10-K

            SECURITIES AND EXCHANGE COMMISSION
                  WASHINGTON, D.C.  20549



                      F O R M   10-K

       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
          OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 1996   Commission file
number:  1-11234


            KINDER MORGAN ENERGY PARTNERS, L.P.
  (Exact name of registrant as specified in its charter)


         DELAWARE                         76-0380342
  (State or other jurisdiction           (I.R.S. Employer
of incorporation or organization)       Identification No.)


   1301 McKinney Street, Ste. 3450, Houston, Texas 77010
    (Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: 713-844-9500



Securities registered pursuant to Section 12(b) of the Act:


Title of each className of each exchange on which registered

   Common Units            New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act:
                           None



     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.


     Aggregate  market value of the Common Units held by  non-affiliates  of the
registrant, based on closing prices in the daily composite list for transactions
on the New York Stock Exchange on March 12, 1997, was approximately
$254,043,000.






            KINDER MORGAN ENERGY PARTNERS, L.P.
                     TABLE OF CONTENTS





                                                   Page No.

                       P A R T  I

Item 1.  Business                                              1

Item 2.  Properties                                           18

Item 3.  Legal Proceedings                                    18

Item 4.  Submission of Matters to a Vote of Security Holders  19

                        P A R T  II

Item 5.  Market for the Registrant's Common Units and
   Related Security Holder Matters                            20

Item 6.  Selected Financial Data                              21

Item 7.  Management's Discussion and Analysis of
   Financial Condition and Results of Operation               22

Item 8.  Financial Statements and Supplementary Data          26

Item 9.  Changes in and Disagreements on Accounting and
   Financial Disclosure                                       26

                       P A R T  III

Item 10.  Directors and Executive Officers of the
   Registrant                                                 27

Item 11.  Executive Compensation                              28

Item 12.  Security Ownership of Certain Beneficial
   Owners and Management                                      30

Item 13.  Certain Relationships and Related Transactions      31

                        P A R T  IV

Item 14. Exhibits, Financial Statement Schedules, and
   Reports on Form 8-K                                        33

Financial Statements                                          F-1

                             i





                        P A R T  I


Item 1. Business


Change of Control

   On February 14, 1997, Kinder Morgan,  Inc., a Delaware  corporation  formerly
known as KC Liquids  Holding  Corporation  ("KMI"),  acquired from Enron Liquids
Holding  Corporation,  a Delaware  corporation  ("ELHC"),  all of the issued and
outstanding common stock of Enron Liquids Pipeline Company,  the general partner
of the  Partnership  and a Delaware  corporation  (the "General  Partner"),  for
approximately  $21.7  million.  As a result of KMI's  acquisition  of the common
stock  of  the  General  Partner,   KMI  indirectly   acquired  control  of  the
Partnership. See Item 12 for information regarding the ownership of KMI.

   In connection with the  transaction,  the name of the Partnership was changed
to Kinder  Morgan Energy  Partners,  L.P.,  the name of the General  Partner was
changed to Kinder  Morgan  G.P.,  Inc.  and the address of the  Partnership  was
changed to 1301  McKinney  Street,  Suite 3450,  Houston,  Texas 77010.  The new
telephone number of the Partnership is (713) 844-9500.


General

   The  Partnership  was formed in June 1992 to acquire,  own and operate  three
pipeline  systems  used to  transport  natural  gas  liquids  ("NGLs"),  refined
petroleum products and carbon dioxide ("CO2") and to acquire and own an indirect
interest in an NGL fractionation  facility.  In 1993, the Partnership acquired a
coal terminaling and storage business,  and in 1994, the Partnership  acquired a
natural gas processing plant and related facilities.  Effective October 1, 1995,
the  Partnership  took  assignment of a gas processing  agreement from Enron Gas
Processing Company ("EGP") and subleased capacity at the EGP Bushton natural gas
processing  plant  to  perform  the  Partnership's  obligations  under  the  gas
processing agreement.

   Kinder  Morgan  G.P.,  Inc.  serves  as  the  sole  general  partner  of  the
Partnership.  In addition to its 2% general partner interest in the Partnership,
the General Partner owns  approximately 6.6% of the Common Units ("Common Units"
represent limited partnership  interests in the Partnership).  The Partnership's
operations  are  conducted  through  two  operating  partnerships  of which  the
Partnership is the  approximate  99% limited  partner and the General Partner is
the approximate 1% general  partner.  Kinder Morgan Operating L.P. "A" ("OLP-A")
(formerly known as Enron Liquids Pipeline Operating Limited Partnership),  which
was created at the time of the  Partnership's  initial public offering of Common
Units in August  1992  ("Initial  Public  Offering"),  owns  most of the  assets
relating to the  transportation  of NGLs,  refined  petroleum  products and CO2.
Through  a  subsidiary  company,  OLP-A  has  an  indirect  interest  in  a  NGL
fractionation  facility located at Mont Belvieu,  Texas. Kinder Morgan Operating
L.P. "B" ("OLP-B")  (formerly  known as Enron  Transportation  Services,  L.P.),
which was  created in 1993,  owns a coal  terminaling  and  storage  facility in
Illinois and a natural gas processing  plant and related  facilities in Wyoming.
The Partnership may find it beneficial to create  additional  operating  limited
partnerships in the future in connection with acquisitions of additional assets.
These  operating  limited  partnerships  are  collectively  referred  to as  the
"Operating  Partnerships." Unless the context otherwise requires, all references
herein to the  Partnership  with respect to the  operation  and ownership of the
Partnership's  assets are also references to the Operating  Partnerships  and to
their predecessors.  The Partnership's  business segments are Liquids Pipelines,
Gas Processing and Fractionation,  and Coal Transfer and Storage. See Note 11 of
the Notes to the Consolidated  Financial  Statements of the Partnership included
elsewhere in this report for additional  information regarding the Partnership's
business segments.






   Although the  Partnership's  revenues derive from a wide customer base, Mobil
Corporation and Amoco Corporation,  including their subsidiaries,  accounted for
approximately  12% and  10%,  respectively,  of the  Partnership's  consolidated
revenue in 1996. Additionally,  in 1996, the two largest customers accounted for
12.3% and 11.1% of the revenues for the Liquids Pipelines  business segment.  In
the Gas Processing and Fractionation business segment, the two largest customers
accounted for 48.4% and 31.6% of the revenues.  In the Coal Transfer and Storage
business  segment,  the three largest customers  accounted for 36.4%,  29.1% and
19.8% of the revenues of the business segment. See "--Liquids Pipelines," "--Gas
Processing  and  Fractionation"  and "--Coal  Transfer  and  Storage" for a more
complete discussion of customers.


Liquids Pipelines

   The North System

      General.  The  North  System,  which  prior  to  its  acquisition  by  the
Partnership had been owned and operated by Enron Corp.  ("Enron") since 1966, is
an approximate  1,600 mile interstate  common carrier NGL and refined  petroleum
products  pipeline  system that  extends  from South  Central  Kansas  (Wichita,
Hutchinson, McPherson, Conway, Bushton) to the Chicago area.

      NGLs, which include ethane, propane, normal butane,  isobutane and natural
gasoline,  are  typically  extracted  from  natural gas in liquid form under low
temperature and high pressure  conditions.  Ethane,  propane,  normal butane and
natural  gasoline  are  used  as  feedstocks  for  petrochemical  plants  in the
production of plastics,  synthetic rubber and other products.  Normal butane and
natural  gasoline  are used by  refineries  in the  blending of motor  gasoline.
Isobutane  is used in the  manufacturing  process of motor  gasoline and is also
used in the production of methyl tertiary butyl ether ("MTBE"), which is used to
produce cleaner burning motor gasoline. Propane is used as fuel for home heating
and  cooking,  crop  drying,  industrial  facilities  and as an engine  fuel for
forklifts and other vehicles.

   The North System,  as an interstate  common carrier  pipeline,  is subject to
regulation by the Federal Energy Regulatory Commission ("FERC"). The Partnership
offers  interstate  transportation  services as a common carrier by means of the
North System to any shipper of NGLs who requests  such  services,  provided that
the products transported satisfy the conditions and specifications  contained in
the applicable  tariff.  Through the North System,  the Partnership  transports,
stores and delivers  NGLs from South  Central  Kansas to markets in the midwest,
including major refineries in the Chicago area,  propane  terminals in Nebraska,
Iowa and Illinois,  and to other pipeline systems, which in turn deliver NGLs to
other midwestern and eastern markets. In addition, the North System receives NGL
products into its system from a  Canadian/U.S.  pipeline  originating in Western
Canada.  During the summer months,  the North System  transports  refinery grade
normal  butane  produced in the Chicago area to Bushton,  Kansas for storage and
transports the product back to the Chicago area on demand.  The Partnership also
owns a 50% interest in the Heartland Partnership, a partnership with Conoco Pipe
Line Company ("Conoco"), that transports refined petroleum products on the North
System from South Central Kansas to a Conoco terminal at Lincoln, Nebraska and a
Heartland Partnership terminal at Des Moines, Iowa.

   South  Central  Kansas  is a major  hub for  producing,  gathering,  storage,
fractionation and  transportation of NGLs extracted from natural gas produced in
the Mid-Continent and Rocky Mountain areas of the United States and includes the
third largest NGL extraction  facility in the lower 48 states,  which is located
at Bushton and  operated by EGP.  The Bushton  natural gas  processing  facility
historically  has, and  continues to,  account for a significant  portion of the
NGLs transported on the North System. Storage facilities along the North

                             2





System and at Bushton give shippers and other  customers  flexibility in meeting
their seasonal demand and permit the  Partnership to maintain  system  operating
efficiencies.

   Pipelines.  The primary  segment of the North System is its main line,  which
extends from Bushton,  Kansas to Morris,  Illinois  (the "Main Line").  The Main
Line is  composed  of  approximately  1,400  miles of 8" and 10"  pipelines  and
includes  (i) two  pipelines  that begin at Bushton and are  parallel  with each
other, with the exception of a 50-mile segment in Nebraska, to their destination
point at a major  storage and terminal  area in Des Moines,  Iowa,  (ii) a third
pipeline, which extends from Bushton to the Kansas City, Missouri area, where it
intersects with a pipeline (the "Williams Pipeline") owned by Williams Pipe Line
Company,  an  unaffiliated  pipeline  company,  and (iii) a fourth pipeline that
transports  product  to the  Chicago  area from Des  Moines.  A  portion  of the
Williams  Pipeline  extends  from  Kansas  City to Des  Moines,  where  it again
interconnects  with the Main Line. The Partnership has entered into an agreement
with the  Williams  Pipe Line Company  that gives the  Partnership  defined sole
carrier rights to use certain portions of the Williams  Pipeline in exchange for
guaranteed minimum payments of $2.2 million per year. The agreement expires June
30,  2001,  but  provides  for two five  year  extensions  at the  option of the
Partnership.  In addition,  the North System gathers  liquids from, and delivers
liquids to, other pipelines at Wichita, McPherson, Hutchison and Conway, Kansas.
Seven propane loading terminals,  a multi-terminal  complex at Morris,  Illinois
capable of loading  propane,  normal butane,  isobutane and natural gasoline and
operating  storage  facilities (mined caverns and steel tanks) are strategically
placed along the North System. Total storage capacity is approximately 1 million
barrels ("MMBbls").  The Tampico,  Illinois terminal, which is the Partnership's
newest  propane  terminal,  was placed in service in  January,  1996.  The North
System currently has unit pumping power of 62,000 horsepower.

   The North System interconnects with several other NGL common carrier pipeline
systems, utilizes leased capacity of the Williams Pipeline and has joint tariffs
with other pipelines.

   Truck  Loading  Terminals.  The North System  includes  seven  propane  truck
loading  terminals plus a  multi-terminal  complex at Morris,  Illinois,  in the
Chicago area, capable of loading propane,  normal butane,  isobutane and natural
gasoline.   The  propane   terminals  have  an  aggregate  storage  capacity  of
approximately  69 thousand  barrels  ("MBbls").  Additional  propane  storage of
approximately 358 MBbls at Des Moines, Iowa and Morris and Lemont,  Illinois, is
provided by underground mined caverns and above-ground  steel tanks. The loading
terminals (for propane, normal butane, isobutane and natural gasoline) at Morris
provide services to the aerosol, chemical and motor gasoline blending markets in
the Chicago area.

   Storage  Facilities.  The North System's  available  storage  facilities give
shippers flexibility in meeting their seasonal demand and allow the North System
to maintain operating  efficiencies and integrity of product  specification.  In
addition to approximately 628 MBbls of pipeline line-fill available on the North
System and 300 MBbls of storage capacity in dedicated third-party pipelines, the
North  System  includes  separate  cavern and tank  storage  facilities  with an
aggregate  usable  capacity,  including the propane storage  discussed above, of
approximately 1.0 MMBbls.

   The  Partnership  also  has an  agreement  to use a  portion  of the  storage
facilities of EGP, which consist of 98 large  underground  salt caverns with the
combined capacity to store up to 12.8 MMBbls of NGLs. The Partnership's  storage
agreement  became  effective in January 1996,  for a three year term with annual
evergreen  provisions  thereafter.  The agreement  provides  storage capacity of
approximately  5.0 MMBbls.  This agreement was a key factor in improved  product
availability for ultimate transportation on the North System in 1996.


                             3





   Heartland Partnership. The Heartland System was completed in the fall of 1990
and is owned by the Heartland Partnership,  a partnership shared equally between
the Partnership and Conoco. The Heartland Partnership provides transportation of
refined petroleum  products from refineries in the Kansas and Oklahoma area to a
Conoco terminal in Lincoln, Nebraska and Heartland's Des Moines terminal.

   The core of the Heartland  Partnership's  system is one of the North System's
Main Line sections that originates in Bushton, Kansas. The Heartland Partnership
leases certain specified pipeline capacity to ship refined petroleum products on
this  line  under  a long  term  lease  agreement  that  will  expire  in  2010.
Heartland's  Des Moines  terminal  has five main  tanks  that  allow  storage of
approximately 200 MBbls of different grades of gasoline and fuel oils.

   Under Heartland's  organizational  structure and partnership  agreement,  the
Partnership  operates the pipeline,  and Conoco operates  Heartland's Des Moines
terminal and serves as the managing partner.

   Refined petroleum  products  transported by the Heartland  Partnership on the
North  System  are  supplied  to the  North  System  mainly  from  the  National
Cooperative Refinery Association crude oil refinery in McPherson, Kansas and the
Conoco, Inc. crude oil refinery in Ponca City, Oklahoma.  The Ponca City volumes
move to the North System through  interconnecting  third-party pipelines,  while
the McPherson volumes are transported directly through the North System.

   The  volume  of  refined  petroleum  products  transported  by the  Heartland
Partnership  is  directly  affected by the demand  for,  and supply of,  refined
petroleum  products  in the  geographic  regions  served.  The major  portion of
refined  petroleum product volumes  transported by the Heartland  Partnership is
motor gasoline, the demand for which is dependent on price,  prevailing economic
conditions  and  demographic  changes  in  the  markets  served.  The  Heartland
Partnership's  business has  experienced  only minor  seasonal  fluctuations  in
demand.

   Pipeline Operations. Substantially all of the Partnership's operations on the
North System constitute  interstate common carrier pipeline  operations.  Common
carrier  operations are those under which  transportation is available at tariff
rates  published  and filed with the FERC to any  shipper of NGLs that  requests
such   services,   provided   that  each  NGL  product   satisfies  the  product
specifications  for shipment  and meets the tariff  shipping  requirements.  The
Partnership  does not  normally  engage in the  merchant  function of buying and
selling  NGLs for its own account and does not  purchase or sell NGLs except for
quantities of NGLs from system gains and losses,  or use in connection  with the
ongoing operation of the North System.
 The  Partnership,   however,  may  engage  in  product  exchange  if  there  is
opportunity to enhance  pipeline  revenues with little or no commodity risk, and
will continue to evaluate any such future opportunities. The products shipped on
the North System (line-fill) are owned by the shippers, and no loss allowance or
shrinkage  deduction is applied.  Thus, the Partnership bears the responsibility
for gains or losses.

   Sources of  Products  Transported.  NGLs  extracted  or  fractionated  at the
Bushton natural gas processing plant operated by EGP have historically accounted
for a  significant  portion of the NGL  volumes  transported  through  the North
System.  Other sources of NGLs transported in the North System include major and
independent  oil companies and natural gas processors  that use  interconnecting
pipeline systems to transport  hydrocarbons from major producing areas in Texas,
Oklahoma,  Kansas and the Rocky  Mountain  region  into the  market  area in and
around  Bushton,   known  as  Group  140  (Mid-Continent   Region).   Group  140
fractionators  compete for NGL feedstock  supply with  fractionators in the Gulf
Coast  market area in Mont  Belvieu,  Texas.  The North  System's  NGL supply is
directly   affected   by  the  price   differential,   adjusted   for   relevant
transportation  costs,  between these two markets because higher prices obtained
in the Gulf Coast market area direct NGLs away from Group 140 to the Gulf Coast.

                             4





   Principal  Products and Markets.  The North System's major operations are the
transportation,  storage and terminaling of NGLs and refined petroleum  products
along its Main Line. The North System currently serves approximately 50 shippers
in the upper Midwest  market,  including  both users and wholesale  marketers of
NGLs.  These  shippers  include all four major  refineries  in the Chicago area.
Wholesale  marketers of NGLs  primarily  make direct large volume sales to major
end-users,  such as  propane  marketers,  refineries,  petrochemical  plants and
industrial concerns.

   Market  demand for NGLs varies in respect to the  different end uses to which
the NGL products delivered through the North System may be applied. For example,
the demand for  propane,  which is used mainly in  connection  with  residential
heating and agricultural uses (agricultural facilities,  crop-drying,  operating
farm equipment,  etc.) is seasonal,  with high demand  occurring during the fall
and winter months.  The demand for butanes and natural gasoline,  which are used
primarily by refineries  for either further  processing or direct  blending into
gasoline motor fuel, depends in turn on the demand for motor gasoline, the price
relationship  between NGLs and motor gasolines,  and vapor pressure limits.  The
demand for ethane and to a lesser extent  propane and normal  butane,  which are
feedstocks used by petrochemical plants in the production of numerous chemicals,
depends on the  demand for  petrochemical  products.  Demand for  transportation
services is  influenced  not only by demand for NGLs,  but also by the available
supply of NGLs.

   The North System  transports  refinery  grade normal  butane  produced in the
Chicago area to the Bushton,  Kansas area (line reversal  transport)  during the
summer months for storage and subsequent  transportation north from Bushton back
to Chicago area refineries  during the winter gasoline  blending  season.  These
transportation volumes originating from Chicago area refineries result from more
restrictive  Environmental  Protection  Agency ("EPA") vapor pressure  limits on
motor gasoline during summer months. See "--Regulation--Environmental  Matters."
As EPA vapor  pressure  limits  continue to force more normal  butane out of the
motor  gasoline  blending  pool in the summer  months,  increased  line reversal
transportation and storage  opportunities become available for the North System.
To be properly  positioned for these  opportunities,  significant  modifications
were made on the North System in late summer 1995 to increase the  capability to
transport  additional line reversal  volumes of refinery grade butane out of the
Chicago area to Bushton for storage and subsequent  redelivery in the winter. In
1996,  additional  storage  caverns at Bushton were  converted to refinery grade
butane service, increasing refinery grade butane storage capacity by 1.65 MMBbls
to a total capacity of 3.5 MMBbls.


