Kinder Morgan Energy Partners LP Q1 2008 Earnings Call Transcript

Apr.16.08 | About: Kinder Morgan (KMP)

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

Q1 FY08 Earnings Call

April 16, 2008, 4:30 PM ET

Executives

Richard D. Kinder - Chairman and CEO

C. Park Shaper - President

Steven J. Kean - EVP, COO

Scott Parker - President, Natural Gas Pipelines

David D. Kinder - VP, Corporate Development and Treasurer

Analysts

Ross Payne - Wachovia Securities

Mark Reichman - Sanders Morris Harris

Dan Jenkins - State of Wisconsin Investment Board

Gabe Moreen - Merrill Lynch

John Edwards - Morgan, Keegan & Company, Inc.

Yves Siegel - Wachovia

Operator

Welcome and I would like to thank you all for standing by, and inform you that you are in a listen-only during today's conference until the question-and-answer session. This call is also being recorded, and if you have any objections, you may disconnect at this time.

Now, I'd like to turn the call to Rich Kinder. Sir, you may begin.

Richard D. Kinder - Chairman and Chief Executive Officer

Okay. Thank you, Ed, and welcome to the Kinder Morgan Energy Partners' first quarter analysts call. As usual, we will be making statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.

Also as usual, I'll give an overview and update of the first quarter and talk about strategic developments during the quarter. Then Park Shaper, our President will go through the financial results in detail. And then in the bid of departure from what we normally do Steve Kean, our Executive Vice President and Chief Operating Officer is going to give you an update on how we are managing our really large portfolio of expansion projects.

Let me just start out by talking about the quarter itself. We had an exceptionally strong first quarter. In fact, I guess in terms of financial performance, it's the best quarter we've ever had. We announced today an increase in our quarterly distribution per unit to $0.96, that's up from our $3.84 annualized, which is up for $0.92 in the prior quarter compared to the first quarter of 2007, that's a 16% increase.

Distributable cash flow before certain items was a little over $280 million, that's up 49% from last year. Probably the most meaningful number is that the distributable cash flow per unit was a $1.12, that's 37% above the $0.82 per unit for the comparable period last year. So, we earned a $1.12 per unit, or distributing $0.96 per unit for the first quarter.

Our segment earnings before DD&A which certainly drive the whole business reached an all-time quarterly high $685 million, that's up a $182 million or 36% over the results from the first quarter of 2007. Now, the drivers of this performance were our Co2 Natural Gas Pipeline and Terminals business segments. And I think it's fair to say that in the first quarter we began to derive some significant benefit from some of the more than $7 billion in CapEx projects that we have undertaken, most importantly, the Rockies Express project. And we continue to make pretty good progress on those projects that will drive growth, certainly not just in 2008, but 2009 and beyond.

There is no denying that this is a challenging environment. Construction and material costs have increased. But I think we get pretty good marks for managing the process. For example, we went through the details of our capital expenditure budget with you at the analyst conference in January, and since that time, we've continued to constantly update the numbers and our estimates. And we're only up a little over 2% from the estimated expenditures detailed at that January investor conference.

Equally importantly, probably, we believe, we continue to remain on track to bring virtually all those projects in the service, pretty close to on schedule. Now Steve Kean is going to talk in more detail about how we are managing this process, because I think it's a legitimate question as to how any MLP today that's growing is managing its estimating and cost side of its construction projects. We are going to spend a little time with you on that.

Now, let me sort of go through the first quarter on a segment-by-segment basis. Our Products Pipeline group had first quarter earnings about $141 million, that's earnings before DD&A of course. That's a little less than last year, but that's due to the sale of the North System which closed in October of 2007. If you exclude the North System, the Products Pipelines group was up 5.5% compared with the first quarter of 2007, had good growth in the Pacific operations, Southeast Terminals and Central Florida Pipeline.

On the negative side, our Cochin Pipeline underperformed our expectations during the quarter, and that was due to the low propane volumes. We think we've resolved that moving forward because we have implemented a new shipper provided line fill program. But it was below our expectation in the first quarter.

If you look at the overall volumes on refined products pipeline; while the revenues were up 3.5%, volumes across the whole system were actually down 5.4%. If you exclude Plantation, which we usually do because there is a lot of moving parts there, involving competition and reconstitute the different specs on some of the gasoline being shipped into the southeast. If you exclude that, probably a more realistic number is that the products volumes were down 1.9% for the quarter.

Now to put some perspective on that, the EIA current estimate for the first quarter nationwide is a negative 0.7%. However EIA has already revised January downward and has indicated that they will likely have a downward revision in February. So, I expect that the EIA number will end up somewhat worse or less throughput than the present number of negative 0.7%, but that's the number we have right now. And as I said revenues held up well even on Plantation, while the volumes were down, revenues were up almost 3.5% compared to the first quarter of 2007.

Moving to Natural Gas Pipelines business. They had earnings before DD&A of a $188 million, up 39% from the first quarter of 2007. Once again, our Texas intrastate pipelines were the major contributors to that growth, up handsomely from 2007 and well above their plan for 2008. We also, of course, had contributions from REX-West and strong performance from TransColorado.

The drivers within the Texas intrastates were increased transportation revenue from long-term contracts. We are getting a lot of value out of our lower [ph] large storage facilities, and we got improved processing volumes and margins.

Now while we benefited from REX-West, we didn't get the full benefit that we would have hoped far in the quarter, because as you recall we brought most of REX-West on January 12, but we're just now this month bringing on the last part of REX-West which will take the capacity up marginally from 1.4 Bcf to 1.5 Bcf. So the reason for delay is [ph] we've experienced what's almost a no spud type wet fall in winter in that portion of the upper Midwest. But we are bringing that online within this month, within the next few days. But it did have a slight negative on REX-West's contribution, although, was still a very nice up-tick from a year ago obviously.

Transport volumes in our Natural Gas segment were up about 22% compared with the first quarter of '07 and that is primarily as a result of the start-up of REX-West. And we are now moving about little over 1.2 billion cubic feet a day on that REX-West system. So, we are moving a lot of gas physically, since we started up earlier this quarter.

Now moving to our CO2 business, this was a real start this time, delivered earnings at... right at $200 million, up from about a $125 million a year ago. And the real drivers there were stronger than expected oil production at the Yates field, production in line with our budgeted SACROC, higher hedge prices on crude production. And then in addition, we had CO2 delivery volumes that were up around 9% due to the January start-up of our new source field that we call Doe Canyon in southwest Colorado.

Let me give you some of the production numbers, because I think they all are important and we watch them very carefully obviously. Starting with Yates, the average oil production at Yates increased to 28,600 barrels per day. That's a record since we invested in Yates, and it's up 9% compared to the first quarter of 2007.

At SACROC for the quarter our average oil production was 27,300 barrels per day. And while the volumes were down from the first quarter a year ago, they were up 8% over the fourth quarter of 2007. Similarly, NGL sales volumes driven largely by our activity at SACROC, declined by 3% versus the first quarter of '07, but were up 5% over the fourth quarter.

So, I think the message here is that the SACROC volumes sequentially have moved upward fairly nicely, and that comes from what we've mentioned in the last call that we were getting back on track in the fourth quarter, and start adding a target of five patterns per month. We have now been making that target for the last four, five months, and that is having results in our production at SACROC.

The other thing I would add is that when we talk about price help, the biggest help of course is the higher hedge prices as we have old lower priced hedges rolling off, new higher priced hedges coming on. But also we have a number of our CO2 sales contracts that are... that have minimums, but also have upside from higher oil prices and we did benefit from that in the first quarter also.

Moving to our fourth business segments which is our Terminals business. We had a nice first quarter there. Our earnings before DD&A were about a $126 million, up 27% from a year ago, and the growth was almost equally split between organic increases and acquisitions. And that's because as you may recall we had a number of internal expansions that were completed in the first quarter. We've detailed the lot of these projects in our written release, I won't go through all of them. But we also had acquisitions such as Vancouver Wharves in May of 2007 and our Marine Terminals acquisition in September of 2007.

