Presentation to
Wyoming Natural Gas Pipeline Authority:
Financing Natural Gas Pipeline Projects in
Wyoming
August 26, 2003
Merrill Lynch Qualifications
Merrill Lynch Qualifications
Wyoming Natural Gas Pipeline Authority Coverage Team
Western Public Power Group
Ed Burdett
Managing Director & Head of the Western Region
Greg Dawley
Jason Wong
Vice President
Associate
John Kohansion
Analyst
Attending
Shouq Tarawneh
Analyst
Underwriting
Sales & Trading
Quantitative
Analysis
Risk
Management
Debt Capital
Markets
Short Term
Municipals
Corporate Power
& Utilities
Commodity
Trading
Utility Group
Dave Andersen
Managing Director
and Head of
Syndicate Desk
David Stephens
Director
Rob Barber
Managing Director
& Co-Head of
Public Finance
Bill Rogers
Managing Director
Mona Payton
Director
Laurie Coben
Managing Director
& Head of NY Group
Kuljinder Chase
Managing Director
Chris Fink
Managing Director
Scott Trachsel
Vice President
Phil Dobitsch
Director
David Koenig
Vice President
Mark Widener
Director
Paul Kuhns
Managing Director
Bill Wood
Senior Banker
Chris Straub
Vice President
Bryon Rockwell
Director
Mary Ryan
Managing Director
David Moffett
Associate
Garth Schulz
Director
Investment Banking
Capital Markets/Financings
Public Finance
Global Power &
Utility Group
 Financial/ Strategic
Advisory Services
 Investment Banking
 Public Power
Expertise
 Tax Expertise
 Rating Agency
Advisory
 Financial Modeling
and Structuring
 Industry Strategic
Dynamics
 Timely Access to
Key Decision
Makers
 Market Intelligence
 Story
Building/Investor
Positioning
 Consistent Dialogue
Mergers &
Acquisitions
 Buyside/Sellside
 Valuation
 Transaction
Structuring
 Corporate and
Municipal
Restructurings
 Knowledge of
Market Dynamics/
Industry Players
Risk Management
Commodities
 “AAA” Rated
Counterparty
 Hedging Strategies
and Products
 Interest Rate
Reduction Products
 Energy Price risk
Management
 Fuel Hedging
Fixed Income







Investment Grade
High Yield
Private Placements
Market Making
Research Coverage
Investor Relations
Risk Management
Credit
 Credit Analysis
 Rating Agency
Guidance
 Investor Relations
Merrill Lynch Qualifications
Capital Strength and Stability

Merrill Lynch’s capital base allows
the Firm to:
 Commit large amounts of capital
across all business lines
 Aggressively underwrite our
clients’ bonds and provide
secondary market liquidity under
all market conditions. The Firm
routinely commits 20% to 30% of
an issue size in capital, and on
occasion up to 100%, depending
upon market conditions at
pricing.
 Take an aggressive position limit
for municipal trading and
underwriting of $1.5 billion, an
amount we believe to be among
the highest in the industry
Merrill Lynch Ratings
Aa3/P-1
A+ /A-1
AA-/F1
Merrill Lynch Capital Position
Total (Consolidated) Capital
Stockholder’s Equity
Net Capital
Excess Net Capital
*Source:
$96,200,000,000
22,300,000,000
2,950,000,000
2,800,000,000
Merrill Lynch Quarterly Report.
The size and stability of Merrill Lynch’s capital base allows the Firm
to inventory when necessary rather than re-price
Merrill Lynch Qualifications
Public Power Financings
Merrill Lynch’s Bankers Have Extensive Experience Working with Public Power Financings

