Kinder Morgan Energy Partners LP's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Oct.19.11 | About: Kinder Morgan (KMP)

Kinder Morgan Energy Partners LP (NYSE:KMP)

Q3 2011 Earnings Call

October 19, 2011 4:30 pm ET


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

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

Richard Tim Bradley - President of CO2 Pipelines for Kinder Morgan G P Inc and Vice President of Kinder Morgan G P Inc

Jeffrey R. Armstrong - President of Terminals for Kinder Morgan G P Inc and Vice President of Kinder Morgan G P Inc


Brian Zarahn - Barclays Capital

Brian J. Zarahn - Barclays Capital, Research Division

Unknown Analyst -


Welcome to the quarterly earnings conference call. [Operator Instructions] Today's conference is being recorded. If there are any objections, please disconnect at this time. I'd now like to turn the call over to Mr. Rich Kinder, Chairman and CEO of Kinder Morgan.

Richard D. Kinder

Okay. Thank you, Dory, and welcome to the Kinder Morgan's Third Quarter Earnings Call. We'll be covering results for the quarter at KMP, which is one of America's largest MLPs; and also at KMI, which owns the general partner of KMP, and is also an owner of significant units at KMP, and also the 20% interest in natural gas pipeline of America.

As usual, we'll be making statements within the meaning of Securities Act of 1933 and the Securities Exchange Act of 1934. I'll give an overview of the quarter. Kim Dang, our Chief Financial Officer, will give details on the numbers, and then we'll take any and all questions that you may have.

If the format of this call seems a little different or discombobulated, it's because as a result of the El Paso announcement, Kim and I are actually in Boston. Park, who's on the phone is in Los Angeles and Steve Kean and the rest of the management team are in Houston. All 3 locations have access to the phones. So we will try to answer any questions that you may have, and you'll have everybody's expertise or lack thereof.

But first, let me turn to KMI. We declared a quarterly dividend of $0.30 or $1.20 annualized run rate. That means we're on track to pay $1.18 for 2011, and I'll remind you that's first the target of $1.16 that we announced during the IPO roadshow back in February. As we announced Sunday afternoon, KMI and El Paso Corp. have entered into a definitive agreement, whereby KMI will acquire all the outstanding shares of El Paso. This transaction will create the largest midstream and the fourth largest energy company in North America.

As we've said in our conference call on Monday morning, assuming that, that merger closes on January 1, 2012, we would expect dividends per share for 2012 at KMI to be about $1.45. And now that will increase from $1.18 in 2011 results from strong internal growth that we would get regardless of the El Paso merger, and from the impact of the merger.

Since we don't expect the merger to close until the second quarter, the actual dividend payment for 2012 will likely be a few cents smaller than the $1.45 I described. With that, let me turn to KMP.

At KMP, the board increased the quarterly cash distribution to common unit -- per common unit to $1.16 or $4.64 annualized. That distribution represents a 5% increase over the third quarter of 2010 cash distribution.

In my judgment, KMP had a very good third quarter, with all 5 of our business segments producing higher segment earnings before DD&A than during the same period last year. We now expect to exceed our previously announced 2011 budget at KMP for cash distributions of $4.60 per unit.

We're seeing really good growth opportunities in the midstream energy sector, particularly in the natural gas shale plays and in the coal export business over in our Terminals segment. Distributable cash flow per unit at KMP before certain items was $1.19 compared to $1.2 for the third quarter last year, and also above our plan for the third quarter of this year.

Now let me turn to the segments. I'll start with the Products Pipeline segment. The growth there was driven by higher volumes on the Cochin pipeline system, due to increased demand for both terminal and storage deliveries. Plantation pipeline also had higher revenues and increased gasoline and jet fuel volumes and the Southeast and West Coast Terminals also produced better results than in the comparable period last year. That said, total refined products volumes on our systems decreased by 0.4 of 1% for the third quarter versus the same period last year.

Pipeline volumes were up on CALNEV and Plantation, but down on Pacific and Central Florida. To put that in perspective as we always do, we compare that to the EIA national figures, which for the third quarter of 2011 showed a decline of 2%. So we showed a 0.4% and they showed a 2%. So we were a bit better than the national average, but still somewhat disappointing that the absolute volumes of refined products deteriorated from a year ago in the third quarter.