We added about 7 million additional barrels. If we compare 2008 first quarter to first quarter of '07, we have 7 million addition barrels of liquids tankage capacity available than we did last year. And that drove a lot higher liquids throughput through the system. If you compare the two quarters, our liquids throughput, that's gasoline, jet fuel and diesel, and associated products, was up 17.2% versus the first quarter a year ago. Particularly noteworthy for the increases, our petroleum products rose by 31% and the volumes of ethanol we handled rose by 32%. So, we had nice growth in our Terminals segment.

Our fifth, and by far, the smallest segment of our business operations is the Trans Mountain Pipeline, which KMP acquired in a dropdown on April 30th of last year. So, we had first quarter segment earnings there before DD&A of just a little over $30 million, somewhat below our budget, primarily due to foreign exchange rate and higher income taxes. Those income taxes to a large extent will come back to us later in the year.

So, that's sort of segment-by-segment viewpoint to sort of drop back and look to forest instead of the trees for a minute. We previously announced that we expected to declare cash distributions of $4.02 per unit for 2008. Given the strength of our first quarter, we now expect to meet or exceed that target for 2008.

Now, before I turn it over Park, let me bring you up to date on a few of more significant capital projects which are helping drive our strong growth, both now and in the future. And a number of other projects, beyond what I will talk about, are also detailed in our release.

Let me start, again go through the segments. In our Products Pipeline segment, we continue to advance our ethanol handling capacity. We have added and brought online capacity, at both our Tampa and Orlando, Florida terminals. We begun preparatory work to start making the modifications to actually batch ethanol in our pipeline that runs between Tampa and Orlando, and we hope to do that later this year. And we have added ethanol facilities in five terminals in our Southeast Terminals group, and in two projects in our Products Pipeline group in the State of Oregon.

We continue to progressed on our major CALNEV expansion. During the quarter, we had three public hearings on the environmental permitting of this project, and we continue to move forward with the project that we expect to cost in the neighborhood of $425 million and we would expect that expansion to come online at sometime in the early 2011.

Another project that we have not announced until today, we have, within the last few days, reached an agreement with the Defense Energy Support Center regarding nearly $50 million of capital expenditures or capital projects in California. These will involve the construction and operation of pipeline, storage and filtration facilities, both at our Carson terminal and the Los Angeles area, and also at the Travis Air Force Base in northern California.

So, those are the major expansion projects that are underway at our Products Pipeline group. The bulk of this $7 billion plus of expenditures or projects, actually reside in our Natural Gas Pipeline group. The biggest by far is the REX project. And I talked about REX-West earlier, and that we began interim service there on January 12.

Turning to Rex-East, which is the section of the pipeline that runs from the terminus of Rex-Westin eastern Missouri, Audrain County, Missouri, to the Ohio Pennsylvania border, we had an important development there last week when the FERC issued its final environmental approval for the project REX-East. So, we expect to begin construction in June. We have a completion date of that pipeline by year end.

We'll still be adding some compression early next year, so that the pipeline with its ultimate capacity of 1.8 billion cubic feet a day should be fully operational by June of 2009. Again, as we have said, on many occasions we have firmly a binding firm commitments from creditworthy shippers for all of that 1.8 Bcf a day.

On a project that's related to REX and has gotten quite a bit of play I guess in some of the tray grass [ph], so I'll just mention it here, and that's our Northeast Express project. That's a project that's essentially an extension of REX. We would actually increase the capacity by compression from Lebanon in Ohio on to Clarington the present end point of REX. And then we would extend the pipeline to Princeton, New Jersey and then on up to Linden just across from New York City, Linden, New Jersey.

And it's a major project that we are working on. We had a very promising non-binding open season, and we are now working with the number of shippers to see if we get sufficient binding commitments to justify the project, and obviously we'll also need the appropriate regulatory approvals.

Assuming we get those, this is a $2 billion plus project that could begin service in late 2010. But I want to emphasize, as you know, our strategy is not to undertake these projects, unless we have firm commitments from shippers. So far it looks promising, but there are no guarantees until you've actually signed the shippers up. And we won't do it unless we get commitments.

Another major natural gas project we have is the Midcontinent Express Pipeline. That's a $1.3 billion project which is drawing a production out of the Barnett Shale. It actually starts in southeast Oklahoma crosses northeast Texas, northern Louisiana and central Mississippi, ending up at the Transco Pipeline near Butler, Louisiana.

Again it's a $1.3 billion project. It has initial capacity of 1.4 billion cubic feet per day. I am glad to report that we now have over 1.3 billion cubic feet of that fully subscribed under long-term binding commitments from creditworthy shippers. We expect to fill the rest of that 1.4 Bcf within the next couple of weeks, and we are hopeful that we will be able to expand that project on a going forward basis.

Construction on the project which is a 50-50 joint venture between ourselves and Energy Transfer Partners is expected to begin this summer. The final large project we have in our Natural Gas Pipeline group is our Kinder Morgan Louisiana Pipeline. That's a roughly $500 million project that runs about 130 miles of 42-inch pipe from the Cheniere Sabine Pass LNG terminal in Louisiana. Total capacity of 3.2 Bcf a day, all subscribed by Chevron and Total, and we expect that to be operational no later than January 1st, 2009, about three months sooner than initially projected. And that project is obviously already under construction.

Turing to the Terminals group, we had a number of significant projects completed during the first quarter, and actually is in the last couple of weeks. Construction was completed on our big North 40 Terminal near Edmonton, Alberta. We began service in the first week of April. That was a project that cost little over a $150 million Canadian. It's consists of nine storage tanks with capacity of about 2,150,000 barrels all of which is subscribed by shippers under long-term contract.

And then we also completed an additional $350 million in terminal projects during the last six months, I kind of referred to that earlier when I talked about how much more capacity we have. But just in these six months, we added 650,000 barrels of storage capacity at our Galena Park facility here on the Houston Ship Channel. 1.4 million barrels of new capacity at Perth Amboy in New York Harbor, and then 95,000 barrels of ethanol storage at Argo, Illinois, together with numerous other smaller projects. So we've materially added to our handling capacity in our terminals operation.

And then finally, our other major construction project, in our Trans Mountain Pipeline project, construction continues on the approximately $485 million Anchor Loop project, that will increase capacity on Trans Mountain from about 260,000 barrels a day to 300,000 barrels a day. The Jasper spread which will add 25,000 barrels per day is now completed and received a certificate either yesterday or today to be in service on May 1st, and the Mount Robson spread, the last part of the project is still expected to be completed by the end of November.

So that's where we stand. We've got a lot of projects, we are moving along. We had a very strong first quarter. But given all these projects and intrinsic growth, we expect the rest of the year to be very strong for us.

And with, that I will turn it over to Park Shaper.

C. Park Shaper - President

Alright. Thanks Rich. And again going through the financial pages that are attached to the press release, and so starting with the first financial page that again should... hopefully all of you have in front of you. It's behind the text in the press release. So based on the income statement and really I'm just going to focus on the bottom line here, which shows the declared distribution, as Rich mentioned, the $0.96 versus $0.83 a year ago, that's an increase of 16% from where we were a year ago, and actually just slightly ahead of where we thought we will be in order to get our budgeted distribution for the year, which is $4.02.

And with that, let's turn to the second financial page and talk about the cash that we generated to support that $0.96 distribution. Now, on start [ph] in the middle of the page right above the weighted average unit outstanding, you'll see Bcf per unit before certain items, a $1.12 up from $0.815 a year ago, up about $0.30 a unit or 37% growth, and of course, we have issued a number of units in the last year including in the last quarter. And so that's in the phase of increased units outstanding which you can see right below that of about 20 million additional average units outstanding, just demonstrating that we're funding our investments conservatively with equity, and that will show up on the balance sheet as well. But they are earning well in excess of our cost [ph] capital which is generating tremendous growth.

So, again DCF per unit is up to a $1.12, up 37% from where it was a year ago. A $1.12 clearly covers the $0.96 per unit distribution, in fact, clears it what a tremendous amount of excess cash; that excess for the quarter is about $40 million. Some of you may remember, from January when we went through the budget, our budget call for excess for the year of about $10 million.