Utah Associated Municipal Power System

Sacramento Municipal Utility District

Intermountain Power Agency

Florida Municipal Power Agency

Los Angeles Department of Water and
Power

Lower Colorado River Authority

Omaha Public Power District

New York Power Authority

Illinois Municipal Power Agency

Turlock Irrigation District

M-S-R Public Power Agency

Piedmont Municipal Power Agency

City Public Service, San Antonio

Anaheim Public Utilities

Utility Board of Key West

Santee Cooper

Southern California Public Power Authority

Northern California Power Agency

Colorado Springs Utilities

Salt River Project

Oklahoma Municipal Power Authority

Nebraska Public Power Agency

Silicon Valley Power

Transmission Agency of Northern California

Pedernales Electric Cooperative

Southern Minnesota Municipal Power
Agency
Merrill Lynch Qualifications
Capabilities of Energy Markets and Trading
 Actively trading financially settled products for Natural Gas
 Natural Gas
– NYMEX forwards and swaps (prompt month to 10 years)
– NYMEX option structures (prompt month to 5+ years)
– Financial Basis Swaps - US and Canada (prompt month
to 10 years)
– Physical forwards (All major locations)
 Developing infrastructure for:
 Crude Oil (within the month)
– Financial Swaps (1 month to 5 years)
– Options (Caps, Collars, Floors and Exotics)
– Outright and differentials to WTI and Brent
 Oil Products (within the month)
– Heating Oil, Jet Fuel, Gasoline, Diesel,
Residual Fuel Oil, NGL Swaps
– Forwards and futures – Spot and term
– Options (Avg price, zero cost collars, Exotics)
 Electricity
 Currently trading in PJM/NY/NEPOOL
Market
 Forwards and Strips (next day to 2+
years)
 Options (Daily, Monthly and Calendar)
 Heat Rate Swaps and Options
Merrill Lynch Qualifications
Capabilities of Oil and Gas Investment Banking
Merrill Lynch’s strong experience with energy companies provides the Authority with the expertise from
both the corporate and public finance sectors
Merrill Lynch’s 70 person Energy and Power Group has completed more transactions than any other
firm
 Lead manager on approximately $20 billion of midstream public debt offers since 1993
 Financial advisor on $68 billion (47%) of midstream M&A transactions since 1998
Worked on transactions for such Rocky Mountain Region-involved companies such as:





$15.7 billion sale of Costal Corp.
$5.8 billion merger of El
Paso/Sonat Inc.




Questar


$200 million Senior Notes
$250 million Senior Notes
Enbridge Energy
Partners LLP
The Williams Cos.
El Paso Natural Gas
$780 million divestiture of
Trans Canada PipelinesMidstream Assets
$800 million Senior Notes
$693 million Senior Notes
$625 million Senior Notes
Northern Border Partners



$178 million sale of
gathering and treating
company
$110 million acquisition of
AltaGas stake
Kinder Morgan Energy
Partners

$190 million Equity Offering


$ 8.2 billion acquisition of
Westcoast Energy
$1 billion Notes
$400 million floating rate and
senior notes
Market and Industry Update
Market Update and Analyses
Current and Historic (5-Year Average) Yield Curves(1)
Rate
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1
2
3
4
5
7
10
12
15
20
Maturity
UST
(1) As of August 20, 2003
AAA MMD
Hist UST
Hist AAA MMD
30
Tax-Exempt Market Update
Tax-Exempt
Market Update
Interest Rates are near Historical Lows(1)
Low Interest Rates Have Compressed the Ratio Between Taxable and Tax-Exempt Debt
BMA
30-Year
MMD
30-Year
UST
1-Month
LIBOR
High
Low
Average
7.89%
0.70%
3.28%
7.60%
4.24%
5.83%
9.10%
4.27%
6.59%
9.13%
1.02%
4.87%
Current
0.82%
5.04%
5.30%
1.10%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
01/05/1990
05/17/1991
09/25/1992
BMA Index
(1) Rates as of August 18, 2003
02/04/1994
06/16/1995
30-Year MMD
10/25/1996
03/06/1998
07/16/1999
30-Year Treasury Bond
11/24/2000
04/05/2002
08/18/2003
1-mo LIBOR
Interest Rate Markets
Recent Volatility


