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Kinder Morgan, Inc. (NYSE:KMI)

Q3 2011 Earnings Conference Call

October 19, 2011 16:30 ET

Executives

Rick Kinder – Chairman and Chief Executive Officer

Kim Dang – Chief Financial Officer

Analysts

Brian Zarahn – Barclays Capital

Paul Jacob – Raymond James

Operator

Welcome to the quarterly earnings conference call. At this time, all participants are in listen-only mode. After the presentation, we will conduct a question-and-answer session. (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. Rick Kinder, Chairman and CEO of Kinder Morgan.

Rick Kinder – Chairman and Chief Executive Officer

Okay, thank you Dory and welcome to the Kinder Morgan’s third quarter earnings call. We’ll be covering our 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 the 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 in 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 is on the phone is in Los Angeles and Steve Kean and the rest of management team are at Houston. All three locations have access to the phone, so we will try to answer any questions that you may have and you have everybody’s expertise or like.

First let me turn to KMI, we declared a quarterly dividend of $0.30 or $1.20 annualized run rate. That means we are on track to pay a $1.18 for 2011 and I’ll remind you that bursts the target of $1.16 that we announced during the IPO road show 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 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 that increased from the $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 per common unit to $1.16 or $4.64 annualized. That distribution represents a 5% increase over the third quarter 2010 cash distribution. In my judgment, KMP had a very good third quarter with all five 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 are 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 terminal segment. Distributable cash flow per unit at KMP before certain items was a $1.19 compared to $1.02 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 will 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 Pipe Line 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% 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 the 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 the segment and in our products pipeline segment we handled 8 million barrels of ethanol that was up 6% from last year, and we continue to realized solid growth in the biodiesel barrels that we are handling in our products pipeline segment.

Turning to our natural gas segment, the natural gas pipeline 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 1st 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 for higher Casper-Douglas processing margins. If you look at volumes on our natural gas pipeline, 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 are 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 the 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. Its averaging over 800 barrels per day in October and this week just a couple of days ago we crossed the 1,000 barrel number for a given day for the first time. So, this looks like we are getting the kind of response that Tim Brad and his team predicted, we would get it just came a little latter.

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

Turning to our Terminals business, the growth there about 3 quarters 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, Virginia and at our facilities at Huston. 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 can buy 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 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 it 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 Valero announced we would build a 220 million pipeline to expand the fuel supply of refined petroleum products through South Eastern U.S. We are calling it Parkway Pipeline and it will have an initial capacity of 110,000 barrels per day, with the ability to expand over 200,000 barrels per. It’s a 136 miles long, 16 inch pipe. We will move gasoline, jet fuel and diesel from refineries in the North Louisiana area to an existing petroleum hub owned by plantation pipeline at Collins, Mississippi.

The project supported by long-term throughput agreement and we expect it to be accretive to cash available through KMP unit holders upon its completion. It should be in service by mid year 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 million cubic feet per day, by early 2012. If you include 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 straight Condensate line which we expect to go and 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 have 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 have 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 IMP terminal in Louisiana.

Under that contract terminal services are already started and we and our partner in that terminal AEP will be investing about a $111 million to expand and upgrade that terminal to handle this contract and other increased needs to 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 growth and we expect to enter into additional contracts in the fourth quarter, which are likely the result in over $200 million of additional CapEx spent on coal handling specialties at KMP. So, you added all up by said the 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 specialties primarily for the export market and it looks like we are going to hit that number a very squarely and may be even do a little better than we thought.

Also in the terminal segment, our quarter at 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 run tenure contract to a major oil company.

Kinder Morgan Canada lasts, but not least starting tomorrow, we will begin a public open season from August 20th ending January 19th, 2002 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 shared some of the details virtually in the past, but I would cautioned that is usual at Kinder Morgan, we will built only if we have customer support for the project and we’ll know more about that in the early 2012.

So summing it all up, I think we had a very good third quarter again all segments beat the results they 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.

Kim Dang – Chief Financial Officer

Okay, thanks Rick. We’ll start on KMP and the first page which is the GAAP income statement. Here I’m just going to talk about the declare distribution so look almost 80% the way down the page is the declared distribution per unit. As Rick said we are declaring a $1.16 for the quarter that is a penny above our budget and therefore we expect for the full year to exceed this $4.60 that we budgeted for the year. Versus 2010 that’s about $0.05 increase or about 5% exchange 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 last numbers line to the DCF per unit before certain items, a $1.19 in the quarter as Rick mentioned that was nicely above our budget compares to a dollar too 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 on 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 a penny impact on the distributable cash flow per unit.

We expect on that on the distributable cash flow in total that we are above our budget year-to-date nicely, now 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 third quarter of last year, we are up $6.3 million. As Rick said, we would have been more except for the UPRR right away decision that we have reflected in the third quarter results for the amounts that impact 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 three quarters and that has largely offset some of the weakness that we have seen versus our budget and products volumes and also some of the regulatory things that we have implemented on our pipeline and the UPRR right away increase. 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 the products will end below its budget for the year.

Natural Gas Pipelines 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 will 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 will 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 lines down below when we calculate DCF.

