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Robert G. Phillips

Robert G. Phillips. President. Midstream M&A Overview. Arthur Andersen Energy Symposium November 28, 2000. Cautionary Statement Regarding Forward-looking Statements.

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Robert G. Phillips

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  1. Robert G. Phillips President Midstream M&A Overview Arthur Andersen Energy Symposium November 28, 2000

  2. Cautionary Statement Regarding Forward-looking Statements This presentation includes forward-looking statements and projections, made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The companies have made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this presentation, including, without limitation, oil and gas prices; general economic and weather conditions in geographic regions or markets served by El Paso Energy and Coastal and their affiliates, or where operations of the companies and their affiliates are located; inability to realize anticipated synergies and cost savings on a timely basis; difficulty in integration of operations; and competition. While the companies make these statements and projections in good faith, neither company nor its management can guarantee that the anticipated future results will be achieved. Reference should be made to the companies’ (and their affiliates’) Securities and Exchange Commission filings for additional important factors that may affect actual results.

  3. Industry Fundamentals

  4. Strong Industry Fundamentals Growth Driven by New Natural Gas Demand • Demand for natural gas to increase to 31 Tcf by 2015 • 250,000 MW announced generation projects • 2.3 percent annual demand growth (1.5 percent power demand only) • Creates summer season peak demand Natural Gas Demand Tcf/y Source: National Petroleum Council

  5. Strong Industry Fundamentals Growth Driven by Supply Buildup • US gas production declines at 24% per year • Need 10-25 Bcf/d each year new supply • Capital expenditure requirements per year: • $30 billion—E&P • $10 billion—Midstream • $3 billion—Gas transmission • Focus on GOM, Rockies, South Texas, WCSB, and frontier areas Natural Gas Supply 25 An unprecedented levelof growth to reach 30 Tcf 20 Bcf/d 15 10 5 Strong demand pressure from power under any scenario 0 1998 2000 2002 2004 2006 2008 2010 Source: CERA

  6. Strong Industry Fundamentals Strong Prices Promote Growth in Midstream • Supplies will remain tight through winter 2000/2001 • Supply response will appear by mid-2001 • Technology and infrastructure key to Deepwater GOM and frontier areas • High growth potential in gathering, processing, treating, storage for gas, crude and natural gas liquids Crude and NGL Prices Natural Gas Prices $/MMBtu $/Gallon Crude Oil Ethane Propane Natural Gas

  7. Midstream Segment

  8. Old vs. New Midstream • Old Midstream Services— gathering and processing in the field for delivery to transmission systems • New Midstream Services— gas gathering, compression, EFM and Internet based scheduling, treating, processing, fractionation, gas and gas liquids transportation, storage, offshore platforms, production handling, FPSO’s and wholesale marketing of natural gas, crude oil, natural gas liquids and refined products

  9. Midstream Segment Overview • Major component of the natural gas value chain • Midstream currently enjoying record profitability/free cash flow driven by high commodity prices and consolidation • Largely fee based businesses except for processing • Significant M&A activity in past few years

  10. Competitive Landscape • Natural gas and NGL segment consolidating • Tremendous economies of scale • Strategic growth via acquisition and organic infrastructure opportunities • MLPs used as new financing tool

  11. New Midstream “Majors” • Duke Energy Field Services • El Paso Field Services • Williams Field Services • Kinder Morgan Energy Partners • Enterprise Products Partners LP

