citigroup one-on-one mlp conference august 22-23,...
TRANSCRIPT
Citigroup
One-on-One MLP Conference
August 22-23, 2012
2
Forward Looking Statements
NYSE: NRGY, NRGM
Except for the historical information contained herein, the matters discussed in this presentation (e.g., our growth outlook and forecasted economics) are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include, among other things, the general level of petroleum product demand and the availability of propane and other natural gas liquid supplies, the demand for high deliverability natural gas storage capacity, our ability to successfully implement our business plan, including the placement of our expansion projects in-service in a timely manner, our ability to generate available cash for distribution to unitholders, and other factors discussed in the Company’s filings with the Securities and Exchange Commission including Forms 10-K, 10-Q, and 8-K.
Furthermore, any forward-looking statements presented are expressed in good faith and are believed to have a reasonable basis as of the date of this presentation. Inergy assumes no responsibility to update this information and it may be superseded by later information.
Forward-looking statements are not guarantees of future performance or an assurance that our current assumptions and projections are valid. Actual results may differ materially from those projected.
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Inergy Snapshot
Inergy is a geographically diverse midstream energy company with a
consolidated enterprise value of ~$3.6 billion(a)
__________________ (a) Enterprise value as of 8/15/2012.
� Midstream operations include integrated gas and NGL infrastructure operations in NY, PA,
CA & TX− 79 Bcf high-deliverability natural gas storage operations with expansion potential to ~100 Bcf
− Critical pipeline assets interconnecting storage to premium supply and demand markets
− Coast to coast NGL storage, supply, and logistics operation
4
Recent Events
December 2011 – Completed Initial Public Offering of Inergy Midstream, L.P. (NYSE:NRGM)– Sold 18.4 million units representing ~25% ownership to the public and NRGY retains ownership of remaining ~75% of outstanding L.P. units and 100% of incentive distribution rights
– First step to achieving pure play business models to unlock embedded value and improve the cost of capital and financial flexibility of growth business
May 2012 - Completed the Drop Down of US Salt from NRGY to NRGM for $192.5 million– US Salt transaction efficiently strengthened NRGY’s balance sheet and complements NRGM’s existing natural
gas storage and transportation platform
– Total consideration paid to NRGY comprised of $182.5 million in cash and $10 million NRGM common units
– NRGM cash consideration funded through borrowings on its $600 million credit facility which was upsized in April
August 2012 – Completed Sale of Retail Propane Operations to Suburban Propane Partners, L.P. (“SPH”) for $1.8 billion– Completed separation of propane business from midstream operations
– Significantly deleverages NRGY balance sheet
– Announced the distribution of ~14.1 million SPH common units to occur September 14
Recent Transactions Accelerate Inergy’s
Transformation to a Pure Play Midstream MLP
5
Investment Highlights
Stable, fee-based cash flow profile
Natural gas storage and transportation assets predominantly
contracted with firm agreements
Stable Fee-Based
Cash Flows
High Quality
Assets
Expansion
Opportunities
Core natural gas infrastructure in the Northeast and Texas in the heart
of the Marcellus Shale and adjacent to the Eagle Ford Shale
NGL assets uniquely positioned for the infrastructure development of
the Marcellus, Utica, Eagle Ford and Monterrey Shales
Assets have attractive built-in capital expansion opportunities which
further enhance financial returns
Well-positioned to seek additional midstream growth via acquisitions
Flexible Financial
Structure &
Investor Alignment
Two equity securities coupled with low leverage to facilitate growth
objectives
Strong investment alignment with management owning ~ 20% of
Inergy, L.P. equity
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__________________ (a) Pro forma for Marc I pipeline project.(b) Pro forma for 2.1 million bbls Watkins Glen NGL storage development project.
