partners’
East Coast transmix processing operations. The Mid-Continent area and the New
York Harbor are the target markets for Kinder Morgan Energy Partners’ Illinois
and Pennsylvania assets, respectively. Kinder Morgan Energy Partners’ West Coast
transmix processing operations support the markets served by its Pacific
operations in Southern California.
Supply. Transmix
generated by Plantation, Colonial, Explorer, Sun, Teppco and Kinder Morgan
Energy Partners’ Pacific operations provide the vast majority of the supply.
These suppliers are committed to the use of Kinder Morgan Energy Partners’
transmix facilities under long-term contracts. Individual shippers and terminal
operators provide additional supply. Shell acquires transmix for processing at
Indianola, Richmond and Wood River; Colton is supplied by pipeline shippers of
Kinder Morgan Energy Partners’ Pacific operations; Dorsey Junction is supplied
by Colonial Pipeline Company and Greensboro is supplied by
Plantation.
Competition. Placid
Refining is Kinder Morgan Energy Partners’ main competitor for transmix business
in the Gulf Coast area. There are various processors in the Mid-Continent area,
primarily ConocoPhillips, Gladieux Refining and Williams Energy Services, who
compete with Kinder Morgan Energy Partners’ transmix facilities. Motiva
Enterprises’ transmix facility located near Linden, New Jersey is the principal
competition for New York Harbor transmix supply and for the Indianola facility.
A number of smaller organizations operate transmix processing facilities in the
West and Southwest. These operations compete for supply that we envision as the
basis for growth in the West and Southwest. The Colton processing facility also
competes with major oil company refineries in California.
The
Natural Gas Pipelines – KMP segment, which contains both interstate and
intrastate pipelines, consists of natural gas sales, transportation, storage,
gathering, processing and treating. Within this segment, Kinder Morgan Energy
Partners owns approximately 14,700 miles of natural gas pipelines and associated
storage and supply lines that are strategically located within the North
American pipeline grid. The transportation network provides access to the major
gas supply areas in the western United States, Texas and the Midwest, as well as
major consumer markets.
Texas
Intrastate Natural Gas Pipeline Group
The
group, which operates primarily along the Texas Gulf Coast, consists of the
following four natural gas pipeline systems:
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Kinder
Morgan Texas Pipeline;
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·
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Kinder
Morgan Tejas Pipeline;
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·
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Mier-Monterrey
Mexico Pipeline; and
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·
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Kinder
Morgan North Texas Pipeline.
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The
two largest systems in the group are Kinder Morgan Texas Pipeline and Kinder
Morgan Tejas Pipeline. These pipelines essentially operate as a single pipeline
system, providing customers and suppliers with improved flexibility and
reliability. The combined system includes approximately 6,000 miles of
intrastate natural gas pipelines with a peak transport and sales capacity of
approximately 5.2 billion cubic feet per day of natural gas and approximately
120 billion cubic feet of system natural gas storage capacity. In addition, the
combined system, through owned assets and contractual arrangements with third
parties, has the capability to process 915 million cubic feet per day of natural
gas for liquids extraction and to treat approximately 250 million cubic feet per
day of natural gas for carbon dioxide removal.
Collectively,
the combined system primarily serves the Texas Gulf Coast by selling,
transporting, processing and treating gas from multiple onshore and offshore
supply sources to serve the Houston/Beaumont/Port Arthur industrial markets,
local gas distribution utilities, electric utilities and merchant power
generation markets. It serves as a buyer and seller of natural gas, as well as a
transporter. The purchases and sales of natural gas are primarily priced with
reference to market prices in the consuming region of its system. The difference
between the purchase and sale prices is the rough equivalent of a transportation
fee, inclusive of fuel costs.
Included
in the operations of the Kinder Morgan Tejas system is the Kinder Morgan Border
Pipeline system. Kinder Morgan Border owns and operates an approximately
97-mile, 24-inch diameter pipeline that extends from a point of
interconnection
20
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Items 1. and 2. Business
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Knight
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with
the pipeline facilities of Pemex Gas Y Petroquimica Basica at the International
Border between the United States and Mexico, to a point of interconnection with
other intrastate pipeline facilities of Kinder Morgan Tejas located at King
Ranch, Kleburg County, Texas. The 97-mile pipeline, referred to as the
import/export facility, is capable of importing Mexican gas into the United
States, and exporting domestic gas to Mexico. The imported Mexican gas is
received from, and the exported domestic gas is delivered to, Pemex. The
capacity of the import/export facility is approximately 300 million cubic feet
of natural gas per day.
The
Mier-Monterrey Pipeline consists of a 95-mile, 30-inch diameter natural gas
pipeline that stretches from South Texas to Monterrey, Mexico and can transport
up to 375 million cubic feet per day. The pipeline connects to a 1,000-megawatt
power plant complex and to the PEMEX natural gas transportation system. Kinder
Morgan Energy Partners has entered into a long-term contract (expiring in 2018)
with Pemex, which has subscribed for all of the pipeline’s
capacity.
The
Kinder Morgan North Texas Pipeline consists of an 86-mile, 30-inch diameter
pipeline that transports natural gas from an interconnect with the facilities of
NGPL in Lamar County, Texas to a 1,750-megawatt electric generating facility
located in Forney, Texas, 15 miles east of Dallas, Texas. It has the capacity to
transport 325 million cubic feet per day of natural gas and is fully subscribed
under a contract that expires in 2032. In 2006, the existing system was enhanced
to be bi-directional, so that deliveries of additional supply coming out of the
Barnett Shale area can be delivered into NGPL’s pipeline as well as power plants
in the area.
Kinder
Morgan Energy Partners also owns and operates various gathering systems in South
and East Texas. These systems aggregate natural gas supplies into Kinder Morgan
Energy Partners’ main transmission pipelines, and in certain cases, aggregate
natural gas that must be processed or treated at its own or third-party
facilities. Kinder Morgan Energy Partners owns plants that can process up to 115
million cubic feet per day of natural gas for liquids extraction. In addition,
Kinder Morgan Energy Partners has contractual rights to process approximately
800 million cubic feet per day of natural gas at various third-party owned
facilities. Kinder Morgan Energy Partners also owns and operates three natural
gas treating plants that provide carbon dioxide and/or hydrogen sulfide removal.
Kinder Morgan Energy Partners can treat up to 155 million cubic feet per day of
natural gas for carbon dioxide removal at the Fandango Complex in Zapata County,
Texas, 50 million cubic feet per day of natural gas at the Indian Rock Plant in
Upshur County, Texas and approximately 45 million cubic feet per day of natural
gas at the Thompsonville Facility located in Jim Hogg County,
Texas.
The
North Dayton natural gas storage facility, located in Liberty County, Texas, has
two existing storage caverns providing approximately 6.3 billion cubic feet of
total capacity, consisting of 4.2 billion cubic feet of working capacity and 2.1
billion cubic feet of cushion gas. Kinder Morgan Energy Partners entered into a
long-term storage capacity and transportation agreement with NRG covering two
billion cubic feet of natural gas working capacity that expires in March 2017.
In June 2006, Kinder Morgan Energy Partners announced an expansion project that
will significantly increase natural gas storage capacity at the North Dayton
facility. The project is now expected to cost between $105 million and $115
million and involves the development of a new underground storage cavern that
will add an estimated 6.5 billion cubic feet of incremental working natural gas
storage capacity. The additional capacity is expected to be available in
mid-2010.
Kinder
Morgan Energy Partners also owns the West Clear Lake natural gas storage
facility located in Harris County, Texas. Under a long term contract that
expires in 2012, Coral Energy Resources, L.P. operates the facility and controls
the 96 billion cubic feet of natural gas working capacity, and Kinder Morgan
Energy Partners provides transportation service into and out of the
facility.
Additionally,
Kinder Morgan Energy Partners leases a salt dome storage facility located near
Markham, Texas, according to the provisions of an operating lease that expires
in March 2013. Kinder Morgan Energy Partners can, at its sole option, extend the
term of this lease for two additional ten-year periods. The facility was
expanded in 2007 and now consists of four salt dome caverns with approximately
17.3 billion cubic feet of working natural gas capacity and up to 1.1 billion
cubic feet per day of peak deliverability. Kinder Morgan Energy Partners also
leases two salt dome caverns, known as the Stratton Ridge Facilities, from BP
America Production Company in Brazoria County, Texas. The Stratton Ridge
Facilities have a combined working natural gas capacity of 1.4 billion cubic
feet and a peak day deliverability of 100 million cubic feet per day. A lease
with Dow Hydrocarbon & Resources, Inc. for a salt dome cavern containing
approximately 5.0 billion cubic feet of working capacity expired during the
third quarter of 2007.
Markets. Texas’ natural gas
consumption is among the highest of any state. The natural gas demand profile in
Kinder Morgan Energy Partners’ Texas intrastate pipeline group’s market area is
primarily composed of industrial (including on-site cogeneration facilities),
merchant and utility power and local natural gas distribution consumption. The
industrial demand is primarily year-round load. Merchant and utility power
demand peaks in the summer months and is complemented by local natural gas
distribution demand that peaks in the winter months. As new merchant gas fired
generation has come online and displaced traditional utility generation, Kinder
Morgan Energy Partners has successfully attached many of these new generation
facilities to its pipeline systems in order to maintain and grow its share of
natural gas supply for power generation.
21
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Knight
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Additionally,
in 2007, Kinder Morgan Energy Partners has increased its capability and
commitment to serve the growing local natural gas distribution market in the
greater Houston metropolitan area.
Kinder
Morgan Energy Partners serves the Mexico market through interconnection with the
facilities of Pemex at the United States-Mexico border near Arguellas, Mexico
and Kinder Morgan Energy Partners’ Meir-Monterrey Mexico pipeline. In 2007,
deliveries through the existing interconnection near Arguellas fluctuated from
zero to approximately 206 million cubic feet per day of natural gas, and there
were several days of exports to the United States that ranged up to 250 million
cubic feet per day. Deliveries to Monterrey also ranged from zero to 312 million
cubic feet per day. Kinder Morgan Energy Partners primarily provides transport
service to these markets on a fee for service basis, including a significant
demand component, which is paid regardless of actual throughput. Revenues earned
from Kinder Morgan Energy Partners’ activities in Mexico are paid in U.S. dollar
equivalent.
Supply. Kinder
Morgan Energy Partners purchases its natural gas directly from producers
attached to its system in South Texas, East Texas, West Texas and along the
Texas Gulf Coast. In addition, Kinder Morgan Energy Partners also purchases gas
at interconnects with third-party interstate and intrastate pipelines. While the
intrastate group does not produce gas, it does maintain an active well
connection program in order to offset natural declines in production along its
system and to secure supplies for additional demand in its market area. The
intrastate system has access to both onshore and offshore sources of supply, and
is well positioned to interconnect with liquefied natural gas projects currently
under development by others along the Texas Gulf Coast.
Competition. The Texas
intrastate natural gas market is highly competitive, with many markets connected
to multiple pipeline companies. Kinder Morgan Energy Partners competes with
interstate and intrastate pipelines, and their shippers, for attachments to new
markets and supplies and for transportation, processing and treating
services.
Rocky
Mountain Natural Gas Pipeline Group
The
group, which operates primarily along the Rocky Mountain region of the western
portion of the United States, consists of the following four natural gas
pipeline systems:
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Kinder
Morgan Interstate Gas Transmission
Pipeline;
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Trailblazer
Pipeline;
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Trans-Colorado
Pipeline; and
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51%
ownership interest in the Rockies Express
Pipeline.
|
Kinder
Morgan Interstate Gas Transmission LLC
Kinder
Morgan Interstate Gas Transmission LLC, referred to in this report as KMIGT,
owns approximately 5,100 miles of transmission lines in Wyoming, Colorado,
Kansas, Missouri and Nebraska. The pipeline system is powered by 28 transmission
and storage compressor stations with approximately 160,000 horsepower. KMIGT
also owns the Huntsman natural gas storage facility, located in Cheyenne County,
Nebraska, which has approximately 10 billion cubic feet of firm capacity
commitments and provides for withdrawal of up to 169 million cubic feet of
natural gas per day.
Under
transportation agreements and FERC tariff provisions, KMIGT offers its customers
firm and interruptible transportation and storage services, including no-notice
service and park and loan services. For these services, KMIGT charges rates that
include the retention of fuel and gas lost and unaccounted for in-kind. Under
KMIGT’s tariffs, firm transportation and storage customers pay reservation
charges each month plus a commodity charge based on the actual transported or
stored volumes. In contrast, interruptible transportation and storage customers
pay a commodity charge based upon actual transported and/or stored volumes.
Under the no-notice service, customers pay a fee for the right to use a
combination of firm storage and firm transportation to effect deliveries of
natural gas up to a specified volume without making specific nominations. KMIGT
also has the authority to make gas purchases and sales, as needed for system
operations, pursuant to its currently effective FERC gas tariff.
KMIGT
also offers its Cheyenne Market Center service, which provides nominated storage
and transportation service between its Huntsman storage field and multiple
interconnecting pipelines at the Cheyenne Hub, located in Weld County, Colorado.
This service is fully subscribed through May 2014.
Markets. Markets served by
KMIGT provide a stable customer base with expansion opportunities due to the
system’s access to growing Rocky Mountain supply sources. Markets served by
KMIGT are comprised mainly of local natural gas distribution companies and
interconnecting interstate pipelines in the Mid-Continent area. End-users of the
local natural gas distribution companies typically include residential,
commercial, industrial and agricultural customers. The pipelines
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Items 1. and 2. Business
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Knight
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interconnecting
with KMIGT in turn deliver gas into multiple markets including some of the
largest population centers in the Midwest. Natural gas demand to power pumps for
crop irrigation during the summer from time-to-time exceeds heating season
demand and provides KMIGT relatively consistent volumes throughout the year. In
addition, KMIGT has seen a significant increase in demand from ethanol
producers, and is actively seeking ways to meet the demands from the ethanol
producing community.
Supply. Approximately
7%, by volume, of KMIGT’s firm contracts expire within one year and 51% expire
within one to five years. Over 99% of the system’s total firm transport capacity
is currently subscribed with 78% of the total contracted capacity held by
KMIGT’s top nine shippers.
Competition. KMIGT
competes with other interstate and intrastate gas pipelines transporting gas
from the supply sources in the Rocky Mountain and Hugoton Basins to
Mid-Continent pipelines and market centers.
Trailblazer
Pipeline Company LLC
Trailblazer
Pipeline Company LLC owns a 436-mile natural gas pipeline system. Trailblazer’s
pipeline originates at an interconnection with Wyoming Interstate Company Ltd.’s
pipeline system near Rockport, Colorado and runs through southeastern Wyoming to
a terminus near Beatrice, Nebraska where it interconnects with NGPL’s and
Northern Natural Gas Company’s pipeline systems. NGPL manages, maintains and
operates Trailblazer, for which it is reimbursed at cost.
Trailblazer
provides transportation services to third-party natural gas producers,
marketers, local distribution companies and other shippers. Pursuant to
transportation agreements and FERC tariff provisions, Trailblazer offers its
customers firm and interruptible transportation. Under Trailblazer’s tariffs,
firm transportation customers pay reservation charges each month plus a
commodity charge based on actual volumes transported. Interruptible
transportation customers pay a commodity charge based upon actual volumes
transported.
Markets. Significant
growth in Rocky Mountain natural gas supplies has prompted a need for additional
pipeline transportation service. Trailblazer has a certificated capacity of 846
million cubic feet per day of natural gas.
Supply. As of
December 31, 2007, none of Trailblazer’s firm contracts, by volume, expire
before one year and 54%, by volume, expire within two to five years. Affiliated
entities have contracted for less than 1% of the total firm transportation
capacity. All of the system’s firm transport capacity is currently
subscribed.
Competition. The
main competition that Trailblazer currently faces is from the gas supply in the
Rocky Mountain area that either stays in the area or is moved west and therefore
is not transported on Trailblazer’s pipeline. In addition, El Paso’s Cheyenne
Plains Pipeline can transport approximately 730 million cubic feet per day of
natural gas from Weld County, Colorado to Greensburg, Kansas and competes with
Trailblazer for natural gas pipeline transportation demand from the Rocky
Mountain area. Additional competition could come from the Rockies Express
pipeline system or from proposed pipeline projects. No assurance can be given
that additional competing pipelines will not be developed in the
future.
TransColorado
Gas Transmission Company LLC
TransColorado
Gas Transmission Company
LLC owns a 300-mile interstate natural gas pipeline that extends from
approximately 20 miles southwest of Meeker, Colorado to Bloomfield, New Mexico.
It has multiple points of interconnection with various interstate and intrastate
pipelines, gathering systems, and local distribution companies. The pipeline
system is powered by six compressor stations having an aggregate of
approximately 39,000 horsepower. Knight Inc. manages, maintains and operates
TransColorado, for which it is reimbursed at cost.
TransColorado
has the ability to flow gas south or north. TransColorado receives gas from one
coal seam natural gas treating plant located in the San Juan Basin of Colorado
and from pipeline, processing plant and gathering system interconnections within
the Paradox and Piceance Basins of western Colorado. Gas flowing south through
the pipeline moves onto the El Paso, Transwestern and Questar Southern Trail
pipeline systems. Gas moving north flows into the Colorado Interstate, Wyoming
Interstate and Questar pipeline systems at the Greasewood Hub and the Rockies
Express pipeline system at the Meeker Hub. TransColorado provides transportation
services to third-party natural gas producers, marketers, gathering companies,
local distribution companies and other shippers.
Pursuant
to transportation agreements and FERC tariff provisions, TransColorado offers
its customers firm and interruptible transportation and interruptible park and
loan services. For these services, TransColorado charges rates that include the
retention of fuel and gas lost and unaccounted for in-kind. Under
TransColorado’s tariffs, firm transportation customers pay reservation charges
each month plus a commodity charge based on actual volumes transported.