  12. Midstream M&A Analysis

  13. U.S. Midstream M&A Volume $ Billions 3.5 2.2 3.3 17 16.1 0.55 13.1 5.7 Source: Chase Securities Inc. and J.S. Herold

  14. Precedent Transactions Midstream Transaction Value ($MM) Transaction Value/ EBITDA Announced Date Buyers Sellers 09/25/00 08/03/00 01/30/00 12/17/99 07/08/99 04/20/99 11/22/98 08/10/98 11/24/97 10/20/97 Enterprise Products Partners, L.P. The Williams Companies, Inc. El Paso Field Services Duke Energy Field Services Kinder Morgan, Inc. Enterprise Products Partners, L.P. Duke Energy Field Services El Paso Field Services The Williams Companies, Inc. Kinder Morgan, Inc. Acadian Gas, LLC. Transcanada Pipelines, Ltd. PG & E Corp./GTT Phillips Petroleum Co./GPM KN Energy, In. Royal Dutch Shell, Inc. Union Pacific Resources Corp. Leviathan Gas Pipeline Partners MAPCO, Inc. Santa Fe Pacific Pipelines Partners $ 226.0 540.0 840.0 6,000.0 598.9 421.6 1,350.0 420.0 3,517.0 $1,421.4 8.5x N/A 8.4 10.0 13.0 N/A 8.2 N/A 10.9 11.3 Multiple Summary Mean = 9.6 High = 13.0 Median = 10.0 Low = 8.2 Source: J.S. Herold

  15. Midstream Transaction Multiples 4Q 1996 to Present ($ Millions) 25 20 Kinder Morgan–Santa Fe Kinder Morgan–KN 15 ENT–Acadian  (LTM EBITDA Multiple)   Duke–Phillips 10 Williams–MAPCO   Duke–UPR    El Paso–PGE/GTT 5 0 9/00 10/97 11/97 11/98 7/99 12/99 1/00 Announcement Date Source: John S. Herold, Inc.

  16. Midstream M&A Case Studies

  17. Duke/GPM Transaction Profile Transaction Value ($MM) Transaction Value/ EBITDA Announced Date Deal Level Buyers Sellers 12/17/99 Duke Energy Field Services GPM JV $6,000 10.0x Rationale Creates the largest midstream company in the industry. Joint venture takes advantage of economies of scale in Permian, Anadarko and Mid-Continent areas. Planned IPO last summer was withdrawn. Duke Energy Field Services has 57,000 miles of pipeline, interests in 83 processing plants with 7.9 Bcf/d capacity producing 415,000 Bbls/d of natural gas liquids. Assumed GP interest in TEPPCO Partners LP in March 2000.

  18. Williams/TransCanada Transaction Profile Transaction Value ($MM) Transaction Value/ EBITDA Announced Date Deal Level Buyers Sellers 08/3/00 The Williams Companies Transcanada Pipeline, Ltd Acquisition $540 NA Rationale To increase gas processing and NGL presence in the rapidly growing Western Canadian market. Leverage off previous Mapco acquisition. The purchased assets included approximately 6 bcf/d of gas processing capacity, 225,000 bbl/d of NGL production capacity, more than 5 MMbbl of NGL storage capacity, and an NGL pipeline system. Expected to IPO a MLP entity in the near future.

  19. Kinder Morgan/KN Energy Transaction Profile Transaction Value ($MM) Transaction Value/ EBITDA Announced Date Deal Level Buyers Sellers 07/08/99 KN Energy, Inc. Kinder Morgan, Inc. Acquisition $599 13.0x Rationale Combination creates large natural gas pipeline and refined products pipeline entity in Midwest and Western US. Unique corporate structure allows Kinder Morgan to transfer desirable assets into Kinder Morgan Energy Partners, its MLP. The combined entity operates over 30,000 miles of natural gas and products pipelines, gathering, processing and treating facilities for gas, NGL’s and refined products and numerous bulk terminal facilities.

  20. Enterprise/Shell Transaction Profile Transaction Value ($MM) Transaction Value/ EBITDA Announced Date Deal Level Buyers Sellers 07/01/00 04/20/99 Enterprise Products Partners L.P. Enterprise Products Partners L.P. Shell / Acadian Shell / Tejas Acquisition Acquisition $200.0 421.6 8.5x NA Rationale To form a fully integrated Gulf Coast natural gas and NGL business. Through the Tejas acquisition, EPD expanded its significant NGL business including fractionation and storage at Mont Belvieu with interests in 11 gas processing plants (3.1 Bcf/d), 4 NGL fractionation facilities (131 MBbl/d), four NGL storage facilities (8.8 MM Bbls), and 2,100 miles of NGL pipelines. In the Acadian acquisition, EPD increased its gas gathering and transportation activities in Louisiana.