NRGY positioned as pure-play midstream MLP
− NRGY assets consist of NRGM common units, IDRs, and retained midstream operating businesses
− Retained midstream assets positioned for future opportunities
Strong balance sheet and financial flexibility
− Expect lower overall cost of capital at NRGY
NRGY & NRGM Looking Ahead
Inergy, L.P. (NYSE: NRGY)
−LP Interest & IDRs of NRGM
−Tres Palacios Gas Storage
−Coast-to-Coast NGL Supply and
Logistics Operations
Inergy Midstream, L.P. (NYSE: NRGM)
− 41 bcf Nat Gas Storage
−~1 bcf/d Gas Transportation (a)
− 3.6 mmbbls NGL Storage (b)
− Salt production of >300K
tons per year
~75% Limited
Partner InterestIncentive
Distribution Rights
NRGM is a growing midstream business with strong balance sheet and attractive cost of capital
− Stable fee-based cash flows generated from strategically located assets provide solid foundation
Highly visible growth prospects
− Existing built-in organic expansion projects provide visible growth
− Drop down and 3rd party acquisition opportunities further enhance growth potential
7
Inergy Strategy
Significant Service Provider in Core Midstream Markets
– Midstream operations focused on fee-based; long-term contract-driven cash flow
– Leverage existing relationships in our natural gas and NGL platforms in the Northeast, Texas and California which are adjacent to prolific shale plays and serve premium demand markets
Continue Growth Through Capital Expansion Projects & Acquisitions
– Execute capital expansion projects around existing asset base
– Pursue and evaluate complementary midstream opportunities
– Seek to further strengthen the long-term growth profile of the partnership
Disciplined Capital Investment
Deliver Operational Excellence
8
Midstream Operations
Overview
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Natural Gas & NGL
Storage and Transportation Platform
Expansion potential to ~100 Bcf of highly flexible
gas storage capacity near premium demand
markets coupled with pipeline transportation that
adds deliverability and flexibility to platform
NGL operations positioned for participation in
the infrastructure growth in the liquids rich
Marcellus, Utica, Eagle Ford and Monterrey
shale plays
Natural Gas and NGL assets situated between major shale plays and premium demand markets
N.E. Storage and Transportation
Platform (via 75% ownership of NRGM)
� 41.0 Bcf of current gas storage capacity
� 1.5 mm bbls of current NGL storage capacity
� Situated near largest demand market in U.S.
� Storage and transportation expansion opportunities
available
Texas Storage and
Transportation Platform� 38.4 Bcf of current storage capacity
� Highly liquid storage point with 10
interconnects (ICE Pooling Point)
� Storage and transportation expansion
opportunities available
Inergy Services–
West Coast NGL� 24 mm gallon NGL storage facility,
25 mmcf/d gas processing plant,
8,000 bbl/d isomerization unit, &
12,000 bbls/d NGL fractionation
plant
� Located near Elk Hills, and LA & SF
refinery basins
Inergy Services–NGL Storage, Supply, and Logistics� Coast to coast NGL capabilities support midstream operations and provide 3rd party NGL producer and end user services
� Large transportation fleet able to solve supply/demand imbalances
� Supply and marketing agreements in key liquids rich shale plays
NRGY Operating Assets
NRGM Operating Assets
Legend
10
Northeast Natural Gas Storage and
Transportation Platform
Potential for 51 Bcf(a) natural gas storage capacity within 200 miles of New York City
Rockies
Northeast storage &
transportation hub with access
to multiple gas and NGL
supply sources and pipeline
interconnects into premium
demand markets
Asset location, contract tenor,
and attractive customer mix
helps insulate business from
short-term pressure on gas
storage fundamentals
Platform consists of high
quality assets integrated
together to buffer supply and
demand imbalances in natural
gas & NGL markets
(a) Includes 0.6 Bcf expansion at Seneca Lake and development of ~10 Bcf of natural gas storage capacity available at US Salt.
__________________
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Texas Natural Gas Storage and
Transportation Platform
Tres Palacios - located ~100 miles southwest of Houston in Matagorda County, TX
38.4 Bcf of working gas capacity with expansion potential to 47.9 Bcf– Situated near the Eagle Ford Shale which is currently producing gas volumes of up to 1.0 bcf/d–resulting from strong NGL production
– Facility connected to 10 intrastate and interstate pipelines serving multiple U.S. demand markets and Texas, the largest gas-fired power generation market in the U.S.