We are well above that in the first quarter and we expect that we'll actually in the year well above that excess cash flow of $10 million. We expect to have greater excess cash flow than that number and again truthfully similar to what we discussed in January and similar to what we've seen in prior years that we have exceeded our budget on that excess cash number.

Now that being said, and we talked about this a year ago as well, when we look forward to the quarters, we do have some seasonality in our business. And generally our first and the fourth quarters are stronger than the second and the third quarters and it could be that... and truthfully when we look at the second quarter right now, we don't quite cover our distribution for the quarter.

Now, we certainly do cumulatively. So if you look for the first half, we more than cover our distribution for the first half. And so I just wanted to give you a heads up, it may turn out that way. Now truthfully, we said the exact same thing if you go back a year ago and we ended up covering the distribution in the second quarter and the third quarter. And so we'll see how it plays out. So we are just telling you... giving you warning as we look at it today, that we may not have not coverage for the second quarter distribution, although we will clearly cover it on accumulative basis for the first half of the year.

And so looking at where we are generating that Bcf per unit of 1.12. Clearly most of it is coming from earnings before DD&A. They are coming from the actual earnings that we are generating. So let me talk about two other pieces of it first, just moving up from that 1.12, you will see DCF before certain items, $280.5 million, up from about 189 is up $92 million increase in terms of distributable cash flow or about 49% growth year-over-year. It is tremendous growth in the quarter.

Above that, sustaining capital expenditures were about $30 million in the quarter, up from about 37... from about $27 million in the quarter a year ago. Now the $30 million is actually a little bit below our budget where we expected to be in the first quarter of 2008, but we do think that our full year sustaining CapEx will be on our budget of about $196 million. So we still think we'll come in at about that level for the year. Book cash transfers, again, this is the difference between book taxes, and cash taxes. You can see we were a negative for the quarter of almost $17 million. A year ago, they were positive, meaning cash taxes were less than book taxes of about $5.5 million. This is actually upward relative to our budget. We did expect the cash taxes would exceed book taxes in the first quarter of 2008 by about $5.5 million; clearly we've gone over that by over $11 million.

It's largely a timing issue related to some dock premiums on the Trans Mountain System and we pay taxes on those dock premiums. But in essence, we get those cash taxes back although we don't expect that we'll get them back until 2009. So we think that this incremental cash tax relative to our budget will persist this year but then return and flow back to us in 2009.

Now overall, you may recall if you look back to the January conference materials, we expected that our cash taxes will be less than our book taxes by modest amount of about $4 million. We now project that to be a little bit less than that and ensure what we project is cash taxes are going to be just a little bit higher than book taxes for the year.

So again, those are two other components that go into the DCF. Relative to budget, we got a little bit of pick up on sustaining CapEx in a little bit of hertz on the booked cash taxes. But again, most of the growth in DCF is coming from the segments. Now Rich touched on these, but if we go up to the top, you will see product pipeline as Rich mentioned $141 million of earnings before DD&A, a little bit below where we were last year, but if you adjust for North System which was in there last year, is not in there this year, then we are ahead of where we were last year by almost 5.5%. Now it was a little bit below our budget, driven by the impact of Cochin and a little bit of Pacific, we do expect products will come in a little bit under its budget for the year, largely because those Cochin volumes and revenues won't be recovered this year. We do believe the lines of program will have a significant impact on next winter season although we feel most of that in the first quarter of 2009.

Natural Gas Pipeline, again as Rich mentioned, it's a tremendous quarter, up $52.5 million from where they were a year ago, a little bit ahead of our plan, driven by the Texas intrastate, which were up $30 million from where they were a year ago and a little bit ahead of plan, and Rockies Express, which is up $17 million from where it was a year ago, although it's a little bit under risk plan, again as Rich mentioned, we didn't have it in-service for much of the quarter, we didn't have it fully in-service for any of the quarter and we had expected that it will be fully in service for some of the quarter and in our budget.

CO2, $200 million of earnings before DD&A for the quarter, up almost $75 million than where it was a year ago. Again, volumes at SACROC right on our plan. Volumes at Yates, above our plan and very strong there, and then we got some help from price. Now some of that we expected, we had factored in the increase in our hedges, but the unhedged price was even higher than what we had in our budget and that helps us on unhedged crude oil. It helps us on our NGLs, it helps on our CO2 prices.

On the Terminal side, $126 million, up from about $99 million a year ago, so very nice growth of $27 million for the quarter, a little bit under plan on the terminal side. Now we're getting nice growth from both acquisitions, the main acquisitions of the Marine Terminals acquisition, which was completed in September last year and the Vancouver Wharves acquisition, which was completed in May of last year and then as Rich went through, a whole slew of expansion capital projects that have come on line specially on the liquid terminals side, but also on the core handling side. That has driven that tremendous growth. Terminals, we think will be very close to its budget, may be slightly under it for the year.

Trans Mountain, you will see an increase of about $30 million versus last year and that's because KMP did not own Trans Mountain in the first quarter last year. The acquisition was effective at the end of April. Now there are some accounting complications to that which we talked out last year and I'll remind you in a minute, but first, Trans Mountain was a little bit under its plan, driven again by the two items that Rich mentioned; foreign exchange went against us a little bit and the taxes were a little bit higher, which we believe will be a timing issue.

Now that our total segment earnings before DD&A $685 million, up from $503 million a year ago, basically on plan, dead on its plan for the quarter although we expect for the year that our segments will generate greater than planned earnings before DD&A. With that let me drop down and you can see the changes in DD&A there and you can see the segments earnings contribution, which are after DD&A. We don't believe it's meaningful as a numbers before DD&A.

I am going to drop all the way down to the general, administrative cost. You will see $75 million, up from about $52 million, that's about a $13.5 million increase. It's is a little bit unfavorable to plan, first related to the plan, legal was a little bit over, payroll taxes were over, but that's largely timing. Now Trans Mountain was a little bit over. Some of that is just increased insurance cost, which we are going to see all year and in some other, timing on capitalized overhead, versus last year we were up $13.5 million. A huge portion to that is Trans Mountain, about $8 million of that is Trans Mountain, and that's because we did not own it in the first quarter last year. And then you have benefit cost, which were up, some of which will be timing, some of which is a function of higher headcount.

Interest, you see at $97 million versus $90.5 million, it's up about $7 million. The increase is driven by higher balance, we'll talk about... at least the investments we made in the last quarter shortly, and of course then all of the investments that we made in the last three quarters of 2007 would also drive that balance, from where it averaged in the first quarter of 2007.

Now rate is significantly lower than last year and lower than our budget. What that means is that interest expense is actually favorable to our plan by about $10 million. So relative to budget, we are getting a nice pickup in interest expense. Certain items, really meaningless in the first quarter of 2008, but they are significant items in there for the first quarter 2007, so let me just identify the big ones for you. If you will recall, because Trans Mountain was dropped down from KMI to KMP, with the new accounting rules, we have the true Trans Mountain as if KMP has owned it ever since KMI controlled it.

Even though KMP did not economically benefit from Trans Mountain until that transaction closed at the end of April. So, it was just an accounting issue. For that reason, for the last three quarters of 2007, we called out the portion of Trans Mountain that occurred before KMP purchased it. But that's what you see on the first two lines of the certain items, Trans Mountain before got down, those are the earnings from Trans Mountain in the first quarter of 2007, and then the goodwill impairment, did the goodwill impairment that KMI took in the first quarter of 2007, but again according to GAAP we have to reflect that on KMP's books now, we're pulling it out as a certain items because it did not impact KMP.

The rest of the items are relatively small. They are relatively consistent between the two years, but again that takes you down to your net income before certain items of $249 million, up from 219. Again, I think that's more meaningful to look at that before DD&A and you will see the DD&A line down below there. Now that's the earnings, the first page of the income statement is not overly meaningful, largely because of the certain items that are incorporated into 2007 and again we went over those at Normium [ph] last year, I just touched on them briefly again this year. I don't think there is any reason to continue discussing this. So, with that I am going to go to the balance sheet.

So that's the last financial page accompanying the press release. Cash and cash equivalence are based unchanged. Other current assets you will see up about $250 million. Restricted deposits are up, accounts receivable are up, gas and storage is up, largely a function of an increase in gas prices. PP& E is up by about $450 million, largely a function of capital expenditures offset by depreciation. I'll talk a little bit more about the capital expenditures in a minute.