                             5





   The  following  table sets forth  volumes  of NGLs  transported  on the North
System for delivery to the various markets for the periods indicated:


                                               Year Ended December
                    31,

                      1992    1993(1)    1994      1995      1996
                      ----    -------    ----      ----      ----

                                       (MBbls)

Petrochemicals      11,682   11,201     2,861(2)  1,125       684

Refineries & Line   10,532    9,676    10,478     9,765     9,536
Reversal 

Fuels               10,394    8,957    10,039     7,763(3) 10,500

Other (4)            7,033    6,879     6,551     7,114     8,126
                    ------    -----    ------     ------   ------

   Total            39,641   36,713    29,929    25,767    28,846
                    ======   ======    ======    ======    ======



(1)These volumes reflect the supply constrained  conditions in the butane market
   during  January and February 1993 and lower demand for propane in part as the
   result of warmer weather relative to 1992.
(2)The 1994 volumes  reflect the loss of the major  petrochemical  shipper as of
   February 28, 1994.
(3)The 1995  volumes  reflect the shut down of a synthetic  natural gas plant in
   1995.
(4)NGL gathering systems and Chicago  originations  other than long-haul volumes
   of refinery butanes.

   The North System operated at approximately 59% of capacity in 1995 and 66% of
capacity  in 1996,  reversing a three year  decline in NGL product  moved on the
North System.  This gain in capacity  utilization  was caused by a 12.0% gain in
NGL product moved on the North System in 1996. The  Partnership is attempting to
increase its revenues,  and regain  volumes lost during the past three years due
to the  loss of  several  major  customers,  by  pursuing  throughput  incentive
agreements,  market  development  and  other  strategies.  Under  the  incentive
agreements,  the applicable  tariff rates decrease as the shipper  substantially
increases its volume on the North System over the term of the  agreement.  These
contracts  reflect   management's   current  strategy  of  pursuing  incremental
increases in revenue and volumes on the North  System  through  agreements  with
several shippers.  Several of these transactions have been negotiated and placed
into service.  For instance,  with the  development  and opening of the Tampico,
Illinois  propane  terminal  in early 1996,  the  Partnership  entered  into two
incentive agreements with propane shippers for five-year terms. In addition, the
North System also recently  entered into three long-term  transport  agreements.
The  Partnership  anticipates  that these  types of  transactions  will  provide
incremental revenue to the Partnership during 1997.

   Competition.  The  Partnership's  North System  competes  with other  liquids
pipelines and to a lesser extent rail transporters.  In most cases,  established
pipelines are generally the lowest cost  alternative for the  transportation  of
NGLs and  refined  petroleum  products.  Therefore,  the  Partnership's  primary
competition is represented by pipelines owned and operated by others.

   In the Chicago area, the North System  competes with other NGL pipelines that
deliver into the area and with rail car deliveries  primarily from Canada. Other
Midwest pipelines and area refineries  compete with the North System for propane
terminal deliveries.  The North System also competes with pipelines that deliver
product to markets not served by the North System, such as the Gulf Coast market
area.

   Rates charged for interstate common carrier NGL transportation are subject to
regulation  by  the  FERC.  See  "--Regulation."  Because  tariffs  charged  for
transportation on the North System must be competitive with

                             6





those charged by other  transporters,  the Partnership's  tariffs are determined
based on  competitive  factors in  addition  to rate  regulation  considerations
applicable to the North System.

   Cypress Pipeline

   General.  Completed  in April  1991,  the Cypress  Pipeline is an  interstate
common carrier  pipeline,  subject to regulation by FERC, that transports purity
ethane and is capable of  transporting  other NGLs.  The pipeline  originates at
storage facilities in Mont Belvieu, Texas and extends 104 miles east to the Lake
Charles,  Louisiana area. Mont Belvieu,  located  approximately 20 miles east of
Houston, is the largest hub for NGL gathering, transportation, fractionation and
storage in the United  States and is  located at the  intersection  of  multiple
long-haul NGL pipelines as well as NGL pipelines for  transportation to the Port
of  Houston,  the area with the  largest  concentration  of major  petrochemical
plants and refineries in the United States.  Mont Belvieu also has major storage
and rail  transportation  facilities  and access to import  and  export  markets
through  the  Port of  Houston.  The  pipeline  was  built  to  service  a major
petrochemical  producer  in the Lake  Charles,  Louisiana  area  under a 20 year
transportation agreement that expires in 2011.

   Pipeline Operations.  The Cypress Pipeline utilizes a single 1,000 horsepower
pump located at Mont Belvieu,  which has a current  capacity of approximately 32
MBbls/d.  A second 800 horsepower pump is available as a back-up.  The two pumps
can operate  simultaneously  with a capacity of 37  MBbls/d.  Maximum  allowable
operating  pressure of the line is 2,160  pounds per square inch.  In 1996,  the
Partnership entered into an agreement with the petrochemical  producer to expand
the  Cypress  Pipeline's  current  capacity  by 25  MBbls/d to 57  MBbls/d.  The
expansion is expected to be complete by the fourth quarter of 1997.

   The  petrochemical  producer has elected to be an  "investor  shipper" and as
such has the right, exercisable at the end of any year during the contract term,
to purchase  up to a 50% joint  venture  interest  in the Cypress  Pipeline at a
price established in accordance with a formula  contained in the  transportation
agreement.  The Partnership  believes,  based on the formula  purchase price and
current  market  conditions,  that it would  be  uneconomical  for the  investor
shipper to exercise its buy-in option in the  foreseeable  future.  However,  no
assurance can be given that the option will not be exercised.

   Sources of Products  Transported.  The Cypress  Pipeline  originates  in Mont
Belvieu where it is able to receive ethane from local storage  facilities.  Mont
Belvieu has facilities to fractionate NGLs received from several  pipelines into
ethane and other  components.  Additionally,  ethane is supplied to Mont Belvieu
through pipeline systems that transport  specification NGLs from major producing
areas in Texas, New Mexico, Louisiana, Oklahoma and the Mid-Continent Region.

   Principal  Products and Markets.  As stated above,  the pipeline was built to
service a major  petrochemical  producer in the Lake Charles  area.  The initial
base  load  for the  line is a  fixed  tariff,  ship-or-pay  contract  with  the
petrochemical producer for a minimum volume of 30 MBbls/d (on a monthly average)
for an  initial  term of 20 years  expiring  in  2011.  In  connection  with the
expansion of the current  capacity of the Cypress  Pipeline,  the  petrochemical
producer has entered into a five-year  contract to ship or pay for an additional
approximate 14 MBbls/d.  The Partnership  anticipates  that the Cypress Pipeline
will  operate at or near  capacity  of 57  MBbls/d.  In  addition,  the  Cypress
Pipeline can also provide  transportation  services for shippers serving markets
east of Mont Belvieu and (through  third-party  pipelines) markets as distant as
the Baton Rouge/Geismar area of Louisiana.

   Competition.  The  Cypress  Pipeline  competes  with  several  ethane and NGL
pipelines in the Gulf Coast corridor and NGLs from other sources,  in particular
NGLs produced in  Louisiana.  Its  competitive  position is affected by the same
general competitive factors that affect the North System.

                             7





   As with the  North  System,  the rates  charged  for the  Cypress  Pipeline's
interstate common carrier ethane transportation are subject to regulation by the
FERC. Because tariffs charged for transportation  must be competitive with those
charged by other transporters, the Partnership's tariffs are determined based on
competitive factors in addition to rate regulation  considerations applicable to
the Cypress Pipeline.

   Central Basin Pipeline

   General.  Placed in service in 1985, the Central Basin  Pipeline  consists of
approximately  143 miles of 16" to 26" main  pipeline and 157 miles of 4" to 12"
lateral supply lines located in the Permian Basin between Denver City, Texas and
McCamey, Texas. Pursuant to long-term agreements, the Partnership transports CO2
on the Central Basin Pipeline for two independent and 11 major oil companies for
use primarily in enhanced oil recovery  projects.  The Partnership  owns the CO2
line fill with the exception of line fill in the El Mar lateral,  which is owned
by the shipper; however, all shippers bear the benefit and risk of CO2 gains and
losses up to 2%. Historically, gains and losses have been less than 2%.

   CO2 is used in  enhanced  oil  recovery  projects  as a  flooding  medium for
recovering  crude  oil from  mature  oil  fields.  A  typical  project  requires
substantial  capital  expenditures  by  the  producer  at the  beginning  of the
project. After the project has been initiated, CO2 generally will continue to be
transported to the field for injection throughout the life of the project, which
may be for many years.  Typically the volumes of CO2 transported will peak after
several  years  and then  decline  over the life of the  project.  The  customer
generally  commits to a minimum  CO2  ship-or-pay  contract  for the life of the
project.

   The Central Basin  Pipeline's  profitability  is dependent on the demand from
oil  producers  in the Permian  Basin of Texas for CO2 used in  connection  with
their  enhanced  oil  recovery  programs.  The level of  enhanced  oil  recovery
programs is sensitive to the level of oil prices.  The pipeline operated at 15%,
20%  and  30% of  current  capacity  during  the  years  1994,  1995  and  1996,
respectively.

   Pipeline  Operations.  The Central  Basin  Pipeline  has a current  unpowered
capacity  in excess of 600  million  cubic feet per day  ("MMcf/d").  All of the
laterals are unpowered, except at Dollarhide,  Texas where a 400 horsepower pump
boosts the pressure at the delivery end of the lateral.  Fifteen delivery points
are currently  active,  including 14 oil field floods (including the addition of
deliveries to the South Cowden Unit,  East Pennwell  Unit,  North Cross Unit and
Goldsmith San Andres Unit in 1996), and one CO2 trucking operation.

   In 1996,  revenues increased $3.2 million from 1995 to $9.8 million,  and the
1996 average daily volume  increased to 171 MMcf/d as compared to volumes of 121
MMcf/d in 1995.  The increase in volumes  resulted from the start up of four new
CO2 floods.  The South Cowden and the East Pennwell  projects were  initiated in
the third  quarter  of 1996 and the  North  Cross and  Goldsmith  projects  were
initiated in the fourth quarter of 1996. Although the operator of the Yates Unit
ceased its use of CO2 late in the year, these volumes were offset by an increase
in CO2 use by the operator of the Sacroc  Unit.  The operator of the Sacroc Unit
has indicated to the Partnership its intention to further increase its volume by
50  MMcf/d by the end of 1997.  However,  there  can be no  assurance  that such
increase will occur. Additionally, the Partnership entered into a transportation
agreement in February  1997 that provides for  transportation  of CO2 to the Mid
Cross Unit,  which project is  anticipated  to commence in the second quarter of
1997.

   The South Cowden Unit flood  project  required  construction  of a lateral to
connect the unit to the Central Basin  Pipeline.  The lateral is owned by Morgan
Associates,  Inc.  ("MAI"),  which is owned by William V. Morgan, an officer and
director of the General Partner.  MAI also owns  approximately 48% of the voting
stock of KMI. MAI and the Partnership  entered into agreements that provided for
construction and operation

                             8





of the proposed lateral by the Partnership, and a
transportation agreement that allows for the Partnership's
use of the lateral and requires the Partnership to ship
certain minimum quantities of CO2 on the lateral.  See
"Certain Relationships and Related Transactions."

   Sources of Products Transported. At its origination point in Denver City, the
Central Basin Pipeline  interconnects  with all three major CO2 supply pipelines
from  Colorado  and New  Mexico,  namely the  Cortez,  Bravo and Sheep  Mountain
pipelines (operated by affiliates of Shell, Amoco and ARCO, respectively). These
pipelines provide significant purchasing flexibility for shippers on the Central
Basin Pipeline and operational  flexibility for the Central Basin Pipeline.  The
mainline  terminates near McCamey,  where it interconnects  with the Canyon Reef
Carriers,  Inc. pipeline.  The eight lateral pipelines  terminate in the various
oil fields that are being flooded by Central Basin Pipeline shippers.

   Principal  Markets.   The  Central  Basin  Pipeline  primarily  serves  major
integrated  oil  companies and  independent  producers  conducting  enhanced oil
recovery  operations in the Permian Basin of West Texas. To a lesser extent, the
Central Basin  Pipeline  delivers CO2 to a truck  terminal  located in the North
Cowden field,  which is operated by a company that delivers CO2 to operators for
oil well  servicing  purposes.  The four largest  shippers on the Central  Basin
Pipeline  accounted for approximately 51% of the revenues from the Central Basin
Pipeline in 1996.

   Competition.  The Central Basin  Pipeline is well located in the heart of the
Permian Basin near existing and potential CO2 floods.  It nevertheless  competes
with other CO2  pipelines  for supply and  sales.  Competitive  factors  include
access to CO2 supply,  proximity  to oil fields  amenable to CO2  injection  and
amounts charged for transportation services. There are alternative processes for
enhanced oil recovery  projects,  including those that use natural gas, nitrogen
or surfactants rather than CO2.

Gas Processing and Fractionation

   Mont Belvieu Fractionator

   General.  The  Partnership  owns an indirect 25% interest in the Mont Belvieu
Fractionator,  located  approximately  20 miles east of Houston in Mont Belvieu,
Texas.  The Mont Belvieu  Fractionator is a full service  Y-grade  fractionating
facility  that produces a range of  specification  products,  including  ethane,
propane,  normal butane,  isobutane and natural gasoline. The facility was built
in 1980 and is operated by Enterprise Products Company  ("Enterprise")  pursuant
to an  operating  agreement  among  the  owners of the  fractionator,  including
Enterprise. The fractionator has access to virtually all major liquids pipelines
and storage  facilities  located in the Mont Belvieu area. The Partnership  owns
the stock of Kinder Morgan Natural Gas Liquids Corp. ("KMNGL"). KMNGL owns a 50%
interest in Mont  Belvieu  Associates,  which in turn owns a 50% interest in the
Mont  Belvieu   Fractionator.   Mont  Belvieu  Associates  is  a  Texas  general
partnership owned equally by KMNGL and Enterprise;  KMNGL serves as the managing
partner.  The  Partnership's  cash flow from its  indirect  interest in the Mont
Belvieu  Fractionator depends on the difference between  fractionation  revenues
and fractionation costs (including the level of capital  expenditures),  as well
as demand for  fractionation  services.  The Mont Belvieu  Fractionator  has two
major components:  NGL (Y-grade)  fractionating  and butane  splitting.  The NGL
fractionating  component  consists of two  trains:  the West Texas train and the
Seminole train. Each train consists of a de-ethanizer, a de-propanizer and a de-
butanizer.  Each major  unit has an  associated  reboiler  and  related  control
equipment.   The  fractionation   process  uses  heat  recovery   equipment  and
cogeneration.  Because of the  multiple  facilities  owned by  various  entities
within the perimeter of the plant, there are  facilities-sharing  agreements for
such  equipment  as the  flare,  fire  control  system,  roads,  laboratory  and
cogeneration   facilities.   In  December   1996,  the  total  capacity  of  the
fractionator  was  expanded by  approximately  45 MBbls/d to  approximately  200
MBbls/d. The

                             9





Partnership  anticipates that the  fractionator  will operate at or near the 200
MBbls/d of capacity for 1997. The butane  splitter is fed a mix of normal butane
and  iso-butane  by the West Texas and  Seminole  trains  and has a capacity  of
approximately 42 MBbls/d.  A natural gasoline water wash system was approved for
installation  and was placed in service in the first quarter of 1996.  The water
wash system is necessary to maintain quality natural gasoline  deliveries to the
fractionator's customers.

   The Mont Belvieu Fractionator  operated at approximately 96%, 96% and 100% of
capacity, respectively, during 1994, 1995 and 1996.

   Sources of Products Fractionated. The Mont Belvieu Fractionator is fed by six
major Y-grade pipelines (the Attco, Chevron, Black Lake, Seminole, Chaparral and
Panola  pipelines).   Through  several  pipeline   interconnects  and  unloading
facilities,  the Mont Belvieu Fractionator also can access supply from a variety
of other  sources.  Supply can either be brought  directly  into the facility or
directed  into  underground  salt  dome  storage.  The  Chaparral  and  Seminole
pipelines  gather  Y-grade  from a variety of natural gas  processing  plants in
Texas,  New Mexico,  Oklahoma  and the  Mid-Continent  area.  The  Chevron  line
transports  NGLs from Chevron's East Texas and Central Texas  facilities.  Black
Lake draws its supply from the Northern  Louisiana  region.  The Attco  Pipeline
draws its supply from South Texas and the Panola  pipeline  transports NGLs from
East Texas.  Additionally,  import  barrels  can be brought to the Mont  Belvieu
Fractionator from locations on the Port of Houston.

   Principal Markets.  The Mont Belvieu  Fractionator is located in proximity to
major end-users of its specification products, ensuring consistent access to the
largest domestic market for NGL products. In addition,  the Mont Belvieu hub has
access to deep-water port loading  facilities via the Port of Houston,  allowing
access to import and export markets.

   Product is  delivered  from the  tailgate  of the Mont  Belvieu  Fractionator
either  directly to  pipelines  or to  underground  storage.  There are numerous
delivery  lines  owned by third  parties,  including  the ARCO  Junction,  which
provide   connections   throughout   the  Gulf  Coast   refinery,   storage  and
petrochemical  areas,  plus direct  connections to TEPPCO,  Diamond Shamrock and
other  outlets.  Owners of the facility and third parties using the Mont Belvieu
Fractionator  have storage  contracts with operators of salt dome  facilities at
Mont Belvieu.  Products are delivered to storage at Enterprise,  Enron,  Warren,
Diamond Shamrock and other facilities. Products, as well as Y-Grade, can also be
loaded into, and unloaded from, jumbo rail cars nearby.

   Competition.  The Mont Belvieu  Fractionator  competes for volumes of Y-grade
with three other  fractionators  located in the Mont Belvieu hub and surrounding
areas.  Competitive  factors  for  customers  include  primarily  the  level  of
fractionation fees charged and the relative amount of available capacity.

   Painter Gas Processing Plant

   On June 30, 1994, the Partnership,  through OLP-B, acquired the Painter Plant
from Enron Gas Processing  Company (the "Painter  Plant").  The Painter Plant is
located near Evanston, Wyoming and consists of a natural gas processing plant, a
nitrogen  rejection  unit, a fractionator,  an NGL terminal and  interconnecting
pipelines  with truck and rail loading  facilities.  The  processing  plant is a
conventional  refrigeration-type natural gas processing unit that separates NGLs
from the gas. The remaining gas, which contains  primarily methane and nitrogen,
is then processed to remove the majority of the nitrogen in a nitrogen rejection
unit.  The nitrogen is used in secondary  recovery  operations in the producer's
oil fields,  and the residue gas is delivered  into an  unaffiliated  interstate
natural gas pipeline.  The Y-grade extracted in the natural gas processing plant
is fractionated into propane, mixed butane and natural gasoline products. In

                            10





addition,  Y-grade  from the nearby  Amoco  Painter  Complex  Gas Plant  ("Amoco
Plant") is delivered to the Painter Plant for  fractionation.  The fractionation
facility has a capacity of approximately 6 MBbls/d that varies, depending on the
feedstock  composition.  After  fractionation,  the propane,  mixed  butanes and
natural gasoline are delivered  through three  interconnecting  NGL pipelines to
the  Partnership's  Millis Terminal and Storage  Facility  ("Millis"),  which is
located approximately seven miles from the Painter Plant. Truck and rail loading
of fractionated  products is provided at Millis, where there is approximately 14
MBbls of above- ground storage for all products.