The last two months has seen historically dramatic interest rate
increases:
Tax-Exempt
Revenue Bonds
10- Year
Treasuries
30- Year
Treasuries
June 12, 2003
4.78%
3.16%
4.22%
July 31, 2003
5.42%
4.47%
5.41%
August 18, 2003
5.5%
4.59%
5.41%
The recent bond market correction is greater than any three month loss
for bonds dating back to 1927
Market Update and Analyses
Merrill Lynch Interest Rate Outlook
As of August 1, 2003
Rate
5.70
5.20
4.70
4.20
3.70
3.20
Current
2003Q3
2003Q4
2004Q1
2004Q2
2004Q3
2004Q4
Maturity
10-Year MMD
30-Year MMD
10-Year UST
30-Year UST
Financing Options
Financing Options
Wyoming’s Natural Gas Basins
Wyoming has many underutilized natural gas supply basins…..
 Big Horn
 Denver-Cheyenne
 Green River
 Laramie
 Overthrust
 Powder River
 Thrust Belt
 Williston
 Wind River
Financing Options
Proposed Wyoming Natural Gas Pipelines/Projects
Proposed pipeline projects on the drawing board to help export Wyoming natural gas from companies
such as:

Colorado Interstate Gas
Company, an El Paso Company

Kinder Morgan Interstate Gas
Transmission LLC

Northern Plains Natural Gas
Company

Questar

Williston Basin Interstate Pipeline
QUESTAR CORPORATION
Financing Options
Funding Environment

The funding environment for natural gas projects is challenging

Companies wanting to build natural gas pipeline projects have had a difficult
time raising cost effective capital:
 Creditworthiness of shippers
 Parent companies under credit stress
 Bank facility market very expensive if available at all
 Investors avoiding energy sector

Before the Authority became proactively involved in the Wyoming marketplace,
potential pipeline projects could only look to the market for financing options.

Project Finance most commonly used funding structure for pipeline projects
Financing Options
Project Finance
General Project Finance Deal Parameters:

Deal most likely secured by shipper agreements for life of
bonds

Most transactions below investment grade

70 percent debt structure is aggressive in today’s market

Credit rating will follow closely with lowest-rated shippers

Deals rarely longer than 15 years without direct guarantee from
pipeline owner
Financing Options
Project Finance
Project Finance Example: Kern River Gas Transmission Company





926-mile interstate pipeline transporting gas from Rocky
Mountains to California
 Kern River closed on purchase of original pipeline from
Williams Companies on March 27, 2002
$875 million Project Financing secured by credit facility
closed on June 21, 2002
 Variable rate structure increasing over term of facility
$1.2 billion expansion project initiated construction on
August 6, 2002
 -717-mile loop pipeline from Lincoln County, Wyoming to
Kern County, California
$836 million of its 4.893% Senior Notes with a final maturity
of April 30, 2018 closed on June 1, 2003 to terminate credit
facility
Senior notes share pari passu in all collateral available to
Kern River’s senior noteholders
Financing Options
Project Finance
Project Finance Example: Kern River Gas Transmission Company
Results:
 Credit Ratings: Standard & Poor’s A-/Moody’s Baa
 70 percent debt and 30 percent equity
 Financing secured by binding long-term 10-15 year firm
transportation agreements with 17 different shippers
 Minimum debt service coverage of 1.55X
 Running near capacity since opening in spring of 2003 of
1.73 billion cubic feet per day
Financing Options
Project Finance
WPA Example: Cheyenne Plains Pipeline Gas Company Project





Proposed 380 mile 30/36-inch natural gas pipeline from Cheyenne Hub
to Kansas
In service goal of August 2005
 Up to 1.8 bcfd of capacity
Financing needs of $332 million to $410 million.
14 transportation service agreements for 10-year+ provide 100%
subscription
 Current subscription period for 36-inch pipeline still outstanding
60 percent debt and 40 percent equity proposed
Financing Options
Project Finance
WPA Example: Cheyenne Plains Pipeline Gas Company Project

The credit rating for this project financing will be a mix of all the shipper
participants