Investments are up because of contributions of Rockies Express. I'll talk about that also in a minute when we reconcile the debt. Deferred charges and other assets are up about $118 million, that's mark-to-market of the hedges that goes through the balance sheet. Total assets about $16.3 billion, up about $1.1 billion from where we were at the beginning of the year and that's a function of the expansion CapEx plus the investment in Rockies Express.

Notes payable and current maturities of long-term debt, I'll talk about in a minute when we talk about the total debt. Your other current liabilities is up about $150 million, the mark-to-market, the hedges, the current portion was still there, accounts payable increased some and then accrued interest came down, a fair down just a function of timing on our interest payments.

Long-term debt is also gaining; I'll talk about that in terms of total debt in a minute. Value of interest rate swaps goes up and that's just a function of the fall of interest rate. Hedges; that are other liabilities are up, that again is a mark-to-market of the hedges, the minority interest hedged remain unchanged, the cumulative and other comprehensive loss, again that's a mark-to-market of hedges causing that change. Other partners' capital, you'll see that all the $400 million are largely a function of equity offering that happened during the quarter. And I'll talk about that a little bit more in a minute as well.

That takes you down looking at total debt, $7.6 billion, up almost $600 million from where we were at the beginning of the year. Then again, I'll talk about that increase of $600 million in a second. First, let's look at the strength of the balance sheet. You will see that result the debt to EBITDA ratio of about 3.4 times. So and that's a very strong balance sheet considering the stability and the cash generation capability of our assets, but one other thing I'll point out, and I've talked about this in the past that this debt to EBITDA number is conservative because we used trailing 12 months EBITDA.

We had a number of projects and acquisitions that have come on during the last 12 months and the debt associated with those expansion projects and those acquisitions is incorporated in this debt number. But clearly, if they've come on in the last 12 months, we don't have a full 12 months of EBITDA for them in this calculation. We've not pro forma for those partial years and so again, we were just a stock right now and go forward a year or some period of time to pick up all of those events. You've seen an even stronger debt to EBITDA ratio than we show here.

With that, let me talk about the change in debt. Again change in debt for the quarter is about $582 million. Our extension CapEx during the quarter totaled about $623 million and then we have contributions of Rockies Express of about $306 million. So we invested about $930 million during the quarter.

Now that being said, we got back from MEP, Midcontinent Express a little over $60 million during the quarter, that's because we put a facility in place at that joint venture which and then borrowed under the facility which allowed us to recoup cash and allowed our partner to recoup cash that had been invested in that entity. So in that source of cash of about $60 million, we issued equity which generated about $384 million in cash during the quarter.

KMR distributions are an effective equity issuance as well and so they generated cash of about $67 million during the quarter. Then we had an increase in margin deposits of about $99 million. So that's a use of cash of about $100 million. And in the working capital and other items, we have a use of cash of about $68 million, and just to touch on that $68 million real quick, AR&AP was a use up cash of about 55 million. Other current assets and current liabilities largely accrued interest; I talked about that a minute ago. That was a use of cash of about $100 million. And then we had some other offsets to that of about $80 million, just largely related to timing associated with CapEx and other cash items that came back the other way and those netted again to about $68 million use of cash for working capital and other items.

Now I talked about $623 million of expansion CapEx, let me give you some highlights on what that was. Products was about $39 million finishing up the EPX project and a couple of other projects. Natural gas was about $180 million, most of that was a Kinder Morgan Louisiana line, the new pipeline that's under construction. CO2 was about $142 million, that's continued expansion at [indiscernible] although a little bit of Southwest Colorado and Yates as well. Terminals was about $118 million, the North 40 was a chunk of that and then the additional tanks here in Houston in the ship channel at our Delena Park and Pasadena terminals. And then Trans Mountain was about $145 million and most of that is the Anchor Luke project.

The last thing I am going to touch on is financing. We did have a very active quarter and we are quite pleased with this because it was not an attractive quarter as far as the financial markets go. But the financial markets were absolutely open to us and I think we demonstrated once again that one, we are committed to financing these projects conservatively in any market and we are able to finance these projects conservatively in any market.

So let's go back over what we accomplished on a financing perspective in the quarter. As I said before, we issued $384 million of equity. There were two offerings in the corner... in the quarter. One was a private placement of about $60 million and the second was an offering of about $324 million. Now, of course that was on the heels of another equity issuance that we did in November in a very similar market at the tail end of November, where we raised $300 million. So if you look back over the last six months, it's almost $700 million of equity that we've raised in the capital markets. Also during February, we tuned up $900 million of debt. So we were able to go out and do a long-term issuance of debt, in terms of $900 million.

And we also put in place as I mentioned before the bank facility at NEP, and so that's the $1.4 billion facility that really will be in place during construction, just like we did on the Rockies Express joint venture. We expect that we will primarily debt finance during the construction phase and then that debt we will be taken out with equity contributions from the partners and long-term gas once the project has been serviced in 2009. So again that's not a very attractive bank market during the first quarter of 2008. But we were able to get the NEP facility in place on very attractive terms. So again, we're emphasizing the point to show you our belief that even in an unattractive capital market, we can continue to access capital to finance our project and that's largely because our projects are low risk. We have committed commercial contracts from credit worthy counter counterparties that supports the investments that we are making and that make those projects financiable [ph].

With that actually, I am going to turn it over to Steve for an update on the major projects.

Steven J. Kean - Executive Vice President, Chief Operating Officer

Okay. I am going to cover two things pretty quickly. One is to update progress on our major projects, the numbers we showed in January. And then second, take you through the process that we go through to manage that expansion program. First recall that in the January conference, we provided you with a complete detailed update on $7 billion at that time forecast to spend, and again the several projects associated with that openly [ph] overview presentation as well as in the individual business unit segments, and that information is still on our website.

And so we have gone through this before. We've updated you I think pretty thoroughly, and I think that's a good starting point for the discussion now. So, updating those numbers for our most current estimate, we are seeing total capital expenditures that are about another 2.2% higher than what we showed you in January, and that's on an apples-to-apples basis. So, we are comparing the current estimates to the January estimates on the same set of projects. And what that set of projects really include is what we call our major expansion projects that projects that are $10 million or above, and is also a projects that were coming in or came on in 2007, or were underway at the time of accounting. So we are not counting stuff that we have added since then.

So, in those estimates again we're about 2.2% on the both capital that's higher than what we're talking about there. In addition that project we've been talking about in January is now about 40% in service on a share of total spend basis, and that includes REX-West, in January about third [ph] complete. So we have got a substantial part of this project that is in service and it already should [ph] be as a result as Richard mentioned. And all those projects in service we had at overrun to get the smaller overrun though than what's in our forecast of the work that remains to be done.

The reason that best informed [ph] is that we're not somehow at this level of estimating the historic forecasts by assuming that we are going to do dramatically better on the project or the work that's just yet to come than we did on the works that's already done. So we are making progress. Our forecasted costs are up a bit, but we are making good progress. And here's how we make that progress. The process we go through is as follows. We review each of these projects in a monthly basis products review with each business unit, and we update their project status, the cost schedule, how the contract is performing, etcetera. And we include in those updates the peoples who are the heads of the project management for the different business units. So, we are getting pretty close view what's really gone on the front line.

We also get update on the projects in our quarterly business reviews. We get updates on key items in our monthly meetings. So in short, we are managing this really pretty much the same way, we try to manage everything to support around here. You want to know early about what the problems are, you want to hear about what the opportunities are, we want to get updated you very quickly so that we can resolve the problems in casting the opportunities.

So that's what happened kind of at a very senior level, but also there is a lot more going on at the business unit level and in the process management organizations and so. So first, our business units and the project management teams are experienced and have good expansion project track records. The business units have set up. Several organizations that are dedicated to managing major projects we have outsourced everything that we do by the contractors. They have also tried to lock-in conservatively [ph] where they can. I think they responsibly allocated risks between ourselves, our customers, and the contractors and suppliers. And no process is perfect, so I think this is a pretty good process.