NGL volumes on the other hand were up by 14% versus the same period last year due to the strong performance at Cochin. And our ethanol volumes were also up in this segment. In our Products Pipeline segment, we handled 8 million barrels of ethanol. That was up 6% from last year. And we continue to realize solid growth in the biodiesel barrels that we're handling in our Products Pipeline segment.

Turning to our Natural Gas segment, Natural Gas Pipelines segment. Growth in the third quarter was driven primarily by contributions from the KinderHawk acquisition, the Fayetteville Express Pipeline coming on full-service on January 1 of this year. By good results on the Texas Intrastate system, which largely reflected better processing margins and very good results from our Eagle Ford joint venture. And then from higher Casper/Douglas processing margins.

If you look at volumes on our Natural Gas Pipelines, overall segment transport volumes were up 12% in the third quarter versus the same period last year due to the Fayetteville Express Pipeline coming online and due to solid transport volumes on our Texas Intrastate pipeline system.

Moving on to the CO2 business. Growth in the third quarter compared to the same period last year was attributable to higher oil prices and higher NGL prices, and our net crude volumes were relatively flat quarter-to-quarter. The realized weighted average oil price was almost $11 per barrel higher than it was in the comparable period last year.

If you look at the oil production in this segment for the third quarter, oil production was up slightly at SACROC. It was up at Katz, but it was down at Yates. But when you take into account our net volumes, we were approximately flat in terms of total barrels net to KMP.

The production response at Katz is improving during the third quarter. It had a substantial uptick from the second quarter. It's averaging over 800 barrels per day in October. And this week, just a couple of days ago, we crossed the 1,000 barrels number for a given day for the first time. So this looks like we're getting the kind of response that Tim Bradley and his team predicted we would get. It just came in a little later.

Another positive development in the CO2 operations is that our Snyder Gasoline Plant set a quarterly NGL production record, producing gross volumes of almost 17,000 barrels per day.

Turning to our Terminals business. The growth there, about 3/4 of it came from organic sources when you compare to the third quarter of last year, and the remainder came from acquisitions. The internal growth was led by higher export coal volumes at Pier IX in Virginia, and at our facilities in Houston and our coal volumes handled across the company increased by a really stupendous 23% compared to the third quarter of 2010.

Also for the third quarter, this segment handled 15.5 million barrels of ethanol, up 10% from the comparable period last year. So if you combine the Terminals and Products Pipelines in terms of how much ethanol was handled, we handled 23.5 million barrels in the third quarter of '11 versus 21.7 million barrels in the third quarter of '10. So we continue to handle approximately 30% of all the ethanol used in the United States.

At our Kinder Morgan Canada segment, the growth there in the third quarter compared to the same period last year was attributable to the new toll agreement on our Trans Mountain pipeline system and to the strength of the Canadian dollar.

Now before I turn over to Kim, let me just also mention several important developments, which occurred during the third quarter. We detailed a lot of developments in our release, but I'll just mention some of the most important. And again, starting with the Products Pipeline segment.

During the quarter, actually mid-September, KMP and Bolero announced we would build a $220 million pipeline to expand the fuel supply of refined petroleum products to the Southeastern U.S. We're calling it Parkway Pipeline, and it will have an initial capacity of 110,000 barrels per day, with the ability to expand to over 200,000 barrels per day. It's 136 miles long. It's 16-inch pipe. We'll move gasoline, jet fuel and diesel from refineries in the Norco, Louisiana area to an existing petroleum hub owned by Plantation pipeline at Collins, Mississippi. The project is supported by a long-term throughput agreement, and we expect it to be accretive to cash available to KMP unitholders upon its completion. It should be in service by midyear of 2013.

In our natural gas pipeline segment, certainly the developments in the Eagle Ford continue to be really doing very well. Eagle Ford Gathering, which is a joint venture between ourselves and Copano Energy in South Texas, initiated flow on our rich gas gathering system on August 1. Currently, the joint venture expects to have about 400 miles of pipelines, with capacity together and process over 700 billion cubic feet per day by early 2012.