   In 1996, under a contract that was to extend through December 1998,  Chevron,
USA  ("Chevron")  was the only gas processing  customer at the Painter Plant. In
April 1996, the  Partnership  was notified by Chevron that it was exercising its
right to terminate the gas processing  agreement at the Painter Plant  effective
as of August 1, 1996.  The gas  processing  agreement  with Chevron  allowed for
early  termination by Chevron,  subject to an approximate  $2.9 million one time
termination  payment.  On June 14, 1996, a force majeure event  occurred and the
Painter Plant gas processing  facilities  were shut down.  Chevron  subsequently
disputed its obligation to pay the early  termination  payment.  The Partnership
negotiated  with Chevron to settle all claims  between the two parties under the
gas processing  agreement.  The  Partnership  agreed in September 1996 to accept
$2.7 million as full and final settlement of all claims. This amount was reduced
to  $2.5  million  in  connection  with  the  settlement  of  certain   disputed
receivables.  Historically,  approximately  56% of the revenues from the Painter
Plant were generated from processing Chevron gas. Management  estimates that the
Chevron  contract  would have  generated  approximately  $3.9 million of revenue
during each of the remaining two years of the contract.

   On February 14, 1997, the  Partnership  executed an operating lease agreement
with  Amoco  Oil  Company  ("Amoco")  for  Amoco's  use  of  the  Painter  Plant
fractionator and the Millis facilities with the nearby Amoco Painter Complex Gas
Plant. The lease will generate  approximately  $1.0 million of cash flow in 1997
with  annual  escalations  thereafter.  The  primary  term of the lease  expires
February 14, 2007,  with  evergreen  provisions  at the end of the primary term.
Amoco will take  assignment of all of the commercial  arrangements  currently in
place,  and will assume all day to day  operations,  maintenance,  repairs,  and
replacements,  and all  expenses  (other than minor  easement  fees),  taxes and
charges associated with the fractionator and the Millis facilities.  After lease
year seven,  Amoco may elect to purchase the fractionator and Millis  facilities
under certain terms. A portion of the gas processing facilities and the nitrogen
rejection unit at the Painter Plant remain  operationally  idle. The Partnership
continues to assess its alternatives for these idled facilities.

   Gas Processing Agreement and Subleased Capacity from EGP

   General. On October 1, 1995, Enron Gas Processing Company ("EGP") assigned to
the Partnership its rights and duties under a gas processing contract with Mobil
Natural  Gas,  Inc.  (the "Mobil  Agreement").  Under the Mobil  Agreement,  the
Partnership is obligated to process dedicated volumes of natural gas produced by
Mobil from a prolific geological  formation located in Kansas and commonly known
as the Hugoton  Embayment.  Also on October 1, 1995, the  Partnership  subleased
from EGP a portion of the capacity at the Bushton gas  processing  plant located
in Ellsworth County,  Kansas (the "Bushton  Plant").  The leased capacity at the
Bushton Plant enables the  Partnership to fulfill the processing  obligations it
assumed in the Mobil Agreement.  The Mobil Agreement and the sublease  agreement
are  coterminous  with primary terms ending April 30, 2005. As a result of these
transactions,  the  Partnership  receives  processing  fees from Mobil and makes
sublease  payments to EGP. It is anticipated  that the fees generated  under the
Mobil Agreement will be greater than the sublease payments.

   Agreements.  Under the terms of the Mobil Agreement,
the Partnership is paid a processing fee for extracting
NGLs from the "wet" gas received from Mobil into its
constituent components.  Mobil retains legal

                            11





title  to the  natural  gas  delivered  to the  plant  and to the  contractually
specified  volumes of extracted NGLs and the resulting residue gas at the outlet
of the plant.  Furthermore,  Mobil  provides the fuel to power the processing of
its gas at  Bushton  and bears the loss for the  shrinkage  of the  natural  gas
stream  experienced  during  such  processing.  Under the Mobil  Agreement,  the
Partnership does not provide the storage or transportation of any NGLs generated
as a result of processing.

   The Mobil  Agreement  provides  that Mobil is entitled  to receive  specified
volumes of NGLs  attributable  to the  processing  of Mobil's gas based upon the
NGLs  contained  in one  thousand  cubic  feet of  natural  gas  processed.  The
Partnership   is  allowed  to  retain  any  NGLs   produced  in  excess  of  the
contractually  specified volumes.  For any NGLs that are retained,  however, the
Partnership  is  obligated  to  reimburse  Mobil with a quantity  of natural gas
containing an equivalent BTU content.  Additionally,  the Partnership  must bear
the cost of the plant fuel for the retained  NGLs.  Typically,  this exchange of
natural gas for NGLs is profitable for the  Partnership,  because  normally NGLs
have a higher market value than natural gas.

   The Mobil Agreement requires the Partnership to redeliver Mobil's residue gas
at applicable  minimum  pipeline heating value  specifications.  The Partnership
accomplishes this by obtaining  additional  volumes of natural gas to blend with
Mobil's   residue  gas  to  achieve  such   minimum   pipeline   heating   value
specifications.  In  consideration  for this blending  service,  the Partnership
retains an equivalent  thermal  quantity of propane  extracted from Mobil's gas.
The  Partnership  acquires  the  additional  volumes of  natural  gas needed for
blending  through  a  physical   requirements   swap  transaction   whereby  the
Partnership receives physical volumes of natural gas needed, if any, in exchange
for a thermally  equivalent  volume of propane  equal to the  quantity  retained
under the Mobil Agreement.

   Both gas  composition  and plant  operation  can  affect  NGL  recovery.  The
difference between actual plant recoveries and the fixed recoveries specified in
the Mobil Agreement is borne by the Partnership.  The Partnership believes that,
while  plant  recoveries  vary,  they  are  consistent  over  time  and that gas
composition from this production area is stable. Therefore, plant recoveries and
gas  composition  should  result  in  only  minimal  uncertainty,  although  the
Partnership cannot guarantee this result.

   Under the terms of the sublease agreement, the Partnership pays EGP a monthly
sublease payment  consisting of a variable and a fixed  component.  The variable
component  is based on actual  gallons of NGLs  recovered  from Mobil's gas. The
fixed  component is an agreed amount that is paid even if Mobil fails to deliver
gas for processing.  Mobil's failure to deliver gas for processing  would result
from either a depletion of Mobil's gas reserves,  a decision by Mobil to shut-in
gas  production or an election by Mobil to not process its gas. The  Partnership
believes  that these risks are minimal  based on history,  economics,  operating
factors and other ancillary matters.  No assurance can be given,  however,  that
the monthly  fees  generated  from the Mobil  Agreement  will exceed the monthly
sublease payments.

Coal Transfer and Storage

   Cora Terminal--Coal Transfer and Storage

   Terminal. On September 30, 1993, the Partnership  acquired,  through OLP-B, a
high-speed,  rail-to-barge  coal  transfer and storage  facility  from Cora Dock
Corporation ("Cora"), an indirect wholly-owned subsidiary of Enron. The terminal
(the "Cora  Terminal") is located on  approximately  480 acres of land along the
upper Mississippi River at mile marker 98.5, near Cora, Illinois, about 80 miles
south of St. Louis. It was built in 1980 at an initial cost of approximately $24
million.  Its equipment  includes 3.5 miles of railroad  track, a rotary dumping
station  and  train  indexer,  a   multi-directional   coal   stacker/reclaimer,
approximately 4,000 feet of conveyor belts and an anchored  terminaling facility
on the Mississippi River that takes advantage of

                            12





approximately  five miles of owned and leased available  riverfront  access with
approximately  7,000 feet developed.  The terminal has a throughput  capacity of
about 12 million  tons per year,  and it can be expanded to 20 million tons with
certain capital additions.  The facility's  equipment permits it continuously to
unload  115-car  unit trains at a rate of 3,500 tons per hour.  The terminal can
transfer  the coal to a  storage  yard or unload to barges at a rate up to 5,700
tons  per  hour.  The  railroad  track  can   accommodate   two  115-car  trains
simultaneously.  The riverfront  access permits the fleeting of up to 100 barges
at once.  The  terminal  also has  automatic  sampling,  programmable  controls,
certified belt scales,  computerized  inventory control and the ability to blend
different  types of coal.  The  terminal  currently  is  equipped to store up to
500,000 tons of coal,  which gives customers the flexibility to coordinate their
supplies  of  coal  with  the  demand  at  power  plants.   Anticipated  capital
expenditures  for 1997  include  expanding  the storage  yard to store up to 1.0
million tons of coal and to improve the terminal's blending capacity.

   Terminal  Operations.  Cora Terminal generates revenue from transloading coal
from rail cars and trucks to river barges, storage of coal, blending of coal and
harbor  services.  Cora is operated on three shifts per day with an experienced,
full-time staff of 29 persons employed by the General  Partner,  including seven
non-  union  employees  and 22  hourly  personnel  who  are  represented  by the
International  Union  of  Operating  Engineers  under  a  collective  bargaining
agreement that expires  September 1998.  Operations at the facility are directed
by a lead  manager  who  participated  in the  design  and  construction  of the
facility. The General Partner considers its relations with the union to be good.

   Sources of Products  Transferred.  Historically,  the Cora Terminal has moved
coal that originated in the mines of southern Illinois. Many shippers,  however,
particularly in the East, are now using western coal loaded at the Cora Terminal
or a  mixture  of  western  coal  and  Illinois  coal  as  a  means  of  meeting
environmental  restrictions.  The General  Partner  believes  that Illinois coal
producers and shippers will continue to be important customers in the terminal's
business,  but  anticipates  that the real growth in volume through the terminal
will be western coal originating in Wyoming, Colorado and Utah.

   The Cora Terminal sits on the mainline of the Union Pacific  Railroad ("Union
Pacific").  Mines in southern  Illinois  and in Wyoming  (Hanna and Powder River
basins) are within the Union  Pacific's  service area and its connecting  lines.
With the recent merger of the Union Pacific and Southern Pacific Railroads, coal
mined in the  Colorado  and Utah  basins  can now be  shipped  through  the Cora
Terminal.  Union  Pacific is one of only two major rail lines  connected  to the
western  mines that ship coal to the East. It serves major coal  companies  that
have substantial developed and undeveloped reserves.

   Principal  Markets.  Three major customers ship  approximately 80% of all the
coal  loaded   through  the  terminal:   Franklin  Coal  Company   ("Franklin"),
Indiana-Kentucky Electric Corporation ("IKEC") and Carboex International Limited
("Carboex").  The  agreement  with  Franklin  was entered  into in 1981 and will
terminate in December 2004. The IKEC agreement was entered into in 1994 and will
also  terminate in December 2004. The agreement with Carboex was entered into in
1995 and will expire in December of 1998,  but includes an option for Carboex to
extend  through  December of 2001.  The  Partnership  recently  entered  into an
agreement in principle to ship western coal for a major Southeastern utility.

   Coal still dominates as a fuel for electric generation, holding more than 55%
of the  capacity.  Forecasts of overall coal usage and power plant usage for the
next 20 years show an increase of about 1.5% per year. Current domestic supplies
are  predicted  to last for more  than 300  years.  Most of the Cora  Terminal's
volume is destined for use in  coal-fired  electric  generation.  The market for
southern  Illinois coal is stagnant and not expected to grow because of changing
supply  and  demand  conditions  in  domestic  and  international  markets.  The
Partnership  believes  that  obligations  to  comply  with  the  Clean  Air  Act
Amendments  of 1990 will drive  shippers to increase  the use of the  low-sulfur
coal from the western United States. Approximately 80% of

                            13





the coal loaded through the Cora Terminal  originates  from mines located in the
Western  United  States' Hanna and Powder River  basins.  During the three years
ended December 31, 1996, 1995 and 1994, the Cora Terminal handled  approximately
6.0 million tons,  6.5 million tons and 4.5 million tons of coal,  respectively.
The  Partnership  is actively  marketing  the services of the Cora  Terminal and
anticipates that the terminal will handle approximately 10 million tons in 1997.
However, the Partnership does not currently have commitments with respect to all
of these volumes and there can be no assurance that the Partnership will achieve
such volumes.

   Competition.  The Cora Terminal competes with six other terminal  facilities.
Two of these are  located  in St.  Louis;  one is  connected  to the  Burlington
Northern Railroad and the other to the Union Pacific Railroad. Both compete with
Cora for western coal. A third  terminal,  located at Metropolis,  Illinois,  is
primarily a private use terminal and is owned by a consortium of electric  power
companies. The fourth terminal,  located on the Tennessee River, is connected to
the Paducah and Louisville Railroad and competes with Cora for southern Illinois
coal moving to power plants on the Tennessee and  Cumberland  Rivers.  The fifth
terminal,  situated 25 miles north of the Cora  Terminal,  is  connected  to the
Union Pacific Railroad.  This terminal is primarily a private use facility.  The
sixth  terminal is located  north of St. Louis on the  Mississippi  River and is
connected to the Burlington Northern Railroad. The Partnership believes that the
Cora Terminal can compete successfully with these other terminals because of its
favorable location,  independent ownership, available capacity, modern equipment
and large storage area.

   No new coal  terminals  have been  constructed  on the  Mississippi  and Ohio
rivers in the last 10 years. The Partnership believes that there are significant
barriers to entry for the  construction  of new coal  terminals,  including  the
requirement for significant capital  expenditures and restrictive  environmental
permitting requirements.

   The  Partnership  plans to expand its market  position  in coal  terminaling,
loading and storage and continues to evaluate the potential acquisition of other
terminaling  operations to enhance its position of moving  western coal into the
export and eastern utility markets.

Regulation

   Interstate Common Carrier Regulation

   The  Partnership's  North System and Cypress  Pipeline are interstate  common
carrier  pipelines,  subject  to  regulation  by the FERC  under the  Interstate
Commerce Act ("ICA").  As interstate  common carriers,  these pipelines  provide
service to any shipper who requests transportation  services,  provided that the
products tendered for  transportation  satisfy the conditions and specifications
contained in the applicable tariff. The ICA requires the Partnership to maintain
tariffs on file with the FERC, which tariffs set forth the rates the Partnership
charges for providing  transportation  services on the interstate common carrier
pipelines as well as the rules and regulations governing these services.

   The ICA gives  the FERC  authority  to  regulate  the  rates the  Partnership
charges  for  service  on the  interstate  common  carrier  pipelines.  The  ICA
requires,  among  other  things,  that such rates be "just and  reasonable"  and
nondiscriminatory.  The ICA permits interested persons to challenge proposed new
or changed rates and  authorizes the FERC to suspend the  effectiveness  of such
rates for a period of up to seven months and to investigate such rates. If, upon
completion of an  investigation,  the FERC finds that the new or changed rate is
unlawful,  it is  authorized  to require the  carrier to refund the  revenues in
excess of the prior tariff collected  during the pendency of the  investigation.
The FERC may also investigate,  upon complaint or on its own motion,  rates that
are already in effect and may order a carrier to change its rates prospectively.

                            14





Upon an  appropriate  showing,  a shipper  may obtain  reparations  for  damages
sustained for a period of up to two years prior to the filing of a complaint.

   On October 24, 1992,  Congress  passed the Energy Policy Act of 1992 ("Energy
Policy Act"). The Energy Policy Act deemed petroleum pipeline rates that were in
effect for the 365-day  period  ending on the date of  enactment or that were in
effect  on the  365th  day  preceding  enactment  and had not  been  subject  to
complaint,  protest or  investigation  during the 365-day  period to be just and
reasonable  under the ICA (i.e.,  "grandfathered").  The Energy  Policy Act also
limited  the  circumstances  under which a complaint  can be made  against  such
grandfathered  rates.  The  rates the  Partnership  charges  for  transportation
service on its North System and Cypress  Pipeline  were not suspended or subject
to protest or complaint during the relevant 365-period established by the Energy
Policy Act.  For this reason,  the  Partnership  believes  these rates should be
grandfathered under the Energy Policy Act.

   The  Energy  Policy  Act  required  the FERC to issue  rules  establishing  a
simplified  and  generally  applicable  ratemaking   methodology  for  petroleum
pipelines (including NGL pipelines),  and to streamline  procedures in petroleum
pipeline  proceedings.  The FERC  responded to this mandate by issuing Order No.
561,  which,  among other things,  adopted a new indexing rate  methodology  for
petroleum  pipelines.  Under the regulations,  which became effective January 1,
1995,  petroleum  pipelines  are able to change  their rates  within  prescribed
ceiling levels that are tied to an inflation  index.  Rate increases made within
the ceiling levels will be subject to protest,  but such protests must show that
the portion of the rate  increase  resulting  from  application  of the index is
substantially in excess of the pipeline's increase in costs. A pipeline must, as
a general rule, utilize the indexing  methodology to change its rates. The FERC,
however, retained cost-of-service ratemaking,  market-based rates and settlement
as  alternatives to the indexing  approach,  which  alternatives  may be used in
certain specified circumstances.  FERC Order No. 561-A, affirming and clarifying
Order No. 561,  expands the  circumstances  under which petroleum  pipelines may
employ cost-of-service ratemaking in lieu of the indexing methodology, effective
January 1, 1995. In 1995 and 1996,  application of the indexing  methodology did
not significantly affect the Partnership's rates.

   Although the  grandfathering of base rates and the automatic indexing of rate
changes to inflation  provides relative  certainty  regarding the maximum lawful
rates,  the rates  charged for  transportation  must be  competitive  with those
charged by other transporters.

   State and Local Regulation

   The Partnership's  activities are subject to various state and local laws and
regulations,  as well as orders of regulatory bodies pursuant thereto, governing
a wide variety of matters, including marketing,  production, pricing, pollution,
protection of the environment, safety and other matters.

   Safety Regulation

   The Liquids Pipelines and the pipelines  connecting the Millis to the Painter
Plant  are  subject  to   regulation   by  the  United   States   Department  of
Transportation  ("D.O.T.")  with respect to the design,  installation,  testing,
construction,  operation,  replacement and management of pipeline facilities. In
addition, the partnership must permit access to and copying of records, and make
certain  reports  and  provide  information  as  required  by the  Secretary  of
Transportation.  Comparable  regulation  exists  in some  states  in  which  the
Partnership conducts pipeline operations.  In addition,  the Partnership's truck
and rail loading facilities are subject to D.O.T.  regulations  dealing with the
transportation of hazardous materials for motor vehicles and rail cars.


                            15





    Pipeline  safety issues  currently are  receiving  significant  attention in
various  political  and  administrative  forums at both the  state  and  federal
levels. Significant expenses could be incurred if additional safety requirements
are imposed that exceed the current pipeline control system capabilities.

   The Liquids Pipelines,  the Mont Belvieu Fractionator,  the Cora Terminal and
the Painter Plant are subject to the  requirements  of the Federal  Occupational
Safety and Health Act ("OSHA") and comparable  state  statutes.  The Partnership
believes that its pipelines,  the Cora Terminal and the Painter Plant (which are
operated by the Partnership)  have been operated in substantial  compliance with
OSHA   requirements,   including  general  industry   standards,   recordkeeping
requirements  and  monitoring  of  occupational  exposure  to benzene  and other
regulated substances.