It won't look and over [ph] help every challenge and this is certainly a challenging environment, but I think we've bargained for good returns. Our business units have done a good job. Doing the contracts you underpin the projects and bargains for returns that compensates for the risks that we assume, and we have done a pretty good job managing those risks.

Now, part of the reason that we track these projects so closely is because these numbers do change. This is, as you all know, have very good results and challenging cost environment, and these numbers that we are updating today are going to change [ph]. There is no guarantee that they are going to be limited to our current estimate.

In fact, we would expect more likely than not that there will decent further increases from where we are today. And we also hope to see some additional increases turning to dock on some of those projects as we fold many in the rest of the network and get some additional benefits from it. But just should give you some idea of the order of magnitude and increases and how closely we are tracking them. In other words we are not just sort of drifting along through six months, building the stuff and not checking and seeing how we are doing.

So we'll have our share of surprises, we have already, but we have tried hard before our end [ph] and draft it with the star-up, and then I think we are doing good also abroad [ph].

Richard D. Kinder - Chairman and Chief Executive Officer

Okay. Thanks, Steve. And with that, Ed, we will turn it back to you to take any questions we may have.

Question And Answer

Operator

Thank you very much. [Operator Instructions]. First question comes from Ross Payne. Your line is open. Please state your affiliation sir.

Ross Payne - Wachovia Securities

Hi, Ross Payne with Wachovia.

Richard D. Kinder - Chairman and Chief Executive Officer

Hey Ross. How are you doing?

Ross Payne - Wachovia Securities

Nice quarter guys.

Richard D. Kinder - Chairman and Chief Executive Officer

Thank you.

Ross Payne - Wachovia Securities

Just a quick question on Plantation. Just can you tell us from 20,000 feet, what's going on there I guess where you guys are connected to certain refineries is impacting some of your volumes there, but if you can talk about that and what the year-over-year volume change was there.

Richard D. Kinder - Chairman and Chief Executive Officer

Yes, a couple of things. Let's see, Tom is not here, but let me. What's really driving this is that the quality or specs for gasoline in the Southeast are bearing and of course our largest single customer is the Exxon battery [ph] refinery. And they are making RBOB right now which is moving over a Colonial, and so that is driving lower volumes on Plantation. There is some other tos and fros [ph] and as a matter of fact we have seen a pick up in April from the March numbers because we have had one customer switched back to Plantation, but there is a lot of moving parts in serving the Atlanta market and other parts of Southeast between which kind of gasoline gets handled. But we only handle a certain kinds obviously, and the RBOB is moving across Colonial and that is hurting us substantially in terms of volumes. Now, we do have our tariff structure and our PPI escalator combined together just as I said actually, we are up about in revenues about 3.5% from a year ago in terms of comparison to plan for the first quarter Ross which had a lot bigger volume number obviously for Plantation.

We are actually within $300,000 or $400,000 for our plant for the quarter, so almost on the plan. But we are suffering from volumes and I think we will continue to see that volatility. And the reason we exclude that is from the percentage as I know there a lot of people as we were the early reporters, a lot of people look at our volumes and our product segment say, well this is an indication of where the national trend line is going with regard to products volumes across America. And I just... we don't want to give you the impression that Plantation is keyed of to that. So, I think it kind of squeeze the results, so we always give it you both ways. We give you with Plantation and then without it. And as I say without, it's about 1.9%, but that what's happening.

There are some things in the works that, like I say, will improve it somewhat in the coming months. But I think we will continue to experience this volatility, and probably continue to experience a little lower volumes than we would like to see because... largely because this gasoline spec issue. Well Park and Steve did you want to add anything.

C. Park Shaper - President

Well, I just want to say [ph] with respect to Plantation volumes why we give it to you also without it is even reporting it with distorts the Kinder Morgan impacts on which is really around 50% of Plantation. So when we give you the volumes including Plantation that's including a 100% of the impact of Plantation, again that volume impact on us is only 50%. Similarly, the increase in revenue impact on us is only 50%.

Ross Payne - Wachovia Securities

Okay. Also on Plantation just real quick, what is it about the pipe that keeps you from carrying some of the different grades?

C. Park Shaper - President

Yes. It's not really the pipe, it's the... it's both the market and the source. So it's where they are coming from for the particular customer, they have other refineries that are generating other types of grades and where they are going, what markets they are delivering that gasoline into.

Ross Payne - Wachovia Securities

Okay. That's makes it much more clear to me. And one final question, Park if you can tell us what the off-balance sheet debt is at Rockies Express and Midcontinent?

C. Park Shaper - President

I don't have these numbers in front of me, Tim, I don't know if you know.

Unidentified Company Representative

I think it's about 0.4.

Unidentified Company Representative

And MEP was two-tenth [ph].

Unidentified Company Representative

MEP is two-tenth.

C. Park Shaper - President

Two-tenth yes. MEP is relatively small, and then the Rockies Express is a $1.4 billion. Yes, they net 100%. So that's the total project, yes.

Ross Payne - Wachovia Securities

Okay. Divided by two, okay

C. Park Shaper - President

That for our ship [ph], yes.

Ross Payne - Wachovia Securities

Thanks, guys.

Richard D. Kinder - Chairman and Chief Executive Officer

Okay, next question?

Operator

Question comes from Mark Reichman. Your line is open. State your affiliation, please.

Mark Reichman - Sanders Morris Harris

Good afternoon. Mark Reichman, Sanders Morris Harris. I am going to ask if Steve could you just touch on the $10 billion plus projects that were summarized on page 21 of the January presentation, just to include timing, how the expenses break out and whether there's been any updates to that slide?

Steven J. Kean - Executive Vice President, Chief Operating Officer

Probably, I can start and you can join this. But I think there some of the projects that we're on are very potential for additional work at REX, as those projects were covered by Rich and they are really still... they are still very much in those. I think the one thing that is probably I will say following off but is less lightly is there was a Michigan [ph] project which is a major oil pipeline extension from oilsands all the way down to Gulf Coast, and that one I think we would probably change as less likely now than they would have at the time. So, I think the opportunities really across that network are very robust as they were in January. And of course in January all what we were doing was trying to be select... couple of us would select a set of projects not necessarily if you could say these are the ones and the only ones, or that these are the ones that uses [indiscernible] done. So, I think there is still good prospects across the network.

Richard D. Kinder - Chairman and Chief Executive Officer

I think it's right, and for example the Northeast Express was on there. I think the Chicago Express was on their. Potential expansion of MEP and those are still look very realistic. But we will... and I think the real point was that there is a lot of other things out there we're constantly looking at, and some of them are going to go, and I think that we all made the point in January. We were not using that slide to say, hey, here is another $10 million... $10 billion just like we have $7 billion our share today. I think another maybe indicator that Steve would have these exact numbers in front of him I am sure, but I think just since the January conference we have added in terms of new projects that Steve took out to get apples-to-apples, we've added about $350 million is that...

Steven J. Kean - Executive Vice President, Chief Operating Officer

Yes, 300 million not counting today.

Richard D. Kinder - Chairman and Chief Executive Officer

300 million and then our Board approved about another over $100 million today. So we are... we have approved since January in excess of $400 million of new projects that would not end that $7 billion number that we talked about in January. I think you'll continue to see that. Now the some docks you have big picks relative to the Board constructed like if we get Northeast Express that's a big pick. Sometimes you'll have mice and rats in terms of an individual terminal, but we do have a lot of things going on and the... again I've said this so many times, but the really... the real advantage of our size and our huge footprint across North America. So it just gives us the opportunity to expand, extend, make acquisitions that are folded into our operations. I think that gives us a big hedge start. So we've got a lot of other things going. We certainly won't get every project, I wouldn't guarantee we'll get Northeast Express or but we are certainly in the hunt for projects like that.

Unidentified Analyst

It's helpful. Thank you very much.

Richard D. Kinder - Chairman and Chief Executive Officer

Okay.

Operator

Next question comes from Dan Jenkins your line is open. Please stage your affiliation.

Dan Jenkins - State of Wisconsin Investment Board

Hi, Dan Jenkins. State of Wisconsin Investment Board.

Richard D. Kinder - Chairman and Chief Executive Officer

Hi Dan.