  21. El Paso Field Services

  22. EPFS/GTT/CFS Transaction Profile Transaction Value ($MM) Transaction Value/ EBITDA Announced Date Deal Level Buyers Sellers 01/31/00 01/15/00 El Paso Field Services El Paso Field Services PG&E / GTT Coastal/CFS Acquisition Merger $840 8.4x Rationale El Paso acquired GTT to expand gathering and processing presence in South Texas and Gulf Coast and bolster NGL fractionation and liquids pipeline operations. The purchased assets include 8,500 miles of pipeline with throughput capacity of 2.8 Bcf/d, 9 gas processing plants with capacity of 1.5 Bcf/d yielding 90,000 Bbls/d NGL production and gas storage with capacity of 7.2 Bcf/d. After the Coastal merger, Coastal Field Services will be integrated into EPFS creating the 2nd largest midstream company in the industry.

  23. Combined Midstream Assets Geographic Diversity and Commercial Balance Rocky Mountain Mid-Continent San Juan Gathering Plants E. TX / N. LA Black Warrior El Paso Coastal GTT Offshore Storage Permian Gulf of Mexico

  24. Size and Scope of Combination 2nd Largest Midstream Player in U.S. EPFS GTT Coastal Total Pipeline volumes (Bcf/d) Processing volumes (Bcf/d) NGL production (MBbls/d) Miles of pipeline Processing plants 4.1 1.1 63 11,000 11 2.8 1.5 90 9,000 9 1.0 1.5 55 4,000 15 7.9 4.1 208 24,000 35

  25. Drivers for Growth • Leading asset position in the fastest growing producing areas: • San Juan Basin • Gulf of Mexico • South Texas • Rockies • Large E&P affiliate expands opportunity set • Significant integration savings and revenue enhancements • Leverage MLP with asset transfers

  26. El Paso Energy owns 30% of the Partnership EPN is El Paso Energy’s primary vehicle for acquiring and developing midstream assets GP interest incentivized to grow distributions EPN Corporate Structure El Paso Energy Partners Relationship to El Paso Energy El Paso Energy Corporation 100% General Partner 30.3% (including General Partner interest) EPN (Partnership) Market Equity $0.7 bn Debt 0.5 Enterprise Value $1.2 bn Public LP Unitholders 69.7%

  27. Master Limited Partnerships

  28. MLPs & Midstream “Majors” Master Limited Partnerships • Duke - TEPPCO Partners • El Paso Energy Partners • Enterprise Product Partners • Kinder Morgan Energy Partners • Williams Energy Partners

  29. MLP Performance Overview October 31, 2000 YTD Return 10/31/00 Unit Price Current Distribution 10/31/00 Yield El Paso Energy Partners Enterprise Products Partners Kinder Morgan Energy Partners TEPPCO Partners S&P 500 Index 47.5% 51.1 22.4 31.7 <1.8%> $25.88 $25.81 $47.50 $23.44 $2.20 $2.10 $3.40 $2.10 8.5% 8.1% 7.2% 9.0%

  30. Ideal MLP Assets • Predictable cash flow • No commodity price/volume exposure • Low maintenance capital requirements • Stable financial history • Focused on free cash flow generating capability not earnings • Immediately accretive to LP distributions • Leveragability; minimize equity dilution

  31. Key MLP Advantages • Corporate finance tool to monetize assets • Tax efficient structure • Maintain operating control of key assets • Provides off-balance sheet financing • Free up corporate debt capacity • Lower cost of capital—acquisition edge

  32. Final Remarks • Forecasted commodity prices ensure significant growth in midstream segment • Capital returns count. MLPs provide financial advantage • In mature markets there is room for only a handful of major players

  33. Robert G. Phillips President Midstream M&A Overview Arthur Andersen Energy Symposium November 28, 2000

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