   In general, the Partnership expects to increase expenditures in the future to
comply  with higher  industry  and  regulatory  safety  standards  such as those
described above. Such expenditures cannot be accurately  estimated at this time,
although  the  Partnership  does not expect that such  expenditures  will have a
material  adverse  impact on the  Partnership,  except to the extent  additional
hydrostatic testing requirements are imposed.

   Environmental Matters

   General. The operations of the Partnership are subject to federal,  state and
local laws and  regulations  relating  to  protection  of the  environment.  The
Partnership   believes  that  its  operations  and  facilities  are  in  general
compliance with  applicable  environmental  regulations.  The Partnership has an
ongoing environmental audit and compliance program. Risks of accidental leaks or
spills are, however,  associated with  fractionation of NGLs,  transportation of
NGLs and refined  petroleum  products,  the  handling  and storage of coal,  the
processing  of gas,  as well as the  truck  and  rail  loading  of  fractionated
products.  There can be no assurance that significant costs and liabilities will
not be incurred,  including those relating to claims for damages to property and
persons resulting from operation of the Partnership's  businesses.  Moreover, it
is possible that other developments,  such as increasingly strict  environmental
laws and  regulations  and  enforcement  policies  thereunder,  could  result in
increased costs and liabilities to the Partnership.

   Environmental  laws and regulations  have changed  substantially  and rapidly
over the last 25 years,  and the  Partnership  anticipates  that  there  will be
continuing changes. The clear trend in environmental regulation is to place more
restrictions and limitations on activities that may impact the environment, such
as  emissions  of  pollutants,  generation  and  disposal  of wastes and use and
handling of chemical substances.  Increasingly strict environmental restrictions
and limitations  have resulted in increased  operating costs for the Partnership
and other similar  businesses  throughout the United States,  and it is possible
that the  costs of  compliance  with  environmental  laws and  regulations  will
continue  to  increase.  The  Partnership  will  attempt  to  anticipate  future
regulatory  requirements  that might be imposed and to plan accordingly in order
to remain in compliance with changing  environmental laws and regulations and to
minimize the costs of such compliance.

   Solid Waste. The Partnership owns several  properties that have been used for
NGL  transportation  and  storage and coal  storage for many years.  Solid waste
disposal practices within the NGL industry and other oil and natural gas related
industries have improved over the years with the passage and  implementation  of
various   environmental   laws  and  regulations.   A  possibility  exists  that
hydrocarbons  and  other  solid  wastes  may have been  disposed  of on or under
various  properties  owned by the  Partnership  during the operating  history of
these  facilities.  In such cases,  hydrocarbons  and other solid  wastes  could
migrate  from  their  original  disposal  areas  and have an  adverse  effect on
groundwater.  The  Partnership  does not  believe  that there  presently  exists
significant surface or subsurface contamination of its assets by hydrocarbons or
other solid wastes.

                            16





   The Partnership  will generate both hazardous and  nonhazardous  solid wastes
that are subject to the  requirements of the federal  Resource  Conservation and
Recovery Act ("RCRA") and comparable  state  statutes.  From time to time United
States  Environmental  Protection  Agency  ("EPA")  considers  the  adoption  of
stricter disposal standards for nonhazardous waste. Furthermore,  it is possible
that some wastes that are  currently  classified  as  nonhazardous,  which could
include wastes currently generated during pipeline operations, may in the future
be  designated  as  "hazardous  wastes."  Hazardous  wastes are  subject to more
rigorous and costly disposal  requirements.  Such changes in the regulations may
result  in  additional  capital   expenditures  or  operating  expenses  by  the
Partnership.

   Superfund.  The  Comprehensive   Environmental  Response,   Compensation  and
Liability Act ("CERCLA"),  also known as the "Superfund" law, imposes liability,
without  regard to fault or the  legality of the  original  conduct,  on certain
classes of persons that  contributed  to the release of a "hazardous  substance"
into the environment.  These persons include the owner or operator of a site and
companies that disposed or arranged for the disposal of the hazardous substances
found at the site.  CERCLA also  authorizes  the EPA and,  in some cases,  third
parties to take  actions  in  response  to  threats to the public  health or the
environment and to seek to recover from the  responsible  classes of persons the
costs they incur. Although "petroleum" is excluded from CERCLA's definition of a
"hazardous  substance," in the course of its ordinary operations the Partnership
will  generate  wastes  that may fall  within  the  definition  of a  "hazardous
substance." The  Partnership may be responsible  under CERCLA for all or part of
the costs required to clean up sites at which such wastes have been disposed.

   EPA Gasoline  Volatility  Restrictions.  In order to control air pollution in
the United  States,  the EPA has  adopted  regulations  that  require  the vapor
pressure  of motor  gasoline  sold in the United  States to be reduced  from May
through  mid-September of each year. These  regulations  mandated vapor pressure
reductions  beginning in 1989,  with more  stringent  restrictions  beginning in
1992. States may impose additional volatility restrictions. The regulations have
had a substantial  effect on the market price and demand for normal butane,  and
to some extent  isobutane,  in the United  States.  Butanes are used by gasoline
manufacturers  in the  production  of motor  gasolines.  Since normal  butane is
highly  volatile,  it is now less  desirable for use in blended  gasolines  sold
during the summer months.  Although the EPA regulations  have reduced demand and
may have resulted in a  significant  decrease in prices for normal  butane,  low
normal  butane  prices have not impacted the Liquids  Pipelines  business in the
same way they  would  impact a  business  with  commodity  price  risk.  The EPA
regulations  have  presented  the  opportunity  for  additional   transportation
services on the North  System.  In the summer of 1991,  the North  System  began
long-haul transportation of refinery grade normal butane produced in the Chicago
area to the Bushton, Kansas area for storage and subsequent transportation north
from  Bushton  during the winter  gasoline  blending  season.  These  additional
transportation  volumes  produced at Chicago area  refineries  resulted from the
more restrictive EPA vapor pressure limits on motor gasoline.

   Clean Air Act.  The operations of the Partnership are
subject to the Clean Air Act and comparable state
statutes.  The Partnership believes that the operations of
the Liquids Pipelines, the Mont Belvieu Fractionator, the
Cora Terminal and the Painter Plant are in substantial
compliance with such statutes.

   Numerous  amendments  to the  Clean  Air Act  were  adopted  in  1990.  These
amendments contain lengthy, complex provisions that may result in the imposition
over the next  several  years of certain  pollution  control  requirements  with
respect to air emissions from the operations of the Liquids Pipelines,  the Mont
Belvieu Fractionator and the Painter Plant. The EPA is developing, over a period
of many years,  regulations to implement  those  requirements.  Depending on the
nature of those regulations,  and upon requirements that may be imposed by state
and local  regulatory  authorities,  the  Partnership  may be  required to incur
certain  capital  expenditures  over the next  several  years for air  pollution
control equipment in connection with maintaining

                            17





or  obtaining   operating   permits  and  approvals  and  addressing  other  air
emission-related  issues.  Due to the broad scope and  complexity  of the issues
involved  and  the  resultant   complexity  and  controversial   nature  of  the
regulations,  full development and implementation of many of the regulations has
been  delayed.  Until  such  time as the new  Clean  Air  Act  requirements  are
implemented,  the  Partnership  is unable to estimate  the effect on earnings or
operations or the amount and timing of such required  capital  expenditures.  At
this time,  however,  the  Partnership  does not  believe it will be  materially
adversely affected by any such requirements.

Item 2.  Properties

   The Partnership  believes that in all material  respects it has  satisfactory
title to all of its assets.  Although such properties are subject to liabilities
in certain cases, such as customary interests generally contracted in connection
with acquisition of real property, any environmental liabilities associated with
historical  operations,  liens for  current  taxes and other  burdens  and minor
encumbrances, the Partnership believes that none of such burdens will materially
detract from the value of such  properties  or from the  Partnership's  interest
therein or will  materially  interfere  with their use in the  operation  of the
Partnership's business.  Substantially all of the property,  plant and equipment
associated with the Liquids  Pipelines,  the Cora Terminal and the Painter Plant
are subject to mortgages.

   The Partnership  conducts business and owns properties  located in 10 states.
The Liquids  Pipelines are, in general,  located on land owned by others and are
operated  under  perpetual  easements or  rights-of-way  granted by land owners.
Where Partnership facilities are located on or cross public property,  railways,
rivers,  roads or  highways,  or similar  crossings,  they are  operating  under
permits or easements from public authorities, railways or public utilities, some
of which are  revocable  at the election of the  grantor.  The Painter  Plant is
located on Bureau of Land  Management land that is leased to the Partnership and
Enron (50% each) until September of 2009. Millis is located on private lands and
is under lease to the Partnership  until September of 2009. The Cora Terminal is
located on lands owned by the  Partnership  and on private  lands under lease to
the Partnership. The primary lease for Cora Terminal expires December 2015.

   The right to  construct  and  operate the Liquids  Pipelines  across  certain
property was obtained  through the right of eminent  domain by  predecessors  in
title to the  Partnership.  The  Partnership  has been  advised  by  counsel  in
Indiana,  Iowa,  Kansas,  Louisiana,  Missouri,  Nebraska  and  Texas  that  the
Partnership  has the power of eminent  domain in such states with respect to the
North System and the Cypress  Pipeline  assuming the  Partnership  meets certain
requirements, which differ from state to state. While there can be no assurance,
the Partnership believes that it will meet such requirements in such states. The
Partnership  has been  advised by counsel in Illinois  that it does not have the
power of eminent domain in such state.  The Partnership does not believe that it
has the power of eminent domain with respect to the Central Basin Pipeline.  The
inability of the  Partnership to exercise the power of eminent domain could have
a material  adverse effect on the business of the Partnership in those instances
where  the  Partnership  does not  have the  right  through  leases,  easements,
rights-of-way,  permits or licenses to use or occupy the  property  used for the
operation of the Liquids Pipelines and where the Partnership is unable to obtain
such rights.

Item 3.  Legal Proceedings

   The  Partnership,  in the  ordinary  course of  business,  is a defendant  in
various lawsuits relating to the Partnership's assets. The liabilities,  if any,
associated  with  any  lawsuits  pending  at the  time of the  formation  of the
Partnership were retained by Enron and not assumed by the Partnership.  Pursuant
to an Omnibus  Agreement  with  Enron (the  "Omnibus  Agreement"),  the  General
Partner  agreed to cause  the  Partnership,  at the  Partnership's  expense,  to
cooperate  with  Enron in the  defense  of any  such  litigation  by  furnishing
information  relating to the  Partnership's  assets  involved in the litigation,
furnishing access to files and

                            18





otherwise  assisting in the defense.  The costs to the  Partnership  relating to
such  agreement  have  not  been  and are not  expected  to be  significant.  In
addition,  Enron agreed to indemnify the  Partnership for any losses incurred in
connection  with  the  lawsuits   pending  at  the  time  of  formation  of  the
Partnership.  In  connection  with the sale of the Common  Stock of the  General
Partner to KMI, Enron agreed to assume liability, and indemnify the Partnership,
for certain lawsuits currently pending.

   The General  Partner is a defendant in a suit filed on September  12, 1995 by
the State of Illinois. The suit seeks civil penalties and an injunction based on
five  counts of  environmental  violations  for events  relating  to a fire that
occurred at the Morris storage field in September,  1994. The fire occurred when
a sphere  containing  natural  gasoline  overfilled  and released  product which
ignited.  There  were  no  injuries,  and no  damage  to  property,  other  than
Partnership property.  The suit seeks civil penalties in the stated amount of up
to $50,000  each for three counts of air and water  pollution,  plus $10,000 per
day for any  continuing  violation.  The State also seeks an injunction  against
future  similar  events.  On August 29, 1996,  the Illinois  Attorney  General's
office  proposed a settlement in the form of a consent decree that would require
the  Partnership to implement  several fire  protection  recommendations,  pay a
$100,000 civil penalty, and pay a $500 per day penalty if established  deadlines
for  implementing  the  recommendations  are not met. The Partnership has made a
settlement offer to the State and settlement negotiations are ongoing.

   On December  10, 1996,  the D.O.T  issued to the General  Partner a notice of
eight probable  violations of federal safety  regulations in connection with the
fire at the Morris storage  field.  The DOT proposed a civil penalty of $90,000.
The General Partner is currently in the process of responding to the notice, but
believes that the alleged  violations and proposed fine will not have a material
impact on the Partnership.

   It is expected that the  Partnership  will reimburse the General  Partner for
any liability or expenses  incurred by the General  Partner in  connection  with
these legal proceedings.

Item 4.  Submission of Matters to a Vote of Security
Holders

   There were no matters  submitted  to a vote of  security  holders  during the
fourth quarter of 1996.

                            19





                        P A R T  II

Item 5.  Market for the Registrant's Common Units and
Related Security Holder Matters

   The following table sets forth, for the periods  indicated,  the high and low
sale prices per Common  Unit,  as reported on the New York Stock  Exchange,  the
principal  market in which the  securities  are  traded,  and the amount of cash
distributions paid per Common Unit.


                           Price Range              Cash 
                       High         Low        Distributions
                       ----         ---        -------------
       1996
       ----
       First Quarter  $26.375      $24.375        $0.63
       Second          26.000       24.875         0.63
       Quarter
       Third Quarter   28.125       25.375         0.63
       Fourth          29.125       25.625         0.63
       Quarter




       1995
       First                                       
       Quarter      $26.000     $24.250            $0.63
       Second                                       
       Quarter      26.500       24.125             0.63
       Third                                        
       Quarter      26.750       25.125             0.63
       Fourth                                       
       Quarter      26.875       23.875             0.63



      As of December 31, 1996,  there were  approximately  725 record holders of
the  Partnership's  Common  Units and there were an estimated  9,870  beneficial
owners of the Common Units, including Common Units held in street name.

      Following  termination of the deferral  period on September  30,1994,  the
Partnership  began making  distributions  in respect of the limited  partnership
interests held by the General Partner on a pro rata basis with the Common Units.
On February 14, 1997,  these limited  partnership  interests were converted into
Common Units. See "Certain Relationships and Related Transactions."


                            20






Item 6.  Selected Financial Data (unaudited)
        (in thousands, except per unit and operating data)

                                                                                                                      Combined
                                                                      Partnership                                     Historical
                                   -------------------------------------------------------------------------------   ------------
                                                                                      Pro Forma                      Seven Months
                                                                                        Year        Five Months         Ended
                                                   Year Ended December 31,          December 31,     December 31,     July 31,
                                   ----------------------------------------------   ------------   ---------------    ----------

                                                                                              
 
Income and Cash Flow Data:
   Revenues                      $ 71,250    $ 64,304      $ 54,904     $ 51,180    $ 53,010      $ 24,146         $ 28,863
   Cost of product sold             7,874       8,020           940          685         762           762                -
   Operating Expense               27,263      19,862        19,125       19,807      20,672         8,977           11,797
   Lease expense, net                   -           -             -            -           -             -            3,536
   Depreciation                     9,908       9,548         8,539        7,167       7,050         2,938            2,431
   General and administrative       9,132       8,739         8,196        7,073       6,641         2,729            4,716
                                    -----      -------      -------       -------    -------       -------         --------
   Operating Income                17,073      18,135         18,104      16,448      17,885         8,740            6,383
   Equity in earnings (loss)
   of partnerships                  5,675       5,755          5,867       1,835       1,755           826            1,244
   Interest expense               (12,634)    (12,455)       (11,989)    (10,302)     (9,648)       (3,965)               -
   Other Income                     3,129       1,311            509         510         497           166               93     
  Net Income                    $ 11,900    $ 11,314       $ 11,102    $  8,574     $ 10,383     $  5,777         $  7,251
                                 ---------   ========       ========    ========     ========     ========         ========
   Net Income per Common
      Unit                       $   1.79    $   1.71       $   1.86    $   1.50     $   1.82     $   1.01         $      -
                                 ========    ========       ========    ========     ========     ========         ========
   Additions to property,        $  8,575
     plant and equipment(1)                  $  7,826       $  5,195    $  4,688     $  5,644     $  1,507         $  4,137

Balance Sheet Data (at end of
period):
   Net property, plant and
      equipment                  $235,994    $236,854       $238,850    $228,859     $      -     $206,108         $116,066
   Total assets                   303,603     303,664        299,271     288,345            -      260,943          155,087
   Long-term debt                 160,211     156,938        150,219     138,485            -      110,000                -
   Equity of parent                     -           -              -           -            -            -          120,379
   Partners' capital              118,344     123,116        128,474     132,391            -      136,851                -

Operating Data (unaudited):
   Liquids pipelines
      transportation volumes
      (MBbls)                      46,601      41,613         46,078      52,600       53,874       24,427           29,447
   NGL fractionation volumes
      (MBbls)(2)                   59,912      59,546         57,703      53,053       47,517       19,060           28,457
   Gas processing volumes
      (MMcf/d)(3)                      14          34             34           -            -            -                -
   NGL revenue volumes
      (MBbls)(4)                    1,638         477              -           -            -            -                -
   CO2 transportation
volumes (Bcf)                          63          44             32          33           32           14               18
   Coal transport volumes
      (Mtons)(5)                    6,090        6,486         4,539       1,209            -            -                -



(1)  Excluding the effect of construction costs related to the Cypress Pipeline,
     additions to property,  plant and equipment  would have been $3,837 for the
     seven-month  period ended July 31, 1992.  Additions to property,  plant and
     equipment  for 1993 and 1994  exclude the $25,291 and the $12,825 of assets
     acquired in the  September  1993 Cora  Terminal  and June 1994  Painter Gas
     Processing Plant (Painter Plant) acquisitions, respectively.
(2)  Represents total volumes for the Mont Belvieu  Fractionator and the Painter
     Plant (beginning in 1994).
(3)      Represents  the  volumes of the gas  processing  portion of the Painter
         Plant, which has been operationally idle since June 1996.
(4)  Represents the volumes of the Bushton facility (beginning
     in October, 1995).
(5)      Represents  the  volumes of the Cora  Terminal,  excluding  ship or pay
         volumes of 252 Mtons for 1996.


                              21





Item 7.  Management's Discussion and Analysis of Financial
Condition and Results of Operations

Results of Operations of the Partnership

   Year Ended December 31, 1996 Compared With Year Ended
December 31, 1995

   Net income of the  Partnership  increased to $11.9 million in 1996 from $11.3
million in 1995.  The 5.3%  increase is  primarily  due to  increased  operating
earnings  from the Central  Basin  Pipeline  and a $2.5 million  buyout  payment
received from Chevron for early termination of a gas processing  contract at the
Painter Plant,  which were partially offset by lower operating earnings from the
Painter Plant, the North System and Cora Terminal.

   Revenues of the Partnership increased 10.9% to $71.3 million in 1996 compared
to $64.3 million in 1995.  The increase in revenues was due primarily to a 42.4%
increase in transport volumes on the Central Basin Pipeline combined with a full
year of revenues  earned at the Bushton  Facility in  connection  with the Mobil
Agreement, which was assigned to the Partnership as of October 1, 1995 (see Note
10 in the Notes to Consolidated Financial Statements). Additionally, revenues on
the  North  System  increased  due to a  12.2%  increase  in  transport  volumes
resulting  from a  favorable  crop  drying  season  and  colder  weather.  These
increases  were offset by lower revenues at the Painter Plant due to the Chevron
gas processing contract termination and unscheduled downtime due to an equipment
malfunction.