And so there is a reduction down there in our results that 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 have 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 are very close to their budget and we expect that they will end the year close to their budget. Terminals 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 will 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 fuel volumes as a result of an outage at a plant that we serve.

On Kinder Morgan Canada, for the quarter, they are up $4.5 million, year-to-date up $14.9 million or 11%. Year-to-date, they are above their budget and we expect them to end the year above their budget. That is largely a function of FX with a little bit of our performance on the assets.

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 a increase of about $6.8 million. For the quarter, it’s up about $13.6 million versus year-to-date versus the 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 in the year are favorable to our budget. So that 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 cash flow.

Looking at the certain items just very quickly, there were two in the quarter that really add up to the $235 million, all the rest are really net out. There are $69 million which primarily in legal reserves, which primarily relates to an adverse decision on the right away. This represents all the years prior to 2011, as I said earlier the 2011 impact is up in the segment. And then the non-cash write down, the loss on re-measurement of assets to fair value that’s the non-cash write down on the first half of KinderHawk that we previously announced and when we bought the second half of KinderHawk, we bought it for a lower price that we paid for the first half and this is writing down the first half to the second half value.

Year-to-date, the other certain items that we discussed in prior quarters that there is really three again that gets you to the 478, $81 million is associated with allocated non-cash compensation expense that was allocated from KMI. It was paid by the private shareholders. KMP will never bare any cost with respect to this, but because of gap, we have to allocated to KMP, there is the UPRR right away 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 re-measurement of assets to fair value.

And so that gives you our results for the quarter. Looking at the balance sheet and I am going to drop all the way down to the bottom, I am not going go through the individual line items from the balance sheet this quarter. I am going to focus on the debt and then I am going to reconcile the debt for you. We ended the quarter with about $12.2 billion. And in net debt, that’s up from about $11.4 billion at the end of the last year to about an $826 million increase in debt for the full year for the quarter, were up about a $1.181 billion in debt from the end of the second quarter.

Based on that, we are about 3.6 times debt to EBITDA that we expect in the year about 3.7 times on debt to EBITDA, and our budget with was end a 3.6 times. We will end at a little higher than 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 a $1.18 billion change in debt, we had uses of just a little under $1.5 billion would about $250 million in CapEx, $240 million in contributions to investments, a little over $900 million in acquisition. As a result of the acquisition of the second half of the KinderHawk, the debt associated with the first half also came on to our balance sheet and for that $77 million. And then we have some small litigation settlement of about $18 million.

Sources of cash about little over $300 million, equity offering a $110 million that was our ATM, KMR was a source of cash of a $109 million. We sold an asset, which was a source of cash of about $16 million. And then we unveiled some interest rates swaps that was a source of cash about $73 million.

Year-to-date, $826 million increase in debt. It’s about a little over a $1.3 billion in total sources and about $2.1 million in total uses.

In the uses just under $700 million is spending in expansion CapEx, about little under $300 million in contributions to investments, just under a $1 billion in acquisitions, the $77 million or approximately $80 million of debt came on our balance sheet as a result of the buying the other half of KinderHawk, a little over $80 million in CPUC and SFPP settlement. And then those are the total uses which are gets you a little over $2.1 billion and then equity offering year-to-date $845 million, KMR $320 million, the Netherlands sale, which is the sale of a small assets that we had in the Netherlands $16 million, and then interest rate slops $73 million, and then we had a source in working capital of just under $70 million. It going through that row quickly doc premiums were source of cash of $126 million, what that is on our Trans Mountain, the shippers pay as premiums to be able to ship across that doc. 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 doc premiums, accrued interest was a use of cash of a $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 does 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 require to present it in the 10Q. 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 in interim capital transaction and the GP doesn’t get its incentive on the amount it’s determined to be an interim capital transaction. And therefore in that one period that the GP received a $170 million less and incentive payments spent otherwise would have.

So, you can see what’s happening on the underlying business, we included the second page, which looks substantially similar to the first page, but at the top of this is 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 a $186.9 million in the quarter that compares to about a $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% in the nine months. Where is that growth coming from? That growth is largely a result and again as you recall KMI’s pay is presented on a paid basis. So, it does reflect the distribution the KMP paid during the quarter. That growth is driven by KMP’s distribution per unit increasing from a $1.09 to a $1.15, which is the almost 6% growth that we talked about a KMP and in the nine months, it’s a function of the distribution increasing from 327 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 is a total line $344 million in the three months ended September 30th, 2011 versus 305 last year so, $39 million increase or about a 13% increase. Year-to-date, that increase is almost a $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 are up about $9.4 million versus the year ago and that is a function of two things that we discussed in the budget. One is that the fixed fee arrangement expired on NGPL and then also small incremental cost 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 nine months and so cash available to pay dividends before tax up $22 million in the quarter, up $79 million in the nine months. Cash taxes are up about $5 million in the quarter they are up about $27 million in the nine months and that just a function of the higher income and that’s how you get to $17 million increase in the cash available to pay dividends in the quarter and about $52 million in the nine months.