Interruptible transportation customers pay a commodity charge based upon actual
volumes transported. The underlying reservation and commodity charges are
assessed pursuant to a maximum recourse rate structure, which does not vary
based on the distance gas is
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Items 1. and 2. Business
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Knight
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transported.
TransColorado has the authority to negotiate rates with customers if it has
first offered service to those customers under its reservation and commodity
charge rate structure.
TransColorado’s
approximately $50 million Blanco-Meeker Expansion Project was completed in the
fourth quarter of 2007 and placed into service on January 1, 2008. The project
boosted capacity on the pipeline by approximately 250 million cubic feet per day
of natural gas from the Blanco Hub area in San Juan County, New Mexico through
TransColorado’s existing pipeline for deliveries to the Rockies Express pipeline
system at an existing point of interconnection located at the Meeker Hub in Rio
Blanco County, Colorado. All of the incremental capacity is subscribed under a
long-term contract with ConocoPhillips.
Markets. TransColorado
acts principally as a feeder pipeline system from the developing natural gas
supply basins on the Western Slope of Colorado into the interstate natural gas
pipelines that lead away from the Blanco Hub area of New Mexico and the
interstate natural gas pipelines that lead away eastward from northwestern
Colorado and southwestern Wyoming. TransColorado is one of the largest
transporters of natural gas from the Western Slope supply basins of Colorado and
provides a competitively attractive outlet for that developing natural gas
resource. In 2007, TransColorado transported an average of approximately 734
million cubic feet per day of natural gas from these supply basins.
Supply. During
2007, 94% of TransColorado’s transport business was with producers or their own
marketing affiliates and 6% was with marketing companies and various gas
marketers. Approximately 64% of TransColorado’s transport business in 2007 was
conducted with its two largest customers. All of TransColorado’s southbound
pipeline capacity is committed under firm transportation contracts that extend
through year-end 2008. TransColorado’s pipeline capacity is 62% subscribed
during 2009 through 2012 and TransColorado is actively pursuing contract
extensions and or replacement contracts to increase firm subscription levels
beyond 2008.
Competition. TransColorado
competes with other transporters of natural gas in each of the natural gas
supply basins it serves. These competitors include both interstate and
intrastate natural gas pipelines and natural gas gathering systems.
TransColorado’s shippers compete for market share with shippers drawing upon gas
production facilities within the New Mexico portion of the San Juan Basin.
TransColorado has phased its past construction and expansion efforts to coincide
with the ability of the interstate pipeline grid at Blanco, New Mexico to
accommodate greater natural gas volumes. TransColorado’s transport concurrently
ramped up over that period such that TransColorado now enjoys a growing share of
the outlet from the San Juan Basin to the southwestern United States
marketplace.
Historically,
the competition faced by TransColorado with respect to its natural gas
transportation services has generally been based upon the price differential
between the San Juan and Rocky Mountain basins. New pipelines servicing these
producing basins have had the effect of reducing that price differential;
however, given the growth in the Piceance and Paradox basins and the direct
accessibility of the TransColorado system to these basins, we believe
TransColorado’s transport business to be sustainable.
Rockies
Express Pipeline
Kinder
Morgan Energy Partners operates and currently owns 51% of the 1,679-mile Rockies
Express pipeline system, which when fully completed will be one of the largest
natural gas pipelines ever constructed in North America. The approximately $4.9
billion project will have the capability to transport 1.8 billion cubic feet per
day of natural gas, and binding firm commitments have been secured for all of
the pipeline capacity.
Kinder
Morgan Energy Partners’ ownership is through its 51% interest in West2East
Pipeline LLC, the sole owner of Rockies Express Pipeline LLC. Sempra Pipelines
& Storage, a unit of Sempra Energy, and ConocoPhillips hold the remaining
ownership interests in the Rockies Express project. Kinder Morgan Energy
Partners accounts for its investment under the equity method of accounting due
to the fact that its ownership interest will be reduced to 50% when construction
of the entire project is completed. At that time, the capital accounts of
West2East Pipeline LLC will be trued up to reflect Kinder Morgan Energy
Partners’ 50% economic interest in the project. We do not anticipate any
additional changes in the ownership structure of the project.
On
August 9, 2005, the FERC approved Rockies Express Pipeline LLC’s application to
construct 327 miles of pipeline facilities in two phases. Phase I consisted of
the following two pipeline segments: (i) a 136-mile, 36-inch diameter pipeline
that extends from the Meeker Hub in Rio Blanco County, Colorado to the Wamsutter
Hub in Sweetwater County, Wyoming; and (ii) a 191-mile, 42-inch diameter
pipeline that extends from the Wamsutter Hub to the Cheyenne Hub in Weld County,
Colorado. Phase II of the project includes the construction of three compressor
stations referred to as the Meeker, Big Hole and Wamsutter compressor stations.
The Meeker and Wamsutter stations were completed and placed in-service in
January 2008. Construction of the Big Hole compressor station is planned to
commence in the second quarter of 2008, in order to meet an expected in-service
date of June 30, 2009.
24
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Items 1. and 2. Business
and Properties. (continued)
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Knight
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On
April 19, 2007, the FERC issued a final order approving Rockies Express Pipeline
LLC’s application for authorization to construct and operate certain facilities
comprising its proposed Rockies Express-West Project. This project is the first
planned segment extension of the Rockies Express Pipeline LLC’s original
certificated facilities, and is comprised of approximately 713 miles of 42-inch
diameter pipeline extending eastward from the Cheyenne Hub to an interconnection
with Panhandle Eastern Pipe Line located in Audrain County, Missouri. The
segment extension transports approximately 1.5 billion cubic feet per day of
natural gas across the following five states: Wyoming, Colorado, Nebraska,
Kansas and Missouri, and includes certain improvements to pre-existing Rockies
Express facilities located to the west of the Cheyenne Hub. Construction of the
Rockies Express-West Project commenced on May 21, 2007, and interim firm
transportation service with capacity of approximately 1.4 billion cubic feet per
day began January 12, 2008. The entire project (Rockies Express-West pipeline
segment) is expected to become fully operational in mid-April 2008.
On
April 30, 2007, Rockies Express Pipeline LLC filed an application with the FERC
requesting approval to construct and operate the REX-East Project, the third
segment of the Rockies Express pipeline system. The Rockies Express-East Project
will be comprised of approximately 639 miles of 42-inch diameter pipeline
commencing from the terminus of the Rockies Express-West pipeline in Audrain
County, Missouri to a terminus near the town of Clarington in Monroe County,
Ohio. The pipeline segment will be capable of transporting approximately 1.8
billion cubic feet per day of natural gas. The FERC issued a draft environmental
report in late November 2007 for the Rockies Express-East project, and subject
to receipt of regulatory approvals, the Rockies Express-East Project is expected
to begin partial service on December 31, 2008, and to be in full service in June
2009.
In
December 2007, Rockies Express Pipeline LLC completed a non-binding open season
undertaken to solicit market interest for the “Northeast Express Project,” a
375-mile extension and expansion of the Rockies Express pipeline system from
Clarington, Ohio, to Princeton, New Jersey. Significant expressions of interest
were received on the Northeast Express Project and negotiations with prospective
shippers to enter into binding commitments are currently underway. Subject to
receipt of sufficient binding commitments and regulatory approvals, the
Northeast Express Project would go into service in late 2010. When complete, the
Northeast Express Project would provide up to 1.8 billion cubic feet per day of
transportation capacity to northeastern markets from the Lebanon Hub and other
pipeline receipt points between Lebanon, Ohio and Clarington, Ohio.
Markets. The
Rockies Express Pipeline is capable of delivering gas to multiple markets along
its pipeline system, primarily through interconnects with other interstate
pipeline companies and direct connects to local distribution companies. Rockies
Express Pipeline’s Zone 1 encompasses receipts and deliveries of natural gas
west of the Cheyenne Hub, located in northern Colorado near Cheyenne, Wyoming.
Through the Zone 1 facilities, Rockies Express Pipeline can deliver gas to
TransColorado Gas Transmission Company LLC in northwestern Colorado, which can
in turn transport the gas further south for delivery into the San Juan Basin
area. In Zone 1, Rockies Express Pipeline can also deliver gas into western
Wyoming through leased capacity on the Overthrust Pipeline Company system, or
through its interconnections with Colorado Interstate Gas Company and Wyoming
Interstate Company in southern Wyoming. The Rockies Express-West Project has the
ability to deliver natural gas to points at the Cheyenne Hub, which could be
used in markets along the Front Range of Colorado, or could be transported
further east through either Rockies Express Pipeline’s Zone 2 facilities or
other pipeline systems.
Rockies
Express Pipeline’s Zone 2 extends from the Cheyenne Hub to an interconnect with
the Panhandle Eastern Pipeline in Audrain County, Missouri. Through the Zone 2
facilities, Rockies Express Pipeline facilitates the delivery of natural gas
into the Mid-Continent area of the Unites States through various interconnects
with other major interstate pipelines in Nebraska (Northern Natural Gas Pipeline
and NGPL), Kansas (ANR Pipeline), and Missouri (Panhandle Eastern Pipeline).
Rockies Express Pipeline’s transportation capacity under interim service is
currently 1.4 billion cubic feet per day, and when this system is placed into
full service it will be capable of delivering 1.5 billion cubic feet per day
through these interconnects to the Mid-Continent market.
Supply. Rockies
Express Pipeline directly accesses major gas supply basins in western Colorado
and western Wyoming. In western Colorado, Rockies Express Pipeline has access to
gas supply from the Uinta and Piceance basins in eastern Utah and western
Colorado. In western Wyoming, Rockies Express Pipeline accesses the Green River
Basin through its facilities that are leased from Overthrust Pipeline Company.
With its connections to numerous other pipeline systems along its route, Rockies
Express Pipeline has access to almost all of the major gas supply basins in
Wyoming, Colorado and eastern Utah.
Competition. Although
there are some competitors to the Rockies Express Pipeline system that provide a
similar service, there are none that can compete with the economy-of-scale that
Rockies Express Pipeline provides to its shippers to transport gas from the
Rocky Mountain region to the Mid-Continent markets. The REX-East Project, noted
above, will put the Rockies Express Pipeline system in a very unique position of
being the only pipeline capable of offering a large volume of transportation
service from Rocky Mountain gas supply directly to customers in
Ohio.
Rockies
Express Pipeline could also experience competition for its Rocky Mountain gas
supply from both existing and proposed systems. Questar Pipeline Company
accesses many of the same basins as Rockies Express Pipeline and
transports
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Items 1. and 2. Business
and Properties. (continued)
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Knight
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gas
to its markets in Utah and to other interconnects, which have access to the
California market. In addition, there are pipelines that are proposed to use
Rocky Mountain gas to supply markets on the West Coast.
Kinder
Morgan Louisiana Pipeline
In
September 2006, Kinder Morgan Energy Partners filed an application with the FERC
requesting approval to construct and operate the Kinder Morgan Louisiana
Pipeline. The natural gas pipeline project is expected to cost approximately
$510 million and will provide approximately 3.2 billion cubic feet per day of
take-away natural gas capacity from the Cheniere Sabine Pass liquefied natural
gas terminal located in Cameron Parish, Louisiana. The project is supported by
fully subscribed capacity and long-term customer
commitments with Chevron and Total.
The
Kinder Morgan Louisiana Pipeline will consist of two segments:
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a
132-mile, 42-inch diameter pipeline with firm capacity of approximately
2.0 billion cubic feet per day of natural gas that will extend from the
Sabine Pass terminal to a point of interconnection with an existing
Columbia Gulf Transmission line in Evangeline Parish, Louisiana (an
offshoot will consist of approximately 2.3 miles of 24-inch diameter
pipeline with firm peak day capacity of approximately 300 million cubic
feet per day extending away from the 42-inch diameter line to the existing
Florida Gas Transmission Company compressor station in Acadia Parish,
Louisiana). This segment is expected to be in service by January 1, 2009;
and
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·
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a
1-mile, 36-inch diameter pipeline with firm capacity of approximately 1.2
billion cubic feet per day that will extend from the Sabine Pass terminal
and connect to NGPL’s natural gas pipeline. This portion of the project is
expected to be in service in the third quarter of
2008.
|
Kinder
Morgan Energy Partners has designed and will construct the Kinder Morgan
Louisiana Pipeline in a manner that will minimize environmental impacts, and
where possible, existing pipeline corridors will be used to minimize impacts to
communities and to the environment. As of December 31, 2007, there were no major
pipeline re-routes as a result of any landowner requests.
Midcontinent
Express Pipeline LLC
On
October 9, 2007, Midcontinent Express Pipeline LLC filed an application with the
FERC requesting a certificate of public convenience and necessity that would
authorize construction and operation of the approximate 500-mile Midcontinent
Express Pipeline natural gas transmission system. Kinder Morgan Energy Partners
currently owns a 50% interest in Midcontinent Express Pipeline LLC and accounts
for its investment under the equity method of accounting. Energy Transfer
Partners, L.P. owns the remaining 50% interest. The Midcontinent Express
Pipeline will create long-haul, firm natural gas transportation takeaway
capacity, either directly or indirectly, from natural gas producing regions
located in Texas, Oklahoma and Arkansas. The total project is expected to cost
approximately $1.3 billion, and will have an initial transportation capacity of
approximately 1.4 billion cubic feet per day of natural gas.
For
additional information regarding the Midcontinent Express Pipeline, see (A)
General Development of
Business—Recent Developments.
Casper
and Douglas Natural Gas Processing Systems
Kinder
Morgan Energy Partners owns and operates the Casper and Douglas, Wyoming natural
gas processing plants, which have the capacity to process up to 185 million
cubic feet per day of natural gas depending on raw gas quality.
Markets. Casper
and Douglas are processing plants servicing gas streams flowing into KMIGT.
Natural gas liquids processed by the Casper plant are sold into local markets
consisting primarily of retail propane dealers and oil refiners. Natural gas
liquids processed by the Douglas plant are sold to ConocoPhillips via their
Powder River natural gas liquids pipeline for either ultimate consumption at the
Borger refinery or for further disposition to the natural gas liquids trading
hubs located in Conway, Kansas and Mont Belvieu, Texas.
Competition. Other regional
facilities in the Greater Powder River Basin include the Hilight plant (80
million cubic feet per day) owned and operated by Anadarko, the Sage Creek plant
(50 million cubic feet per day) owned and operated by Merit Energy, and the
Rawlins plant (230 million cubic feet per day) owned and operated by El Paso.
Casper and Douglas, however, are the only plants which provide straddle
processing of natural gas flowing into KMIGT.
Red
Cedar Gathering Company
Kinder
Morgan Energy Partners owns a 49% equity interest in the Red Cedar Gathering
Company, a joint venture organized in August 1994 and referred to in this report
as Red Cedar. The remaining 51% interest in Red Cedar is owned by
the
26
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
Southern
Ute Indian Tribe. Red Cedar owns and operates natural gas gathering, compression
and treating facilities in the Ignacio Blanco Field in La Plata County,
Colorado. The Ignacio Blanco Field lies within the Colorado portion of the San
Juan Basin, most of which is located within the exterior boundaries of the
Southern Ute Indian Tribe Reservation. Red Cedar gathers coal seam and
conventional natural gas at wellheads and several central delivery points, for
treating, compression and delivery into any one of four major interstate natural
gas pipeline systems and an intrastate pipeline.
Red
Cedar also owns Coyote Gas Treating, LLC, referred to in this report as Coyote
Gulch. The sole asset owned by Coyote Gulch is a 250 million cubic feet per day
natural gas treating facility located in La Plata County, Colorado. The inlet
gas stream treated by Coyote Gulch contains an average carbon dioxide content of
between 12% and 13%. The plant treats the gas down to a carbon dioxide
concentration of 2% in order to meet interstate natural gas pipeline quality
specifications, and then compresses the natural gas into the TransColorado Gas
Transmission pipeline for transport to the Blanco, New Mexico-San Juan Basin
Hub.
Red
Cedar’s gas gathering system currently consists of over 1,100 miles of gathering
pipeline connecting more than 920 producing wells, 85,000 horsepower of
compression at 24 field compressor stations and two carbon dioxide treating
plants. The capacity and throughput of the Red Cedar system as currently
configured is approximately 750 million cubic feet per day of natural
gas.
Thunder
Creek Gas Services, LLC
Kinder
Morgan Energy Partners owns a 25% equity interest in Thunder Creek Gas Services,
LLC, referred to in this report as Thunder Creek. Devon Energy owns the
remaining 75%. Thunder Creek provides gathering, compression and treating
services to a number of coal seam gas producers in the Powder River Basin of
Wyoming. Throughput volumes include both coal seam and conventional plant
residue gas.
Thunder
Creek’s operations are a combination of mainline and low pressure gathering
assets. The mainline assets include 125 miles of mainline pipeline, 230 miles of
high and low pressure laterals, 26,635 horsepower of mainline compression and
carbon dioxide removal facilities consisting of a 220 million cubic feet per day
carbon dioxide treating plant complete with dehydration. The mainline assets
receive gas from 53 receipt points and can deliver treated gas to seven delivery
points including Colorado Interstate Gas, Wyoming Interstate Gas Company, KMIGT
and three power plants. The low pressure gathering assets include five systems
consisting of 194 miles of gathering pipeline and 35,329 horsepower of field
compression.
The
CO2 –
KMP segment consists of Kinder Morgan CO2 Company,
L.P. and its consolidated affiliates, referred to in this report as KMCO2. Carbon
dioxide is used in enhanced oil recovery projects as a flooding medium for
recovering crude oil from mature oil fields. KMCO2’s carbon
dioxide pipelines and related assets allow Kinder Morgan Energy Partners to
market a complete package of carbon dioxide supply, transportation and technical
expertise to the customer. Together, the CO2 –KMP
business segment produces, transports and markets carbon dioxide for use in
enhanced oil recovery operations. Kinder Morgan Energy Partners also holds
ownership interests in several oil-producing fields and owns a 450-mile crude
oil pipeline, all located in the Permian Basin region of West
Texas.