– NGL and gas production is currently straining pipeline takeaway capacity and filling supply area storage–expected to increase the value of physical storage capacity
Established new midstream market platform with additional growth opportunities– Header extension to Copano Houston Central plant (expected in-service 2H 2012)
– Up to five potential additional interconnects
– Natural gas and liquids storage rights to develop caverns leached by Texas Brine on Markham salt dome
38.4
47.9
0
10
20
30
40
50
60
Bcf
Current Capacity Expected Future Capacity (with
cavern 4 expansion)
Tres Palacios Working Gas Capacity
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NGL Supply & Logistics
Operations leverage Inergy’s NGL assets
− West Coast NGL facility located near
Bakersfield, CA between major West Coast
demand centers and adjacent to Elk Hills● NGL Storage and transportation, NGL fractionation and isomerization and natural gas processing
− Commercial management of NGL storage
facilities
● Finger Lakes ● Bath ● South Jersey Terminal ● Seymour
Generates meaningful 3rd party cash flow
through supply and marketing agreements
− Provide NGL flow assurance to refiners/gas
processors and producers through 100% keep
dry and other agreements around key liquids rich
shale plays
13
Gas Storage Facilities
StagecoachThomas
CornersSteuben
Seneca
Lake
Tres
Palacios
26.3 Bcf working gas capacity
5.7 Bcf operational working gas capacity (certificated for 7 Bcf)
6.2 Bcf working gas capacity
1.5 Bcf working gas capacity
38.4 Bcf working gas capacity
95% contracted with average maturity to 2016
100% contracted through March 2015
100% contracted to 2013
100% contracted until 2016
59% contracted through 2013 (~90 % including current
contracted parks)
Market-based rates Market-based rates Cost-of-service rates (filed for market-based rates)
Market-based rates Market-based rates
Connected to TGP and Millennium (directly to Transco upon
completion of Marc I)
Connected to TGP and Millennium (indirectly to Dominion
through Steuben)
Connected to Dominion (indirectly to TGP & Millennium
through Thomas Corners)
Connected to Dominion and Millennium
Connected to 10 intrastate and interstate pipelines (including Transco, TGP
and KMP-Tejas)
FERC regulated firm transportation and wheeling services between TGP, Millennium and all points in between− 325,000 dth/d capacity - 100% contracted with 5 year terms− Phase II may add additional firm transport capacity
Future connection to Dominion would potentially allow access to Iroquois Pipeline via Dominion Iroquois expansion
14
North-South Pipeline
MARC I Pipeline ProjectFERC regulated firm transportation and wheeling services between TGP, Transco and all points in between− 550,000 dth/d capacity -100% contracted with 10 year terms
− 39 mile, 30 inch bi-directional gas pipeline located atop the Marcellus Shale
− Expected in-service date by October 1, 2012
Transportation Overview
Proposed ~200 mile 30”-36” natural gas pipeline project with up to 1.2 Bcf/d capacity extending from southern end of Marc I pipeline to Dominion’s Cove Point LNG pipeline− Jointly developed by NRGM, and subsidiaries of UGI and WGL, with each sponsor owning equal interests
− UGI and WGL expected to contract 40-50% of capacity− Commonwealth expected to provide Marcellus gas production to major demand markets including central and eastern Pennsylvania, metro areas of Philadelphia, Baltimore, Washington, D.C. and the Delmarva Peninsula
Commonwealth Pipeline Project
NGL Storage Overview
Bath Facility Watkins Glen Project
15
NGL Storage Facilities
Position Inergy as a key NGL storage provider in the Marcellus Shale
Provide value to our customers with significant storage capacity and
multiple distribution channels to Northeast demand markets
Potential NGL storage expansion opportunity exists at Tres Palacios
Capacity of 2.1 mm bbls of NGL
storage
Located ~60 miles from
Stagecoach
Long-term contract for 2 mm bbls
signed with investment-grade
anchor tenant
Will connect to Teppco pipeline;
rail and truck terminal facilities
Expected in-service calendar 1H
2013, subject to regulatory approval
1.5 mm bbls of NGL storage
Located ~60 miles from
Stagecoach
100% contracted with maturity to
2016
Nine separate caverns allow for
segregation of multiple streams
Rail and truck terminal facilities
Expansion potential with US Salt
as brine outlet
16
Positioned for Future Opportunity