   Cost of products  sold  decreased  $.1 million  (1.8%) in 1996 as compared to
1995 primarily due to reduced product sales on the North System.

   Operating expense,  which includes operations and maintenance  expense,  fuel
and power  costs and taxes  other than income  taxes,  increased  37.2% to $27.3
million in 1996  compared to $19.9  million in 1995 due to expenses  incurred in
connection with the Mobil Agreement.  Additionally,  operating expense increased
$.9 million as a result of a new storage agreement with a Partnership  affiliate
on the North  System that went into  effect on January 1, 1996.  The new storage
agreement increases the North System's storage capacity at Bushton,  Kansas from
1.5 MMBbls to 5.0 MMBbls.

   Depreciation  expense increased $.4 million (3.8%) during 1996 as compared to
1995 primarily as a result of 1996 property additions.

   General and administrative  expenses increased $0.4 million (4.5%) in 1996 as
compared to 1995  primarily  due to a 6% annual  increase in  reimbursements  to
Enron for services  provided to the  partnership  by Enron and its affiliates in
accordance with the Omnibus Agreement.

   Interest  expense  increased  $0.2 million (1.4%) in 1996 as compared to 1995
primarily as a result of increased  borrowings  under  OLP-A's  working  capital
facility due to borrowings for expansion capital expenditures.

   Other  income  increased  127.9% to $3.3  million in 1996 as compared to $1.4
million in 1995 primarily due to the $2.5 million  buyout payment  received from
Chevron in 1996. (See Note 3 in the Notes to Consolidated Financial Statements).
In addition, other income for 1995 included a $0.5 million business interruption
insurance settlement related to a previous year event on the North System.

   Year Ended December 31, 1995 Compared With Year Ended
December 31, 1994

   Net income of the  Partnership  increased  1.8% to $11.3 million in 1995 from
$11.1  million in 1994.  The increase  reflects a full year of earnings from the
Painter Plant  acquisition  (see Note 3 in the Notes to  Consolidated  Financial
Statements) and higher earnings on the Central Basin Pipeline and Cora Terminal,
partially offset by lower

                            22





earnings on the North System and the Cypress  Pipeline and lower equity earnings
from the Mont Belvieu Associates partnership.

   Revenues of the Partnership increased $9.4 million (17.1%) for the year ended
December  31,  1995,  as  compared  to 1994.  The  increase  in revenue  was due
primarily to increased  product  sales on the North System and the Central Basin
Pipeline,  the  inclusion  of a full year of  operations  at the Painter  Plant,
acquired  June  1994,  and an  increase  in coal  volumes  handled  at the  Cora
Terminal.  Additionally,  revenues  increased  approximately $1.4 million due to
three months of revenue from the Mobil Agreement. These increases were offset by
a decrease  in volumes  transported  to  refineries  on the North  System due to
temporary downtime at two major customers'  facilities  combined with the effect
of Gulf Coast product  prices being more  favorable  than prices in the Midwest,
which caused  product to move into the Chicago  area on pipelines  from the Gulf
Coast.  In July 1995,  a customer of a major  North  System  shipper  closed its
synthetic  natural gas facility in the Chicago area.  The  Partnership  had been
delivering  approximately 2 MMBbls of ethane to the facility  annually.  Loss of
these volumes  resulted in an  approximate  $1.2 million loss of revenues in the
last half of 1995 compared to the same period in 1994.

   Cost of products sold  increased  significantly  on both the North System and
the Central Basin Pipeline primarily because of selling arrangements which allow
for increased throughput, but nominal gross margin.

   Operating  expense  increased $0.7 million (3.9%) in 1995 as compared to 1994
primarily  because of the  inclusion of a full year of operations at the Painter
Plant and because of $1.2 million of  operating  expenses  incurred  during 1995
related to the Mobil  Agreement.  These increases were offset by lower operating
expenses incurred on the North System as a result of lower transport volumes.

   Depreciation  expense  increased $1.0 million (11.8%) during 1995 as compared
to 1994  primarily  as a result of the  inclusion of a full year of operation at
the Painter Plant.

   General and administrative  expenses increased $0.5 million (6.6%) in 1995 as
compared to 1994  primarily  due to a 6% annual  increase in  reimbursements  to
Enron for services  provided to the  Partnership  by Enron and its affiliates in
accordance  with the Omnibus  Agreement as well as the  inclusion of the Painter
Plant operations.

   Interest  expense  increased  $0.5 million (3.9%) in 1995 as compared to 1994
primarily as a result of the addition of debt related to the  acquisition of the
Painter Plant.

   Other  income  increased  $0.8  million  (129.3%) in 1995 as compared to 1994
primarily because of a $0.5 million business  interruption  insurance settlement
received in 1995 related to a previous year event on the North System.

Outlook

   Under the new  management,  the  Partnership  intends  to  actively  pursue a
strategy  to  increase  the  Partnership's  operating  income.  A  three-pronged
strategy will be utilized to accomplish this goal.

o  Cost Reductions.  The Partnership has substantially
   reduced its general and administrative expenses and
   will continue to seek further reductions where
   appropriate.

o  Internal  Growth.  The  Partnership  intends to expand the  operations of its
   current  facilities.  The  Partnership  has  taken a  number  of  steps  that
   management   believes  will  increase  revenues  from  existing   operations,
   including the following:

   An  agreement  has been  reached  with the  principal  shipper on the Cypress
   Pipeline  to expand the  capacity  of the  pipeline  effective  in the fourth
   quarter of 1997.

                            23





   The Cora Terminal is expected to handle  approximately 10 million tons during
   1997 as a  result  of an  anticipated  agreement  with a  major  southeastern
   utility and other new business.

   The volume  handled by the Central Basin  Pipeline is expected to increase in
   1997 as a result of several new agreements.

   The Painter  Fractionator  and Millis Terminal have been leased to Amoco on a
   long-term basis effective in the first quarter of 1997.

   See "Item 1.  Business" for a more detailed discussion
regarding these and other developments.

o  Strategic Acquisitions.  The Partnership intends to
   seek opportunities to make strategic acquisitions to
   expand existing businesses or to enter into related
   businesses.  The Partnership has identified several
   potential acquisitions, although no assurance can be
   given that the Partnership will be able to consummate
   such acquisitions.  Management anticipates that
   acquisitions will be financed temporarily by bank
   bridge loans and permanently by a combination of debt
   and equity funding from the issuance of new Common
   Units.

   Management intends to increase the quarterly  distribution from $.63 per Unit
to $.80 per Unit in the second  quarter  of 1997,  which  distribution  would be
payable in August 1997.

   The Partnership  intends to seek to refinance or restructure the $110 million
First Mortgage  Notes ("First  Mortgage  Notes") and its bank credit  facilities
during 1997.  However,  there can be no assurances that the Partnership  will be
able to refinance or restructure  such  indebtedness  on terms  favorable to the
Partnership.

Financial Condition

   General

   The Partnership's primary cash requirements,  in addition to normal operating
expenses,  are debt  service,  sustaining  capital  expenditures,  discretionary
capital  expenditures and quarterly  distributions  to partners.  In addition to
utilizing cash generated from  operations,  the Partnership  could meet its cash
requirements  through  the  utilization  of  credit  facilities  or  by  issuing
additional limited partner interests in the Partnership.

   Enron has the support  obligation  to contribute  cash, if necessary,  to the
Partnership  through  September 30, 1997 in exchange for additional  partnership
interests (API's) to support the Partnership's ability to distribute the Minimum
Quarterly  Distribution (the "Minimum Quarterly  Distribution") of $.55 per Unit
as required by the Omnibus Agreement among the Partnership,  the General Partner
and Enron.  KMI has obtained a $10.9  million  letter of credit from First Union
National Bank of North Carolina  ("First  Union") to support  Enron's  remaining
obligations with respect to the Minimum  Quarterly  Distribution  payable to the
holders of the Partnership's Common Units.

   In connection with KMI's  acquisition of the General  Partner,  OLP-B entered
into a credit  agreement  with First Union which  provided  for a $15.9  million
revolving credit  facility.  The obligations of OLP-B under the credit agreement
are guaranteed by the Partnership.  Borrowings under the credit facility are due
February 14, 1999 and bear interest,  at OLP-B's option, at either First Union's
Base Rate plus .5% per annum or London  Interbank  Offered Rate  ("LIBOR")  plus
2.25% per annum (in each case  increasing by .25% as of the end of each calendar
quarter  commencing  June 30,  1997).  The new credit  facility  (i)  refinanced
approximately  $4.4  million  owed by OLP-B to Enron and (ii)  replaced  OLP-B's
existing credit facility with First Union,  which had approximately $9.6 million
outstanding  as of February 14,  1997.  As of March 1, 1997,  the  Partnership's
outstanding  borrowings  under the  Credit  Facility  were  $14.6  million.  The
Partnership's  ability to borrow  additional  funds under the credit facility is
subject to  compliance  with certain  financial  covenants  and ratios.  The new
credit facility also provides for an approximate  $24.1 million letter of credit
that has been issued by First Union to replace a letter of credit previously

                            24





issued by Wachovia Bank of Georgia, N.A. and which was
guaranteed by Enron supporting the Cora Terminal revenue
bonds.  The letter of credit fee has increased from .25%
per annum to 1.50% per annum.

   OLP-A has established a $15 million revolving credit agreement  facility with
a bank to meet its  working  capital  requirements.  As of March  1,  1997,  the
outstanding   borrowings  under  the  credit  facility  were  $13  million.  The
Partnership  also has the ability to borrow up to an additional $25.0 million in
accordance with the provisions of the First Mortgage Notes.

   In order to finance the acquisition of the General Partner,  KMI borrowed $15
million from First Union. The loan is due August 31, 1999 and bears interest, at
the option of KMI, at either First Union's Base Rate plus .5% per annum or LIBOR
plus 2.5% per annum.  The  borrowings  by KMI from First  Union are secured by a
pledge of all of the stock of the  General  Partner.  In  addition,  the General
Partner pledged all of the Common Units owned by it as additional collateral for
the loans. The Credit Agreement  requires First Union's consent for, among other
things,  (i) the  merger  or  consolidation  of the  Partnership  with any other
person, (ii) the sale, lease or other disposition of all or substantially all of
the  Partnership's  property or assets to any other person or (iii) the issuance
of any additional Common Units.

   Cash Provided by Operating Activities

   Cash flow from  operations  totaled $22.8 million for the year ended December
31, 1996  compared to $22.6  million in 1995.  The increase is primarily  due to
higher earnings and increased  distribution  from  investments in  partnerships,
partially offset by increased working capital requirements.

   Cash Used in Investing Activities

   Cash used in investing  activities increased 5.8% to $9.1 million during 1996
as compared to $8.6  million  during  1995.  Additions  to  property,  plant and
equipment totaled $8.6 million and $7.8 million for 1996 and 1995, respectively.
Property additions in 1996 increased  primarily due to a new propane terminal on
the North System and pipeline laterals on the Central Basin Pipeline.

   Cash Used in Financing Activities

   Cash used in financing  activities  increased  25.9% to $13.6 million for the
year ended December 31, 1996 as compared to $10.8 million during 1995. Cash used
during 1996 and 1995 primarily reflected  distributions to Unitholders partially
offset by a net  increase in  long-term  debt in the amount of $3.3  million and
$6.7 million, respectively, to finance capital expansion projects on the Central
Basin Pipeline and the North System.

Information Regarding Forward Looking Statements

   This filing includes forward looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934.  Although the Partnership  believes that its  expectations are based on
reasonable  assumptions,  it can  give  no  assurance  that  its  goals  will be
achieved.  Price trends and overall  demand for NGLs, CO2 and coal in the United
States and the condition of the capital  markets and equity  markets could cause
actual results to differ from those in the forward looking statements herein.


                            25





Item 8.  Financial Statements and Supplementary Data

   The information required hereunder is included in this report as set forth in
the "Index to Financial Statements" on page F-1.

Item 9.  Changes in and Disagreements on Accounting and
Financial Disclosure

   None.

                            26





                       P A R T  III

Item 10.  Directors and Executive Officers of the
Registrant

Directors and Executive Officers of the General Partner

     As is commonly  the case with  publicly-traded  limited  partnerships,  the
Partnership  does not employ any of the  persons  responsible  for  managing  or
operating the Partnership,  but instead reimburses the General Partner for their
services.  Set forth below is certain  information  concerning the directors and
executive officers of the General Partner.  All directors of the General Partner
are elected  annually by, and may be removed by, KMI as the sole  shareholder of
the General  Partner.  All officers  serve at the discretion of the directors of
the Board of Directors of the General Partner.

    Name           Age     Position with the General
Partner
Richard D. Kinder  52  Director, Chairman and CEO
William V. Morgan  53      Director and Vice Chairman
Alan L. Atterbury  54  Director
Edward O. Gaylord  65      Director
Thomas B. King     35  Director and President
Thomas P. Tosoni   46  Chief Financial Officer and
Assistant Secretary
Michael C. Morgan  28  Vice President, Corporate
Development
David G. Dehaemers, Jr. 36 Secretary and Treasurer
Roger C. Mosby     49  Vice President

   Richard D. Kinder was elected Director, Chairman and
CEO of the General Partner in February 1997.  From 1992 to
1994, Mr. Kinder served as Chairman of the General
Partner.  From October 1990 until December 1996, Mr.
Kinder was President of Enron Corp.  Mr. Kinder was
employed by Enron and its affiliates and predecessors for
over 16 years.

   William V. Morgan was  elected as a director  of the General  Partner in June
1994 and Vice Chairman of the General  Partner in February  1997. Mr. Morgan has
been the  President  of Morgan  Associates,  Inc.,  an  investment  and pipeline
management  company,  since February 1987, and Cortez  Holdings  Corporation,  a
related pipeline investment  company,  since October 1992. He has held legal and
management   positions  in  the  energy  industry  since  1975,   including  the
presidencies  of three major  interstate  natural gas companies  which are now a
part of Enron: Florida Gas Transmission  Company,  Transwestern Pipeline Company
and Northern  Natural Gas  Company.  Prior to joining  Florida Gas in 1975,  Mr.
Morgan was engaged in the private practice of law in Washington, D.C.

   Alan L.  Atterbury  was  elected  as a  director  of the  General  Partner in
February 1997. Mr.  Atterbury is a co-founder of Midland Loan Services,  L.P., a
real estate financial  services  company,  and has served as its Chief Executive
Officer and President  since its inception in 1992. Mr.  Atterbury has also been
the  President and a Director of Midland Data  Systems,  the general  partner of
Midland Loan Services,  since its inception in 1990 and the President of Midland
Properties,  a property  management and real estate development  company,  since
1980.

   Edward O. Gaylord was elected as a director of the
General Partner in February 1997.  Mr. Gaylord is the
President of Gaylord & Company, a venture capital company
located in Houston, Texas.  Mr. Gaylord also serves as
Chairman of the Board for EOTT Energy Corporation, an oil
trading and transportation company also located in
Houston, Texas.  He is also President of Jacintoport
Terminal Company.

   Thomas  P.  Tosoni  has  served  as Vice  President,  Finance  and  Assistant
Secretary  for the  General  Partner  since July 1, 1995.  He was  elected  Vice
President,  Finance &  Administration  and  Assistant  Secretary  of the General
Partner  on  September  15,  1993.  Prior to that he held the  position  of Vice
President, Controller and Assistant

                            27





Secretary of the General  Partner from  December  17, 1992 until  September  15,
1993.  From 1990 until  December  1992,  he served as  Controller  and Assistant
Secretary for the General Partner.  He previously served as Controller for Enron
Gas Processing Company from 1986 to 1989. He served as Assistant  Controller for
the Production and Transportation  Division of the Enron Liquid Fuels Group from
1984 to 1986.

   Michael C. Morgan was elected Vice President, Corporate
Development of the General Partner in February 1997.  From
August 1995 until February 1997, Mr. Morgan was an
associate with McKinsey & Company, an international
management consulting firm.  In 1995, Mr. Morgan received
a Masters in Business Administration from the Harvard
Business School.  From March 1991 to June 1993, Mr. Morgan
held various positions at PSI Energy, Inc., an electric
utility, including Assistant to the Chairman.  Mr. Morgan
received a Bachelor of Arts in Economics and a Masters of
Arts in Sociology from Stanford University in 1990.  Mr.
Morgan is the son of William V. Morgan.

   David G. Dehaemers, Jr. was elected Secretary and
Treasurer of the General Partner in February 1997.  Mr.
Dehaemers has been self-employed as a tax and accounting
consultant since 1988.  Mr. Dehaemers has also been the
President of TNT Wash Systems, Inc. since January 1992.

   Roger C. Mosby was elected Vice President of the
General Partner in February 1997.  Prior to that, Mr.
Mosby was Vice President for Enron Liquid Services Corp.
from July 1994 until February 1997.  He was Vice President
of Enron Gas Processing Company from January 1990 until
March 1994.

   Thomas B. King was  elected  President  of the General  Partner in  February,
1997. Prior to that, he held the position of Vice-President,  Midwest Region for
the  General  Partner  from July 1995 until  February  1997.  Mr.  King has held
several  positions  since he joined  Enron in 1989,  including  Vice  President,
Gathering  Services of Transwestern  Pipeline  Company and Northern  Natural Gas
Company and as  Regional  Vice  President,  Marketing  of  Northern  Natural Gas
Company.  From  December  1989 to August 1993,  he served as Director,  Business
Development for Northern Border Pipeline Company in Omaha, Nebraska.

   Section  16(a) of the  Securities  Exchange Act of 1934 requires the officers
and  directors  of the General  Partner,  and persons who own more than 10% of a
registered class of the equity securities of the Partnership, to file reports of
ownership and changes in ownership with the SEC and the New York Stock Exchange.
Based  solely on its review of the  copies of such  reports  received  by it, or
written  representations  from  certain  reporting  persons that no Forms 5 were
required for those persons,  the General Partner  believes that during 1996, its
officers and  directors  and 10% holders of the  Partnership  complied  with all
applicable filing requirements; except as follows:

   On January 14,  1997,  the General  Partner and Enron filed Form 3s reporting
the direct  ownership  by the General  Partner,  and the  indirect  ownership by
Enron, of 860,000 Deferred  Participation  Units on September 30, 1994, the date
on which the Deferral  Period  ended with respect to the Deferred  Participation
Units.

Item 11.  Executive Compensation

   The  compensation  paid by the General  Partner for services  rendered during
1996,  1995 and 1994  respectively,  to the General  Partner's  Chief  Executive
Officer ("CEO") are as follows (no other executive  officer's salaries allocated
to the  Partnership  exceeded  $100,000):  Mr.  Raymond R. Kaskel,  who held the
office of President of the General Partner from July 1, 1995 until June 30, 1996
was paid  $36,500 and $22,917 for 1996 and 1995,  respectively.  Mr.  William V.
Allison, who was elected President of the General Partner as of July 1, 1996 was
paid  $79,375  by  the  General  Partner  during  1996.  Because  prior  to  the
acquisition of the General Partner by KMI, the executive officers of the General
Partner were  employees of other Enron  subsidiaries,  and provided  services to
these  subsidiaries,  the Partnership  only reimbursed the General Partner for a
portion of their salaries.  As a result of this  allocation,  the portion of the
other executive  officers' salaries reimbursed by the Partnership did not exceed
$100,000.