If you include the 50% interest in the joint venture but not including the crude/condensate line, our Natural Gas Pipeline segment has committed about $200 million to expansion projects in the Eagle Ford shale play. And we continue to make progress on our condensate line, which we expect to go in service in mid-2012. That will actually be a part of our Products Pipeline segment.

In the CO2 segment, the most important development there remains the really strong demand for CO2 for enhanced oil recovery. And in consequence of that, we've undertaken additional engineering and design studies to identify additional CO2 supply and transportation expansion opportunities in Southwest Colorado and on the lines coming down to the Permian Basin.

As I've said before, the outlook looks very positive. We should have some significant progress in this front over the next several months.

Turning to Terminals, KMP. We continue to see a very good coal handling opportunities, especially for export. We entered into a long-term agreement with Progress Energy during the quarter to handle up to 4 million tons of coal a year at our IMT terminal in Louisiana. Under that contract, terminal services already started, and we and our partner in that terminal, AEP, will be investing about $111 million to expand and upgrade that terminal to handle this contract and other increased needs for export domestic coal at that particular terminal, which is located south of New Orleans, on the Mississippi River.

KMP also continues to experience strong demand to handle export coal, and we expect to enter into additional contracts in the fourth quarter, which are likely to result in over $200 million of additional CapEx spent on coal-handling facilities at KMP. So you add it all up. I said a couple of quarters ago, I expected we would spend an excess of $0.5 billion over the next couple of years for expansion of coal-handling facilities, primarily for the export market. And it looks like we are going to hit that number very squarely and maybe even do a little better than we thought.

Also in the Terminals segment, our Carteret, New Jersey facility has completed phasing in over 1 million barrels of additional gasoline storage as a part of the completion of a $62 million expansion project, all of that capacity is under a long-term 10-year contract for a major oil company.

Kinder Morgan Canada, last but not least, starting tomorrow, we will begin a public open season from October 20 and ending January 19, 2012, to assess shipper interest to expand the pipeline. The current capacity on Trans Mountain is 300,000 barrels per day, and on most days, it's running completely full. Now this could be a very major project. We've shared some of the details with you in the past, but I would caution that, as usual, at Kinder Morgan, we will build it only if we have customer support for the project, and we'll know more about that in early 2012.

So summing it all up, I think we had a very good third quarter. Again, all segments beat the results we had in the third quarter a year ago, and our DCF per unit before certain items was nicely in excess of our plan for this quarter. And with that, I'll turn it over to Kim to take you through the financials.

Kimberly A. Dang

Okay. Thanks, Rich. We'll start on KMP. In the first page, which is the GAAP income statement. Here, I'm just going to talk about the declared distribution. So look, almost 80%, the way down the page you'll see the declared distribution per unit. As Rich said, we're declaring $1.16 for the quarter. That is $0.01 above our budget, and therefore, we expect for the full year to exceed the $4.60 that we budgeted for the year. Versus 2010, that's about $0.05 increase or about 5% change over the quarter a year ago. Year-to-date, $3.45 in declared distributions versus $3.27 in 2010 year-to-date. That's $0.18 increase or about 5.5% increase in the declared distribution.

Turning to the second page and looking down to the next to last numbers line to the DCF per unit before certain items, $1.19 in the quarter. As Rich mentioned, that was nicely above our budget. It compares to $1.2 last year, $0.17 increase or about 16.7% increase. Year-to-date, we have generated $3.40 of distributable cash flow per unit. That compares to $3.26 last year to the $0.14 increase or 4.3% growth.

If you look where we are year-to-date versus the budget, we are ahead of the budget year-to-date. Now some of that is coming from timing on sustaining CapEx. And for the full year, we expect to be pretty close to the budget in terms of the distributable cash flow per unit. And just keep in mind that when we increased the distribution above our budget, it does have about $0.01 impact on the distributable cash flow per unit.

We expect on that -- of the distributable cash flow, in total, that we are above our budget year-to-date nicely. Now a lot of that is also, that's coming from the timing on sustaining CapEx, some of that is, but we also are generating above our budget with respect to how the segments are performing.