Dan Jenkins - State of Wisconsin Investment Board

Congratulations on a good quarter.

Richard D. Kinder - Chairman and Chief Executive Officer

Thank you.

Dan Jenkins - State of Wisconsin Investment Board

I had a couple of questions related to the REX-West. You said that underperformed in the quarter versus your budget, I was wondering how much that was and given that it still to come on and later in April. Do you expect to turn it from in the second quarter as well or?

Richard D. Kinder - Chairman and Chief Executive Officer

We would not expect to turn it from the second quarter because again we expected to be fully online and most of the benefit of REX-West we've already gotten by virtue of getting to the ANR interconnect in Eastern Kansas. As I've said earlier, that gets us about 1.3 Bcf a day of capacity. When we... the 1.4, when we go to all the way to Mexico Audrain County, Missouri that gives us the 1.5 plus we will get a higher tariff on that additional couple of hundred miles. But we expect that to go in service within the next few days. So and that's what we expected for the rest of the year. So we would expect REX-West to be on plan or maybe even slightly above it for the rest of the year. Now with regard to the first quarter, Park?

C. Park Shaper - President

It was $5 million, so the impact... the variance of REX versus the plan so not overly significant.

Dan Jenkins - State of Wisconsin Investment Board

Okay. And then similarly on the CO2, and alternatively you give me a sense of the field therein in Colorado and the Doe Canyon Deep unit.

Richard D. Kinder - Chairman and Chief Executive Officer

Yes. We had not drilled that before and we knew the reserves were there. But we drilled... we thought it would take six wells. What we want to do is get sustained production with additional 100 million a day, 100 million cubic feet a day of CO2 out of the Doe Canyon field, which we own about almost 90% of. So we are in operating of course. And we did that and actually we are moving about 100 million cubic feet a day out of that already and that we are only using two wells. That's how prolific they are. So the wells have turned out to be very good, I think that's going to be a very promising field for us now. In all likelihood, I don't want to mislead you, it doesn't have the size of reserves that McElmo Dome has, but at McElmo Dome we own substantially less of that ourselves. So it's very significant in terms of Kinder Morgan CO2 and I think they are certainly potential in the future that as we continue to want to take more CO2 outside plus Colorado, we now have another formation at Doe, another field at Doe in addition of McElmo Dome.

So if you look at it right now, we are increasing both the course and we are also upsizing the Cortez Pipeline, so we are adding 200 million a day of capacity on the Cortez Pipeline that goes down to the Permian Basin, we are adding a 100 million of throughput or production at Doe and 200 million at McElmo Domestic. So we are adding 300, but only increasing the capacity of the Dacuay [ph] Pipeline by 200, the additional 100 million we are selling under the contract with the producer in Southern Utah. So we have market for all of this and we are very... so far very pleased with the progress in the Doe Canyon. Did that answer your question?

Dan Jenkins - State of Wisconsin Investment Board

Yes, thank you.

Richard D. Kinder - Chairman and Chief Executive Officer

Good.

Operator

Next question will come from Gabe Moreen. Your line is open, and please state your affiliation.

Gabe Moreen - Merrill Lynch

Good afternoon, Merrill Lynch. Staying on CO2 for one SEC, Rich, you mentioned the price escalators in some of your sales and transportation contracts. I am just trying to get a sense of what the magnitude of the benefit as you realize and just how many your contractors have that language written into them?

Richard D. Kinder - Chairman and Chief Executive Officer

So again, it's a good question Gabe. And the contracts, we have a numbers of different contracts with the third party customers that we supply and most of them today that have been re-negotiated within the last, really about three or four years ago we started putting in these escalator clauses and so most of our contracts today have those. I couldn't break it out exactly, but certainly well over half have those provisions. And the way... and now the details of those provisions, Gabe vary, but the way they usually work is something like this.

You have a set number per MCF which is the force, so we are not willing to take downside risks because we have certain costs involved in Southwest Colorado production and in the pipelines to get it down to the Permian Basin and then distribute it throughout the Permian Basin. So we insist on a pool but the way we sell this to our customers and it's to both benefit look guys, if you are going to have $100 oil you're the CO2 that your using to flood to produce additional barrels is worth a way of a lot more than if you have $50 oil and we want part of that and you keep the great majority of it. So that's the way it works. The individual contracts vary and generally as prices have gotten higher, obviously there is more of a kicker. So that's the way it works. But of the price improvement year-to-year about a third of the price improvement that we've got came from those contracts, so it is significant.

Gabe Moreen - Merrill Lynch

And it is a pretty much a linear relationship if these levels of crude goes up 20%, you are trying to getting a 20% higher tariffs on those contracts?

Richard D. Kinder - Chairman and Chief Executive Officer

I wouldn't say it's linear because of so many varied contracts Gabe and it does... some of them have a various step downs or lesser or greater percentage as the price varies, so it's kind of a basket of contracts.

C. Park Shaper - President

And Gabe, serious looking for sensitivity to crude prices that's in our January conference materials, and I need to confirm, but on firstly, positive that sensitivity included the impact of CO2 and NGL, it wasn't just the impact of unhedged crude volumes. I can't remember the number off top of my head, but again $6 million for every dollar change in crude prices.

Gabe Moreen - Merrill Lynch

So that's included in there, okay that includes the sales and transportations stuff? Okay.

C. Park Shaper - President

Yes.

Gabe Moreen - Merrill Lynch

Great, thanks for the color.

Operator

Our next question comes from John Edwards. Your line is open; and state your affiliation please.

John Edwards - Morgan, Keegan & Company, Inc.

Good afternoon, everybody, John Edwards with Morgan Keegan. Nice quarter.

Richard D. Kinder - Chairman and Chief Executive Officer

Thanks, John.

John Edwards - Morgan, Keegan & Company, Inc.

Rich, Can you just comment the improved processing volumes in margins or may be Park you have it, how much of that contribute to in the natural gas segment? How much of that contributes to the upside?

C. Park Shaper - President

It's relatively small, I mean the biggest towards and of course, that would be in the Texas intrastate, although we have a little bit of processing in the Rocky Mountains as well, although they were actually down versus budget. In the Texas intrastate, the largest source of growth was from a new contract that we signed with our largest customers last year, and from which we felt the largest impact in the first quarter of this year.

John Edwards - Morgan, Keegan & Company, Inc.

Okay great. And then, Rich, could you expand a little bit on the ethanol pipeline that you have been working on and you talked about at the analysts meeting and there has been a fair amount of publicity on it, what's... how do things stand out with that?

Richard D. Kinder - Chairman and Chief Executive Officer

Sure. What we have... we are very consistent with what we said in January. We have now authorized the funds and we've started the engineering work to make some retrofits and the changes in that pipeline that runs from Tampa to Orlando to handle ethanol in batched quantities. Then we will run a test of that probably in the August timeframe, sometime in the third quarter assuming that successful and our operations people believe that will be, then we will start offering that service to our customers in the fourth quarter of 2008.

Now the reason of course it's gotten wide spread publicity at least in the trade writes is that I think a lot of people think this is the precursor to doing this over longer lives. I think everybody knows that probably whether there is a lot of issues with ethanol, but certainly one of the biggest problems is how do you get ethanol from the weather concentrated areas of production in the upper Midwest to the place where it's highest and best use is namely on both coasts and I think we are particularly on point in Florida because huge demand for ethanol. Lot of people want to move ethanol into Florida and indeed the whole Southeast.

So but the caveat I would add is that it's one thing to move ethanol in batch system on a 160 mile system. It's something different to move it on a 1500 mile system across the country. So it's a long way from moving it on of Central Florida pipeline to moving it on SFBP or plantation or colonial or explore some of the other major by parts but certainly will be a very good test, our customers are enthusiastic about it. It will be assuming works, a nice return item for us on the expenditures that we will make and then we will just see how it goes, and whether we want to apply it elsewhere. If we could ever get to the point of moving more ethanol by pipeline, whether a dedicated pipeline or batching it in a products line, it would obviously have enormous positive impact on the overall cost of ethanol distribution. But certainly, we got to walk before we run.