− Watkins Glen NGL Storage
− North-South (in-service)
− Marc I Pipeline (under construction)
− Commonwealth Pipeline
− Tres Palacios Header Extension (FERC approval pending)
− Tres Palacios Storage Expansion
− Seneca Lake Gas Storage Expansion(up to 10 bcf at US Salt)
Inergy’s recent events provide meaningful progress to positioning the company for the creation of long-term value for investors
Inergy’s pure play midstream operations are strategically well-positioned
− Midstream operations anchored by two gas storage and transportation platforms that are positioned adjacent to premier shale plays and premium demand markets
− Core competency in NGL storage, supply, and logistics capable of meaningful contribution to Inergy’s operations
− Closing of the announced retail propane contribution transaction strengthens Inergy’s balance sheet for future growth opportunities
High-return organic projects move the partnership forward and further expand Inergy’s operations
17
Financial Overview
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Financial Strength
NRGY NRGM
Strong and flexible capital structure– $550 million revolver maturing July 2016– Corporate family credit ratings of BB-/Ba2– Low balance sheet leverage (~1.6x debt-to-EBITDA)
Distributable cash flow generated from
predominantly fee-based businesses
and predictable cash distributions from
NRGM with growth potential
Board of directors authorized the
repurchase of up to $100 million of
NRGY common units
Strong balance sheet with liquidity– $600 million revolver maturing December 2016– ~2.3x debt-to-EBITDA with ample liquidity to execute growth strategy
– Long-term debt-to-EBITDA target of3.0x-3.5x
Fee-based operations primarily
supported by fixed reservation contracts
under multi-year agreements with credit
worthy counterparties
Investment grade credit metrics and
cash flow profile
Recent events provide strong financial position from which to grow
Capitalization
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__________________ (a) Reflects approximately $14.1 million borrowed to settle seller non-compete obligations in connection with the retail propane transaction with Suburban, $36.5 million borrowed to fund
Inergy's portion of the bond exchange consent payment, and other transaction expenses and working capital adjustments associated with the retail propane transaction with Suburban.
(b) Reflects the exchange and retirement of $1.189 billion of outstanding NRGY senior notes for $1.0 billion newly issued Suburban senior notes and cash paid directly to noteholders.
(c) Reflects the retirement of $14.1 million of seller non-compete obligations and approximately $10.8 million of other debt related to swap and bond premium obligations in connection with the retail propane transaction with Suburban.
(d) Reflects the pro forma impact of the receipt of 14.2 million Suburban common units and the subsequent distribution of approximately 14.1 million of those common units to NRGY unitholders in connection with the retail propane transaction.
(e) Excludes the impact of transaction expenses and other charges related to the retail propane and US Salt transaction.
(f) Calculated in accordance with the revolving credit facility.
NRGY NRGMAs of June 30, 2012
($ in millions)
NRGY
Standalone
Preliminary
NRGY As
Adjusted
NRGM
Standalone
Preliminary
Cash ……………………………………………………………………..4.9$ 4.9$ -$
Revolving general partnership credit facility ………………….. 170.2 246.8 (a)
324.2
8 3/4% senior unsecured notes due 2015 ………………………. 0.8 0.8 -
7 % senior unsecured notes due 2018 …………………….…………………600.0 10.1 (b)
-
6 7/8% senior unsecured notes due 2021 ……………………………..600.0 0.6 (b)
-
Net bond/swap premium 10.8 - (c)
Other debt ………………………………………………………16.0 1.9 (c)
-
Total Debt …………………………………………………………….1,397.8$ 260.1$ 324.2$
Partners’ Capital ……………………………………………………………..1,229.9$ 1,264.7$ (d)(e)
567.3$
Total Capitalization ………………………………………………2,627.7$ 1,524.9$ 891.5$
Total Debt / PF TTM Adjusted EBITDA (f)
4.9x 1.6x 2.3x
Visible Expansion Projects
High-return midstream expansion projects generate substantial cash flow growth
Expansion projects supported by long-term contracts
__________________ (a) These figures regarding growth potential are based on various forward-looking assumptions made by the management. While Inergy believes that these assumptions are reasonable, it
can give no assurance that such results will materialize.