Carbon
Dioxide Reserves
Kinder
Morgan Energy Partners owns approximately 45% of, and operates, the McElmo Dome
unit in Colorado, which contains more than nine trillion cubic feet of
recoverable carbon dioxide. Deliverability and compression capacity exceeds one
billion cubic feet per day. Kinder Morgan Energy partners is currently
installing facilities and drilling 8 wells to increase the production capacity
from McElmo Dome by approximately 200 million cubic feet per day. Kinder Morgan
Energy Partners also owns approximately 11% of the Bravo Dome unit in New
Mexico, which contains more than one trillion cubic feet of recoverable carbon
dioxide and produces approximately 290 million cubic feet per day.
Kinder
Morgan Energy Partners also owns approximately 88% of the Doe Canyon Deep unit
in Colorado, which contains more than 1.5 trillion cubic feet of carbon dioxide.
Kinder Morgan Energy Partners has installed facilities and drilled six wells
that began to produce approximately 100 million cubic feet per day of carbon
dioxide beginning in January 2008.
Markets. Kinder
Morgan Energy Partners’ principal market for carbon dioxide is for injection
into mature oil fields in the Permian Basin, where industry demand is expected
to grow modestly for the next several years. Kinder Morgan Energy Partners is
exploring additional potential markets, including enhanced oil recovery targets
in California, Wyoming, the Gulf Coast, Mexico, and Canada, and coal bed methane
production in the San Juan Basin of New Mexico.
Competition. Kinder
Morgan Energy Partners’ primary competitors for the sale of carbon dioxide
include suppliers that have an ownership interest in McElmo Dome, Bravo Dome and
Sheep Mountain carbon dioxide reserves, and Petro-Source
27
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
Carbon
Company, which gathers waste carbon dioxide from natural gas production in the
Val Verde Basin of West Texas. There is no assurance that new carbon dioxide
sources will not be discovered or developed, which could compete with Kinder
Morgan Energy Partners or that new methodologies for enhanced oil recovery will
not replace carbon dioxide flooding.
Carbon
Dioxide Pipelines
As
a result of its 50% ownership interest in Cortez Pipeline Company, Kinder Morgan
Energy Partners owns a 50% equity interest in and operates the approximate
500-mile, Cortez pipeline. The pipeline carries carbon dioxide from the McElmo
Dome and Doe Canyon source fields near Cortez, Colorado to the Denver City,
Texas hub. The Cortez pipeline currently transports over one billion cubic feet
of carbon dioxide per day, including approximately 99% of the carbon dioxide
transported downstream on the Central Basin pipeline and the Centerline
pipeline. The tariffs charged by Cortez Pipeline are not regulated.
Kinder
Morgan Energy Partners’ Central Basin pipeline consists of approximately 143
miles of pipe and 177 miles of lateral supply lines located in the Permian Basin
between Denver City, Texas and McCamey, Texas, with a throughput capacity of 600
million cubic feet per day. At its origination point in Denver City, the Central
Basin pipeline interconnects with all three major carbon dioxide supply
pipelines from Colorado and New Mexico, namely the Cortez pipeline (operated by
KMCO2)
and the Bravo and Sheep Mountain pipelines (operated by Oxy Permian). Central
Basin’s mainline terminates near McCamey where it interconnects with the Canyon
Reef Carriers pipeline and the Pecos pipeline. The tariffs charged by the
Central Basin pipeline are not regulated.
Kinder
Morgan Energy Partners’ Centerline pipeline consists of approximately 113 miles
of pipe located in the Permian Basin between Denver City, Texas and Snyder,
Texas. The pipeline has a capacity of 300 million cubic feet per day. The
tariffs charged by the Centerline pipeline are not regulated.
Kinder
Morgan Energy Partners owns a 13% undivided interest in the 218-mile Bravo
pipeline, which delivers CO2 from the
Bravo Dome source field in northeast New Mexico to the Denver City hub and has a
capacity of more than 350 million cubic feet per day. Tariffs on the Bravo
pipeline are not regulated.
In
addition, Kinder Morgan Energy Partners owns approximately 98% of the Canyon
Reef Carriers pipeline and approximately 69% of the Pecos pipeline. The Canyon
Reef Carriers pipeline extends 139 miles from McCamey, Texas, to the SACROC
unit. The pipeline has a capacity of approximately 290 million cubic feet per
day and makes deliveries to the SACROC, Sharon Ridge, Cogdell and Reinecke
units. The Pecos pipeline is a 25-mile pipeline that runs from McCamey to Iraan,
Texas. It has a capacity of approximately 120 million cubic feet per day of
carbon dioxide and makes deliveries to the Yates unit. The tariffs charged on
the Canyon Reef Carriers and Pecos pipelines are not regulated.
Markets. The
principal market for transportation on KMCO2’s carbon
dioxide pipelines is to customers, including Kinder Morgan Energy Partners,
using carbon dioxide for enhanced recovery operations in mature oil fields in
the Permian Basin, where industry demand is expected to grow modestly for the
next several years.
Competition. Kinder
Morgan Energy Partners’ ownership interests in the Central Basin, Cortez and
Bravo pipelines are in direct competition with other carbon dioxide pipelines.
Kinder Morgan Energy Partners also competes with other interest owners in McElmo
Dome and Bravo Dome for transportation of carbon dioxide to the Denver City,
Texas market area.
Oil
Acreage and Wells
KMCO2 also holds
ownership interests in oil-producing fields, including an approximate 97%
working interest in the SACROC unit, an approximate 50% working interest in the
Yates unit, a 21% net profits interest in the H.T. Boyd unit, an approximate 65%
working interest in the Claytonville unit, an approximate 95% working interest
in the Katz CB Long unit, an approximate 64% working interest in the Katz SW
River unit, a 100% working interest in the Katz East River unit, and lesser
interests in the Sharon Ridge unit, the Reinecke unit and the MidCross unit, all
of which are located in the Permian Basin of West Texas.
The
SACROC unit is one of the largest and oldest oil fields in the United States
using carbon dioxide flooding technology. The field is comprised of
approximately 56,000 acres located in the Permian Basin in Scurry County, Texas.
SACROC was discovered in 1948 and has produced over 1.29 billion barrels of oil
since inception. It is estimated that SACROC originally held approximately 2.7
billion barrels of oil. We have expanded the development of the carbon dioxide
project initiated by the previous owners and increased production over the last
several years. The Yates unit is also one of the largest oil fields ever
discovered in the United States. It is estimated that it originally held more
than five billion barrels of oil, of which about 29% has been produced. The
field, discovered in 1926, is comprised of approximately 26,000 acres located
about 90 miles south of Midland, Texas.
28
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
As
of December 2007, the SACROC unit had 391 producing wells, and the purchased
carbon dioxide injection rate was 211 million cubic feet per day, down from an
average of 247 million cubic feet per day as of December 2006. The average oil
production rate for 2007 was approximately 27,600 barrels of oil per day, down
from an average of approximately 30,800 barrels of oil per day during 2006. The
average natural gas liquids production rate (net of the processing plant share)
for 2007 was approximately 6,300 barrels per day, an increase from an average of
approximately 5,700 barrels per day during 2006.
Kinder
Morgan Energy Partners’ plan has been to increase the production rate and
ultimate oil recovery from Yates by combining horizontal drilling with carbon
dioxide injection to ensure a relatively steady production profile over the next
several years. Kinder Morgan Energy Partners is implementing its plan and as of
December 2007, the Yates unit was producing about 27,600 barrels of oil per day.
As of December 2006, the Yates unit was producing approximately 27,200 barrels
of oil per day. Unlike operations at SACROC, where carbon dioxide and water is
used to drive oil to the producing wells, Kinder Morgan Energy Partners is using
carbon dioxide injection to replace nitrogen injection at Yates in order to
enhance the gravity drainage process, as well as to maintain reservoir pressure.
The differences in geology and reservoir mechanics between the two fields mean
that substantially less capital will be needed to develop the reserves at Yates
than is required at SACROC.
Kinder
Morgan Energy Partners also operates and owns an approximate 65% gross working
interest in the Claytonville oil field unit located in Fisher County, Texas. The
Claytonville unit is located nearly 30 miles east of the SACROC unit in the
Permian Basin of West Texas and is currently producing approximately 230 barrels
of oil per day. Kinder Morgan Energy Partners is presently evaluating operating
and subsurface technical data from the Claytonville unit to further assess
redevelopment opportunities including carbon dioxide flood
operations.
Kinder
Morgan Energy Partners also operates and owns working interests in the Katz CB
Long unit, the Katz Southwest River unit and Katz East River unit. The Katz
field is located in the Permian Basin area of West Texas and, as of December
2007, was producing approximately 400 barrels of oil equivalent per day. Kinder
Morgan Energy Partners is presently evaluating operating and subsurface
technical data to further assess redevelopment opportunities for the Katz field
including the potential for carbon dioxide flood operations.
The
following table sets forth productive wells, service wells and drilling wells in
the oil and gas fields in which Kinder Morgan Energy Partners owns interests as
of December 31, 2007. When used with respect to acres or wells, gross refers to
the total acres or wells in which Kinder Morgan Energy Partners has a working
interest; net refers to gross acres or wells multiplied, in each case, by the
percentage working interest owned by Kinder Morgan Energy Partners:
|
Productive Wells1
|
Service Wells2
|
Drilling Wells3
|
|||||||||
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
||||||
|
Crude
Oil
|
2,463
|
1,587
|
1,066
|
789
|
2
|
2
|
|||||
|
Natural
Gas
|
8
|
4
|
-
|
-
|
─
|
─
|
|||||
|
Total
Wells
|
2,471
|
1,591
|
1,066
|
789
|
2
|
2
|
|||||
__________
|
1
|
Includes
active wells and wells temporarily shut-in. As of December 31, 2007,
Kinder Morgan Energy Partners did not operate any productive wells with
multiple completions.
|
|
2
|
Consists
of injection, water supply, disposal wells and service wells temporarily
shut-in. A disposal well is used for disposal of saltwater into an
underground formation; a service well is a well drilled in a known oil
field in order to inject liquids that enhance recovery or dispose of salt
water.
|
|
3
|
Consists
of development wells in the process of being drilled as of December 31,
2007. A development well is a well drilled in an already discovered oil
field.
|
The
oil and gas producing fields in which Kinder Morgan Energy Partners owns
interests are located in the Permian Basin area of West Texas. The following
table reflects Kinder Morgan Energy Partners’ net productive and dry wells that
were completed in each of the three years ended December 31, 2007, 2006 and
2005:
|
2007
|
2006
|
2005
|
|||
|
Productive
|
|||||
|
Development
|
31
|
37
|
42
|
||
|
Exploratory
|
-
|
-
|
-
|
||
|
Dry
|
|||||
|
Development
|
-
|
-
|
-
|
||
|
Exploratory
|
-
|
-
|
-
|
||
|
Total
Wells
|
31
|
37
|
42
|
__________
29
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
|
Notes:
|
The
above table includes wells that were completed during each year regardless
of the year in which drilling was initiated, and does not include any
wells where drilling operations were not completed as of the end of the
applicable year. Development wells include wells drilled in the proved
area of an oil or gas reservoir.
|
The
following table reflects the developed and undeveloped oil and gas acreage that
Kinder Morgan Energy Partners held as of December 31, 2007:
|
Gross
|
Net
|
||
|
Developed
Acres
|
72,435
|
67,731
|
|
|
Undeveloped
Acres
|
8,788
|
8,129
|
|
|
Total
|
81,223
|
75,860
|
Operating
Statistics
Operating
statistics from Kinder Morgan Energy Partners’ oil and gas producing activities
for each of the years 2007, 2006 and 2005 are shown in the following
table:
Results
of Operations for Oil and Gas Producing Activities – Unit Prices and
Costs
|
Successor
Company
|
Predecessor
Company
|
|||||||||||||||
|
Seven
Months Ended
December
31,
|
Five
Months Ended
|
Year
Ended December 31,
|
||||||||||||||
|
2007
|
May
31, 2007
|
2006
|
2005
|
|||||||||||||
|
Consolidated
Companies1
|
||||||||||||||||
|
Production
Costs per Barrel of Oil Equivalent2,3,4
|
$
|
17.00
|
$
|
15.15
|
$
|
13.30
|
$
|
10.00
|
||||||||
|
Crude
Oil Production (MBbl/d)
|
34.9
|
36.6
|
37.8
|
37.9
|
||||||||||||
|
Natural
Gas Liquids Production (MBbl/d)4
|
5.4
|
5.6
|
5.0
|
5.3
|
||||||||||||
|
Natural
Gas liquids Production from Gas Plants(MBbl/d)5
|
4.2
|
4.1
|
3.9
|
4.1
|
||||||||||||
|
Total
Natural Gas Liquids Production(MBbl/d)
|
9.6
|
9.7
|
8.9
|
9.4
|
||||||||||||
|
Natural
Gas Production (MMcf/d)4,6
|
0.8
|
0.8
|
1.3
|
3.7
|
||||||||||||
|
Natural
Gas Production from Gas Plants(MMcf/d)5,6
|
0.3
|
0.2
|
0.3
|
3.1
|
||||||||||||
|
Total
Natural Gas Production(MMcf/d)6
|
1.1
|
1.0
|
1.6
|
6.8
|
||||||||||||
|
Average
Sales Prices Including Hedge Gains/Losses:
|
||||||||||||||||
|
Crude
Oil Price per Bbl7
|
$
|
36.80
|
$
|
35.03
|
$
|
31.42
|
$
|
27.36
|
||||||||
|
Natural
Gas Liquids Price per Bbl7
|
$
|
57.78
|
$
|
44.55
|
$
|
43.52
|
$
|
38.79
|
||||||||
|
Natural
Gas Price per Mcf8
|
$
|
5.86
|
$
|
6.41
|
$
|
6.36
|
$
|
5.84
|
||||||||
|
Total
Natural Gas Liquids Price per Bbl5
|
$
|
58.55
|
$
|
45.04
|
$
|
43.90
|
$
|
38.98
|
||||||||
|
Total
Natural Gas Price per Mcf5
|
$
|
5.65
|
$
|
6.27
|
$
|
7.02
|
$
|
5.80
|
||||||||
|
Average
Sales Prices Excluding Hedge Gains/Losses:
|
||||||||||||||||
|
Crude
Oil Price per Bbl7
|
$
|
78.65
|
$
|
57.43
|
$
|
63.27
|
$
|
54.45
|
||||||||
|
Natural
Gas Liquids Price per Bbl7
|
$
|
57.78
|
$
|
44.55
|
$
|
43.52
|
$
|
38.79
|
||||||||
|
Natural
Gas Price per Mcf8
|
$
|
5.86
|
$
|
6.41
|
$
|
6.36
|
$
|
5.84
|
||||||||
____________
|
1
|
Amounts
relate to Kinder Morgan CO2
Company, L.P. and its consolidated
subsidaries.
|
|
2
|
Computed
using production costs, excluding transportation costs, as defined by the
Securities and Exchange Commisson. Natural gas volumes were converted to
barrels of oil equivalent (BOE) using a conversion factor of six mcf of
natural gas to one barrel of oil.
|
|
3
|
Production
costs include labor, repairs and maintenance, materials, supplies, fuel
and power, property taxes, severance taxes, and general and administrative
expenses directly related to oil and gas producing
activities.
|
|
4
|
Includes
only production attributable to leasehold
ownership.
|
|
5
|
Includes
production attributable to Kinder Morgan Energy Partners’ ownership in
processing plants and third-party processing
agreements.
|
|
6
|
Excludes
natural gas production used as
fuel.
|
|
7
|
Hedge
gains/losses for crude oil and natural gas liquids are included with crude
oil.
|
|
8
|
Natural
gas sales were not hedged.
|
See
Supplemental Information on Oil and Gas Producing Activities (Unaudited) to our
consolidated financial statements included in this report for additional
information with respect to operating statistics and supplemental information on
Kinder Morgan Energy Partners’ oil and gas producing activities.
30
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
Gas
and Gasoline Plant Interests
Kinder
Morgan Energy Partners operates and owns an approximate 22% working interest
plus an additional 28% net profits interest in the Snyder gasoline plant. Kinder
Morgan Energy Partners also operates and owns a 51% ownership interest in the
Diamond M gas plant and a 100% ownership interest in the North Snyder plant, all
of which are located in the Permian Basin of West Texas. The Snyder gasoline
plant processes gas produced from the SACROC unit and neighboring carbon dioxide
projects, specifically the Sharon Ridge and Cogdell units, all of which are
located in the Permian Basin area of West Texas. The Diamond M and the North
Snyder plants contract with the Snyder plant to process gas. Production of
natural gas liquids at the Snyder gasoline plant as of December 2007 was
approximately 15,500 barrels per day, as compared to 15,000 barrels per day as
of December 2006.
Crude
Oil Pipeline
Kinder
Morgan Energy Partners owns the Kinder Morgan Wink Pipeline, a 450-mile Texas
intrastate crude oil pipeline system consisting of three mainline sections, two
gathering systems and numerous truck delivery stations. The segment that runs
from Wink to El Paso has a total capacity of 130,000 barrels of crude oil per
day. The pipeline allows Kinder Morgan Energy Partners to better manage crude
oil deliveries from its oil field interests in West Texas, and Kinder Morgan
Energy Partners has entered into a long-term throughput agreement with Western
Refining Company, L.P. to transport crude oil into Western’s 120,000 barrel per
day refinery in El Paso. The 20-inch pipeline segment transported
approximately 119,000 barrels of oil
per day in 2007. The Kinder Morgan Wink Pipeline is regulated by both the FERC
and the Texas Railroad Commission.