For the full year, we expect that we will be slightly above in terms of distributable cash flow before certain items, and that's going to be a function of the KinderHawk acquisition. It's going to be a function of lower interest rates. And then also for the full year, we expect that sustaining CapEx will come in below our budget. Our budget was $225 million of sustaining CapEx. Our current expectation is that we will come in at $215 million of sustaining CapEx.

Looking up at the segments. On Products Pipelines versus the third quarter of last year, we're up $6.3 million. As Rich said, we would have been more except for the UPRR right of way decision that we have reflected in the third quarter results for the amounts that impact the -- or that are related to 2011, year-to-date, up $16.4 million versus our budget year-to-date. We are very close to our budget, but we expect to end the year below our budget.

And that's a function of -- Cochin has been -- had very strong performance for the first 3 quarters. And that is largely offset some of the weakness that we've seen versus our budget in products volumes and also some of the regulatory things that we have implemented on our pipeline, and the UPRR right of way increased. The Cochin will not offset -- we do not expect at this time that Cochin will offset those things in the fourth quarter, and so we think that products will end below its budget for the year.

Natural Gas Pipeline is up $59 million in the third quarter year-to-date, up $68 million year-to-date. They are above their budget, primarily as a function of KinderHawk. And we expect them to end the year above their budget. In the segment, we expect there'll be about $50 million above their budget, rough numbers.

Now on a net basis, so when you take into account the DD&A that we add back below the line for the joint ventures, they'll be above their budget, about $35 million. And that's just a function of the KinderHawk acquisition. Once we acquired 100% of that, we no longer show the DD&A add back in the line down below when we calculate DCF. And so there is a reduction down there in our results. When you add back to the segment, that's how you get to the net of about $35 million.

Now that's slightly below what we said last quarter, and that's just because the performance on the KinderHawk acquisition is being slightly offset by some weakness that we've seen in the Rockies. And that's primarily related to higher OpEx, as a result of some regulatory decisions related to our fuel recoveries on those pipelines.

CO2 in the quarter is up $57 million versus last year. It's up $94 million year-to-date. We expect -- year-to-date, they're very close to their budget and we expect that they will end the year close to their budget.

Terminals are up $16 million in the quarter, up $43 million year-to-date. They are slightly below their budget year-to-date, and we expect that they'll end the year slightly below their budget, primarily as a result of flood impacts that we saw earlier in the year, higher OpEx as a result of fuel cost and then some lower steel volumes as a result of an outage at a plant that we serve.

On Kinder Morgan Canada. For the quarter, they're up $4.5 million. Year-to-date, up $14.9 million or 11%. Year-to-date, they're above their budget, and we expect them to end the year above their budget. And that is largely a function of FX, with a little bit of outperformance on the asset.

Dropping down to general and administrative expense. You can see it was $102.5 million in the quarter versus about $96 million last year. That is an increase of about $6.8 million for the quarter. It's up about $13.6 million versus year-to-date a year ago. They are above their budget. Our G&A is above our budget by about $13 million. We expect that a portion of that is timing and so that we will end the year about $6 million above our budget on G&A, and that's largely a function of some increased legal expenses and some increased benefits cost.

On interest expense for the quarter, we are $1.2 million less than a year ago. Year-to-date, we are about $20 million greater in interest expense than we were a year ago. Versus our budget year-to-date, we are favorable about over $20 million. And we expect to end the year favorable to our budget.

So that -- and when you look through it all, we expect that as a result, as I said earlier, of the KinderHawk acquisition, as a result of interest savings and as a result of a little bit lower sustaining CapEx that we end the year slightly above our budget in terms of distributable will cash flow.

Looking at the certain items just very quickly. There were 2 in the quarter that really add up to the $235 million, all the rest really net out. They're $69 million, which primarily in legal reserves, which primarily relates to an adverse decision on the right of way. This represents all the years prior to 2011. As I said earlier, the 2011 impact is up in the segment.

And then the noncash write-down or the loss on remeasurement of assets to fair value, that's the noncash write-down on the first half at KinderHawk that we previously announced. And when we bought the second half of KinderHawk, we bought it for a lower price than we paid for the first half, and this is us writing down the first half to the second half value.