But it's all on schedule right now and as a matter of fact, the larger expenditure thus far in Florida was the facilities that we have put in at both Tampa and Orlando and those are now essentially complete, and we actually received cargos both from the Caribbean, and barges from internal ethanol within the last few days at our Tampa offloading facility. And we now have the... not only the storage capability, but we have ethanol blending facilities, so that we can blend it at the racks in both Tampa and Orlando. And so right now that blend the lead ethanol that goes to Orlando is being trucked over there by our customers who economically and for whatever reasons want to blend it and so we hope that by the end of the year, we will actually be moving it in the pipeline in the batch way, which obviously is much cheaper than moving it by truck for our customers.

John Edwards - Morgan, Keegan & Company, Inc.

Okay great. And then on the CapEx, the 2.2% higher CapEx, that's on top of the budget from the January analyst meeting. Is that correct?

Richard D. Kinder - Chairman and Chief Executive Officer

That's an addition to the numbers we showed you at the January meeting. That's correct.

John Edwards - Morgan, Keegan & Company, Inc.

Okay. And then last detail, just what was the... what's the unit count as of the end of the quarter now?

C. Park Shaper - President

The average unit is 250 million, I think the unit count is 255, right round there.

John Edwards - Morgan, Keegan & Company, Inc.

255, okay great. All right, thanks a lot. Great quarter.

C. Park Shaper - President

Thanks.

Operator

Next question will come from Emily Wang [ph]. Your line is open, state your affiliation please.

Unidentified Analyst

Hi this is Emily Wang [ph] from Raymond James. Congratulations on a great quarter

Richard D. Kinder - Chairman and Chief Executive Officer

Thank you.

Unidentified Analyst

My questions on more focused on the increases in the construction cost. Could you guys clarify which particular project you are seeing how higher cost versus other projects and also the extend of the cost is more from labor versus just pure raw material price increases from steel?

Richard D. Kinder - Chairman and Chief Executive Officer

Let me attack the second part of it, then I'll turn it over to Steve for the first part. But... and we said a lot of this in January. On most of these major projects, we have locked in the materials so for example REX before we ever broke ground, we had locked in our pipe cost and our compression cost, so the cost of the compression, and these thousands of miles or hundreds of miles of pipe, so that leaves the great denominator overwhelmingly as the labor cost. And as you no doubt heard from others, what's happened in this environment is that you are moving from fixed cost contracts where all the risk of overruns or profit from under runs was on the contractor. Contractors are simply unwilling do that today on large projects.

Now some of the smaller projects you can still get that, but on large for instance, REX are MEP where you have 42 inch pipe for relatively smaller universal people you can install that pipe. You are forced to go by the market to time and materials contracts and there what you usually do is set a target price if the price goes higher than that and you agree on that with your contract, if the price goes higher, you have some kind of sharing of that the contractor each part of it... we part of it. If it's lower, there is some kind of sharing. They get the part of that lower cost, we get part of it.

But it's not nearly as certain and generally it leads to higher cost in the TNM contract, then in a fixed contract. So if most of the risk is on the labor side and I don't mean that is all just hourly pass through, diesel fuel has gone up dramatically, for example. So that's a cost in a time and materials contract that it's the overall towards the target price. So we bear part of that risk. If you have rainy weather have foot match down because you can't work on the rider away in the mud with your heavy equipment and you have to spend money to have mats holding for working platform that's an add on cost. So those are the kind of things that all together go to make up the risk profile and there are other things. But it's all almost all in the construction side, not in the ordering of the equipment itself. Steve, you want to add there or talk about where the...

Steven J. Kean - Executive Vice President, Chief Operating Officer

Yes. And carrying on with that theme really, so where we are seeing the share of the increases from what we saw in January, talked about the January really on the pipelines. So that includes pipeline in CO2 segment, it includes and there as was mentioned earlier, we have the benefit of having higher CO2 revenue, so a lot of that, there is an offset... more than an offset on the revenue side associated with that. And it's a CO2 pipelines, Trans Mountain had some increase and the gas pipeline projects have increased. Let so for smaller shares really in terms of terminals and the CO2 investments in the field in sort of production investments, so the biggest share from the pipeline side for the reason that we just talked.

Unidentified Analyst

So would say that a lot of the pipe costs for let's say, big cotton or CALNEV or the Louisiana line are pretty much locked in and so the greatest variability is still just labor?

Richard D. Kinder - Chairman and Chief Executive Officer

Absolutely. I can't speak for CALNEV yet because we are still early in the permitting process there. But Scott Parker is sitting here, all the costs on MEP, Kinder Morgan all the pipes on Kinder Morgan Louisiana MEP and REX have been ordered, committed and so we have a fixed price on those.

Unidentified Analyst

Okay. Yes?

Richard D. Kinder - Chairman and Chief Executive Officer

Okay?

Operator: Ms. Wang [ph], does that concludes your question?

Unidentified Analyst

Yes, thank you.

Operator

Our next question comes from Yves Siegel. Your line is open. State your...

Richard D. Kinder - Chairman and Chief Executive Officer

Hi,Yves, how are you doing?

Yves Siegel - Wachovia

I'm doing well Rich, how are you?

Richard D. Kinder - Chairman and Chief Executive Officer

Okay.

Yves Siegel - Wachovia

Rich, I have three quick questions for you. The first is can you talk about potential for acquisition especially given the success you've had in accessing the capital markets, number one. Number two, in terms of Midcontinent Express, could you talk about potentially what the nature of the expansion could be, would be adding compression or would be actually be looping and, how large an expansion could that possibly be? And then thirdly, are you considering moving gas northwest out of the Rockies, a project to might be well to do that?

Richard D. Kinder - Chairman and Chief Executive Officer

Okay. Let me start with the potential acquisitions. We do continue to look at acquisitions; in fact our Board approved three small acquisitions today. So we continue to look at acquisitions, most are relatively small tuck-ins, a couple that we are looking at much larger, but I certainly wouldn't predict that those are going to work out. We are just looking. It's a function of what we are willing to pay versus what somebody else is willing to pay. I think it leads to large scale acquisition of companies like Kinder Morgan maybe advantaged a little bit because we do still as an investment rated company have access to capital markets and some smaller companies don't, but that said, there is a lot of companies out there that have access to the capital market.

So we'll just have to see on the acquisitions and we never pinned anything on acquisitions. For example, we always make it very clear that our forecast and budget numbers do not include any acquisition. Those would be in addition to our present budget. And then I'll ask Scott Parker is here, he runs our Natural Gas Pipeline Group to talk about the expansion on MEP.

Scott Parker - President, Natural Gas Pipelines

On MEP, we have a 1.4 Bcf project today as Rich described, getting very close to sold out and we have very economic compression expansion that would range anywhere from a total of 1.8 to a little over 2 Bcf. So clearly, those are right in front of us, things we could do quickly and very economic and beneficial to Kinder Morgan and our partners. Beyond that level, capacity increase we would look at looping like we do on our existing assets to start loop it downstream to your compression. So really both those available to us, but as typical we will do the compression expansion first. And on MEP, we continue to look at extending the pipeline too as we expressed in the conference and we're seeing a little more interest there again, one of those projects that are out there in front of us in the future that we will compete for.

And on the Northeast question or Northwest question, we really don't have a footprint in the gas side in the Northwest. We don't compete well there, so we are not looking at moving from the Rockies to the Northwest, but we are looking aggressively on the additional assets on the Rockies towards the East.

Richard D. Kinder - Chairman and Chief Executive Officer

Yves, just to clarify what Scott was saying is he didn't mean to expand, it meant to expanding to 1.8 Bcf or slightly over 2 Bcf through compression, so a net expansion of 400 million a day to 600 million a day.

Yves Siegel - Wachovia

Right. How much would... any thoughts on how much that would cost to add compression?

Richard D. Kinder - Chairman and Chief Executive Officer

Well it's certainly... I don't know we want to get into the detail cost of it, but it certainly is much more economic than a newbuild is, so it would be a good project for us and good project for our shippers and of course what's really happening there is, as you know, there's a competitive line here that's being built also. So I think when we started out, I think some people had question mark as to whether our line is going to be filled, now it clearly is. And it's really a mark, I would like to say good management here and hopefully is a part of it, but it's also a mark of just the exponentially almost expansion of production in the Barnett Shale and then of course some of the Fayetteville trend has the ability to hook into parts of this, if they want to go this way.