                            28





   In addition to the above cash compensation,  for which the General Partner is
reimbursed by the Partnership, the above named individuals received compensation
from the General  Partner or from Enron under various  employee  benefit  plans.
Under the terms of the  Partnership  Agreement and Omnibus  Agreement  among the
Partnership,  the General Partner and Enron, reimbursement for certain expenses,
including employee benefits, was subject to certain limits. As a result of KMI's
acquisition  of the  General  Partner,  Enron and its  affiliates  are no longer
required to provide  corporate staff and support services under the terms of the
Omnibus Agreement,  and the limitations on reimbursement for corporate staff and
support  services  incurred by the General  Partner on behalf of the Partnership
are no longer applicable. During 1996, neither the General Partner nor Enron was
reimbursed  by the  Partnership  for such other  compensation  paid to the named
executive officers because the limits were exceeded.  See Note 8 of the Notes to
Consolidated  Financial Statements of the Partnership included elsewhere in this
report.



                            29





Item 12.  Security Ownership of Certain Beneficial Owners
and Management


                                                             Amount and Nature of Beneficial Ownership

                                                                        KMI Voting Stock                 KMI Non Voting Stock
                                       Common Units (1)                 (Class "A" Stock)                 (Class "B" Stock)
                                      ------------------               -------------------               ------------------
                                      Number       Percent           Number          Percent           Number          Percent
                                    of Units     of Class(2)     of Shares (3)       of Class       of Shares(3)       of Class
                                                                                                          
First Union Corporation              429,000             6.6%            105              1.98%          2,541              47.99%
One First Union Center
5th Floor
301 South College Street
Charlotte, NC 28288-0732

Kinder Morgan G.P., Inc              431,000             6.6%             --              --                --               --
1301 McKinney Street
Suite 3450
Houston, Texas 77010

Kinder Morgan, Inc. (4)              431,000             6.6%             --              --                --               --
1301 McKinney Street
Suite 3450
Houston, Texas 77010

Richard D. Kinder                      7,500              *            2,646             49.99%          2,648              50.01%

William V. Morgan                      1,000              *            2,542(5)          48.03%            106(5)            2.00%

Alan L. Atterbury                      3,000              *               --              --                --               --

Edward O. Gaylord                         --             --               --              --                --               --

Thomas B. King                            --             --               --              --                --               --

Directors and Officers                12,300              *            5,188             98.00%          2,754              52.01%
  as a group (9 persons)



*Less than 1%
(1)All Common Units involve sole voting power and sole investment power.
(2)As of March 1, 1997 the Partnership had 6,510,000
   Common Units issued and outstanding.
(3)As of  March  1,  1997,  KMI  had a total  of  5,293  shares  of  issued  and
   outstanding  voting  stock  and  a  total  of  5,295  shares  of  issued  and
   outstanding non voting stock.
(4) Represents Units held by Kinder Morgan G.P., Inc.,
which is wholly owned by Kinder Morgan, Inc.
(5)These shares are held by Morgan Associates, Inc., a
   Kansas corporation, wholly owned by Mr. Morgan.

   KMI  pledged  all of the  stock of the  General  Partner  to  First  Union in
connection with its acquisition of the General Partner.

   Mr. Kinder has the right to acquire  control of KMI,  through the purchase of
certain shares of stock from MAI or conversion of non-voting KMI stock to voting
stock,  at such time as KMI and William Morgan agree upon a long term employment
contract for Mr.  Morgan.  In  addition,  commencing  on February 15, 1999,  Mr.
Kinder and Mr.  Morgan  have an option to  purchase  certain  KMI stock owned by
First Union Corporation, and commencing on August 15, 2000, KMI has an option to
purchase and First Union Corporation has the right to require KMI to

                            30





purchase, all of the KMI stock owned by First Union Corporation.  As a result of
the foregoing arrangements,  Mr. Kinder may in the future acquire control of the
General Partner.

Item 13.  Certain Relationships and Related Transactions

General and Administrative Expenses

   Under the terms of the Omnibus  Agreement that was executed among Enron,  the
Partnership and the General Partner at the time of formation of the Partnership,
Enron agreed that it and its  affiliates  would  provide to the General  Partner
certain  corporate  staff and support  services to assist the General Partner in
its  management  and  operation  of the  Partnership.  The  amount  paid  by the
Partnership  to  reimburse  Enron and its  affiliates  for such  services to the
General Partner was subject to certain  limitations  established under the terms
of the  Omnibus  Agreement.  As a result  of KMI's  acquisition  of the  General
Partner,  Enron and its affiliates are no longer  required to provide  corporate
staff and support  services  under the terms of the Omnibus  Agreement,  and the
limitations on reimbursement  for corporate staff and support services  incurred
by the General Partner on behalf of the Partnership are no longer applicable.

Partnership Distributions

   The General  Partner owns 431,000 Common Units,  representing  an approximate
6.6% of the Common  Units.  The  Partnership  Agreements  provide for  incentive
distributions payable to the General Partner out of the Partnership's  Available
Cash in the event that quarterly  distributions  to  Unitholders  exceed certain
specified targets. In general,  subject to certain  limitations,  if a quarterly
distribution  to  Unitholders  exceeds a target of $0.605 per Unit,  the General
Partner will receive incentive distributions equal to (i) 15% of that portion of
the  quarterly  distribution  per Unit that exceeds  $0.605 but is not more than
$0.715,  plus (ii) 25% of that portion of the  quarterly  distribution  per Unit
that exceeds the  quarterly  distribution  amount of $0.715 but is not more than
$0.935,  plus (iii) 50% of that portion of the quarterly  distribution  per Unit
that exceeds $0.935.

   To support the  Partnership's  ability to  distribute  the Minimum  Quarterly
Distribution on all outstanding Common Units through the period ending September
30, 1997,  Enron agreed that,  if  necessary,  it would  contribute  cash to the
Partnership in exchange for APIs in the  Partnership.  The APIs are not entitled
to cash  distributions,  allocations  of taxable  income or loss  (except  under
limited  circumstances)  or voting  rights,  but the  Partnership is required to
redeem them if and to the extent that Available Cash reaches certain levels.  No
APIs have been  purchased by Enron since the inception of the  Partnership,  and
management does not expect that APIs will be required to be purchased to support
the payment of distributions in 1997. KMI has obtained a $10.9 million letter of
credit  from First Union  National  Bank of North  Carolina  to support  Enron's
remaining obligations with respect to the Minimum Quarterly Distribution payable
to the holders of the Partnership's Common Units.

South Cowden Lateral

   During 1996, a lateral was  constructed  that  connects the South Cowden Unit
flood project to the Central Basin Pipeline.  The lateral is owned by MAI, which
is owned by William V. Morgan,  and was  constructed  for MAI by the Partnership
under the terms of a Construction  Agreement at a cost of $1.35  million,  which
amount has been paid by MAI. In addition,  MAI and the Partnership  entered into
an  Operating  &  Maintenance   Agreement   which  provides  for  operation  and
maintenance of the lateral by the Partnership,  and a  Transportation  Agreement
which allows the Partnership to ship specified  quantities of CO2 on the lateral
and requires the  Partnership to ship certain  minimum  quantities of CO2 on the
lateral.  The agreements  are  coterminus  and expire in 2016.  During 1996, the
Partnership  charged MAI $31,250 under the Operating and  Maintenance  Agreement
and MAI charged the Partnership $194,648 under the Transportation Agreement. The
terms of such  agreements  are comparable to those which the  Partnership  would
make available to unaffiliated third parties.


                            31





   Revenues and Expenses

      Revenues  for the years ended  December  31,  1996,  1995 and 1994 include
transportation  charges  and  product  sales to an Enron  subsidiary,  Enron Gas
Liquids,  Inc.,  of $7.7 million,  $5.9 million and $4.7 million,  respectively.
Another  Enron  subsidiary,  Enron  Gas  Processing  Company  ("EGP"),  provides
services in connection with the Mobil Agreement (see Note 10) as well as storage
and other services to the Partnership and charged $6.6 million, $2.7 million and
$0.7 million for the years ended December 31, 1996, 1995 and 1994, respectively.
Management  believes  that these  charges are  reasonable.  As a result of KMI's
acquisition  of all of the common  stock of the General  Partner,  Enron and its
affiliates are no longer affiliates of the Partnership.

   Other

   The General  Partner  makes all decisions  relating to the  management of the
Partnership.  KMI owns all the  common  stock of the  General  Partner.  Certain
conflicts  of interest  could arise as a result of the  relationships  among the
General Partner, KMI and the Partnership. The directors and officers of KMI have
fiduciary  duties to manage  KMI,  including  selection  and  management  of its
investments in its  subsidiaries and affiliates,  in a manner  beneficial to the
shareholders  of KMI. In general,  the General  Partner has a fiduciary  duty to
manage  the  Partnership  in  a  manner  beneficial  to  the  Unitholders.   The
Partnership Agreements contain provisions that allow the General Partner to take
into  account  the  interests  of  parties in  addition  to the  Partnership  in
resolving  conflicts of interest,  thereby  limiting its  fiduciary  duty to the
Unitholders,  as well as provisions that may restrict the remedies  available to
Unitholders for actions taken that might,  without such limitations,  constitute
breaches of fiduciary duty. The duty of the directors and officers of KMI to the
shareholders  of KMI may,  therefore,  come into conflict with the duties of the
General  Partner to the  Unitholders.  The Conflicts and Audit  Committee of the
Board of Directors of the General  Partner  will,  at the request of the General
Partner,  review (and is one of the means for  resolving)  conflicts of interest
that  may  arise  between  KMI or its  subsidiaries,  on the one  hand,  and the
Partnership, on the other hand.

                            32





                        P A R T  IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K

   (a)(1) and (2) Financial Statements and Financial
Statement Schedules

   See "Index to Financial Statements" set forth on page F-1.

   (a)(3) Exhibits

*3.1  -Amended and Restated Partnership Agreement of Enron
       Liquids Pipeline, L.P. (Exhibit 3.1 to the
       Partnership's Annual Report on Form 10-K for the
       year ended December 31, 1993 ("1993 10-K"))
*3.2  -First Amendment to Amended and Restated Agreement
       of Limited Partnership of Enron Liquids Pipeline,
       L.P. effective as of August 6, 1992 (Exhibit 3.2 to
       the Partnership's Annual Report on Form 10-K for
       the year ended December 31, 1992 ("1992 10-K"))
*3.3  -Second Amendment to Amended and Restated Agreement
       of Limited Partnership of Enron Liquids Pipeline,
       L.P. effective as of September 30, 1993 (Exhibit
       3.3 to 1993 10-K)
*3.4   -Third Amendment to Amended and Restated Agreement of Limited Partnership
       dated as of February 14, 1997 (Exhibit 4.0 to the Partnership's  Form 8-K
       Report dated February 14, 1997)
*4.1  -Specimen Certificate representing Common Units
       (Exhibit 4.1 to 1993 10-K)
*10.1 -Omnibus Agreement among Enron Corp., Enron Liquids
       Pipeline Company, Enron Liquids Pipeline, L.P. and
       Enron Liquids Pipeline Operating Limited
       Partnership (Exhibit 10.1 to 1993 10-K)
*10.1.-First Amendment to Omnibus Agreement, dated as of
       September 30, 1993 (Exhibit 10.1.1 to 1993 10-K)
*10.1.-Second Amendment to Omnibus Agreement, dated as of
       September 7, 1994 (Exhibit 10.1.2 to 1994 10-K)
*10.2 -Amended and Restated Agreement of Limited
       Partnership of Enron Liquids Pipeline Operating
       Limited Partnership effective as of August 6, 1992
       (Exhibit 10.2 to 1993 10-K)
*10.2.-First Amendment to Amended and Restated Agreement of Limited  Partnership
       of Enron Liquids Pipeline Operating Limited  Partnership  effective as of
       August 6, 1992 (Exhibit 10.2.1 to 1992 10-K)
*10.2.-Second Amendment to Amended and Restated Agreement of Limited Partnership
       of Enron Liquids Pipeline Operating Limited Partnership dated as of March
       22, 1993 but effective as of August 6, 1992 (Exhibit 10.2.2 to 1992 10-K)
 10.2.-Third Amendment to Amended and Restated Agreement
       of Limited Partnership of Enron Liquids Pipeline
       Operating Limited Partnership dated as of February
       14, 1997
*10.3 -Conveyance, Contribution and Assumption Agreement
       among certain Enron Corp. subsidiaries and the
       Operating Partnership (Exhibit 10.3 to 1993 10-K)
*10.3.-First  Amendment to Conveyance,  Contribution  and  Assumption  Agreement
       effective as of August 6, 1992 (Exhibit 10.3.1 to 1992 10-K)
*10.4 -Form of Fractionation Agreement between Enron
       Natural Gas Liquids Corporation ("ENGL") and Enron
       Gas Liquids, Inc. for fractionation services at the
       Mont Belvieu Fractionator (Exhibit 10.4 to
       Amendment No. 2 to the Partnership's Form S-1
       Registration Statement, Registration No. 33-48142,
       filed on July 30, 1992 ("Form S-1"))
*10.5 -Storage Agreement between Enron Gas Processing
       Company and the General Partner dated February 18,
       1987 relating to the Bushton storage field,
       Amendment No. 1 dated October 19, 1988, Amendment
       No. 2 dated May 22, 1992, and Amendment No. 3 dated
       May 29, 1992 (Exhibit 10.5 to Form S-1)
*10.5-  Amendment No. 4 to Storage Agreement dated August
     25, 1994 (Exhibit 10.5.1 to Form S-1)
*10.6- Transportation Agreement between Enron Liquids
       Pipeline Company and Enron Gas Liquids Inc. dated
       August 1, 1989 relating to the Peoples Gas Light &
       Coke Company and the form of Amendment No. 1
       thereto (Exhibit 10.6 to Form S-1)

                            33





*10.7 -Facilities Service Agreement between Enron Liquids
       Pipeline Company and Enron Gas Processing Company
       dated February 18, 1987, relating to facilities at
       Bushton, Kansas, Amendment  No. 1 dated January 10,
       1989, and Amendment No. 2 dated May 30, 1992
       (Exhibit 10.7 to Form S-1)
*10.8- Fractionation  Agreement between Enron Liquids Pipeline Company and Enron
       Liquids Marketing Company (now Enron Gas Liquids, Inc.) for fractionation
       services at Bushton,  Kansas, dated September 24, 1987, (first) Amendment
       effective  as of  January  1,  1988  and  dated  May 25,  1988,  (second)
       Amendment  dated August 1, 1989,  (third)  Amendment dated March 7, 1991,
       and Amendment No. 4 dated as of August 1, 1992 (Exhibit 10.8 to Form S-1)
*10.9- Unstenched Loading Letter Agreement between Enron
       Liquids Pipeline Company and Enron Gas Liquids,
       Inc. dated November 12, 1991 (Exhibit 10.9 to Form
       S-1)
*10.1- Note Agreement relating to the First Mortgage Notes
       (Exhibit 10.10 to 1993 10-K)
*10.1- Trust Agreement relating to the First Mortgage
       Notes (Exhibit 10.11 to 1993 10-K)
*10.1- Pledge and Security Agreement relating to the First
       Mortgage Notes (Exhibit 10.13 to 1993 10-K)
*10.1- Mortgage,  Security  Agreement and Fixture  Filing  relating to the First
       Mortgage Notes (Exhibit 10.12 to 1993 10-K)
*10.14 Amended and Restated Agreement of Limited
       Partnership of Enron Transportation Services, L.P.
       dated as of September 30, 1993 (Exhibit 10.14 to
       1993 10-K)
 10.1- First Amendment to Amended and Restated Agreement
       of Limited Partnership of Enron Transportation
       Services, L.P. dated as of February 14, 1997
*10.1- Asset  Purchase  Agreement,  dated as of September 30, 1993, by and among
       Cora Dock  Corporation,  as Seller,  and Enron  Transportation  Services,
       L.P.,  as  Purchaser,  and Houston  Pipe Line  Company,  as  guarantor of
       certain obligations of Seller (Exhibit 10.15 to 1993 10-K)
*10.1- Loan Agreement, dated April 1, 1994 between
       Jackson-Union Counties Regional Port District and
       Enron Transportation Services, L.P. (Exhibit 10.18
       to 1995 10-K)
*10.1- Guaranty and Indemnity, dated September 30, 1993,
       issued by Enron Liquids Pipeline, L.P. in favor of
       Enron Corp. and Houston Pipe Line Company (Exhibit
       10.19 to 1993 10-K)
*10.1- Purchase and Sale  Agreement,  dated June 30, 1994,  by and between Enron
       Gas Processing and Enron  Transportation  Services,  L.P.  (Exhibit 10 to
       Current Report on Form 8-K dated July 15, 1994)
*10.19 Operation and Maintenance Agreement between Enron
       Gas Processing Company and Northern Natural Gas
       Company dated August 1, 1987, assigned to Enron
       Transportation Services, L.P. effective July 1,
       1994 (Exhibit 10.24 to 1994 10-K)
*10.20 Loan Agreement between Enron Liquids Pipeline
       Operating Limited Partnership and Bank One, Texas,
       N.A., dated effective May 24, 1995 (Exhibit 10.28
       to 1995 10-K)
*10.20.First Amendment to Loan Agreement,  dated effective May 24, 1995, between
       Enron Liquids Pipeline Operating Limited Partnership and Bank One, Texas,
       N.A., dated effective September 30, 1995 (Exhibit 10.28.1 to 1995 10-K)
*10.21 Letter  Agreement  regarding  SWAP  transaction  to Enron  Transportation
       Services,  L.P. from First Union National Bank of North  Carolina,  dated
       February 13, 1996 (Exhibit 10.29 to 1995 10-K)
*10.22 Gas Sales Agreement between Enron Liquids Pipeline
       Operating Limited Partnership and Enron Gas
       Processing Company, dated effective October 1, 1995
       (Exhibit 10.30 to 1995 10-K)
*10.23 Bushton Hydrocarbon Plant Sublease Agreement
       between Enron Liquids Pipeline Operating Limited
       Partnership and Enron Gas Processing Company, dated
       effective October 1, 1995 (Exhibit 10.31 to 1995
       10-K)
*10.24 Assignment and Assumption Of Contract from Enron
       Gas Processing Company to Enron Liquids Pipeline
       Operating Limited Partnership, dated October 1,
       1995 (Exhibit 10.32 to 1995 10-K)
*10.25 Agency Agreement between Enron Liquids Pipeline
       Company and Enron Liquid Fuel Company, dated July
       19, 1995 (Exhibit 10.33 to 1995 10-K)
*10.26 Agreement between Enron Transportation Services,
       L.P. and International Union of Operating
       Engineers, AFL-CIO, dated March 19, 1995 (Exhibit
       10.34 to 1995 10-K)