Year-to-date, the other certain items that we've discussed in prior quarters that there's really 3, again, that gets you to the $478 million. $81 million is associated with allocated noncash compensation expense. That was allocated from KMI. It was paid by the private shareholders. KMP will never bear any cost with respect to this, but because of GAAP, we have to allocate it to KMP. There is the UPRR right of way that I discussed within this quarter plus some rate case charges, primarily related to SFPP that we took in the second quarter and then the $167 million loss on remeasurement of assets to fair value. And so that gives you our results for the quarter.

Looking at the balance sheet, and I'm going to drop all the way down to the bottom. I'm not going to go through the end of the visual line items on the balance sheet this quarter. I'm going to focus on the debt, and then I'm going to reconcile that debt for you. We ended the quarter with about $12.2 billion in net debt. That's up from about $11.4 billion at the end of last year, which is about an $826 million increase in debt for the full year. For the quarter, we're up about $1,181,000,000 in debt from the end of the second quarter.

Based on that, we are about 3.6x debt-to-EBITDA that we expect to end the year about 3.7x on debt-to-EBITDA, and our budget was to end at 3.6x. We will end a little higher than what we budgeted, and that's a function of the KinderHawk acquisition. We've got all the debt associated with that acquisition on our balance sheet, but we don't have a full year of the contribution of the earnings. At this point, we bought that asset in May.

Reconciling the debt for you. On the quarter, again, $1.181 billion change in debt. We had uses of just a little under $1.5 billion, with about $250 million in CapEx, $240 million in contributions to investments, a little over $900 million in acquisitions. As a result of the acquisition in the second half of KinderHawk, the debt associated with the first half also came on to our balance sheet. And so that's $77 million. And then we had some small litigation settlement of about $18 million.

Sources of cash, about a little over $300 billion; equity offering, $110 million. That was our ATM. KMR was a source of cash of $109 million. We sold an asset, which was a source of cash of about $16 million, and then we unwound some interest rate swaps that was a source of cash, about $73 million.

Year-to-date, $826 million increase in debt. It's about a little over $1.3 billion in total sources and about $2.1 billion in total uses. In the uses, just under $700 million of spending and CapEx, expansion CapEx, about a little under $300 million in contributions to investments. Just under $1 billion in acquisitions, the $77 million or approximately $80 million of debt that came on our balance sheet as a result of the buying the other half of KinderHawk. A little over $80 million in CPC and SFPP settlements. And then those are the total uses, which should get you to a little over $2.1 billion.

And then equity offering year-to-date, $845 million; KMR, $320 million; at the Netherlands sale, which is the sale of a small asset that we had in the Netherlands, $16 million; and then interest rate swaps, $73 million. And then we had a source in working capital of just under $70 million.

Going through that real quickly, our dock premiums were a source of cash of $126 million. What that is, is on our Trans Mountain, the shippers pay us premiums to be able to ship across that dock, we keep that cash for a year and then we return it to them over a period of time. So $126 million again on the dock premiums.

Accrued interest was a use of cash of $142 million. Accrued taxes was a source of cash of $47 million. AP and AR were source of cash of $19 million, and then other items were a source of cash of about $17 million. So that takes us through KMP.

Moving to KMI. The first page in your earnings package on KMI, it shows the cash available to pay dividends. If you look at the title on that page, it says including the interim capital transaction. Now we put this in here because this is the way that we will have to present it or will be required to present it in the 10-Q. It doesn't really reflect what's going on in the underlying business. As you guys remember, in the third quarter of last year, in order to resolve some historical rate cases, we had an interim capital transaction and the GP doesn't get its incentive on the amounts that's determined to be an interim capital transaction. And therefore, in that one period, the GP received $170 million less in incentive payments than it otherwise would have.

So that you can see what's happening on the underlying business, we included a second page, which looks substantially similar to the first page. But at the top of it, it's excluding the interim capital transaction. And so that's the page that I'm going to work off of here.

Cash available to pay dividends, $186.9 million in the quarter. That compares to about $170 million last year. So about $17 million increase in cash available to pay dividends. That's about a 10% increase over last year. Year-to-date $592 million versus $540 million last year, so about a $52 million increase or about a 10% increase in the 9 months.