Expansion
Projects (a)Total Capital
Investment
Expected
Run-Rate Multiple
Expected
In-Service
MARC I Pipeline $240 million 7.2x October 2012
Watkins Glen NGL
Expansion$65 million 7.0x 1H 2013
US Salt Gas Storage
Development~$85 million 6.0x 2015
Commonwealth
Pipeline Project
~$1.0+ billion
(1/3 NRGM proportional share)TBD 2H 2015 – 1H 2016
NRGY
Projects
West Coast
Terminal Expansion$21 million 5.5x In-Service
Tres Palacios
Header Extension$30 million 6.5x 2H 2012
NRGM Projects
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Additional projects:− North-South Throughput Expansion
− Marc I Pipeline Throughput Expansion
− Tres Palacios Cavern 4 Expansion
− Tres Palacios Liquids Storage
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Investment Highlights
Stable, fee-based cash flow profile
Natural gas storage and transportation assets predominantly
contracted with firm agreements
Stable Fee-Based
Cash Flows
High Quality
Assets
Expansion
Opportunities
Core natural gas infrastructure in the Northeast and Texas in the heart
of the Marcellus Shale and adjacent to the Eagle Ford Shale
NGL assets uniquely positioned for the infrastructure development of
the Marcellus, Utica, and Eagle Ford Shales
Assets have attractive built-in capital expansion opportunities which
further enhance financial returns
Well-positioned to seek additional midstream growth via acquisitions
Flexible Financial
Structure &
Investor Alignment
Two equity securities coupled with expected low leverage to facilitate
growth objectives
Strong investment alignment with management owning ~ 20% of
Inergy, L.P. equity
22
Appendix
23
Storage & Transportation
Contract Characteristics
Strong demand for our services drives long-term contracted revenues
Highly creditworthy customers create further cash flow stability
Confidential Information
(a) Stagecoach is 95% contracted based on injection capacity. Thomas Corners is 100% contracted based on current operational capacity.(b) Steuben currently contracted under 1 year evergreen provision with a 12 month cancellation notice. Contracts are expected to be renewed under multi-year contracts upon receipt of market
based rate structure.(c) Excludes ~14.0 bcf of interruptible and firm park contracts currently in place.
__________________
Utility/LDC
50%
Marketer
32%
Producer
3%
Power
Generator
3%
Integrated
Oil&Gas
12%
Storage Customer Type
Majority of customers are Utilities/LDCs with investment
grade ratings
Storage Contract Profile
Transportation
Capacity
(MMcf/d)
Contracted
Transportation
Capacity
(MMcf/d)
%
Contracted
Avg
Maturity
Weighted
Avg.
Tenor
MARC 1 550.00 550.00 100% Jul-22 9.9
N/S 325.00 325.00 100% Oct-16 4.1
East Intrastate 30.00 30.00 100% Mar-21 8.6
Total 905.00 905.00 100% May-20 7.8
Transportation Contract Profile
Storage
Capacity
(Bcf)
Contracted
Capacity
(Bcf)
Adj.
Contracted
% (a)
Avg Maturity
Weighted
Avg.
Tenor
Stagecoach 26.25 21.35 95% 2/10/16 3.5
Thomas Corners 7.00 5.70 100% 3/31/15 2.6
Steuben (b)
6.20 6.20 100% 3/31/13 0.6
Seneca Lake 1.46 1.46 100% 1/15/16 3.4
Tres Palacios (c)
38.40 22.50 59% 11/27/13 1.3
Total 79.31 57.21 78% 11/5/14 2.2
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Commonwealth Pipeline Overview
Proposed ~200 mile 30”-36” natural gas pipeline project with up to 1.2 bcf/d capacity extending from southern end of Marc I pipeline to Dominion’s Cove Point LNG pipeline
“Market-pull” project linking Marcellus/Utica gas production to major demand markets
− Markets served would include central and eastern Pennsylvania, metro areas of Philadelphia, Baltimore, Washington, D.C. and the
Delmarva Peninsula
− Offers flexible access to high growth markets traditionally served by long-haul pipelines
Jointly developed by NRGM, and subsidiaries of UGI and WGL, with each sponsor owning equal interests
− UGI and WGL expected to contract 40-50% of capacity
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Committed to Generating Industry-Leading Returns to Our Investors