                            34





*10.27 Lease between Richard Zang Hamilton, Doris Marie Hamilton,  Richard David
       Hamilton and James Price Hamilton,  as Lessors, and Zeigler Coal Company,
       as Lessee, dated April 21, 1976 (Exhibit 10.35 to 1995 10-K)
*10.28 Storage Agreement between Enron Gas Processing
       Company and Enron Liquids Pipeline Company dated
       effective January 1, 1996 (Exhibit 10.36 to 1995
       10-K)
*10.29 Termination of the Bushton Storage Agreement
       between Enron Gas Liquids, Inc. and Enron Liquids
       Pipeline Operating Limited Partnership, dated
       effective December 3, 1995 (Exhibit 10.37 to 1995
       10-K)
*10.30 Transaction Agreement between Enron Liquids
       Pipeline Operating Limited Partnership and Enron
       Capital & Trade Resources Corp., dated September
       27, 1995 (Exhibit 10.38 to 1995 10-K)
*10.3- Credit  Agreement  dated as of  February  14,  1997 among  Kinder  Morgan
       Operating  L.P. "B" and First Union  National Bank of North Carolina with
       form of Notes attached (Exhibit 10.1 to the Partnership's Form 8-K Report
       dated February 14, 1997)
*10.3- Security Agreement dated as of February 14, 1997
       between Kinder Morgan Energy Partners, L.P. and
       First Union National Bank of North Carolina
       (Exhibit 10.2 to the Partnership's Form 8-K Report
       dated February 14, 1997)
*10.3- Security Agreement dated as of February 14, 1997
       between Kinder Morgan Operating L.P. "B" and First
       Union National Bank of North Carolina (Exhibit 10.3
       to the Partnership's Form 8-K Report dated February
       14, 1997)
*10.3- Guaranty  Agreement  dated as of February  14,  1997 from  Kinder  Morgan
       Energy  Partners,  L.P.  in favor of First Union  National  Bank of North
       Carolina  (Exhibit  10.4  to the  Partnership's  Form  8-K  Report  dated
       February 14, 1997)
*10.3- Credit Agreement dated as of February 14, 1997
       among Kinder Morgan, Inc. and First Union National
       Bank of North Carolina (Exhibit 10.5 to the
       Partnership's Form 8-K Report dated February 14,
       1997)
*10.36 Mortgage and Security Agreement with Assignment of
       Rents from Enron Transportation Services, L.P. to
       First Union National Bank of North Carolina, dated
       December 29, 1994 (Exhibit 10.22 to 1994 10-K)
*10.37 First Amendment to Mortgage and Security Agreement
       with Assignment Rents (Illinois) dated as of
                       February 14, 1997 between Kinder
                       Morgan Operating L.P. "B" and First
                       Union National Bank of North
                       Carolina (Exhibit 10.6 to the
                       Partnership's Form 8-K Report dated
                       February 14, 1997)
*10.38 Mortgage,  Security  Agreement,  and Financing  Statement  (Uinta County,
       Wyoming),  from Enron  Transportation  Services  in favor of First  Union
       National Bank of North  Carolina,  dated as of December 29, 1994 (Exhibit
       10.25 to 1994 10-K)
*10.3- First Amendment to Mortgage, Security Agreement and
       Financing Statement (Wyoming) dated as of February
       14, 1997 between Kinder Morgan Operating L.P. "B"
       and First Union National Bank of North Carolina as
       Agent (Exhibit 10.7 to the Partnership's Form 8-K
       Report dated February 14, 1997)
 10.40 Lease dated as of September 6, 1979 between Broken
       Circle Cattle Company and Northern Gas Products
       Company
 10.41 Construction Agreement between Morgan Associates,
       Inc. and Enron Liquids Pipeline Operating Limited
       Partnership dated June 20, 1996
 10.42 Operating & Maintenance Agreement between Morgan
       Associates, Inc. and Enron Liquids Pipeline
       Operating Limited Partnership dated June 20, 1996
 10.43 Transportation Agreement between Morgan Associates,
       Inc. and Enron Liquids Pipeline Operating Limited
       Partnership dated June 20, 1996

 21  - List of subsidiaries

- - - -------------------------------------
* Asterisk indicates exhibits incorporated by reference as indicated;  all other
exhibits are filed herewith.

                            35





(b) Reports on Form 8-K

   Form 8-K dated February 14, 1997, covering Items 1, 5 and 7.



                            36





               INDEX TO FINANCIAL STATEMENTS


                                                       Page

KINDER MORGAN ENERGY PARTNERS, L.P.
     AND SUBSIDIARIES

Report of Independent Public Accountants                F-2

Consolidated Statements of Income for the years ended
     December 31, 1996, 1995 and 1994                   F-3

Consolidated Balance Sheets for the years ended December
31, 1996 and 1995                                       F-4

Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994                        F-5

Consolidated Statements of Partners' Capital for the
     years ended December 31, 1996, 1995 and 1994       F-6

Notes to Consolidated Financial Statements              F-7


MONT BELVIEU ASSOCIATES

Report of Independent Public Accountants               F-22

Statements of Income for the years ended December 31,
1996, 1995 and 1994                                    F-23

Balance Sheets for the years ended December 31, 1996 and
1995                                                   F-24

Statements of Cash Flows for the years ended December
     31, 1996, 1995 and 1994                           F-25

Statements of Partners' Capital for the years ended
December 31, 1996, 1995 and 1994                       F-26

Notes to Financial Statements                          F-27




                            F-1





         REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Partners of Kinder Morgan Energy Partners, L.P.
(Formerly Enron Liquids Pipeline, L.P.):





We have audited the  accompanying  consolidated  balance  sheet of Kinder Morgan
Energy Partners,  L.P. (a Delaware  limited  partnership) and subsidiaries as of
December 31, 1996 and 1995, and the related  consolidated  statements of income,
cash flows and partners' capital for each of the three years in the period ended
December 31, 1996.  These  financial  statements are the  responsibility  of the
Partnership's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Kinder Morgan Energy Partners,
L.P. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.


                                        ARTHUR ANDERSEN LLP







Houston, Texas
February 21, 1997



                            F-2





   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
             CONSOLIDATED STATEMENT OF INCOME
          (In thousands, except per unit amounts)

                              Year Ended December 31,
                              1996       1995      1994
                              ----       ----      ----
Revenues
     Trade                 $62,561    $57,379   $48,876
     Related party           8,689      6,925     6,028
                            ------     ------    ------
                            71,250     64,304    54,904
                            ------     ------    ------

Costs and expenses

     Cost of products sold   7,874      8,020       940
     Operations and
maintenance
         Related party       6,558      2,683       697
         Other              12,322      9,956     9,576
     Fuel and power          4,916      3,934     5,481
     Depreciation            9,908      9,548     8,539
     General and
administrative
         Allocated from      5,835      5,495     5,123
Enron
         Other               3,297      3,244     3,073
     Taxes, other than       3,467      3,289     3,371
                            ------     ------    ------
income taxes
                            54,177     46,169    36,800
                            ------     ------    ------
Operating income            17,073     18,135    18,104
Other income (expense)
     Equity in earnings of   5,675      5,755     5,867
partnerships
     Interest expense      (12,634)   (12,455)  (11,989)
     Other                   3,250      1,426       622
Minority interest             (121)      (115)     (113)
                            -------    -------   -------
Income before income taxes  13,243     12,746    12,491
Income tax expense           1,343      1,432     1,389
                            ------     ------    ------
Net income                 $11,900    $11,314   $11,102
                            =======    =======   =======
Net income per Unit Note 2)$  1.79    $  1.71   $  1.86
                            =======    =======   =======
Number of Units used in      6,510      6,510     5,865
                            =======    =======   =======
computation (Note 2)
















   The      accompanying  notes  are an  integral  part  of  these  consolidated
            financial statements.

                            F-3





   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
                CONSOLIDATED BALANCE SHEET
                      (In thousands)
                                                  December 31,
                                                1996         1995
ASSETS

Current assets
     Cash and cash equivalents             $  14,299      $  14,202
     Accounts receivable
          Trade                                7,970          7,913
          Related parties                      4,390          2,183
     Inventories
          Products                               882            832
          Materials and supplies               1,827          2,075
                                               -----          -----
                                              29,368         27,205

Property, plant and equipment, at cos        272,178        263,838
     Less accumulated depreciation            36,184         26,984
                                             235,994        236,854

Investments in partnerships                   32,043         32,613
                                              ------         ------

Deferred charges and other assets              6,198          6,992
                                               -----          -----


TOTAL ASSETS                                $303,603       $303,664

LIABILITIES AND PARTNERS' CAPITAL

Current liabilities
     Accounts payable
          Trade                               $5,512         $5,272
          Related parties                      4,520          2,664
     Current portion of long-term debt         1,709          1,700
     Accrued liabilities                         811          2,808
     Accrued taxes other than income           2,304          2,155
     Distributions payable                     4,210          4,210
                                               -----          -----
                                              19,066         18,809

Long-term liabilities and deferred credits
     Long-term debt                           160,211       156,938
     Other                                      3,492         2,264
                                              163,703       159,202
Commitments and contingencies (Notes 6, 9 and 10)

Minority interest                               2,490         2,537
                                              -------       -------
Partners' capital
     Common unitholders                       101,000       105,100
     Deferred participation unitholder         16,165        16,787
     General partner                            1,179         1,229
                                              118,344       123,116
TOTAL LIABILITIES AND PARTNERS' CAPITAL      $303,603      $303,664

   The      accompanying  notes  are an  integral  part  of  these  consolidated
            financial statements.

                            F-4





   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CASH FLOWS
                      (In thousands)


                                          Year Ended December 31,
                                           1996     1995     1994
                                         ------    -----   -----
Cash flows from operating activities
Reconciliation of net income to net cash
provided by operating activities
   Net income                          $11,900  $11,314  $11,102
   Depreciation                          9,908    9,548    8,539
   Equity in earnings of partnerships   (5,675)  (5,755)  (5,867)
   Distributions from investments in
   partnerships 6,791 6,061
7,336
     Changes in components of working capital
          Accounts receivable           (2,264)   (2,958)    (939)
          Inventories                      198       465     (854)
          Accounts payable               2,096     1,581     (690)
          Accrued liabilities           (1,997)    1,535     (289)
          Accrued taxes                    149      (373)     (80)
          Distribution payable               -        -       540
     Other, net                          1,670     1,148      313
                                         ------   -------  ------
Net cash provided by operating activities 22,776  22,566   19,111
                                          ------   ------  ------

Cash flows from investing activities
     Acquisition of assets                     -       -  (12,825)
     Additions to property, plant and 
     equipment                            (8,575) (7,826)  (5,195)
     Contributions to partnership 
     investment                             (546)   (772)    (304)
Net cash used in investing activities     (9,121) (8,598) (18,324)

Cash flows from financing activities
     Decrease/increase in short-term debt       -   (650)     650
     Issuance of long-term debt             5,000  8,000   49,961
     Repayment of long-term debt           (1,718)(1,290) (36,762)
     Distributions to partners
          Common units                    (14,236)(14,236)(14,236)
          General partner                  (2,436) (2,436)   (232)
          Minority interest                  (168)   (168)   (163)
                                             -----  -----   -----
Net cash used in financing activities     (13,558)(10,780)   (782)

Increase in cash and cash equivalents          97   3,188       5
Cash and cash equivalents, beginning
of period                                  14,202  11,014  11,009
Cash and cash equivalents, end of Period  $14,299 $14,202 $11,014


Supplemental disclosures of cash flow 
information
     Cash paid during the year for
          Interest (net of capitalized
           interest)                      $12,487 $11,870 $11,676
          Income Taxes                    $   397 $   425 $   413


   The      accompanying  notes  are an  integral  part  of  these  consolidated
            financial statements.

                            F-5






   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
                      (In thousands)




                                                                    Deferred                   Total
                                                      Common      Participation   General    Partners'
                                                       Units          Units       Partner     Capital
                                                      -------     -------------   -------    --------
                                                                                   

Partners' capital at December 31, 1993               $113,711        $17,376       $1,304    $132,391

Net income                                             10,228            652          222      11,102

Distributions                                         (14,236)          (542)        (241)    (15,019)
                                                     ---------          -----        -----    -------

Partners' capital at December 31, 1994                109,703         17,486        1,285     128,474

Net income                                              9,633          1,469          212      11,314

Distributions                                         (14,236)        (2,168)        (268)    (16,672)
                                                      --------        -------        -----    -------

Partners' capital at December 31, 1995                105,100         16,787        1,229     123,116

Net income                                             10,136          1,546          218      11,900

Distributions                                         (14,236)        (2,168)        (268)    (16,672)
                                                      --------        -------        -----    -------

Partners' capital at December 31, 1996               $101,000        $16,165       $1,179    $118,344
                                                     ========        =======       ======    ========





















   The      accompanying  notes  are an  integral  part  of  these  consolidated
            financial statements.

                            F-6




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




1.  Organization


   Subsequent Event--Sale of the stock of the General
Partner

   Kinder Morgan Energy Partners, L.P. (the "Partnership",
formerly Enron Liquids Pipeline, L.P.), a Delaware limited
partnership was formed in August 1992.  Effective February
14, 1997, Kinder Morgan, Inc. ("KMI") acquired all of the
issued and outstanding stock of Enron Liquids Pipeline
Company, the general partner, from Enron Liquids Holding
Corp. ("ELHC").  At the time of the acquisition, the
general partner and the Partnership's subsidiaries were
renamed as follows:  Kinder Morgan G.P., Inc. (the
"General Partner", formerly Enron Liquids Pipeline
Company); Kinder Morgan Operating L.P. "A" ("OLP-A",
formerly Enron Liquids Operating Limited Partnership);
Kinder Morgan Operating L.P. "B" ("OLP-B", formerly Enron
Transportation Services, L.P.); and Kinder Morgan Natural
Gas Liquids Corporation ("KMNGL", formerly Enron Natural
Gas Liquids Corporation).

  General

  The Partnership's  assets include two interstate natural gas liquids ("NGL" or
"NGLs")  pipelines  ("North  System" and "Cypress  Pipeline"),  a carbon dioxide
("CO2") pipeline  ("Central Basin  Pipeline"),  a coal transfer  facility ("Cora
Terminal"), a gas processing plant ("Painter Plant"), a 25% indirect interest in
an NGL  fractionator  in Mont  Belvieu,  Texas by means of the  ownership of the
common  stock  of  KMNGL,  and  a gas  processing  capacity  sublease  ("Bushton
Sublease").  The North  System  transports,  stores and delivers a full range of
NGLs and refined  products from South  Central  Kansas to markets in the Midwest
and has  interconnects,  using  third-party  pipelines  in the  Midwest,  to the
eastern United States. The Cypress Pipeline transports ethane from Mont Belvieu,
Texas,  to  the  Lake  Charles,  Louisiana  area.  The  Central  Basin  Pipeline
transports  CO2 in West Texas.  The Cora  Terminal  transfers  coal from rail to
barge on the banks of the  Mississippi  River near Cora,  Illinois.  The Painter
Plant processes  natural gas and fractionates NGLs near Evanston,  Wyoming.  The
Bushton Sublease,  which expires in 2005,  provides gas processing capacity at a
plant in  Ellsworth  County,  Kansas and was  executed  in  conjunction  with an
assignment of a gas processing  agreement with Mobil Natural Gas, Inc. (see Note
10).

  The Partnership operates through two operating limited partnerships, OLP-A and
OLP-B (collectively, the "Operating Partnerships").  Kinder Morgan G.P., Inc. is
a wholly owned  subsidiary of KMI and serves as the sole general  partner of the
Partnership, OLP-A and OLP-B. The Partnership and the Operating Partnerships are
governed by Amended and Restated  Agreements of Limited  Partnership and certain
other agreements (collectively, the "Partnership Agreements").




                            F-7




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




2.  Summary of Significant Accounting Policies

  Principles of Consolidation and Use of Estimates

  The  consolidated  financial  statements  include the assets,  liabilities and
results of operations of the  Partnership and its  majority-owned  subsidiaries.
All significant intercompany items have been eliminated in consolidation.

  The preparation of financial  statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

  Cash Equivalents

  Cash equivalents are defined as all highly liquid short-term  investments with
original maturities of three months or less.

  Inventories

  Inventories of products  consist of NGLs which are valued at the lower of cost
(weighted-average  cost method) or market.  Materials and supplies are stated at
the lower of cost or market.

  Property, Plant and Equipment

  Property,  plant and equipment is stated at its acquisition cost. Expenditures
for  maintenance  and repairs are charged to operations in the period  incurred.
The cost of  property,  plant and  equipment  sold or  retired  and the  related
depreciation are removed from the accounts in the period of sale or disposition.
The provision for depreciation is computed using the straight-line  method based
on  estimated  economic  or  Federal  Energy  Regulatory  Commission  ("FERC") -
mandated  lives.   Generally,   composite  depreciation  rates  are  applied  to
functional groups of property having similar economic  characteristics and range
from 2.5% to 12.5%,  excluding certain short-lived assets such as vehicles.  The
original cost of property  retired is charged to  accumulated  depreciation  and
amortization,  net of salvage and cost of removal. No retirement gain or loss is
included in income except in the case of extraordinary retirements or sales.

  In March 1995, the Financial  Accounting  Standards Board issued  Statement of
Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the Impairment
of  Long-Lived  Assets  and for  Long-Lived  Assets to be  Disposed  Of,"  which
requires,  among other things,  that long-lived assets and certain  identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable.  The  Partnership  adopted  SFAS No.  121 in the  first
quarter of 1996. The adoption of SFAS No. 121 did not have a material  impact on
the Partnership's financial position or results of operations.


                            F-8




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




Property, plant and equipment consists of the following (in thousands):

                                      December 31,
                                  1996         1995

    Liquids Pipelines           $223,337     $217,105
    Coal Handling                 24,197       23,932
    Gas Processing                13,529       13,120
    Land                           2,936        2,288
    Other                          8,179        7,393
                                --------        -----
         Total                  $272,178     $263,838
                                ========     ========

  Revenue Recognition

  Revenues for the pipeline  operations  are  generally  recognized  on delivery
based  on the  actual  volume  transported.  Coal  handling  and gas  processing
revenues  are  recognized  based upon  volumes  loaded and volumes  processed or
fractionated, respectively.

  Investments in Partnerships

  The Partnership's  investments in partnerships  accounted for under the equity
method consisted of the following (dollars in thousands):

                               Percent     December 31,
                              Ownership      1996      1995

  Mont Belvieu Associates          50%     $27,205    $27,481
  Heartland Pipeline Company       50%       4,838      5,132
                                  ----     -------    -------
         Total                     100%    $32,043    $32,613
                                   ====    =======    =======

  The  Partnership's  equity in earnings of  investments in  partnerships  is as
follows (in thousands):

                                 Year Ended December 31,

                                 1996     1995      1994
                                ------   ------    -----

Mont Belvieu Associates         $4,968   $5,208    $5,534
Heartland Pipeline Company         707      547       333
     Total                      $5,675   $5,755    $5,867
                                ======   ======    ======



                            F-9




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




  Summarized  combined  financial  information of the  partnerships is presented
below (in thousands):

                                        December 31,
                                     1996       1995
Balance Sheet
    Current assets                 $ 7,729    $ 9,472
    Non-current assets              54,401     44,743
    Current liabilities              5,043      3,992
    Non-current liabilities         15,022      1,019
    Partners' equity                42,065     49,204


                            Year Ended December 31,
                           1996     1995      1994
                          ------   ------    -----

Income Statement
  Revenues               $31,534  $30,032   $31,548
  Expenses                19,563   18,074    18,396
                          ------   ------    ------
  Net income             $11,971  $11,958   $13,152
                         =======  =======   =======

  The excess of the Partnership's  cost over its 50% share of the underlying net
assets of the partnerships is being amortized over the estimated  remaining life
of the property,  plant and equipment of the partnerships.  Such amortization is
reflected  as a  reduction  in  equity  earnings  related  to the  Partnership's
investments.