The
Terminals – KMP segment includes the operations of Kinder Morgan Energy
Partners’ petroleum, chemical and other liquids terminal facilities (other than
those included in the Products Pipelines – KMP segment) and all of Kinder Morgan
Energy Partners’ coal, petroleum coke, fertilizer, steel, ores and dry-bulk
material services, including all transload, engineering, conveying and other
in-plant services. Combined, the segment is composed of approximately 100 owned
or operated liquids and bulk terminal facilities, and more than 45 rail
transloading and materials handling facilities located throughout the United
States, Canada and the Netherlands. In 2007, the number of customers from whom
the Terminals – KMP segment received more than $0.1 million of revenue was
approximately 650.
Liquids
Terminals
The
liquids terminal operations primarily store refined petroleum products,
petrochemicals, industrial chemicals and vegetable oil products in aboveground
storage tanks and transfer products to and from pipelines, vessels, tank trucks,
tank barges, and tank railcars. Combined, the liquids terminal facilities
possess liquids storage capacity of approximately 47.5 million barrels, and in
2007, these terminals handled approximately 557 million barrels of petroleum,
chemicals and vegetable oil products.
In
September 2006, Kinder Morgan Energy Partners announced major expansions at its
Pasadena and Galena Park, Texas terminal facilities. The expansions will provide
additional infrastructure to help meet the growing need for refined petroleum
products storage capacity along the Gulf Coast. The investment of approximately
$195 million includes the construction of the following: (i) new storage tanks
at both the Pasadena and Galena Park terminals; (ii) an additional cross-channel
pipeline to increase the connectivity between the two terminals; (iii) a new
ship dock at Galena Park; and (iv) an additional loading bay at the fully
automated truck loading rack located at the Pasadena terminal. The expansions
are supported by long-term customer commitments and will result in approximately
3.4 million barrels of additional tank storage capacity at the two terminals.
Construction began in October 2006, and all of the projects are expected to be
completed by the spring of 2008, with the exception of the Galena Park ship
dock, which is now scheduled to be in-service by the third quarter of
2008.
At
Perth Amboy, New Jersey, Kinder Morgan Energy Partners completed construction
and placed into service nine new storage tanks with a capacity of 1.4 million
barrels for gasoline, diesel and jet fuel. These tanks have been leased on a
long-term basis to two customers. Kinder Morgan Energy Partners’ total
investment in these facilities was approximately $69 million.
In
June 2006, Kinder Morgan Energy Partners announced the construction of a new
crude oil tank farm located in Edmonton, Alberta, Canada, and long-term
contracts with customers for all of the available capacity at the facility.
Situated on approximately 24 acres, the new storage facility will have nine
tanks with a combined storage capacity of approximately 2.2 million barrels for
crude oil. Service is expected to begin in the first quarter of 2008, and when
completed, the tank farm will serve as a premier blending and storage hub for
Canadian crude oil. Originally estimated at $115 million, due primarily to
additional labor costs, total investment in this tank farm is projected to be
$162 million on a constant U.S. dollar basis. The tank farm will have access to
more than 20 incoming pipelines and several major outbound systems, including a
connection with the Trans Mountain pipeline system, which currently transports
up to 260,000 barrels per day of heavy crude oil and
31
|
Items 1. and 2. Business
and Properties. (continued)
|
Knight
Form 10-K
|
refined
products from Edmonton to marketing terminals and refineries located in the
greater Vancouver, British Columbia area and Puget Sound in Washington
state.
Competition. Kinder Morgan
Energy Partners is one of the largest independent operators of liquids terminals
in North America. Its primary competitors are IMTT, Magellan, Morgan Stanley,
NuStar, Oil Tanking, Teppco and Vopak.
Bulk
Terminals
Kinder
Morgan Energy Partners’ bulk terminal operations primarily involve dry-bulk
material handling services; however, Kinder Morgan Energy Partners also provides
conveyor manufacturing and installation, engineering and design services and
in-plant services covering material handling, conveying, maintenance and repair,
railcar switching and miscellaneous marine services. Combined, Kinder Morgan
Energy Partners’ dry-bulk and material transloading facilities handled
approximately 87.1 million tons of coal, petroleum coke, fertilizers, steel,
ores and other dry-bulk materials in 2007. Kinder Morgan Energy Partners owns or
operates approximately 93 dry-bulk terminals in the United States, Canada and
the Netherlands.
In
May 2007, Kinder Morgan Energy Partners purchased certain buildings and
equipment and completed a 40-year agreement to operate Vancouver Wharves, a bulk
marine terminal located at the entrance to the Port of Vancouver, British
Columbia. The facility consists of five vessel berths situated on a 139-acre
site, extensive rail infrastructure, dry-bulk and liquid storage, and material
handling systems, which allow the terminal to handle over 3.5 million tons of
cargo annually. Vancouver Wharves has access to three major rail carriers
connecting to shippers in western and central Canada and the U.S. Pacific
Northwest. Vancouver Wharves offers a variety of inbound, outbound and
value-added services for mineral concentrates, wood products, agri-products and
sulfur. In addition to the aggregate consideration of approximately $57.2
million ($38.8 million in cash and the assumption of $18.4 million of assumed
liabilities) paid for this facility, Kinder Morgan Energy Partners plans to
invest an additional $46 million at Vancouver Wharves over the next two years to
upgrade and relocate certain rail track and transloading systems, buildings and
a shiploader.
Effective
September 1, 2007, Kinder Morgan Energy Partners purchased the assets of Marine
Terminals, Inc. for an aggregate consideration of approximately $101.5
million. Combined, the
assets handle approximately 13.5 million tons of alloys and steel products
annually from five facilities located in the southeastern United States. These
strategically located terminals provide handling, processing, harboring and
warehousing services primarily to Nucor Corporation, one of the largest steel
and steel products companies in the world, under long-term
contracts.
Competition. Kinder Morgan
Energy Partners’ bulk terminals compete with numerous independent terminal
operators, other terminals owned by oil companies, stevedoring companies and
other industrials opting not to outsource terminal services. Many of Kinder
Morgan Energy Partners’ bulk terminals were constructed pursuant to long-term
contracts for specific customers. As a result, we believe other terminal
operators would face a significant disadvantage in competing for this
business.
Materials
Services (rail transloading)
Kinder
Morgan Energy Partners’ materials services operations include rail or truck
transloading at 45 owned and non-owned facilities. The Burlington Northern Santa
Fe, CSX, Norfolk Southern, Union Pacific, Kansas City Southern and A&W
railroads provide rail service for these terminal facilities. Approximately 50%
of the products handled are liquids, including an entire spectrum of liquid
chemicals, and 50% are dry-bulk products. Many of the facilities are equipped
for bi-modal operation (rail-to-truck, and truck-to-rail) or connect via
pipeline to storage facilities. Several facilities provide railcar storage
services. Kinder Morgan Energy Partners also designs and builds transloading
facilities, performs inventory management services, and provides value-added
services such as blending, heating and sparging. In 2007, the materials services
operations handled approximately 347,000 railcars.
Competition. Kinder
Morgan Energy Partners’ material services operations compete with a variety of
national transload and terminal operators across the United States, including
Savage Services, Watco and Bulk Plus Logistics. Additionally, single or
multi-site terminal operators are often entrenched in the network of Class 1
rail carriers.
Kinder
Morgan Energy Partners’ Trans Mountain common carrier pipeline system originates
at Edmonton, Alberta and transports crude oil and refined petroleum to
destinations in the interior and on the west coast of British Columbia. A
connecting pipeline owned by Kinder Morgan Energy Partners delivers petroleum to
refineries in the state of Washington.
Trans
Mountain’s pipeline is 715 miles in length. The capacity of the line out of
Edmonton ranges from 260,000 barrels per day when heavy crude represents 20% of
the total throughput to 300,000 barrels per day with no heavy crude. The
pipeline system utilizes 21 pump stations controlled by a centralized computer
control system.
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Items 1. and 2. Business
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Knight
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Trans
Mountain also operates a 5.3 mile spur line from its Sumas Pump Station to the
U.S. – Canada international border where it connects with a 63-mile pipeline
system owned and operated by Kinder Morgan Energy Partners. The pipeline system
in Washington State has a sustainable throughput capacity of approximately
135,000 barrels per day when heavy crude represents approximately 25% of
throughput and connects to four refineries located in northwestern Washington
State. The volumes of petroleum shipped to Washington State fluctuate in
response to the price levels of Canadian crude oil in relation to petroleum
produced in Alaska and other offshore sources.
In
2007, deliveries on Trans Mountain averaged 258,540 barrels per day. This was an
increase of 13% from average 2006 deliveries of 229,369 barrels per day. In
April 2007, Kinder Morgan Energy Partners commissioned ten new pump stations
that boosted capacity on Trans Mountain from 225,000 to approximately 260,000
barrels per day. The crude oil and refined petroleum transported through Trans
Mountain’s pipeline system originates in Alberta and British Columbia. The
refined and partially refined petroleum transported to Kamloops, British
Columbia and Vancouver originates from oil refineries located in Edmonton.
Petroleum products delivered through Trans Mountain’s pipeline system are used
in markets in British Columbia, Washington State and elsewhere.
Overall
Alberta crude oil supply has been increasing steadily over the past few years as
a result of significant oilsands development with projects led by Shell Canada,
Suncor Energy and Syncrude Canada. Further development is expected to continue
into the future with expansions to existing oilsands production facilities as
well as with new projects. In its moderate growth case, the Canadian Association
of Petroleum Producers (“CAPP”) forecasts western Canadian crude oil production
to increase by over 1.6 million barrels per day by 2015. This increasing supply
will likely result in constrained export pipeline capacity from western Canada,
which supports Trans Mountain’s view that both the demand for transportation
services provided by Trans Mountain’s pipeline and the supply of crude oil will
remain strong for the foreseeable future.
Shipments
of refined petroleum represent a significant portion of Trans Mountain’s
throughput. In 2007, shipments of
refined petroleum and iso-octane represented 25% of throughput, as compared with
28% in 2006.
Interstate
Common Carrier Pipeline Rate Regulation – U.S. Operations
Some
of our pipelines are interstate common carrier pipelines, subject to regulation
by the FERC under the Interstate Commerce Act, or ICA. The ICA requires that we
maintain our tariffs on file with the FERC, which tariffs set forth the rates we
charge for providing transportation services on our interstate common carrier
pipelines as well as the rules and regulations governing these services. The ICA
requires, among other things, that such rates on interstate common carrier
pipelines be “just and reasonable” and nondiscriminatory. The ICA permits
interested persons to challenge newly proposed or changed rates and authorizes
the FERC to suspend the effectiveness of such rates for a period of up to seven
months and to investigate such rates. If, upon completion of an investigation,
the FERC finds that the new or changed rate is unlawful, it is authorized to
require the carrier to refund the revenues in excess of the prior tariff
collected during the pendency of the investigation. The FERC may also
investigate, upon complaint or on its own motion, rates that are already in
effect and may order a carrier to change its rates prospectively. Upon an
appropriate showing, a shipper may obtain reparations for damages sustained
during the two years prior to the filing of a complaint.
On
October 24, 1992, Congress passed the Energy Policy Act of 1992. The Energy
Policy Act deemed petroleum products pipeline tariff rates that were in effect
for the 365-day period ending on the date of enactment or that were in effect on
the 365th day preceding enactment and had not been subject to complaint, protest
or investigation during the 365-day period to be just and reasonable or
“grandfathered” under the ICA. The Energy Policy Act also limited the
circumstances under which a complaint can be made against such grandfathered
rates. The rates Kinder Morgan Energy Partners charged for transportation
service on its Cypress Pipeline were not suspended or subject to protest or
complaint during the relevant 365-day period established by the Energy Policy
Act. For this reason, we believe these rates should be grandfathered under the
Energy Policy Act. Certain rates on Kinder Morgan Energy Partners’ Pacific
operations’ pipeline system were subject to protest during the 365-day period
established by the Energy Policy Act. Accordingly, certain of the Pacific
pipelines’ rates have been, and continue to be, subject to complaints with the
FERC, as is more fully described in Note 17 of the accompanying Notes to
Consolidated Financial Statements.
Petroleum
products pipelines may change their rates within prescribed ceiling levels that
are tied to an inflation index. Shippers may protest rate increases made within
the ceiling levels, but such protests must show that the portion of the rate
increase resulting from application of the index is substantially in excess of
the pipeline’s increase in costs from the previous year. A pipeline must, as a
general rule, utilize the indexing methodology to change its rates. The FERC,
however, uses cost-of-service ratemaking, market-based rates and settlement
rates as alternatives to the indexing approach in certain specified
circumstances.
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Items 1. and 2. Business
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Common
Carrier Pipeline Rate Regulation – Canadian Operations
The
Canadian portion of our crude oil and refined petroleum products pipeline
systems is under the regulatory jurisdiction of Canada’s National Energy Board,
referred to in this report as the NEB. The National Energy Board Act gives the
NEB power to authorize pipeline construction and to establish tolls and
conditions of service.
Trans
Mountain – KMP
In
November 2004, Trans Mountain entered into negotiations with the Canadian
Association of Petroleum Producers and principal shippers for a new incentive
toll settlement to be effective for the period starting January 1, 2006 and
ending December 31, 2010. In January 2006, Trans Mountain reached agreement in
principle, which was reduced to a memorandum of understanding for the 2006 toll
settlement. A final agreement was reached with the Canadian Association of
Petroleum Producers in October 2006 and NEB approval was received in November
2006.
The
2006 toll settlement incorporates an incentive toll mechanism that is intended
to provide Trans Mountain with the opportunity to earn a return on equity
greater than that calculated using the formula established by the NEB. In return
for this opportunity, Trans Mountain has agreed to assume certain risks and
provide cost certainty in certain areas. Part of the incentive toll mechanism
specifies that Trans Mountain is allowed to keep 75% of the net revenue
generated by throughput in excess of 92.5% of the capacity of the pipeline. The
2006 incentive toll settlement provides for base tolls which will, other than
recalculation or adjustment in certain specified circumstances, remain in effect
for the five-year period. The toll settlement also governs the financial
arrangements for the approximately C$638 million expansions to Trans Mountain
that will add 75,000 barrels per day of incremental capacity to the system by
late 2008. The toll charged for the portion of Trans Mountain’s pipeline system
located in the United States falls under the jurisdiction of the
FERC. See “Interstate Common Carrier Pipeline Rate Regulation – U.S.
Operations” preceding.
Express
Pipeline System
The
Canadian segment of the Express Pipeline is regulated by the NEB as a Group 2
pipeline, which results in rates and terms of service being regulated on a
complaint basis only. Express committed rates are subject to a 2% inflation
adjustment April 1 of each year. The U.S. segment of the Express Pipeline and
the Platte Pipeline are regulated by the FERC. See “Interstate Common Carrier
Pipeline Rate Regulation – U.S. Operations.”
Additionally,
movements on the Platte Pipeline within the State of Wyoming are regulated by
the Wyoming Public Service Commission (“WPSC”), which regulates the tariffs and
terms of service of public utilities that operate in the State of Wyoming. The
WPSC standards applicable to rates are similar to those of the FERC and the
NEB.
Interstate
Natural Gas Transportation and Storage Regulation
Both
the performance of and rates charged by companies performing interstate natural
gas transportation and storage services are regulated by the FERC under the
Natural Gas Act of 1938 and, to a lesser extent, the Natural Gas Policy Act of
1978. Beginning in the mid-1980’s, the FERC initiated a number of regulatory
changes intended to create a more competitive environment in the natural gas
marketplace. Among the most important of these changes were:
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·
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Order
No. 436 (1985) requiring open-access, nondiscriminatory transportation of
natural gas;
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·
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Order
No. 497 (1988) which set forth new standards and guidelines imposing
certain constraints on the interaction between interstate natural gas
pipelines and their marketing affiliates and imposing certain disclosure
requirements regarding that interaction;
and
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·
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Order
No. 636 (1992) which required interstate natural gas pipelines that
perform open-access transportation under blanket certificates to
“unbundle” or separate their traditional merchant sales services from
their transportation and storage services and to provide comparable
transportation and storage services with respect to all natural gas
supplies whether purchased from the pipeline or from other merchants such
as marketers or producers.
|
Natural
gas pipelines must now separately state the applicable rates for each unbundled
service they provide (i.e., for the natural gas
commodity, transportation and storage). Order 636 contains a number of
procedures designed to increase competition in the interstate natural gas
industry, including (i) requiring the unbundling of sales services from other
services; (ii) permitting holders of firm capacity on interstate natural gas
pipelines to release all or a part of their capacity for resale by the pipeline;
and (iii) the issuance of blanket sales certificates to interstate pipelines for
unbundled services. Order 636 has been affirmed in all material respects upon
judicial review, and our own FERC orders approving our unbundling plans are
final and not subject to any pending judicial review.
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Items 1. and 2. Business
and Properties. (continued)
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On
November 25, 2003, the FERC issued Order No. 2004, adopting revised Standards of
Conduct that apply uniformly to interstate natural gas pipelines and public
utilities. In light of the changing structure of the energy industry, these
Standards of Conduct govern relationships between regulated interstate natural
gas pipelines and all of their energy affiliates. These new Standards of Conduct
were designed to eliminate the loophole in the previous regulations that did not
cover an interstate natural gas pipeline’s relationship with energy affiliates
that are not marketers. The rule is designed to prevent interstate natural gas
pipelines from giving an undue preference to any of their energy affiliates and
to ensure that transmission is provided on a nondiscriminatory basis. In
addition, unlike the prior regulations, these requirements apply even if the
energy affiliate is not a customer of its affiliated interstate pipeline. Our
interstate natural gas pipelines are in compliance with these Standards of
Conduct.
On
November 17, 2006, the D.C. Circuit vacated Order No. 2004, as applied to
natural gas pipelines, and remanded the Order back to the FERC. On January 9,
2007, the FERC issued an interim rule regarding standards of conduct in Order
No. 690 to be effective immediately. The interim rule repromulgated the
standards of conduct that were not challenged before the court. On January 18,
2007, the FERC issued a notice of proposed rulemaking soliciting comments on
whether or not the interim rule should be made permanent for natural gas
transmission providers. Please refer to Note 16 of the accompanying Notes to
Consolidated Financial Statements for additional information regarding FERC
Order No. 2004 and other Standards of Conduct rulemaking.