Cheyenne Plains Project Subscription Amounts and Shipper Credit Ratings
Cheyenne Plains Project Subscription Amounts
Anadarko Energy Services
Company
BP Energy Company
ConocoPhillips Company
Enogex Inc.
Kansas Gas Service Company
Kennedy oil Company
Kerr-McGee Corporation
National Fuel Marketing Company
Noble Gas Marketing Inc.
Oneok Energy Trading and
Marketing 2/
Palo Petroleum Inc.
Westport Resources Corporation
Atmos Energy Corporation
Bill Barrett Corporation3/
Contracted
Amount
(Dth/D)
Length of
Contract Term
(yrs.)
S&P
Moody's
BBB+
AA+
ABBB+
BB+
-
Baa1
Aa1
A3
Baa3
Ba1
-
100,000
40,000
30,000
60,000
75,000
15,000
10
10
11
10
10
10
BBB
BBB+
BBB
Long term is Baa3,
Commercial paper is Prime 3
A3
Baa1
40,000
10,000
4,560
10
10
10
ABB
A-
Baa1
Ba3
A3
-
120,000
2,000
43,440
11,000
9,000
10
10
10
15
12.25/13.25
560,000
Financing Options
Potential Role of Authority in Funding Gas Pipelines
(1) Advocate for Wyoming Natural Gas Marketplace
- Authority continues to address issues such a permitting,
regulation, market aggregation, and legislative support
(2) Issuing Authority for Project’s Bonds
- Providing State tax-exemption
(3) State of Wyoming Investment Participation
- State invests funds in bonds issued by Authority
(4) State of Wyoming Moral Pledge
- State backs project debt service if project revenues fail to meet
required levels
(5) State of Wyoming Revenue Pledges
- State provides revenues to back reserve fund or otherwise pay
debt service
By enhancing the financing of new gas pipelines, the State will benefit through
increased economic activity
Financing Options
State Investment Participation

The State of Wyoming Treasurer’s Office is considering the option of
purchasing revenue bonds backed by Authority

The State could also utilize funds from its “rainy day fund” to purchase
bonds in the market if necessary.

This potential market support would be very helpful during the
marketing and pricing of the related bond transaction

Must ensure that investments meet fiduciary requirements of State

This participation enhances the marketability of the issue but not the
credit
Financing Options
State Moral Obligation Example

State of Illinois “Energy For Illinois” 2001 Coal Revival Initiative
 $3 billion in State authorization intended to lure coal companies
interested in building coal-burning power plants
– State moral obligation backing up to $300 million in revenue
bonds provide additional credit enhancement for project(s).
 State must cover shortfalls on bond payments
– Kicks in once reserve fund tapped
 Governor notifies and General Assembly then approves an
appropriation to replenish the reserve
 Less valuable in times of governmental fiscal stress
Financing Options
Recommended Next Steps for WPA
WPA Example: Cheyenne Plains Pipeline Gas Company Project
(1) Help Cheyenne Plains to continue to pursue FERC approval goal of April 1, 2004
(2) Help project to receive bridge financing once approved/bond
anticipation notes
(3) Pursue legislative changes, if desired, during the Wyoming 2004 Budget Session,
which convenes February 9, 2004
(4) Utilize moral pledge or revenue pledge structure, if approved by the
State Legislature, to help issue 10-year fixed rate bonds at a cost lower
than a stand-alone project financing
Contact Information
Ed Burdett,
Managing Director and
Head of Western Region
Greg Dawley,
Vice President
101 California Street, Suite 1225
350 South Grand Ave., Suite 2830
San Francisco, California 94111
Los Angeles, California 90071
Tel: (415) 676-3210
Tel: (213) 217-4504
Fax: (415) 676-3351
Fax: (213) 217-4530
eburdett@exchange.ml.com
gdawley@exchange.ml.com
NY000WUA.ppt 08/22/2003 10:43 AM (1)
Presentation to
Wyoming Natural Gas Pipeline Authority:
Financing Natural Gas Pipeline Projects in
Wyoming
August 26, 2003