Where is that growth coming from? That growth is largely a result and again, as you recall, KMI is presented on a paid basis. So it does reflects the distribution that KMP paid during the quarter. That growth is driven by KMP's distribution per unit, increasing from $1.09 to $1.15, which is almost 6% growth that we talked about at KMP. And in the 9 months, it's a function of the distribution increasing from $3.27 on a paid basis to $3.42, so just a little under 5% growth.

So if you look at the total distributions to KMI from KMP, there's a total line, $344 million in the 3 months ended September 30, 2011, versus $305 million last year. So $30 million -- $39 million increase or about a 13% increase. Year-to-date, that increase is $111 million, almost $112 million, so also a $13 million increase year-to-date.

As a result -- dropping down, the general and administrative expenses, they have increased about $3.4 million in the quarter. They're up about $9.4 million versus a year ago. And that is a function of 2 things that we discussed in the budget. One is that the fixed fee arrangement expired on NGPL. And then also some small incremental costs as a result of being a public company.

Interest expense, about $5 million increase in the quarter versus a year ago, about $8 million increase in the 9 months. And so cash available to pay dividends before tax, up $22 million in the quarter, up $79 million in the 9 months.

Cash taxes are up about $5 million in the quarter. They're up about $27 million in the 9 months, and that's just a function of the higher income. And that's how you get the $17 million increase in the cash available to pay dividends in the quarter and about $52 million in the 9 months.

For the full year and we expect that we will -- we have increased our dividend, as Rich said, above what we expected at the time of the IPO and above what we had in our budget. And so we need about $834 million, $835 million to cover that dividend. And we expect that we will generate that plus a few million dollars incremental to that, and that's largely a function of the outperformance on KMP. That is the increase in the distribution above the budget in KMP, and then it is also a function of more equity issued to KMP as a result of the KinderHawk transaction.

If you look at -- turning to KMI's balance sheet. Again, I'm just going to focus on the net debt. Really, there's very little change in the net debt in the year-to-date. There's about a $21 million increase in net debt in the quarter. If you look at the debt to distributions received, we are at 2.4x right now. That's down from 2.6x. That's right in line with our budget, and our budget -- and where we expect to end the year is about 2.3x.

The change in debt in the quarter was about $21 million increase. We had cash available to pay dividends of about $187 million. We did not sell the KMR shares, so about $16 million of that is not cash, so net $171 million. We paid dividends of $212 million. Now as we have talked to you guys about before, the timing of the cash tax payments and the interest tax payments generally mean that we will not cover the dividend in the second quarter and the third quarter, but we will have excess coverage in the first quarter and the fourth quarter. And as I mentioned a minute ago, we expect to cover by a few million dollars for the year.

We had a benefit, actually lower cash tax payments than what's reflected in the metric of about $36 million. And that is a function of the special bonus, the $100 million bonus that was paid by the Class A shareholders. And that we got to deduct for tax purposes. So there's a $36 million benefit there. Again, this is not borne by the shareholders. We received a tax refund on a carryback of a capital loss of about $40 million. We made a contribution to the pension of about $20 million and then we had about $8 million in other items.

Year-to-date, we've generated a cash available to pay dividends of $592 million. You deduct the KMR because we have not sold that year-to-date of $46 million, so you have about $546 million. We've paid dividends of about $557 million. We received insurance settlement on the MBO payment net of tax of about $34 million. We paid fees associated with the IPO about [indiscernible]. On the $100 million pool, that's about a $61 million net use of cash after you take the tax benefit into account.

And again, this was amounts reserved out of earnings and profits and paid by the Class A shareholders. No portion of which was borne by the Class P shareholders, our public shareholders. We received tax refunds associated with onetime items of about $69 million year-to-date. We had the pension contribution, and then a few other items gets you to the change in debt of about $4 million.

That's it, and I'll turn it -- we'll open it up for questions.

Richard D. Kinder

Okay. Dory, if you come back on, we'll take any questions that you may have.

Question-and-Answer Session


[Operator Instructions] Our first question comes from Brian Zarahn with Barclays Capital.

Brian J. Zarahn - Barclays Capital, Research Division

On the Parkway refining products pipeline, about how much of the capacity is under contract?

Richard D. Kinder

About 100,000 barrels a day is under contract.