On
August 8, 2005, Congress enacted the Energy Policy Act of 2005. The Energy
Policy Act, among other things, amended the Natural Gas Act to prohibit market
manipulation by any entity, directed the FERC to facilitate market transparency
in the market for sale or transportation of physical natural gas in interstate
commerce, and significantly increased the penalties for violations of the
Natural Gas Act, the Natural Gas Policy Act of 1978, or FERC rules, regulations
or orders thereunder.
California
Public Utilities Commission Rate Regulation
The
intrastate common carrier operations of our Pacific operations’ pipelines in
California are subject to regulation by the California Public Utilities
Commission, referred to in this report as the CPUC, under a “depreciated book
plant” methodology, which is based on an original cost measure of investment.
Intrastate tariffs filed by us with the CPUC have been established on the basis
of revenues, expenses and investments allocated as applicable to the California
intrastate portion of our Pacific operations’ business. Tariff rates with
respect to intrastate pipeline service in California are subject to challenge by
complaint by interested parties or by independent action of the CPUC. A variety
of factors can affect the rates of return permitted by the CPUC, and certain
other issues similar to those which have arisen with respect to our FERC
regulated rates could also arise with respect to our intrastate rates. Certain
of our Pacific operations’ pipeline rates have been, and continue to be, subject
to complaints with the CPUC, as is more fully described in Note 17 of the
accompanying Notes to Consolidated Financial Statements.
Texas
Railroad Commission Rate Regulation
The
intrastate common carrier operations of our natural gas and crude oil pipelines
in Texas are subject to certain regulation with respect to such intrastate
transportation by the Texas Railroad Commission. Although the Texas Railroad
Commission has the authority to regulate our rates, the Commission has generally
not investigated the rates or practices of our intrastate pipelines in the
absence of shipper complaints.
Safety
Regulation
Our
interstate pipelines are subject to regulation by the United States Department
of Transportation, referred to in this report as U.S. DOT, and our intrastate
pipelines and other operations are subject to comparable state regulations with
respect to their design, installation, testing, construction, operation,
replacement and management. Comparable regulation exists in some states in which
we conduct pipeline operations. In addition, our truck and terminal loading
facilities are subject to U.S. DOT regulations dealing with the transportation
of hazardous materials by motor vehicles and railcars. We believe that we are in
substantial compliance with U.S. DOT and comparable state
regulations.
The
Pipeline Safety Improvement Act of 2002 provides guidelines in the areas of
testing, education, training and communication. The Pipeline Safety Act requires
pipeline companies to perform integrity tests on natural gas transmission
pipelines that exist in high population density areas that are designated as
High Consequence Areas. Testing consists of hydrostatic testing, internal
magnetic flux or ultrasonic testing, or direct assessment of the piping. In
addition to the pipeline integrity tests, pipeline companies must implement a
qualification program to make certain that employees are properly trained. The
U.S. DOT has approved our qualification program. We believe that we are in
substantial compliance with this law’s requirements and have integrated
appropriate aspects of this pipeline safety law into our internal Operator
Qualification Program. A similar integrity management rule for refined petroleum
products pipelines became effective May 29, 2001.
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Items 1. and 2. Business
and Properties. (continued)
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We
are also subject to the requirements of the Federal Occupational Safety and
Health Act and other comparable federal and state statutes. We believe that we
are in substantial compliance with Federal OSHA requirements, including general
industry standards, recordkeeping requirements and monitoring of occupational
exposure to hazardous substances.
In
general, we expect to increase expenditures in the future to comply with higher
industry and regulatory safety standards. Some of these changes, such as U.S.
DOT implementation of additional hydrostatic testing requirements, could
significantly increase the amount of these expenditures. Such increases in our
expenditures cannot be accurately estimated at this time.
State
and Local Regulation
Our
activities are subject to various state and local laws and regulations, as well
as orders of regulatory bodies, governing a wide variety of matters, including
marketing, production, pricing, pollution, protection of the environment, and
safety.
Our
operations are subject to federal, state and local, and some foreign laws and
regulations governing the release of regulated materials into the environment or
otherwise relating to environmental protection or human health or safety. We
believe that our operations are in substantial compliance with applicable
environmental laws and regulations.
We
accrue liabilities for environmental matters when it is probable that
obligations have been incurred and the amounts can be reasonably estimated. This
policy applies to assets or businesses currently owned or previously disposed.
We have accrued liabilities for probable environmental remediation obligations
at various sites, including multiparty sites where the U.S. Environmental
Protection Agency has identified us as one of the potentially responsible
parties. The involvement of other financially responsible companies at these
multiparty sites could mitigate our actual joint and several liability
exposures. Although no assurance can be given, we believe that the ultimate
resolution of all these environmental matters will not have a material adverse
effect on our business, financial position or results of operations. We have
accrued an environmental reserve in the amount of $102.6 million as of December
31, 2007. Our reserve estimates range in value from approximately $102.6 million
to approximately $159.6 million, and we recorded our liability equal to the low
end of the range, as we did not identify any amounts within the range as a
better estimate of the liability. In addition, we have recorded a receivable of
$38.0 million for expected cost recoveries that have been deemed probable. For
additional information related to environmental matters, see Note 17 of the
accompanying Notes to Consolidated Financial Statements.
Solid
Waste
We
generate both hazardous and non-hazardous solid wastes that are subject to the
requirements of the Federal Resource Conservation and Recovery Act and
comparable state statutes. From time to time, state regulators and the United
States Environmental Protection Agency consider the adoption of stricter
disposal standards for non-hazardous waste. Furthermore, it is possible that
some wastes that are currently classified as non-hazardous, which could include
wastes currently generated during pipeline or liquids or bulk terminal
operations, may in the future be designated as “hazardous wastes.” Hazardous
wastes are subject to more rigorous and costly disposal requirements than
non-hazardous wastes. Such changes in the regulations may result in additional
capital expenditures or operating expenses for us.
Superfund
The
Comprehensive Environmental Response, Compensation and Liability Act, also known
as the “Superfund” law or “CERCLA,” and analogous state laws, impose joint and
several liability, without regard to fault or the legality of the original
conduct, on certain classes of “potentially responsible persons” for releases of
“hazardous substances” into the environment. These persons include the owner or
operator of a site and companies that disposed or arranged for the disposal of
the hazardous substances found at the site. CERCLA authorizes the U.S. EPA and,
in some cases, third parties to take actions in response to threats to the
public health or the environment and to seek to recover from the responsible
classes of persons the costs they incur, in addition to compensation for natural
resource damages, if any. Although “petroleum” is excluded from CERCLA’s
definition of a “hazardous substance,” in the course of our ordinary operations,
we have and will generate materials that may fall within the definition of
“hazardous substance.” By operation of law, if we are determined to be a
potentially responsible person, we may be responsible under CERCLA for all or
part of the costs required to clean up sites at which such materials are
present, in addition to compensation for natural resource damages, if
any.
Clean
Air Act
Our
operations are subject to the Clean Air Act, as amended, and analogous state
statutes. We believe that the operations of our pipelines, storage facilities
and terminals are in substantial compliance with such statutes. The Clean Air
Act, as amended, contains lengthy, complex provisions that may result in the
imposition over the next several years of certain pollution control requirements
with respect to air emissions from the operations of our pipelines, treating
facilities, storage facilities and terminals. Depending on the nature of those
requirements and any additional requirements that may be imposed
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Items 1. and 2. Business
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Knight
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by
state and local regulatory authorities, we may be required to incur certain
capital and operating expenditures over the next several years for air pollution
control equipment in connection with maintaining or obtaining operating permits
and approvals and addressing other air emission-related issues.
Due
to the broad scope and complexity of the issues involved and the resultant
complexity and nature of the regulations, full development and implementation of
many Clean Air Act regulations by the U.S. EPA and/or various state and local
regulators have been delayed. Therefore, until such time as the new Clean Air
Act requirements are implemented, we are unable to fully estimate the effect on
earnings or operations or the amount and timing of such required capital
expenditures. At this time, however, we do not believe that we will be
materially adversely affected by any such requirements.
Clean
Water Act
Our
operations can result in the discharge of pollutants. The Federal Water
Pollution Control Act of 1972, as amended, also known as the Clean Water Act,
and analogous state laws impose restrictions and controls regarding the
discharge of pollutants into state waters or waters of the United States. The
discharge of pollutants into regulated waters is prohibited, except in
accordance with the terms of a permit issued by applicable federal or state
authorities. The Oil Pollution Act was enacted in 1990 and amends provisions of
the Clean Water Act as they pertain to prevention and response to oil spills.
Spill prevention control and countermeasure requirements of the Clean Water Act
and some state laws require containment and similar structures to help prevent
contamination of navigable waters in the event of an overflow or release. We
believe we are in substantial compliance with these laws.
Other
Amounts
we spent during 2007, 2006 and 2005 on research and development activities were
not material. We employed approximately 7,600 full-time people at December 31,
2007, including employees of our indirect subsidiary KMGP Services Company,
Inc., who are dedicated to the operations of Kinder Morgan Energy Partners, and
employees of Kinder Morgan Canada Inc. Approximately 920 full-time hourly
personnel at certain terminals and pipelines are represented by labor unions
under collective bargaining agreements that expire between 2008 and 2012. KMGP
Services Company, Inc., Knight Inc. and Kinder Morgan Canada Inc. each consider
relations with their employees to be good. For more information on our related
party transactions, see Note 1(S) of the accompanying Notes to Consolidated
Financial Statements.
KMGP
Services Company, Inc., a subsidiary of Kinder Morgan G.P., Inc., provides
employees and Kinder Morgan Services LLC, a subsidiary of Kinder Morgan
Management, provides centralized payroll and employee benefits services to
Kinder Morgan Management, Kinder Morgan Energy Partners and Kinder Morgan Energy
Partners’ operating partnerships and subsidiaries (collectively, “the Group”).
Employees of KMGP Services Company, Inc. are assigned to work for one or more
members of the Group. The direct costs of compensation, benefits expenses,
employer taxes and other employer expenses for these employees are allocated and
charged by Kinder Morgan Services LLC to the appropriate members of the Group,
and the members of the Group reimburse their allocated shares of these direct
costs. No profit or margin is charged by Kinder Morgan Services LLC to the
members of the Group. Our human resources department provides the administrative
support necessary to implement these payroll and benefits services, and the
related administrative costs are allocated to members of the Group in accordance
with existing expense allocation procedures. The effect of these arrangements is
that each member of the Group bears the direct compensation and employee
benefits costs of its assigned or partially assigned employees, as the case may
be, while also bearing its allocable share of administrative costs. Pursuant to
the limited partnership agreement, Kinder Morgan Energy Partners provides
reimbursement for its share of these administrative costs and such
reimbursements are accounted for as described above. Kinder Morgan Energy
Partners reimburses Kinder Morgan Management with respect to the costs incurred
or allocated to Kinder Morgan Management in accordance with Kinder Morgan Energy
Partners’ limited partnership agreement, the Delegation of Control Agreement
among Kinder Morgan G.P., Inc., Kinder Morgan Management, Kinder Morgan Energy
Partners and others, and Kinder Morgan Management’s limited liability company
agreement.
Our
named executive officers and other employees that provide management or services
to both us and the Group are employed by us. Additionally, other of our
employees assist Kinder Morgan Energy Partners in the operation of its Natural
Gas Pipeline assets. These employees’ expenses are allocated without a profit
component between us and the appropriate members of the Group.
We
believe that we have generally satisfactory title to the properties we own and
use in our businesses, subject to liens on the assets of Knight Inc. and its
subsidiaries (excluding Kinder Morgan Energy Partners and its subsidiaries)
incurred in connection with the financing of the Going Private transaction,
liens for current taxes, liens incident to minor encumbrances, and easements and
restrictions that do not materially detract from the value of such property or
the interests in those properties or the use of such properties in our
businesses. We generally do not own the land on which our pipelines are
constructed. Instead, we obtain the right to construct and operate the pipelines
on other people’s land for a period of time. Substantially all of our pipelines
are constructed on rights-of-way granted by the apparent record owners of such
property. In many instances, lands over which rights-of-way have been obtained
are subject to prior liens that have not been subordinated to the right-of-way
grants. In some cases, not all of the apparent record owners have joined in the
right-of-way grants, but in
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Items 1. and 2. Business
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Knight
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substantially
all such cases, signatures of the owners of majority interests have been
obtained. Permits have been obtained from public authorities to cross over or
under, or to lay facilities in or along, water courses, county roads, municipal
streets and state highways, and in some instances, such permits are revocable at
the election of the grantor, or, the pipeline may be required to move its
facilities at its own expense. Permits have also been obtained from railroad
companies to cross over or under lands or rights-of-way, many of which are also
revocable at the grantor's election. Some such permits require annual or other
periodic payments. In a few minor cases, property for pipeline purposes was
purchased in fee.
(D)
Financial Information about Geographic Areas
Note
15 of the accompanying Notes to Consolidated Financial Statements contains
financial information about the geographic areas in which we do
business.
(E)
Available Information
We
make available free of charge on or through our internet website, at
www.kindermorgan.com, our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the Securities and Exchange
Commission.
You
should carefully consider the risks described below, in addition to the other
information contained in this document. Realization of any of the following
risks could have a material adverse effect on our business, financial condition,
cash flows and results of operations.
The
Going Private transaction resulted in substantially more debt to us and a
downgrade of the ratings of our debt securities, which has increased our cost of
capital.
In
conjunction with the Going Private transaction, Knight Inc. incurred
approximately $4.8 billion in additional debt. Moody’s Investor Services and
Standard & Poor’s Rating Services downgraded the ratings assigned to Knight
Inc.’s senior unsecured debt to BB- and Ba2, respectively. Upon the recent 80%
ownership interest sale of our NGPL business segment, Standard & Poor’s
Rating Service upgraded Knight Inc.’s senior unsecured debt to BB. Knight Inc.
no longer has access to the commercial paper market and is currently utilizing
its $1.0 billion revolving credit facility for its short-term borrowing
needs.
Our substantially increased debt
could adversely affect our financial health and make us more vulnerable to
adverse economic conditions.
As
a result of the Going Private transaction, we have significantly more debt
outstanding and significantly higher debt service requirements than in the
recent past. As of December 31, 2007, we had outstanding approximately $16.1
billion of consolidated debt (excluding Value of Interest Rate Swaps). Of this
amount, $9.0 billion was debt owed by Knight Inc. and its subsidiaries,
excluding Kinder Morgan Energy Partners and its subsidiaries, and is currently
secured by most of our assets (other than those of Kinder Morgan G.P., Inc.,
Kinder Morgan Energy Partners, Kinder Morgan Management and their respective
subsidiaries).
Our
increased level of debt could have important consequences, such as:
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·
|
limiting
our ability to obtain additional financing to fund our working capital,
capital expenditures, debt service requirements or potential growth or for
other purposes;
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·
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limiting
our ability to use operating cash flow in other areas of our business
because we must dedicate a substantial portion of these funds to make
payments on our debt;
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·
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placing
us at a competitive disadvantage compared to competitors with less debt;
and
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·
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increasing
our vulnerability to adverse economic and industry
conditions.
|
Each
of these factors is to a large extent dependent on economic, financial,
competitive and other factors beyond our control.
38
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Item 1A.
Risk
Factors. (continued)
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Knight
Inc. Form 10-K
|
Our
large amount of floating rate debt makes us vulnerable to increases in interest
rates.
As
of December 31, 2007, we had outstanding approximately $16.1 billion of
consolidated debt. Of this amount, excluding debt of Kinder Morgan Energy
Partners that is consolidated with ours, approximately 53% was subject to
floating interest rates, either as short-term or long-term debt of floating rate
credit facilities or as long-term fixed-rate debt converted to floating rates
through the use of interest rate swaps. Should interest rates increase
significantly, the amount of cash required to service our debt would
increase.
There
is the potential for a change of control of the general partner of Kinder Morgan
Energy Partners if we default on debt
We
own all of the common equity of Kinder Morgan G.P., Inc., the general partner of
Kinder Morgan Energy Partners. If we default on our debt, in exercising their
rights as lenders, our lenders could acquire control of Kinder Morgan G.P., Inc.
or otherwise influence Kinder Morgan G.P., Inc. through their control of us.
While our operations provide cash independent of the dividends we receive from
Kinder Morgan G.P., Inc., a change in control could materially affect our cash
flow and earnings.
The
tax treatment applied to Kinder Morgan Energy Partners depends on its status as
a partnership for federal income tax purposes, as well as it not being subject
to a material amount of entity-level taxation by individual states. If the
Internal Revenue Service treats it as a corporation or if it becomes subject to
a material amount of entity-level taxation for state tax purposes, it would
substantially reduce the amount of cash available for distribution to its
partners, including us.
The
anticipated after-tax economic benefit of an investment in Kinder Morgan Energy
Partners depends largely on it being treated as a partnership for federal income
tax purposes. In order for it to be treated as a partnership for federal income
tax purposes, current law requires that 90% or more of its gross income for
every taxable year consist of “qualifying income,” as defined in Section 7704 of
the Internal Revenue Code. Kinder Morgan Energy Partners may not meet this
requirement or current law may change so as to cause, in either event, it to be
treated as a corporation for federal income tax purposes or otherwise subject to
federal income tax. Kinder Morgan Energy Partners has not requested, and does
not plan to request, a ruling from the Internal Revenue Service on this or any
other matter affecting it.