So it's a real opportunity for us and I think there is a good likelihood there that we will be able to do some size of future expansion and maybe even as Scott said an extension on it, given the demand for natural gas. We kind of move that off sometimes, we hear everyday in the papers and even on television now that carbon caps and trade and what's going to happen and of course coal getting beaten with big stick at every turn by every politician. And of course the natural beneficiary of all that is natural gas. And if you are not going to build as many coal plants as you thought, and I think that's pretty clear now that that's the case, and you are not going to get nuclear built in the short term, get it permitted, and built. Although I want to say I think we need a broad basket of alternatives, and I think nuclear plays a role in that, but my guess is as you are talking ten years or so before you would actually get nukes on board. So you got to do something to supply the increased need for electric generation capacity in this country.

If your economy continues to even grow modestly. And so that leads you to natural gas as probably the most likely alternative. So, I think you are going to see a lot of growth and need for natural gas and electric generation and where that's helpful to us is that that drives the need for new infrastructure capacity to get that gas from producing basins, some of which are also relatively new, like the Barnett Shale across wherever the need for that natural gas is. So that's what tremendously beneficial, whether it's projects coming out of Rockies, projects moving regasfied LNG or projects coming out of the Barnett Shale [indiscernible].

Unidentified Analyst

And Rich, you sort of open up the door to another question, and that is that competing pipeline I think still has unsold capacity of I think it's around 300 million cubic feet a day, so could you envision actually that you have to sign up more capacity even given that that other pipeline still has more capacity itself.

Richard D. Kinder - Chairman and Chief Executive Officer

Well, I never worry about the competitors, we have enough to worry about just managing our own business. So I am not sure where the competing pipeline is. But obviously one advantage that Scott and his team have is we have got a tremendous footprint with our partner, Energy Transfer and ourselves, upstream of the start of this pipeline. And of course we connect into others of our pipelines along the way, including NGPL, and including our Texas Intrastate. So there is a lot of things I think we bring to the party. But again we will just have to see. And I want to emphasize we are not going to do an expansion unless we have throughput agreement signed and just like we do on all of our pipelines.

Unidentified Analyst

Thank you.

Richard D. Kinder - Chairman and Chief Executive Officer

Yeah.

Operator

Next question comes from Dan Jenkins. Your line is open again, and state your affiliation please.

Dan Jenkins - State of Wisconsin Investment Board

Hi, still with State of Wisconsin.

Richard D. Kinder - Chairman and Chief Executive Officer

Haven't moved in the last ten minutes, ha?

Dan Jenkins - State of Wisconsin Investment Board

I had one more, forgot to ask, on the Trans Mountain pipeline, you know you indicate that Jasper spread will be going in service in May. So I was curious whether you need to come with new debt or units at that time to finance that or how will the financing of that project progress?

C. Park Shaper - President

Yeah I mean you know we have our financing requirements covered in our budget that we went through in January, and we are on track to meet that and we will continue to out finance things as we need to.

Dan Jenkins - State of Wisconsin Investment Board

Okay thanks.

Operator

Our next question comes from John Edwards. Your line is open, and please state your affiliation.

Richard D. Kinder - Chairman and Chief Executive Officer

Hi John.

John Edwards - Morgan, Keegan & Company, Inc.

Yeah I am still with Morgan Keegan. I forgot to ask, on your variable rate debt, what are you seeing now as far as your interest rate.

Richard D. Kinder - Chairman and Chief Executive Officer

Park?

C. Park Shaper - President

Yes, well clearly on commercial paper and certainly our swap as well, it's a spread off of LIBOR. Now your swaps depend upon your swaps in terms of when they were struck, what fixed rate you were swapping to that, so you can't narrow that down to a single rate. But what I can tell you is our budget incorporated LIBOR at 4.75%, and I think all of you all know where Libor is now that it is less than 3%. And so we are getting a nice pick-up from that. Clearly the spread doesn't necessarily move, I mean the commercial paper spreads can move around. But it has not changed significantly. And the spread on the swaps are fixed.

John Edwards - Morgan, Keegan & Company, Inc.

Okay, then... question made me think of another item, with the lot of the publicity with these announcements from the Marcellus shale and Haynesville, I thought maybe if could care to comment how you think that might play into future opportunities for Kinder Morgan.

Richard D. Kinder - Chairman and Chief Executive Officer

Well there is nothing we like more than a new producing area that is projected to incur big time increases in production, because invariably they don't have the pipeline takeaway capacity. So we are looking at both of those areas, nothing definitive at this point, but looking at both of those areas how we could provide capacity there, how we could tie into it. In both cases we know those producers, we have relationships with them. And we will just continue to look at those opportunities. But again, as I have said so many times, I think we have a real renaissance of natural gas drilling activity lead by a lot of large independents around the country. And that's lead to some very nice increases which will probably lead to less demand for LNG and more production in the lower 48. And I think we are as well positioned as anybody to take advantage of expanding, extending, building the additional infrastructure that needs to be done to accommodate this.

We are still seeing very nice growth in the Rockies, as Scott made the point earlier today that you know we have these other pipelines coming out of the Rookies aside from REX. And here REX is taking... in their month of March on average, I think slightly over 1.2 Bcf a day of real physical gas out of the area and yet we saw no meaningful declines on our other pipelines coming out of the Rockies. Now I can't vouch for everybody but I expect that's pretty much the case, which says that all REX did was take up a lot of pent-up demand. And if you extend the kind of production increases that that indicates, out over the next two or three years and the kind of drilling programs that a lot of companies have and $10 gas, that's a pretty strong combination. And so I think that's why you are seeing so many players wanting to build new capacity.

And I think there will probably be something built West to something built to East within the next few years to accommodate still additional growth in the Rockies production. You could say the same thing in the Barnett Shale, the Fayetteville now probably to Marcellus. I mean just a lot of opportunities for infrastructure expansion. Now you got to make sure, in our judgment, that you have the right contracts, you have the right shippers, that they are creditworthy and that you have good contracts with them. But there is enormous opportunities to take advantage of.

John Edwards - Morgan, Keegan & Company, Inc.

Okay, thanks.

Operator

Our next question comes from Bryan Zeren [ph] your line is open. State your affiliation.

Unidentified Analyst

Lehman Brothers.

Richard D. Kinder - Chairman and Chief Executive Officer

Hi, Bryan.

Unidentified Analyst

Hello, congratulations on the quarter.

Richard D. Kinder - Chairman and Chief Executive Officer

Thank you.

Unidentified Analyst

Regarding acquisitions. Are you seeing multiples come down, and if you are is it a significant amount?

Richard D. Kinder - Chairman and Chief Executive Officer

Park.

C. Park Shaper - President

I don't think that we've seen any notable change in acquisition multiples... I mean, David, I don't know if you have anything.

David D. Kinder - Vice President, Corporate Development and Treasurer

No, I don't think meaningful, and obviously we've sold some things of it at night, and have continued to be able to do that in the day. So I don't think anything meaningful.

Unidentified Analyst

Okay. And given the backdrop of challenging capital markets, would you expect some consolidation in the MLP space?

Richard D. Kinder - Chairman and Chief Executive Officer

I don't know that's... you keep hearing rumors about that, obviously it depends on a lot of factors. And I don't think if they have got any better indication that you guys would or anybody else. We're not aware of anything going on right now, tomorrow somebody could announce something we're not aware of but I just don't know.

C. Park Shaper - President

I just think what we can say is... if there were a transaction that we were involved in it would clearly be a function of the quality of the assets that we were buying and the price that we are paying.

Unidentified Analyst

Okay, thank you.

Richard D. Kinder - Chairman and Chief Executive Officer

Ed?

Operator

At this time I show we have no further questions.

Richard D. Kinder - Chairman and Chief Executive Officer

Okay, well very good. Thank you all for listening in. And as always if you have further questions feel free to call Kim Dang and she will answer them for you; much better than we could probably. Thank you.

Operator

At this time that would conclude today's conference. You may disconnect. And thank you for your attendance.

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