Brian J. Zarahn - Barclays Capital, Research Division

Okay. And for expected return, are they in line with your historical average?

Richard D. Kinder

Yes, they are. Yes.

Brian J. Zarahn - Barclays Capital, Research Division

Okay. And is there any type of benefit to Plantation volumes flowing through there?

Richard D. Kinder

Yes, we think there will be a benefit to Plantation, and there will also be a benefit to our Southeast terminal segment. And the pipeline itself, the Parkway Pipeline itself has a reasonable return, consistent well above cost of capital. And with the benefits from KMST, that makes it even better return, Southeast terminals operation, and some benefit to Plantation.

Brian J. Zarahn - Barclays Capital, Research Division

The accretion you're discussing, does that include or exclude the Plantation's Southeast terminals benefit?

Richard D. Kinder

Well it's accretive even if you didn't include that. It's a little more accretive, if you include it, yes.

Brian J. Zarahn - Barclays Capital, Research Division

Okay. Is there a PPI escalator on the Parkway Pipeline?

Richard D. Kinder

Tom Bannigan, are you on in Houston?

Thomas A. Bannigan

Yes. There is, Rich.

Richard D. Kinder

Okay. Yes, there is.

Thomas A. Bannigan

And Rich, the other thing, the throughput commitment is 50,000 barrels a day in the system.

Brian J. Zarahn - Barclays Capital, Research Division

So that commitment is consistent with the return that Rich was talking about?

Thomas A. Bannigan

That's correct.

Richard D. Kinder

Okay. I'm sorry. I misfocused, 50,000. Excuse me. Thank you, Tom.

Brian J. Zarahn - Barclays Capital, Research Division

Okay. And then on the CO2 business, can you talk a little bit more about the growth opportunities in source and transportation?

Richard D. Kinder

Yes. Tim Bradley, you want to talk about that?

Richard Tim Bradley

Sure. We have engineering studies underway to add compression and drill more wells in both of our source fields out in Southwest Colorado. That work is being finalized now for one of the source fields. We hope they see a new project for that once we finish our budget process later this year. So we'll probably be making more announcements about that in the months to come. The expansion of supply in Southwest Colorado was underwritten by an unprecedented demand growth in the Permian Basin. A lot of our larger customers are asking for additional supplies on the order of well in excess of 200 million cubic feet a day of additional CO2 supply. So we're working on the best and most economically efficient way to develop that supply for our customers, and more to come on that.

Brian J. Zarahn - Barclays Capital, Research Division

Okay, looks like we don't have updates on the progress in that area. My final question is you had a modest change to 2011 maintenance CapEx. Is there any change to your expansion CapEx number on organic growth?

Kimberly A. Dang

Our current CapEx forecast is about $2.4 billion, which includes acquisitions.


Our next question comes from Paul Jacob [ph] with Raymond James.

Unknown Analyst -

I guess, the first question is related to that $16 million asset that was sold in the Netherlands. Just out of curiosity, what was that?

Richard D. Kinder

That was a terminal that we acquired as part of the GATX acquisition, dating all the way back to 2000, 2001. And we held it. It produced a little income every year. We really didn't want to have an asset in Europe and somebody finally came along and made us an offer that was in excess of our cost in it, and it provides us a pretty good return, and so we went ahead and sold it. Jeff Armstrong, is there anything you want to add to that?

Jeffrey R. Armstrong

Yes, as far as [indiscernible] markets would served and one of our customers ended up buying it for less.

Kimberly A. Dang

And the gain on that is treated as a certain item in the quarter.

Brian Zarahn - Barclays Capital

Okay, great. And then in addition, we were wondering versus last quarter, the 2011 CapEx for SACROC, in a way has changed at all?

Richard D. Kinder


Richard Tim Bradley

It's down slightly at SACROC. We were $20 million as I recall for capital, for drilling wells and facilities and a like amount in terms of the CO2 purchase costs at SACROC. I think down by about $40 million in total.

Kimberly A. Dang

That's right, $40 million.


At this time, we have no additional questions.

Richard D. Kinder

Okay. Well thank you very much for listening in. I know you've heard enough from us this week, and have a good evening. Thank you.


Thank you for joining today's conference. That does conclude the call at this time. All participants may disconnect.

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