If
Kinder Morgan Energy Partners were to be treated as a corporation for federal
income tax purposes, it would pay federal income tax on its income at the
corporate tax rate, which is currently a maximum of 35%, and would pay state
income taxes at varying rates. Under current law, distributions to its partners
would generally be taxed again as corporate distributions, and no income, gain,
losses or deductions would flow through to its partners. Because a tax would be
imposed on Kinder Morgan Energy Partners as a corporation, its cash available
for distribution would be substantially reduced. Therefore, treatment of Kinder
Morgan Energy Partners as a corporation would result in a material reduction in
the anticipated cash flow and after-tax return to its partners, likely causing a
substantial reduction in the value of our interest in Kinder Morgan Energy
Partners.
Current
law or the business of Kinder Morgan Energy Partners may change so as to cause
it to be treated as a corporation for federal income tax purposes or otherwise
subject it to entity-level taxation. Members of Congress are considering
substantive changes to the existing federal income tax laws that affect certain
publicly-traded partnerships. For example, federal income tax legislation has
been proposed that would eliminate partnership tax treatment for certain
publicly-traded partnerships. Although the currently proposed legislation would
not appear to affect Kinder Morgan Energy Partners, L.P.’s tax treatment as a
partnership, we are unable to predict whether any of these changes, or other
proposals, will ultimately be enacted. Any such changes could negatively impact
the value of our interest in Kinder Morgan Energy Partners.
In
addition, because of widespread state budget deficits and other reasons, several
states are evaluating ways to subject partnerships to entity-level taxation
through the imposition of state income, franchise or other forms of taxation.
For example, Kinder Morgan Energy Partners is now subject to a new entity-level
tax on the portion of its total revenue that is generated in Texas.
Specifically, the Texas margin tax is imposed at a maximum effective rate of
0.7% of its total revenue that is apportioned to Texas. Imposition of such a tax
on Kinder Morgan Energy Partners by Texas, or any other state, will reduce its
cash available for distribution to its partners, including us.
The
Kinder Morgan Energy Partners partnership agreement provides that if a law is
enacted that subjects Kinder Morgan Energy Partners to taxation as a corporation
or otherwise subjects it to entity-level taxation for federal income tax
purposes, the minimum quarterly distribution and the target distribution levels
will be adjusted to reflect the impact of that law on Kinder Morgan Energy
Partners.
Kinder Morgan Energy Partners
adopted certain valuation methodologies that may result in a shift of income,
gain, loss and deduction between it and its unitholders. The IRS may challenge
this treatment, which could adversely affect the value of the common
units.
When
Kinder Morgan Energy Partners issues additional units or engages in certain
other transactions, it determines the fair market value of its assets and
allocates any unrealized gain or loss attributable to its assets to the capital
accounts of its
39
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Item 1A.
Risk
Factors. (continued)
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Knight
Inc. Form 10-K
|
unitholders
and us. This methodology may be viewed as understating the value of Kinder
Morgan Energy Partners’ assets. In that case, there may be a shift of income,
gain, loss and deduction between certain unitholders and us, which may be
unfavorable to such unitholders. Moreover, under Kinder Morgan Energy Partners’
current valuation methods, subsequent purchasers of common units may have a
greater portion of their Internal Revenue Code Section 743(b) adjustment
allocated to its tangible assets and a lesser portion allocated to its
intangible assets. The IRS may challenge these valuation methods, or Kinder
Morgan Energy Partners’ allocation of the Section 743(b) adjustment attributable
to its tangible and intangible assets, and allocations of income, gain, loss and
deduction between us and certain of its unitholders.
A
successful IRS challenge to these methods or allocations could adversely affect
the amount of taxable income or loss being allocated to Kinder Morgan Energy
Partners’ partners, including us. It also could affect the amount of gain from
Kinder Morgan Energy Partners’ unitholders’ sale of common units and could have
a negative impact on the value of the common units or result in audit
adjustments to its unitholders’ tax returns without the benefit of additional
deductions.
Kinder Morgan Energy Partners’
treatment of a purchaser of common units as having the same tax benefits as the
seller could be challenged, resulting in a reduction in value of the common
units.
Because
Kinder Morgan Energy Partners cannot match transferors and transferees of common
units, it is required to maintain the uniformity of the economic and tax
characteristics of these units in the hands of the purchasers and sellers of
these units. It does so by adopting certain depreciation conventions that do not
conform to all aspects of the United States Treasury regulations. A successful
IRS challenge to these conventions could adversely affect the tax benefits to a
unitholder of ownership of the common units and could have a negative impact on
their value or result in audit adjustments to unitholders’ tax
returns.
Our
senior management’s attention may be diverted from our daily operations because
of significant transactions following the completion of the Going Private
transaction.
The
investors in Knight Holdco LLC include members of our senior management. Prior
to consummation of the Going Private transaction, we had publicly disclosed that
several significant transactions were being considered that, if pursued, would
require substantial management time and attention. As a result, our senior
management’s attention may be diverted from the management of our daily
operations.
Pending Federal Energy Regulatory
Commission and California Public Utilities Commission proceedings seek
substantial refunds and reductions in tariff rates on some of Kinder Morgan
Energy Partners’ pipelines. If the proceedings are determined adversely to
Kinder Morgan Energy Partners, they could have a material adverse impact on
us.
Regulators
and shippers on our pipelines have rights to challenge the rates we charge under
certain circumstances prescribed by applicable regulations. Some shippers on
Kinder Morgan Energy Partners’ pipelines have filed complaints with the Federal
Energy Regulatory Commission and California Public Utilities Commission that
seek substantial refunds for alleged overcharges during the years in question
and prospective reductions in the tariff rates on Kinder Morgan Energy Partners’
Pacific operations’ pipeline system. We may face challenges, similar to those
described in Note 17 of the accompanying Notes to Consolidated Financial
Statements, to the rates we receive on our pipelines in the future. Any
successful challenge could adversely and materially affect our future earnings
and cash flows.
Rulemaking and oversight, as well as
changes in regulations, by the Federal Energy Regulatory Commission or other
regulatory agencies having jurisdiction over our operations could adversely
impact our income and operations.
The
rates (which include reservation, commodity, surcharges, fuel and gas lost and
unaccounted for) we charge shippers on our natural gas pipeline systems are
subject to regulatory approval and oversight. Furthermore, regulators and
shippers on our natural gas pipelines have rights to challenge the rates
shippers are charged under certain circumstances prescribed by applicable
regulations. We can provide no assurance that we will not face challenges to the
rates we receive on our pipeline systems in the future. Any successful challenge
could materially adversely affect our future earnings and cash flows. New laws
or regulations or different interpretations of existing laws or regulations
applicable to our assets could have a material adverse impact on our business,
financial condition and results of operations.
Our business is subject to extensive
regulation that affects our operations and costs.
Our
assets and operations are subject to regulation by federal, state and local
authorities, including regulation by the Federal Energy Regulatory Commission,
referred to as the FERC, and by various authorities under federal, state and
local environmental laws. Regulation affects almost every aspect of our
business, including, among other things, our ability to determine terms and
rates for our interstate pipeline services, to make acquisitions or to build
extensions of existing facilities.
In
addition, regulators have taken actions designed to enhance market forces in the
gas pipeline industry, which have led to increased competition. In a number of
U.S. markets, natural gas interstate pipelines face competitive pressure from a
number
40
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Item 1A.
Risk
Factors. (continued)
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Knight
Inc. Form 10-K
|
of
new industry participants, such as alternative suppliers, as well as traditional
pipeline competitors. Increased competition driven by regulatory changes could
have a material impact on business in our markets and therefore adversely affect
our financial condition and results of operations.
Energy commodity transportation and
storage activities involve numerous risks that may result in accidents or
otherwise adversely affect operations.
There
are a variety of hazards and operating risks inherent to natural gas
transmission and storage activities, and refined petroleum products and carbon
dioxide transportation activities—such as leaks, explosions and mechanical
problems that could result in substantial financial losses. In addition, these
risks could result in loss of human life, significant damage to property,
environmental pollution and impairment of operations, any of which also could
result in substantial losses. For pipeline and storage assets located near
populated areas, including residential areas, commercial business centers,
industrial sites and other public gathering areas, the level of damage resulting
from these risks could be greater. If losses in excess of our insurance coverage
were to occur, they could have a material adverse effect on our business,
financial condition and results of operations.
Competition could ultimately lead to
lower levels of profits and adversely impact our ability to recontract for
expiring transportation capacity at favorable rates.
For
the seven months ended December 31, 2007, and the five months ended May 31,
2007, NGPL’s segment earnings represented approximately 49.0% and 49.8%,
respectively, of our total segment earnings plus net pre-tax impact of Kinder
Morgan Energy Partners. NGPL is an interstate natural gas pipeline that is a
major supplier to the Chicago, Illinois area. In the past, interstate pipeline
competitors of NGPL have constructed or expanded pipeline capacity into the
Chicago area. To the extent that an excess of supply into this market area is
created and persists, NGPL’s ability to recontract for expiring transportation
capacity at favorable rates could be impaired. Contracts representing
approximately 18.3% of NGPL’s total long-haul, contracted firm transport
capacity as of January 31, 2008 have not been renewed and are scheduled to
expire before the end of 2008.
Trans
Mountain’s pipeline to the West Coast of North America and the Express System,
in which we own an interest, to the U.S. Rocky Mountains and Midwest are two of
several pipeline alternatives for western Canadian petroleum production. These
pipelines, like all our petroleum pipelines, compete against other pipeline
companies who could be in a position to offer different tolling structures,
which may provide them with a competitive advantage in new pipeline development.
Throughput on our pipelines may decline if tolls become uncompetitive compared
to alternatives.
Cost overruns and delays on our
expansion and new build projects could adversely affect our
business.
We
currently have several major expansion and new build projects planned or
underway, including Kinder Morgan Energy Partners’ approximate $4.9 billion
Rockies Express Pipeline and approximate $1.3 billion Midcontinent Express
Pipeline. A variety of factors outside our control, such as weather, natural
disasters and difficulties in obtaining permits and rights-of-way or other
regulatory approvals, as well as the performance by third-party contractors, has
resulted in, and may continue to result in, increased costs or delays in
construction. Cost overruns or delays in completing a project could have a
material adverse effect on our results of operations and cash
flows.
Our rapid growth may cause
difficulties integrating and constructing new operations, and we may not be able
to achieve the expected benefits from any future
acquisitions.
Part
of our business strategy includes acquiring additional businesses, expanding
existing assets, or constructing new facilities. If we do not successfully
integrate acquisitions, expansions, or newly constructed facilities, we may not
realize anticipated operating advantages and cost savings. The integration of
companies that have previously operated separately involves a number of risks,
including:
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demands
on management related to the increase in our size after an acquisition, an
expansion, or a completed construction
project;
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·
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the
diversion of our management’s attention from the management of daily
operations;
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difficulties
in implementing or unanticipated costs of accounting, estimating,
reporting and other systems;
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difficulties
in the assimilation and retention of necessary employees;
and
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·
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potential
adverse effects on operating
results.
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41
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Item 1A.
Risk
Factors. (continued)
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Knight
Inc. Form 10-K
|
We
may not be able to maintain the levels of operating efficiency that acquired
companies have achieved or might achieve separately. Successful integration of
each acquisition, expansion, or construction project will depend upon our
ability to manage those operations and to eliminate redundant and excess costs.
Because of difficulties in combining and expanding operations, we may not be
able to achieve the cost savings and other size-related benefits that we hoped
to achieve after these acquisitions, which would harm our financial condition
and results of operations.
Our acquisition strategy and
expansion programs require access to new capital. Tightened credit markets or
more expensive capital would impair our ability to grow.
Part
of our business strategy includes acquiring additional businesses. We may need
new capital to finance these acquisitions. Limitations on our access to capital
will impair our ability to execute this strategy. We normally fund acquisitions
with short-term debt and repay such debt through the issuance of equity and
long-term debt. An inability to access the capital markets may result in a
substantial increase in our leverage and have a detrimental impact on our credit
profile.
Environmental
regulation and liabilities could result in increased operating and capital
costs.
Our
business operations are subject to federal, state, provincial and local laws and
regulations relating to environmental protection, pollution and human health and
safety in the United States and Canada. For example, if an accidental leak,
release or spill of liquid petroleum products, chemicals or other products
occurs at or from our pipelines, or at or from our storage or other facilities,
we may experience significant operational disruptions and we may have to pay a
significant amount to clean up the leak, release or spill, pay for government
penalties, address natural resource damages, compensate for human exposure or
property damage, install costly pollution control equipment or a combination of
these and other measures. The resulting costs and liabilities could materially
and negatively affect our level of earnings and cash flow. In addition, emission
controls required under federal, state and provincial environmental laws could
require significant capital expenditures at our facilities. The costs of
environmental regulation are already significant, and additional or more
stringent regulation could increase these costs or could otherwise negatively
affect our business.
We
own or operate numerous properties that have been used for many years in
connection with our business activities. While we have utilized operating and
disposal practices that were standard in the industry at the time, hydrocarbons
or other hazardous substances may have been released at or from properties
owned, operated or used by us or our predecessors, or at or from properties
where such wastes have been taken for disposal. In addition, many of these
properties have been owned and/or operated by third parties whose management,
use and disposal of hydrocarbons or other hazardous substances were not under
our control. These properties and the hazardous substances released and wastes
disposed thereon may be subject to laws in the United States such as the
Comprehensive Environmental Response, Compensation, and Liability Act, also
known as CERCLA or the Superfund law, which impose joint and several liability
without regard to fault or the legality of the original conduct. Under the
regulatory schemes of the various provinces, such as British Columbia’s
Environmental Management Act, Canada has similar laws with respect to properties
owned, operated or used by us or our predecessors. Under such laws and
implementing regulations, we could be required to remove or remediate previously
disposed wastes or property contamination, including groundwater contamination
caused by prior owners or operators. Imposition of such liability schemes could
have a material adverse impact on our operations and financial
position.
In
addition, Kinder Morgan Energy Partners’ oil and gas development and production
activities are subject to certain federal, state and local laws and regulations
relating to environmental quality and pollution control. These laws and
regulations increase the costs of these activities and may prevent or delay the
commencement or continuance of a given operation. Specifically, Kinder Morgan
Energy Partners is subject to laws and regulations regarding the acquisition of
permits before drilling, restrictions on drilling activities in restricted
areas, emissions into the environment, water discharges, and storage and
disposition of hazardous wastes. In addition, legislation has been enacted which
requires well and facility sites to be abandoned and reclaimed to the
satisfaction of state authorities. The costs of environmental regulation are
already significant, and additional or more stringent regulation could increase
these costs or could otherwise negatively affect our business.
Current
or future distressed financial conditions of customers could have an adverse
impact on us in the event these customers are unable to pay us for the products
or services we provide.
Some
of our customers are experiencing, or may experience in the future, severe
financial problems that have had or may have a significant impact on their
creditworthiness. We cannot provide assurance that one or more of our
financially distressed customers will not default on their obligations to us or
that such a default or defaults will not have a material adverse effect on our
business, financial position, future results of operations, or future cash
flows. Furthermore, the bankruptcy of one or more of our customers, or some
other similar proceeding or liquidity constraint, might make it unlikely that we
would be able to collect all or a significant portion of amounts owed by the
distressed entity or entities. In addition, such events might force such
customers to reduce or curtail their future use of our products and services,
which could have a material adverse effect on our results of operations and
financial condition.
42
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Item 1A.
Risk
Factors. (continued)
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Knight
Inc. Form 10-K
|
The general uncertainty associated
with the current world economic and political environments in which we exist may
adversely impact our financial performance.
Our
financial performance is impacted by overall marketplace spending and demand. We
are continuing to assess the effect that terrorism would have on our businesses
and in response, we have increased security with respect to our assets. Recent
federal legislation provides an insurance framework that should cause current
insurers to continue to provide sabotage and terrorism coverage under standard
property insurance policies.
Nonetheless,
there is no assurance that adequate sabotage and terrorism insurance will be
available at rates we believe are reasonable throughout 2008.
Increased
regulatory requirements relating to the integrity of our pipelines will require
us to spend additional money to comply with these requirements.
Through
our regulated pipeline subsidiaries, we are subject to extensive laws and
regulations related to pipeline integrity. There are, for example, federal
guidelines for the U.S. Department of Transportation and pipeline companies in
the areas of testing, education, training and communication. Compliance with
laws and regulations requires significant expenditures. We have increased our
capital expenditures to address these matters and expect to significantly
increase these expenditures in the foreseeable future. Additional laws and
regulations that may be enacted in the future or a new interpretation of
existing laws and regulations could significantly increase the amount of these
expenditures.
Future
business development of our products pipelines is dependent on the supply of,
and demand for, crude oil and other liquid hydrocarbons, particularly from the
Alberta oilsands.
Our
pipelines depend on production of natural gas, oil and other products in the
areas serviced by our pipelines. Without reserve additions, production will
decline over time as reserves are depleted and production costs may rise.
Producers may shut down production at lower product prices or higher production
costs, especially where the existing cost of production exceeds other extraction
methodologies, such as at the Alberta oilsands. Producers in areas serviced by
us may not be successful in exploring for and developing additional reserves,
and the gas plants and the pipelines may not be able to maintain existing
volumes of throughput. Commodity prices and tax incentives may not remain at a
level which encourages producers to explore for and develop additional reserves,
produce existing marginal reserves or renew transportation contracts as they
expire.
Changes
in the business environment, such as a decline in crude oil prices, an increase
in production costs from higher feedstock prices, supply disruptions, or higher
development costs, could result in a slowing of supply from the Alberta
oilsands. In addition, changes in the regulatory environment or governmental
policies may have an impact on the supply of crude oil. Each of these factors
impact our customers shipping through our pipelines, which in turn could impact
the prospects of new transportation contracts or renewals of existing
contracts.
Throughput
on our products pipelines may also decline as a result of changes in business
conditions. Over the long term, business will depend, in part, on the level of
demand for oil and natural gas in the geographic areas in which deliveries are
made by pipelines and the ability and willingness of shippers having access or
rights to utilize the pipelines to supply such demand. The implementation of new
regulations or the modification of existing regulations affecting the oil and
gas industry could reduce demand for natural gas and crude oil, increase our
costs and may have a material adverse effect on our results of operations and
financial condition. We cannot predict the impact of future economic conditions,
fuel conservation measures, alternative fuel requirements, governmental
regulation or technological advances in fuel economy and energy generation
devices, all of which could reduce the demand for natural gas and
oil.