For the full year, and we expect that we have increased our dividend as Rick 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 to $835 million to cover the 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 balance sheet, again I am just going to focus on the net debt. Really there is very little change in the net debt in the year-to-date. There is about a $21 million increase in net debt in the quarter. If you look at the debt to distributions received, we are 2.4 times right now, that’s down from 2.6 times that’s right in line with our budget in our budget and where we expect in the year is about 2.3 times.

The change in debt in the quarter was about $21 million increase. We had cash available to pay dividend to about $187 million. We did not sell the KMR share, so about $16 million of that is not cashed. So, net a $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 few million dollars for the year.

We had a benefit actually lower cash tax payments and 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 is a $36 million benefit there. Again this is not borne by the shareholders.

We received a tax refund on a carry back 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 have generated cash available to pay dividends of $592 million. We deducted the KMR because we have not sold that year-to-date a $46 million. So, you have about $546 million. We paid dividends of about $557 million. We received intra-settlement on the NBO payment. Net of tax is about $34 million. We paid fees associated with the IPO of about (50%).

On the $100 million pool, that’s about $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, which was borne by the Class B shareholders and public shareholders. We received tax refunds associated with one-time items of about $69 million year-to-date. We had the pension contribution and then the few other items gets you to the change in debt of about $4 million. That’s it and we will open it up for question.

Rick Kinder– Chairman and Chief Executive Officer

Okay. Well, Dory if you come back on we’ll take any questions as you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Brian Zarahn with Barclays Capital.

Rick Kinder

Hi Brian.

Brian Zarahn – Barclays Capital

Good afternoon everyone. Long time to talk.

Rick Kinder

You’re right.

Brian Zarahn – Barclays Capital

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

Rick Kinder

About 100,000 barrels a day is under contract.

Brian Zarahn -Barclays Capital

Okay and for expected return for the inline with your historical average?

Rick Kinder

Yes, they are.

Brian Zarahn – Barclays Capital

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

Rick Kinder

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

Brian Zarahn – Barclays Capital

Okay. And then the--

Rick Kinder

Southeast Terminals operations and some benefit to.

Brian Zarahn – Barclays Capital

The accretion you’re discussing that include or exclude the Plantation Southeast Terminals benefit?

Rick Kinder

Well, it’s accretive even if we didn’t include that is a little more accretive if included, yeah.

Brian Zarahn – Barclays Capital

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

Rick Kinder

Tom Bannigan you are in Houston.

Tom Bannigan

Yes, there is Rick.

Rick Kinder

Okay, yes there is

Brian Zarahn – Barclays Capital

Okay. Trying to see what--

Tom Bannigan

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

Unidentified Company Speaker

That commitment is consistent with the return (indiscernible) talking about.

Tom Bannigan

That’s correct.

Rick Kinder

Okay I’m sure. I’m just spoke 50,000, excuse me. Thank you, Tom.

Brian Zarahn – Barclays Capital

Okay and then on the CO2 business. Can you talk a little bit more about the growth opportunities in the Source and Transportation?

Rick Kinder

Yeah, Tim Bradley you want to talk about that?

Tim Bradely

Sure, we had engineering studies underway to add compression and drill more wells and both of our Source team was up in Southwest Colorado. That work is being finalized now. For one of the source fields we hope the AFP a new project for that. Once we finished our budget process later this year. So we’ll probably be making more announcements about that in the month to come. The expansion of supply in Southwest Colorado was underwritten by then part of the demand growth in Permian Basin. A lot of our larger customers are asking for additional supplies on the order of well and excess of 200 million cubic feet a day of additional CO2 supplies. 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 Zarahn – Barclays Capital

Okay. I’ll look forward to hearing updates on progress in that area. The final question is you had a modest change to 2011 maintenance CapEx. Is there any change to your expansion CapEx on number, on organic growth?

Kim Dang

Our current CapEx forecasted about $2.4 billion, which included the acquisitions.

Brian Zarahn – Barclays Capital

Okay. Thanks Kim.

Rick Kinder

All right.

Operator

Our next question comes from Paul Jacob with Raymond James.

Paul Jacob – Raymond James

Good afternoon everybody.

Rick Kinder

Good afternoon Paul.

Paul Jacob – Raymond James

Thank you.

Rick Kinder

All right.

Paul Jacob – Raymond James

I guess the first question is related to that $60 million asset that was sold in the Netherland. Just had a curiosity what was that?

Rick Kinder

That was a terminal that we acquired as part of the GATX acquisition dating all the way back to 2000 or 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 that provided us pretty good return so we went ahead and sold it. Jeff Armstrong, anything do you want to add to that?

Jeff Armstrong

Yeah, is far way to (indiscernible) market is what was served in one of our customers ended in buying for most.

Kim Dang

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

Paul Jacob – Raymond James

Okay, great. Thank you for that color. And then in addition, we were wondering if versus last quarter of 2011 CapEx for SACROC and Yates have changed the law.

Rick Kinder

Kim?

Kim Dang

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

Rick Kinder

That’s right 40.

Paul Jacob – Raymond James

Okay. Great, thank you that’s all I had.

Rick Kinder

Okay.

Operator

At this time, we have no additional questions.

Rick Kinder – Chairman and Chief Executive Officer

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.

Operator

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

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