We
are subject to U.S. dollar/Canadian dollar exchange rate
fluctuations.
As
a result of our ownership of the Express Pipeline System and Kinder Morgan
Energy Partners’ ownership of Trans Mountain, the Vancouver Wharves terminal,
the Cochin pipeline system, and Kinder Morgan Energy Partners’ terminal
expansion projects located in Canada, a portion of our assets, liabilities,
revenues and expenses are denominated in Canadian dollars. We are a U.S. dollar
reporting company. Fluctuations in the exchange rate between United States and
Canadian dollars could expose us to reductions in the U.S. dollar value of our
earnings and cash flows and a reduction in our stockholders’ equity under
applicable accounting rules.
The future success of Kinder Morgan
Energy Partners’ oil and gas development and production operations depends in
part upon its ability to develop additional oil and gas reserves that are
economically recoverable.
The
rate of production from oil and natural gas properties declines as reserves are
depleted. Without successful development activities, the reserves and revenues
of the oil producing assets within Kinder Morgan Energy Partners’ CO2 business
segment will decline. Kinder Morgan Energy Partners may not be able to develop
or acquire additional reserves at an
43
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Item 1A.
Risk
Factors. (continued)
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Knight
Inc. Form 10-K
|
acceptable
cost or have necessary financing for these activities in the future.
Additionally, if Kinder Morgan Energy Partners does not realize production
volumes greater than, or equal to, its hedged volumes, Kinder Morgan Energy
Partners will be liable to perform on hedges currently valued at greater than
$1.3 billion in favor of its counter-parties.
The
development of oil and gas properties involves risks that may result in a total
loss of investment.
The
business of developing and operating oil and gas properties involves a high
degree of business and financial risk that even a combination of experience,
knowledge and careful evaluation may not be able to overcome. Acquisition
and development decisions generally are based on subjective judgments and
assumptions that, while they may be reasonable, are by their nature speculative.
It is impossible to predict with certainty the production potential of a
particular property or well. Furthermore, a successful completion of a well
does not ensure a profitable return on the investment. A variety of geological,
operational, or market-related factors, including, but not limited to, unusual
or unexpected geological formations, pressures, equipment failures or accidents,
fires, explosions, blowouts, cratering, pollution and other environmental risks,
shortages or delays in the availability of drilling rigs and the delivery of
equipment, loss of circulation of drilling fluids or other conditions may
substantially delay or prevent completion of any well, or otherwise prevent a
property or well from being profitable. A productive well may become uneconomic
in the event water or other deleterious substances are encountered, which impair
or prevent the production of oil and/or gas from the well. In addition,
production from any well may be unmarketable if it is contaminated with water or
other deleterious substances.
The
volatility of natural gas and oil prices could have a material adverse effect on
our business.
The
revenues, profitability and future growth of Kinder Morgan Energy Partners’
CO2
business segment and the carrying value of its oil and natural gas properties
depend to a large degree on prevailing oil and gas prices. Prices for oil and
natural gas are subject to large fluctuations in response to relatively minor
changes in the supply and demand for oil and natural gas, uncertainties within
the market and a variety of other factors beyond our control. These factors
include, among other things, weather conditions and events such as hurricanes in
the United States; the condition of the United States economy; the activities of
the Organization of Petroleum Exporting Countries; governmental regulation;
political stability in the Middle East and elsewhere; the foreign supply of oil
and natural gas; the price of foreign imports; and the availability of
alternative fuel sources.
A
sharp decline in the price of natural gas or oil prices would result in a
commensurate reduction in our revenues, income and cash flows from the
production of oil and natural gas and could have a material adverse effect on
the carrying value of Kinder Morgan Energy Partners’ proved reserves. In the
event prices fall substantially, Kinder Morgan Energy Partners may not be able
to realize a profit from its production and would operate at a loss. In recent
decades, there have been periods of both worldwide overproduction and
underproduction of hydrocarbons and periods of both increased and relaxed energy
conservation efforts. Such conditions have resulted in periods of excess supply
of, and reduced demand for, crude oil on a worldwide basis and for natural gas
on a domestic basis. These periods have been followed by periods of short supply
of, and increased demand for, crude oil and natural gas. The excess or short
supply of crude oil or natural gas has placed pressures on prices and has
resulted in dramatic price fluctuations even during relatively short periods of
seasonal market demand.
Our
use of hedging arrangements could result in financial losses or reduce our
income.
We
currently engage in hedging arrangements to reduce our exposure to fluctuations
in the prices of oil and natural gas. These hedging arrangements expose us to
risk of financial loss in some circumstances, including when production is less
than expected, when the counterparty to the hedging contract defaults on its
contract obligations, or when there is a change in the expected differential
between the underlying price in the hedging agreement and the actual prices
received. In addition, these hedging arrangements may limit the benefit we would
otherwise receive from increases in prices for oil and natural gas.
The
accounting standards regarding hedge accounting are very complex, and even when
we engage in hedging transactions (for example, to mitigate our exposure to
fluctuations in commodity prices or currency exchange rates or to balance our
exposure to fixed and floating interest rates) that are effective economically,
these transactions may not be considered effective for accounting purposes. Accordingly, our financial
statements may reflect some volatility due to these hedges, even when there is
no underlying economic impact at that point. In addition, it is not always
possible for us to engage in a hedging transaction that completely mitigates our
exposure to commodity prices. Our financial statements may reflect a gain or
loss arising from an exposure to commodity prices for which we are unable to
enter into a completely effective hedge.
None.
44
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Knight
Form 10-K
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The
reader is directed to Note 17 of the accompanying Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
Item
4. Submission of Matters to a Vote of
Security Holders.
None.
45
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Knight
Form 10-K
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PART
II
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
|
Prior
to the Going Private transaction, our common stock was listed for trading on the
New York Stock Exchange under the symbol “KMI.” Dividends paid and the high and
low sale prices per share, as reported on the New York Stock Exchange, of our
common stock by quarter for the last two years are provided below.
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Market
Price Per Share
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2007
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2006
|
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Low
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High
|
Low
|
High
|
||||
|
Quarter
Ended:
|
|||||||
|
March
31
|
$104.97
|
$107.02
|
$89.13
|
$103.75
|
|||
|
June
301
|
$105.32
|
$108.14
|
$81.00
|
$103.00
|
|||
|
September
30
|
n/a
|
n/a
|
$99.50
|
$105.00
|
|||
|
December
31
|
n/a
|
n/a
|
$104.00
|
$106.20
|
|||
|
Dividends
Paid Per Share
|
|||
|
2007
|
2006
|
||
|
Quarter
Ended:
|
|||
|
March
31
|
$0.8750
|
$0.8750
|
|
|
June
301
|
$0.8750
|
$0.8750
|
|
|
September
30
|
n/a
|
$0.8750
|
|
|
December
31
|
n/a
|
$0.8750
|
|
__________
|
1
|
As
a result of the Going Private transaction, our common stock ceased trading
on May 30, 2007.
|
There
were no sales of unregistered equity securities during the period covered by
this report, and we repurchased none of our equity securities during the fourth
quarter of 2007.
For
information regarding our equity compensation plans, please refer to Item 12,
included elsewhere herein.
|
Item
6.
|
Five-Year Review1
Knight
Inc. and Subsidiaries
|
Successor
Company
|
Predecessor
Company
|
|||||||||||||||||||||||
|
Seven
Months Ended
|
Five
Months
|
|||||||||||||||||||||||
|
December
31,
|
Ended
|
Year
Ended December 31,
|
||||||||||||||||||||||
|
20072
|
May
31, 2007
|
20063,4
|
20054
|
2004
|
2003
|
|||||||||||||||||||
|
(In
millions)
|
(In
millions)
|
|||||||||||||||||||||||
|
Operating
Revenues
|
$
|
6,394.7
|
$
|
4,165.1
|
$
|
10,208.6
|
$
|
1,025.6
|
$
|
877.7
|
$
|
848.8
|
||||||||||||
|
Gas
Purchases and Other Costs of Sales
|
3,656.6
|
2,490.4
|
6,339.4
|
302.6
|
194.2
|
232.1
|
||||||||||||||||||
|
Other
Operating Expenses5,6
|
1,695.3
|
1,469.9
|
2,124.0
|
341.7
|
342.5
|
316.5
|
||||||||||||||||||
|
Operating
Income
|
1,042.8
|
204.8
|
1,745.2
|
381.3
|
341.0
|
300.2
|
||||||||||||||||||
|
Other
Income and (Expenses)
|
(566.9
|
)
|
(302.0
|
)
|
(858.9
|
)
|
470.0
|
365.2
|
281.5
|
|||||||||||||||
|
Income
(Loss) from Continuing Operations
Before
Income Taxes
|
475.9
|
(97.2
|
)
|
886.3
|
851.3
|
706.2
|
581.7
|
|||||||||||||||||
|
Income
Taxes
|
227.4
|
135.5
|
285.9
|
337.1
|
208.0
|
225.1
|
||||||||||||||||||
|
Income
(Loss) from Continuing Operations
|
248.5
|
(232.7
|
)
|
600.4
|
514.2
|
498.2
|
356.6
|
|||||||||||||||||
|
Income
(Loss) from Discontinued Operations, Net of Tax7
|
(1.5
|
)
|
298.6
|
(528.5
|
)
|
40.4
|
23.9
|
25.1
|
||||||||||||||||
|
Net
Income
|
$
|
247.0
|
$
|
65.9
|
$
|
71.9
|
$
|
554.6
|
$
|
522.1
|
$
|
381.7
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Capital
Expenditures8
|
$
|
1,287.0
|
$
|
652.8
|
$
|
1,375.6
|
$
|
134.1
|
$
|
103.2
|
$
|
132.0
|
||||||||||||
__________
|
1
|
Includes
significant impacts from acquisitions and dispositions of assets. See
Notes 4 and 5 of the accompanying Notes to Consolidated Financial
Statements for additional
information.
|
46
|
Item 6.
Selected
Financial Data (continued)
|
Knight
Form 10-K
|
|
2
|
Includes
significant impacts resulting from the Going Private transaction. See Note
1(B) of the accompanying Notes to Consolidated Financial Statements for
additional information.
|
|
3
|
Due
to our adoption of EITF No. 04-5, effective January 1, 2006 the accounts,
balances and results of operations of Kinder Morgan Energy Partners are
included in our financial statements and we no longer apply the equity
method of accounting to our investments in Kinder Morgan Energy Partners.
See Note 1(B) of the accompanying Notes to Consolidated Financial
Statements.
|
|
4
|
Includes
the results of Terasen Inc. subsequent to its November 30, 2005
acquisition by us. See Notes 4, 6 and 7 of the accompanying Notes to
Consolidated Financial Statements for information regarding
Terasen.
|
|
5
|
Includes
charges of $1.2 million, $6.5 million, $33.5 million, and $44.5 million in
2006, 2005, 2004 and 2003, respectively, to reduce the carrying value of
certain power assets.
|
|
6
|
Includes
an impairment charge of $377.1 million in the five months ended May 31,
2007 relating to Kinder Morgan Energy Partners’ acquisition of Trans
Mountain pipeline from Knight Inc. on April 30, 2007. See Note 1(I) of the
accompanying Notes to Consolidated Financial
Statements.
|
|
7
|
Includes
a charge of $650.5 million in 2006 to reduce the carrying value of Terasen
Inc.; see Note 6 of the accompanying Notes to Consolidated Financial
Statements.
|
|
8
|
Capital
Expenditures shown are for continuing operations
only.
|
|
As
of December 31,
|
||||||||||||||||||||||||||||||
|
Successor
Company
|
Predecessor
Company
|
|||||||||||||||||||||||||||||
|
20071
|
20062
|
20053
|
2004
|
2003
|
||||||||||||||||||||||||||
|
(In
millions)
|
(In
millions, except percentages)
|
|||||||||||||||||||||||||||||
|
Total
Assets
|
$
|
36,101.0
|
$
|
26,795.6
|
$
|
17,451.6
|
$
|
10,116.9
|
$
|
10,036.7
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||
|
Capitalization:
|
||||||||||||||||||||||||||||||
|
Common
Equity4
|
$
|
8,069.2
|
30
|
%
|
$
|
3,657.5
|
20
|
%
|
$
|
4,051.4
|
34
|
%
|
$
|
2,919.5
|
45
|
%
|
$
|
2,691.8
|
39
|
%
|
||||||||||
|
Deferrable
Interest Debentures
|
283.1
|
1
|
%
|
283.6
|
2
|
%
|
283.6
|
2
|
%
|
283.6
|
4
|
%
|
283.6
|
4
|
%
|
|||||||||||||||
|
Capital
Securities
|
-
|
-
|
106.9
|
1
|
%
|
107.2
|
1
|
%
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
Minority
Interests
|
3,314.0
|
13
|
%
|
3,095.5
|
17
|
%
|
1,247.3
|
10
|
%
|
1,105.4
|
17
|
%
|
1,010.1
|
15
|
%
|
|||||||||||||||
|
Outstanding
Notes and Debentures5
|
14,814.6
|
56
|
%
|
10,623.9
|
60
|
%
|
6,286.8
|
53
|
%
|
2,258.0
|
34
|
%
|
2,837.5
|
42
|
%
|
|||||||||||||||
|
Total
Capitalization
|
$
|
26,480.9
|
100
|
%
|
$
|
17,767.4
|
100
|
%
|
$
|
11,976.3
|
100
|
%
|
$
|
6,566.5
|
100
|
%
|
$
|
6,823.0
|
100
|
%
|
||||||||||
__________
|
1
|
Includes
significant impacts resulting from the Going Private transaction. See Note
1(B) of the accompanying Notes to Consolidated Financial Statements for
additional information.
|
|
2
|
Due
to our adoption of EITF No. 04-5, effective January 1, 2006 the accounts,
balances and results of operations of Kinder Morgan Energy Partners are
included in our financial statements and we no longer apply the equity
method of accounting to our investments in Kinder Morgan Energy Partners.
See Note 1(B) of the accompanying Notes to Consolidated Financial
Statements.
|
|
3
|
Reflects
the acquisition of Terasen Inc. on November 30, 2005. See Notes 4, 6 and 7
of the accompanying Notes to Consolidated Financial Statements for
information regarding this
acquisition.
|
|
4
|
Excluding
Accumulated Other Comprehensive
Income/Loss.
|
|
5
|
Excluding
the value of interest rate swaps and short-term debt. See Note 10 of the
accompanying Notes to Consolidated Financial
Statements.
|
47
|
Knight
Form 10-K
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The
following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and related Notes.
We
are an energy infrastructure provider through our direct ownership and operation
of energy-related assets, and through our ownership interests in and operation
of Kinder Morgan Energy Partners. As described in “Business Strategy” under
Items 1 and 2 “Business and Properties” elsewhere in this report, our strategy
and focus continues to be on ownership of fee-based energy-related assets which
are core to the energy infrastructure of North America and serve growing
markets. These assets tend to have relatively stable cash flows while presenting
us with opportunities to expand our facilities to serve additional customers and
nearby markets. We evaluate the performance of our investment in these assets
using, among other measures, segment earnings before depreciation, depletion and
amortization. In addition, please see “Recent Developments” under Items 1 and 2
“Business and Properties” elsewhere in this report.
On
August 28, 2006, we entered into an agreement and plan of merger whereby
generally each share of our common stock would be converted into the right to
receive $107.50 in cash without interest. We in turn would merge with a wholly
owned subsidiary of Knight Holdco LLC, a privately owned company in which
Richard D. Kinder, our Chairman and Chief Executive Officer, would be a major
investor. Our board of directors, on the unanimous recommendation of a
special committee composed entirely of independent directors, approved the
agreement and recommended that our stockholders approve the merger. Our
stockholders voted to approve the proposed merger agreement at a special meeting
held on December 19, 2006. On May 30, 2007, the merger closed, with
Kinder Morgan, Inc. continuing as the surviving legal entity and subsequently
renamed “Knight Inc.” Additional investors in Knight Holdco LLC include the
following: other senior members of our management, most of whom are also senior
officers of Kinder Morgan G.P., Inc. and of Kinder Morgan Management; our
co-founder William V. Morgan; Kinder Morgan, Inc. board members Fayez Sarofim
and Michael C. Morgan; and affiliates of (i) Goldman Sachs Capital Partners;
(ii) American International Group, Inc.; (iii) The Carlyle Group; and (iv)
Riverstone Holdings LLC. As a result of this transaction, referred to
herein as “the Going Private transaction,” (i) we are now privately owned, (ii)
our stock is no longer traded on the New York Stock Exchange, and (iii) we
have adopted a new basis of accounting for our assets and
liabilities.
As
a result of our adoption of a new basis of accounting, amounts in this
discussion and analysis and in the accompanying consolidated financial
statements for dates and periods prior to the closing of the Going Private
transaction are labeled “Predecessor Company” (and reflect the historical basis
of accounting for our assets and liabilities), while amounts for dates and
periods after the closing are labeled “Successor Company” (and reflect the new
basis of accounting for our assets and liabilities). In addition, solely for the
purpose of providing a basis of comparing 2007 with previous years, we have
provided certain full-year 2007 information that combines amounts reflecting
both the historical and new basis for our assets and liabilities. Additional
information on the Going Private transaction and its effect on our financial
information is contained in Note 1(B) of the accompanying Notes to
Consolidated Financial Statements.
In
this report, unless the context requires otherwise, references to
“we,” “us,” “our,” or the “Company” are intended to mean Knight Inc.
and its consolidated subsidiaries, including Kinder Morgan Energy Partners,
L.P., both before and after the Going Private transaction. Unless the context
requires otherwise, references to “Kinder Morgan Energy Partners” are intended
to mean Kinder Morgan Energy Partners, L.P. and its consolidated subsidiaries, a
publicly traded pipeline master limited partnership in which we own the general
partner interest and significant limited partner interests and whose
transactions and balances are consolidated with ours beginning January 1, 2006
as discussed elsewhere herein.
In
February 2007, we entered into a definitive agreement to sell our Canada-based
retail natural gas distribution operations to Fortis Inc., for
approximately C$3.7 billion including cash and assumed debt, and as a result of
a redetermination of fair value in light of this proposed sale, we recorded an
estimated goodwill impairment charge of approximately $650.5 million in the
fourth quarter of 2006. This sale was completed in May 2007 (see Note 6 of
the accompanying Notes to Consolidated Financial Statements). In prior periods,
we referred to these operations principally as the Terasen Gas business segment.
In March 2007, we entered into an agreement to sell the Corridor Pipeline System
to Inter Pipeline Fund in Canada for approximately C$760 million, including
debt. This sale was completed in June 2007. Inter Pipeline Fund also assumed all
of the debt associated with the expansion taking place on Corridor at the time
of the sale. Also in March 2007, we completed the sale of our U.S. retail
natural gas distribution and related operations to GE Energy Financial Services,
a subsidiary of General Electric Company, and Alinda Investments LLC for $710
million and an adjustment for working capital. In prior periods, we referred to
these operations as the Kinder Morgan Retail business segment. In December 2007,
we entered into a definitive agreement to sell an 80% ownership interest in our
NGPL business segment at a price equivalent to a total enterprise value of
approximately $5.9 billion, subject to certain adjustments (see Note 1(M)) of
the accompanying Notes to Consolidated Financial Statements. In accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for
48
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations (continued)
|
Knight
Form 10-K
|
the Impairment or Disposal of
Long-Lived Assets, the financial results of the Terasen Gas, Corridor and
Kinder Morgan Retail operations have been reclassified to discontinued
operations for all periods presented, and 80% of the assets and liabilities
associated with the NGPL business segment are included in assets and liabilities
held for sale captions, with the remaining 20% included in the investment
caption in the accompanying Consolidated Balance Sheet at December 31,
2007. Refer to the heading “Discontinued Operations” included elsewhere in
Management’s Discussion and Analysis for additional information regarding
discontinued operations.
On
April 30, 2007, Kinder Morgan, Inc. sold the Trans Mountain pipeline system to
Kinder Morgan Energy Partners for approximately $550 million. The transaction
was approved by the independent members of our board of directors and those of
Kinder Morgan Management following the receipt, by each board, of separate
fairness opinions from different investment banks. The Trans Mountain pipeline
system transports crude oil and refined products from Edmonton, Alberta, Canada
to marketing terminals and refineries in British Columbia and the State of
Washington. An impairment of the Trans Mountain pipeline system was recorded in
the first quarter of 2007; see Note 1(I) of the accompanying Notes to
Consolidated Financial Statements.
As
discussed in Note 1(B) of the accompanying Notes to Consolidated Financial
Statements, due to our adoption of EITF No. 04-5, effective as of January 1,
2006, Kinder Morgan Energy Partners and its consolidated subsidiaries are
included as consolidated subsidiaries of Knight Inc. in our consolidated
financial statements. Accordingly, their accounts, balances and results of
operations are included in our consolidated financial statements for periods
beginning on and after January 1, 2006, and we no longer apply the equity method
of accounting to our investment in Kinder Morgan Energy Partners.
Notwithstanding the consolidation of Kinder Morgan Energy Partners and its
subsidiaries into our financial statements pursuant to EITF 04-5, we are not
liable for, and our assets are not available to satisfy, the obligations of
Kinder Morgan Energy Partners and/or its subsidiaries and vice versa.
Responsibility for payments of obligations reflected in our or Kinder Morgan
Energy Partners’ financial statements is a legal determination based on the
entity that incurs the liability. The determination of responsibility for
payment among entities in our consolidated group of subsidiaries was not
impacted by the adoption of EITF 04-5.
Our
adoption of a new basis of accounting for our assets and liabilities as a result
of the Going Private transaction, our adoption of EITF No. 04-5, our acquisition
of Terasen Inc., the reclassification of the financial results of our retail
natural gas distribution and related operations and our Corridor operations, the
impairment of goodwill described above and other acquisitions and divestitures
(including the transfer of certain assets to Kinder Morgan Energy Partners)
discussed in Notes 1(B), 4, 5, 6, 7 and 19 of the accompanying Notes to
Consolidated Financial Statements affect comparisons of our financial position
and results of operations between periods.
On
November 20, 2007, we entered into a definitive agreement to sell our interests
in three natural gas-fired power plants in Colorado to Bear Stearns. The closing
of the sale occurred on January 25, 2008, effective January 1, 2008, and we
received net proceeds of $63.1 million.
To
convert December 31, 2007 and 2006 balances denominated in Canadian dollars to
U.S. dollars, we used the December 31, 2007 and 2006 Bank of Canada closing
exchange rate of 1.012 and 0.8581 U.S. dollars per Canadian dollar,
respectively.
Our
discussion and analysis of financial condition and results of operations are
based on our consolidated financial statements, prepared in accordance with
accounting principles generally accepted in the United States of America and
contained within this report. Certain amounts included in or affecting our
consolidated financial statements and related disclosure must be estimated,
requiring us to make certain assumptions with respect to values or conditions
that cannot be known with certainty at the time the financial statements are
prepared. The reported amounts of our assets and liabilities, revenues and
expenses and associated disclosures with respect to contingent assets and
obligations are necessarily affected by these estimates. We evaluate these
estimates on an ongoing basis, utilizing historical experience, consultation
with experts and other methods we consider reasonable in the particular
circumstances. Nevertheless, actual results may differ significantly from our
estimates. Any effects on our business, financial position or results of
operations resulting from revisions to these estimates are recorded in the
period in which the facts that give rise to the revision become
known.
In
preparing our consolidated financial statements and related disclosures, we must
use estimates in determining the economic useful lives of our assets, the
effective income tax rate to apply to our pre-tax income, deferred income tax
assets, deferred income tax liabilities, obligations under our employee benefit
plans, provisions for uncollectible accounts receivable, the fair values used to
allocate purchase price and to determine possible asset impairment charges, cost
and timing of environmental remediation efforts, potential exposure to adverse
outcomes from judgments, environmental claims, litigation settlements or
transportation rate cases, reserves for legal fees, exposures under contractual
indemnifications, unbilled revenues, and various other recorded or disclosed
amounts. Certain of these accounting estimates are of more significance in our
financial statement preparation process than others, which policies are
discussed following. Our policies and estimation
49
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations (continued)
|
Knight
Form 10-K
|
methodologies
are generally the same in both the predecessor and successor company periods,
except where explicitly discussed.
Environmental
Matters
With
respect to our environmental exposure, we utilize both internal staff and
external experts to assist us in identifying environmental issues and in
estimating the costs and timing of remediation efforts. We expense or
capitalize, as appropriate, environmental expenditures that relate to current
operations, and we record environmental liabilities when environmental
assessments and/or remedial efforts are probable and we can reasonably estimate
the costs. We do not discount environmental liabilities to a net present value,
and we recognize receivables for anticipated associated insurance recoveries
when such recoveries are deemed to be probable.
The
recording of environmental accruals often coincides with the completion of a
feasibility study or the commitment to a formal plan of action, but generally,
we recognize and/or adjust our environmental liabilities following routine
reviews of potential environmental issues and claims that could impact our
assets or operations. These adjustments may result in increases in environmental
expenses and primarily result from quarterly reviews of potential environmental
issues and resulting changes in environmental liability estimates. In making
these liability estimations, we consider the effect of environmental compliance,
pending legal actions against us, and potential third-party liability claims.
For more information on our environmental disclosures, see Note 17 of the
accompanying Notes to Consolidated Financial Statements.
Legal
Matters
We
are subject to litigation and regulatory proceedings as a result of our business
operations and transactions. We utilize both internal and external counsel in
evaluating our potential exposure to adverse outcomes from orders, judgments or
settlements. To the extent that actual outcomes differ from our estimates, or
additional facts and circumstances cause us to revise our estimates, our
earnings will be affected. In general, we expense legal costs as incurred. When
we identify specific litigation that is expected to continue for a significant
period of time and require substantial expenditures, we identify a range of
possible costs expected to be required to litigate the matter to a conclusion or
reach an acceptable settlement. If no amount within this range is a better
estimate than any other amount, we record a liability equal to the low end of
the range. Any such liability recorded is revised as better information becomes
available.
As
of December 31, 2007, our most significant ongoing litigation proceedings
involve Kinder Morgan Energy Partners’ Pacific operations. Tariffs charged by
Kinder Morgan Energy Partners’ Pacific operations’ pipeline systems are subject
to certain proceedings at the Federal
Energy Regulatory Commission (“FERC”) involving shippers’ complaints
regarding the interstate rates, as well as practices and the jurisdictional
nature of certain facilities and services. Generally, the interstate rates on
Kinder Morgan Energy Partners’ Pacific operations’ pipeline systems are
“grandfathered” under the Energy Policy Act of 1992 unless “substantially
changed circumstances” are found to exist. To the extent “substantially changed
circumstances” are found to exist, Kinder Morgan Energy Partners’ Pacific
operations may be subject to substantial exposure under these FERC complaints
and could, therefore, owe reparations and/or refunds to complainants as mandated
by the FERC or the United States’ judicial system. For more
information on Kinder Morgan Energy Partners’ Pacific operations’ regulatory
proceedings, see Note 17 to our consolidated financial statements included
elsewhere in this report.
Intangible
Assets
Intangible
assets are those assets which provide future economic benefit but have no
physical substance. We account for our intangible assets according to the
provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141,
Business Combinations
and SFAS No. 142, Goodwill and
Other Intangible Assets. These accounting pronouncements introduced the
concept of indefinite life intangible assets and provided that all identifiable
intangible assets having indefinite useful economic lives, including goodwill,
will not be subject to periodic amortization. Such assets are not to be
amortized unless and until their lives are determined to be finite. Instead, the
carrying amount of a recognized intangible asset with an indefinite useful life
must be tested for impairment annually or on an interim basis if events or
circumstances indicate that the fair value of the asset has decreased below its
carrying value. For the Predecessor Company, an impairment measurement test date
of January 1 of each year was selected; for the Successor Company, we expect to
use an annual impairment measurement date of May 31.
As
of December 31, 2007, our goodwill was $8,174.0 million. Included in this
goodwill balance is $250.1 million related to the Trans Mountain – KMP business
segment, which we sold to Kinder Morgan Energy Partners on April 30, 2007. This
sale transaction caused us to reconsider the fair value of the Trans Mountain
pipeline system in relation to its carrying value, and to make a determination
as to whether the associated goodwill was impaired. As a result of our analysis,
we recorded a goodwill impairment charge of $377.1 million in the first quarter
of 2007.
Our
remaining intangible assets, excluding goodwill, include customer relationships,
contracts and agreements, technology-based assets and lease value. These
intangible assets have definite lives, are being amortized on a straight-line
basis over their
50
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations (continued)
|
Knight
Form 10-K
|
estimated
useful lives, and are reported separately as “Other Intangibles, Net” in the
accompanying Consolidated Balance Sheets. As of December 31, 2007 and 2006,
these intangibles totaled $321.1 million and $229.5 million,
respectively.
Estimated
Net Recoverable Quantities of Oil and Gas
We
use the successful efforts method of accounting for Kinder Morgan Energy
Partners’ oil and gas producing activities. The successful efforts method
inherently relies on the estimation of proved reserves, both developed and
undeveloped. The existence and the estimated amount of proved reserves affect,
among other things, whether certain costs are capitalized or expensed, the
amount and timing of costs depleted or amortized into income and the
presentation of supplemental information on oil and gas producing activities.
The expected future cash flows to be generated by oil and gas producing
properties used in testing for impairment of such properties also rely in part
on estimates of net recoverable quantities of oil and gas.
Proved
reserves are the estimated quantities of oil and gas that geologic and
engineering data demonstrates with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Estimates of proved reserves may change, either positively or
negatively, as additional information becomes available and as contractual,
economic and political conditions change.
Hedging
Activities
We
engage in a hedging program that utilizes derivative contracts to mitigate
(offset in whole or in part) our exposure to fluctuations in energy commodity
prices, fluctuations in currency exchange rates and to balance our exposure to
fixed and floating interest rates, and we believe that these hedges are
generally effective in realizing these objectives. However, the accounting
standards regarding hedge accounting are complex, and even when we engage in
hedging transactions that are effective economically, these transactions may not
be considered effective for accounting purposes.
According
to the provisions of current accounting standards, to be considered effective,
changes in the value of a derivative contract or its resulting cash flows must
substantially offset changes in the value or cash flows of the item being
hedged. A perfectly effective hedge is one in which changes in the value of the
derivative contract exactly offset changes in the value of the hedged item or
expected cash flow of the future transactions in reporting periods covered by
the derivative contract. The ineffective portion of the gain or loss and any
component excluded from the computation of the effectiveness of the derivative
contract must be reported in earnings immediately; accordingly, our financial
statements may reflect some volatility due to these hedges.
In
addition, it is not always possible for us to engage in a hedging transaction
that completely mitigates our exposure to unfavorable changes in commodity
prices. For example, when we purchase a commodity at one location and sell it at
another, we may be unable to hedge completely our exposure to a differential in
the price of the product between these two locations. Even when we cannot enter
into a completely effective hedge, we often enter into hedges that are not
completely effective in those instances where we believe to do so would be
better than not hedging at all, but due to the fact that the part of the hedging
transaction that is not effective in offsetting undesired changes in commodity
prices (the ineffective portion) is required to be recognized currently in
earnings, our financial statements may reflect a gain or loss arising from an
exposure to commodity prices for which we are unable to enter into a completely
effective hedge.
Employee
Benefit Plans
With
respect to the amount of income or expense we recognize in association with our
pension and retiree medical plans, we must make a number of assumptions with
respect to both future financial conditions (for example, medical costs, returns
on fund assets and market interest rates) as well as future actions by plan
participants (for example, when they will retire and how long they will live
after retirement). Most of these assumptions have relatively minor impacts on
the overall accounting recognition given to these plans, but two assumptions in
particular, the discount rate and the assumed long-term rate of return on fund
assets, can have significant effects on the amount of expense recorded and
liability recognized. We review historical trends, future expectations, current
and projected market conditions, the general interest rate environment and
benefit payment obligations to select these assumptions. The discount rate
represents the market rate for a high quality corporate bond. The selection of
these assumptions is further discussed in Note 12 of the accompanying Notes to
Consolidated Financial Statements. While we believe our choices for these
assumptions are appropriate in the circumstances, other assumptions could also
be reasonably applied and, therefore, we note that, at our current level of
pension and retiree medical funding, a change of 1% in the long-term return
assumption would increase (decrease) our annual retiree medical expense by
approximately $725,000 ($725,000) and would increase (decrease) our annual
pension expense by $2.6 million ($2.6 million) in comparison to that recorded in
2007. Similarly, a 1% change in the discount rate would increase (decrease) our
accumulated postretirement benefit obligation by $6.9 million ($6.3 million) and
would increase (decrease) our projected pension benefit obligation by $31.5
million ($28.0 million) compared to those balances as of December 31,
2007.
51
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations (continued)
|
Knight
Form 10-K
|
Income
Taxes
We
record a valuation allowance to reduce our deferred tax assets to an amount that
is more likely than not to be realized. While we have considered estimated
future taxable income and prudent and feasible tax planning strategies in
determining the amount of our valuation allowance, any change in the amount that
we expect to ultimately realize will be included in income in the period in
which such a determination is reached. In addition, we do business in a number
of states with differing laws concerning how income subject to each state’s tax
structure is measured and at what effective rate such income is taxed.
Therefore, we must make estimates of how our income will be apportioned among
the various states in order to arrive at an overall effective tax rate. Changes
in our effective rate, including any effect on previously recorded deferred
taxes, are recorded in the period in which the need for such change is
identified.
The
following discussion of consolidated financial results should be read in
conjunction with the accompanying Consolidated Statement of Operations and
related supplemental disclosures. The following discussion is a comparison of
the for the years ended December 31, 2006 and 2005 (predecessor basis) with the
combined consolidated financial results for the year ended December 31, 2007,
which amounts include both predecessor (pre-Going Private) and successor
(post-Going Private) balances. These combined consolidated financial results,
while in our opinion useful for comparing our results between these periods, do
not represent a measure prepared in accordance with generally accepted
accounting principles. As discussed in Note 1(B) of the accompanying Notes to
Consolidated Financial Statements, due to our adoption of EITF No. 04-5,
beginning January 1, 2006, the accounts, balances and results of operations of
Kinder Morgan Energy Partners are included in our consolidated financial
statements and we no longer apply the equity method of accounting to our
investment in Kinder Morgan Energy Partners.
|
Combined
Results
|
Successor
Company
|
Predecessor
Company
|
||||||||||||||||||
|
For
the Year Ended December 31, 2007
|
Seven
Months Ended December 31, 2007
|
Five
Months Ended May 31, 2007
|
Year
Ended December 31, 2006
|
Year
Ended December 31, 2005
|
||||||||||||||||
|
(In
millions)
|
(In
millions)
|
|||||||||||||||||||
|
Equity
in Earnings of Kinder Morgan Energy Partners1,2
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
605.4
|
||||||||||
|
Segment
Earnings before Depreciation, Depletion and Amortization of Excess Cost of
Equity Investments:
|
||||||||||||||||||||
|
NGPL
|
690.2
|
422.8
|
267.4
|
603.5
|
534.8
|
|||||||||||||||
|
Power
|
22.3
|
13.4
|
8.9
|
23.2
|
16.5
|
|||||||||||||||
|
Express
|
19.8
|
14.4
|
5.4
|
17.2
|
2.0
|
< | ||||||||||||||