  Minority Interest

  Minority  interest  consists of the approximate 1% general partner interest in
the Operating  Partnerships as well as other  contributions  that have been made
relative to the Mont Belvieu Fractionator.

  Income Taxes

  The  Partnership is not a taxable  entity for federal income tax purposes.  As
such, no federal income tax will be paid by the  Partnership.  Each partner will
be  required  to report on its tax return  its  allocable  share of the  taxable
income  and  loss of the  Partnership.  Such  taxable  income  or loss  may vary
substantially  from the net  income  or net loss  reported  in the  consolidated
statement of income primarily because of accelerated tax depreciation.

  KMNGL,  however,  is subject to  corporate  federal  and state  income  taxes.
Accordingly,  for financial reporting purposes, no recognition has been given to
income  taxes  related to the  operations  of the  Partnership  other than those
recorded by KMNGL.

  KMNGL accounts for income taxes under the provisions of
SFAS No. 109 - "Accounting for Income Taxes."  SFAS No.
109 provides for an asset and liability approach for
accounting for income taxes.  Under this approach,
deferred assets and liabilities are recognized based on
anticipated future tax consequences

                           F-10




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




attributable to differences  between  financial  statement  carrying  amounts of
assets and liabilities of their respective tax bases.

  The difference  between  KMNGL's  effective  income tax rate of  approximately
37.0% and the federal statutory tax rate relates to state income taxes.

  KMNGL's net  deferred  tax  liability  at December  31, 1996 and 1995 was $3.2
million and $2.2 million, respectively. At December 31, 1996, KMNGL had recorded
deferred tax assets  related to $1.3 million of  alternative  minimum tax credit
carryforwards  with no expiration  date and tax benefits of a net operating loss
("NOL")  carryforward  which  substantially  expires  in 2008.  In  1996,  KMNGL
utilized  approximately  $0.5  million  of  its  approximate  $3.7  million  NOL
carryforward.

  Net Income Per Unit

  Net income per unit is computed by dividing net income, after the deduction of
the General Partner's interest,  including  incentives,  by the weighted average
number of outstanding  Participating Units which includes 5,650,000 Common Units
("Common Units" represent limited partnership interests in the Partnership) and,
after  September 30, 1994,  also includes the 860,000 limited partner units held
by the General Partner on December 31, 1996. On February 14, 1997, these limited
partnership  interests  were  converted to Common Units and the General  Partner
then sold 429,000 of the units to a third party. (See Note 5).

3.  The Painter Plant

  Acquisition

    On June 30, 1994,  the  Partnership  acquired,  through  OLP-B,  the Painter
Plant,  a gas  processing  plant located in Uinta County,  Wyoming,  and related
assets  consisting of terminal  facilities and  construction  work-  in-progress
associated with such facilities and certain pipelines  connecting the plant with
third party  facilities.  The assets  were  acquired  from Enron Gas  Processing
Company,  an indirect  wholly-owned  subsidiary  of Enron Corp.  ("Enron").  The
accompanying consolidated financial statements include the results of operations
for the Painter Plant  beginning July 1, 1994. The cost of this  acquisition was
$12.8 million which OLP-B  originally  financed with a note from Enron. The debt
was  subsequently  refinanced  with a third  party  lender.  (See Note 4).  This
acquisition was accounted for as a purchase.

                           F-11




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




    Detailed  below is  summarized  pro  forma  results  of  operations  for the
Partnership  for  1994  as  though  the  Painter  Plant  had  been a part of the
Partnership's operations as of January 1, 1994.

(Unaudited; in thousands, except per unit amounts)
                           Year Ended December 31, 1994
                                       Pro Forma

    Revenues                            $58,275
    Net income                           11,921
    Net income per unit                     2.00
       









    The above pro forma  consolidated  results do not purport to present  actual
operating  results had the  acquisition of the Painter Plant occurred on January
1, 1994.

    Chevron Contract Buyout

    In 1996, under a contract that was to extend through December 1998, Chevron,
USA  ("Chevron")  was the only gas processing  customer at the Painter Plant. In
April 1996, the  Partnership  was notified by Chevron that it was exercising its
right to terminate the gas processing  agreement at the Painter Plant  effective
as of August 1, 1996.  The gas  processing  agreement  with Chevron  allowed for
early  termination by Chevron,  subject to an approximate  $2.9 million one time
termination  payment.  On June 14, 1996, a force majeure event  occurred and the
Painter Plant gas processing  facilities  were shut down.  Chevron  subsequently
disputed its obligation to pay the early  termination  payment.  The Partnership
negotiated  with Chevron to settle all claims  between the two parties under the
gas processing  agreement.  The  Partnership  agreed in September 1996 to accept
$2.7 million as full and final settlement of all claims. This amount was reduced
to  $2.5  million  in  connection  with  the  settlement  of  certain   disputed
receivables.  Historically,  approximately  56% of the revenues from the Painter
Plant were generated from processing Chevron gas. Management  estimates that the
Chevron  contract  would have  generated  approximately  $3.9 million of revenue
during each of the remaining two years of the contract.

    The  fractionation,  terminaling  and storage  operations  conducted  at the
Painter Plant are continuing.  The fractionation  agreement with Chevron,  which
extends  through  November  1997,  remains in effect,  and the  Partnership  has
fractionation agreements with other third parties.

    Gas Processing and Terminal Lease to Amoco

    On February 14, 1997, the Partnership  executed an operating lease agreement
with Amoco Oil Company  ("Amoco")  for Amoco's use of the  fractionator  and the
Partnership's  Millis Terminal and Storage  Facility  ("Millis") with the nearby
Amoco  Painter  Complex Gas Plant.  The lease will generate  approximately  $1.0
million of cash flow in 1997 with  annual  escalations  thereafter.  The primary
term of the lease expires

                           F-12




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




February 14, 2007,  with  evergreen  provisions  at the end of the primary term.
Amoco will take  assignment of all of the commercial  arrangements  currently in
place,  including the Chevron fractionation  agreement described above, and will
assume all day to day operations,  maintenance,  repairs,  replacements  and all
expenses (other than minor easement fees), taxes and charges associated with the
fractionator and the Millis facilities.  After lease year seven, Amoco may elect
to purchase the  fractionator  and Millis  facilities  under  certain  terms.  A
portion of the gas processing  facilities and the nitrogen rejection unit at the
Painter Plant remain operationally idle. The Partnership continues to assess its
alternatives for these idled facilities.


4. Long-Term Debt

   OLP-A

   OLP-A has  outstanding  $110 million of 8.79% First  Mortgage  Notes  ("First
Mortgage  Notes") due 2007. Such notes are secured by  substantially  all of the
liquids pipeline property,  plant and equipment of OLP-A and the common stock of
KMNGL and are with recourse to the General Partner.

   As allowed by the agreement between OLP-A and the holders of the $110 million
of 8.79% First  Mortgage  Notes,  OLP-A has  established a committed $15 million
revolving credit facility with a bank to meet its working capital requirements.

   OLP-A's  credit  facility with the bank has a variable rate interest equal to
the London  Interbank  Offered  Rate  ("LIBOR")  plus 1.75% per annum,  requires
quarterly interest payments on outstanding borrowings, and upon its June 1, 1998
termination,  requires the repayment of the entire outstanding principal amount.
At December 31, 1996, the Partnership had outstanding  borrowings of $13 million
under this facility.  During 1996, the weighted-average  interest rate was 7.22%
per annum.

   OLP-B

   OLP-B has  outstanding  $23.7  million  principal  amount of tax exempt bonds
issued by the Jackson-Union Counties Regional Port District due 2024. Such bonds
bear   interest  at  a  weekly   floating   market  rate.   During   1996,   the
weighted-average  interest  rate on these  bonds was 3.58% per annum.  OLP-B has
entered  into  an  interest   rate  swap  which  fixes  the  interest   rate  at
approximately  3.65% per annum  during  the period  from  February  13,  1996 to
December 31, 1998.

   OLP-B had  outstanding  at December 31, 1996 a $12.8  million note which bore
interest at a rate equal to the LIBOR plus a variable  rate  ranging  from 1.25%
per annum to 1.75% per annum.  During 1996, the  weighted-average  interest rate
was 7.06% per annum.  OLP-B also had  outstanding  at December  31, 1996, a $4.4
million,  6.96%  promissory  note to Enron due  September 30, 2003. In addition,
OLP-B had a $2.0 million,  committed  working  capital  revolving line of credit
with a bank which at  December  31, 1996 was unused.  In  connection  with KMI's
acquisition  of  the  General  Partner,   OLP-B  refinanced  its  existing  bank
indebtedness with a new $15.9 million revolving credit facility with First Union
National Bank of North Carolina ("First Union").  The obligations of OLP-B under
the credit  facility are  guaranteed by the  Partnership.  Borrowings  under the
credit facility are due February 14, 1999 and bear interest,  at OLP-B's option,
at either  First  Union's  Base Rate plus .5% per annum or LIBOR  plus 2.25% per
annum (in each case

                           F-13




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




increasing by .25% as of the end of each calendar  quarter  commencing  June 30,
1997).  The  Partnership's  ability to borrow  additional funds under the credit
facility is subject to compliance with certain financial covenants and ratios.

   Maturities of the  Partnership's  long-term debt as of December 31, 1996 were
as follows (in thousands):
          1997                    $ 1,709
          1998                     25,718
          1999                     18,915
          2000                     11,946
          2001                     11,946
          Thereafter               91,751



     After giving effect to the refinancing of OLP-B's indebtedness,  maturities
of the  Partnership's  long-term  debt as of March 15,  1997 were as follows (in
thousands):
          1997                    $   106
          1998                     24,115
          1999                     25,796
          2000                     11,061
          2001                     11,013
          Thereafter               89,979


   The estimated fair value of the long-term debt based upon prevailing interest
rates  available to the  Partnership  at December 31, 1996 and 1995 is disclosed
below.  Fair value as used in SFAS No. 107 --  "Disclosures  About Fair Value of
Financial  Instruments"  represents the amount at which the instrument  could be
exchanged in a current transaction between willing parties.

                           December 31, 1996        December 31, 1995
                         Carrying    Estimated    Carrying   Estimated
                           Value     Fair Value     Value    Fair Value
                                           (in thousands)

    Long-term debt      ($161,920)   ($152,631)   ($158,638) ($162,029)
    Interest rate swap         -      $    155            -          -

5. Partners' Capital

    At December 31, 1996,  Partners' capital consisted of 5,650,000 Common Units
representing an 85.1% limited partner interest in the Partnership, 860,000 units
held by the General Partner  representing a 12.9% limited partner  interest (see
below) and a 2% general  partner  interest which includes the General  Partner's
approximate  1% general  partner  interest  in the  Operating  Partnerships.  On
February 14, 1997, the limited

                           F-14




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




partnership interests held by the General Partner were converted to Common Units
and the General Partner then sold 429,000 of its Common Units to a third party.

    Through  September 30, 1997, Enron has agreed to contribute cash in exchange
for  additional  partnership  interests  ("APIs") if Available  Cash (as defined
below) is insufficient to meet the Minimum Quarterly Distributions (the "Minimum
Quarterly Distribution") on the Common Units of $0.55 per Unit . Available Cash,
as  defined  in the  Partnership  Agreements,  generally  consists  of all  cash
receipts of the Partnership less all of its cash disbursements and net additions
to reserves.  Through December 31, 1996, no such capital contributions have been
required. (See Note 8).

    On September 30, 1994, the Deferral  Period,  as defined in the  Partnership
Agreements,  ended with respect to the 12.9% limited partner interests then held
by the General  Partner.  As a result,  these limited partner  interests  became
eligible and began to  participate  in all  allocations  of income or losses and
distributions  made with  respect  to Common  Units  effective  with the  fourth
quarter of 1994. In order for the Deferral  Period to end, the  Partnership  was
required to generate and distribute approximately $0.63 per Common Unit for four
consecutive quarters after September 30, 1993. The fourth quarterly distribution
of $0.63 per Unit occurred in the third quarter of 1994.


6. Litigation and Other Contingencies

  General

    The  Partnership,  in the  ordinary  course of  business,  is a defendant in
various lawsuits relating to the Partnership's assets. Although no assurance can
be given,  the Partnership  believes,  based on its experience to date, that the
ultimate resolution of such items will not have a material adverse impact on the
Partnership's financial position or results of operations.

    The  liabilities,  if any,  associated with any lawsuits pending at the time
the Partnership was formed in 1992 were retained by Enron and not assumed by the
Partnership.  Pursuant to the Omnibus  Agreement,  the General Partner agreed to
cause the Partnership,  at the Partnership's expense, to cooperate with Enron in
the defense of any such  litigation  by furnishing  information  relating to the
Partnership's assets involved in the litigation,  furnishing access to files and
otherwise  assisting in the defense.  The costs to the  Partnership  relating to
such  agreement  have  not  been  and are not  expected  to be  significant.  In
addition,  Enron agreed to indemnify the  Partnership for any losses incurred in
connection with the lawsuits pending at the time the Partnership was formed.  In
connection  with the sale of the  Common  Stock of the  General  Partner to KMI,
Enron agreed to assume  liability,  and indemnify the  Partnership,  for certain
lawsuits then pending.

Morris Storage Facility

    The General  Partner is a defendant in a suit filed on September 12, 1995 by
the State of Illinois. The suit seeks civil penalties and an injunction based on
five  counts of  environmental  violations  for events  relating  to a fire that
occurred at the Morris storage field in September,  1994. The fire occurred when
a sphere  containing  natural  gasoline  overfilled  and released  product which
ignited.  There  were  no  injuries  and  no  damage  to  property,  other  than
Partnership property. The suit seeks civil penalties in the stated amount of

                           F-15




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




up to $50,000 each for three counts of air and water pollution, plus $10,000 per
day for any  continuing  violation.  The State also seeks an injunction  against
future  similar  events.  On August 29, 1996,  the Illinois  Attorney  General's
office  proposed a settlement in the form of a consent decree that would require
the  Partnership to implement  several fire  protection  recommendations,  pay a
$100,000 civil penalty, and pay a $500 per day penalty if established  deadlines
for  implementing  the  recommendations  are not met. The Partnership has made a
settlement  offer to the State  and  settlement  negotiations  are  ongoing.  If
attempts at settlement are  unsuccessful,  the General  Partner will  vigorously
defend itself and the Partnership against the charges. Although no assurance can
be given, the Partnership  believes that the ultimate  resolution of this matter
will not have a material adverse effect on its financial  position or results of
operations.

  On December 10, 1996, the U.S.  Department of Transportation  ("D.O.T") issued
to the General  Partner a notice of eight probable  violations of federal safety
regulations in connection  with the fire at the Morris storage field.  The D.O.T
proposed a civil  penalty of $90,000.  The General  Partner is  currently in the
process of  responding to the notice,  but believes that the alleged  violations
and proposed fine will not have a material impact on the Partnership.

  It is expected that the Partnership will reimburse the General Partner for any
liability or expenses  incurred by the General  Partner in connection with these
legal proceedings.

  The operations of the Partnership are subject to federal, state and local laws
and  regulations  relating to protection  of the  environment.  The  Partnership
believes that its  operations  and  facilities  are in general  compliance  with
applicable   environmental   regulations.   The   Partnership   has  an  ongoing
environmental audit and compliance program.  Risks of accidental leaks or spills
are, however,  associated with fractionation of NGLs, transportation of NGLs and
refined petroleum products,  the handling and storage of coal, the processing of
gas, as well as the truck and rail loading of fractionated  products.  There can
be no assurance that  significant  costs and  liabilities  will not be incurred,
including those relating to claims for damages to property and persons resulting
from operation of the Partnership's  businesses.  Moreover,  it is possible that
other  developments,   such  as  increasingly  strict   environmental  laws  and
regulations and enforcement policies thereunder, could result in increased costs
and liabilities to the Partnership.


7.  Major Customers and Concentrations of Credit Risk

    A  substantial  portion  of  the  Partnership's  revenues  is  derived  from
transportation  services to oil and gas refining and marketing  companies in the
Midwest.  This concentration could affect the Partnership's  overall exposure to
credit risk inasmuch as these customers could be affected by similar economic or
other conditions.  However,  management believes that the Partnership is exposed
to minimal credit risk. The  Partnership  generally does not require  collateral
for its receivables.

    In 1996,  revenues from two customers  represented  12.4% and 10.4% of total
Partnership  revenues.  In 1995,  revenues from two customers  represented 10.2%
each of total Partnership revenues. In 1994, revenues from one liquids pipelines
customer represented 10.1% of total Partnership revenues.


                           F-16




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




8.  Related Party Transactions

  Revenues and Expenses

    Revenues  for the years  ended  December  31,  1996,  1995 and 1994  include
transportation  charges  and  product  sales to an Enron  subsidiary,  Enron Gas
Liquids,  Inc.,  of $7.7 million,  $5.9 million and $4.7 million,  respectively.
Another  Enron  subsidiary,  Enron  Gas  Processing  Company  ("EGP"),  provides
services in connection with the Mobil Agreement (see Note 10) as well as storage
and other services to the Partnership and charged $6.6 million, $2.7 million and
$0.7 million for the years ended December 31, 1996, 1995 and 1994, respectively.
Management  believes  that these  charges are  reasonable.  As a result of KMI's
acquisition  of all of the common  stock of the General  Partner,  Enron and its
affiliates are no longer affiliates of the Partnership.

    The  Partnership  leases certain  capacity rights of 17 MBbls/d of the North
System to  Heartland  Pipeline  Company  ("Heartland")  under a long-term  lease
agreement  which will expire in 2010.  Revenues  earned from  Heartland  for the
lease rights were $0.9 million for each of the years ended
December 31, 1996, 1995 and 1994.

  General and Administrative Expenses

  The  Partnership has no employees and is managed and controlled by the General
Partner  pursuant  to  the  Partnership  Agreements.  Under  the  terms  of  the
Partnership  Agreements,  the General Partner is reimbursed for certain expenses
incurred by it on behalf of the Partnership.  Additionally, prior to the sale of
the  General  Partner,  Enron and its  affiliates  were  reimbursed  for certain
corporate staff and support services rendered to the General Partner in managing
and operating  the  Partnership  pursuant to the terms of the Omnibus  Agreement
which was executed among Enron,  the  Partnership and the General Partner at the
time of  formation of the  Partnership.  The amount paid by the  Partnership  to
reimburse  Enron and its affiliates for such services to the General Partner was
subject  to  certain  limitations  established  under the  terms of the  Omnibus
Agreement.  For the years ended  December  31,  1996,  1995 and 1994 the maximum
amount  allowed  for  reimbursements  of $5.8  million,  $5.5  million  and $5.1
million, respectively,  were paid to Enron for Basic Services, as defined in the
Omnibus  Agreement.  As a result of KMI's  acquisition  of the General  Partner,
Enron and its affiliates are no longer  required to provide  corporate staff and
support services under the terms of the Omnibus  Agreement,  and the limitations
on  reimbursement  for  corporate  staff and  support  services  incurred by the
General Partner on behalf of the Partnership are no longer applicable.

  Partnership Distributions

  The General Partner owns 431,000 Common Units, representing approximately 6.6%
of  the  Common  Units.  The  Partnership   Agreements   provide  for  incentive
distributions payable to the General Partner out of the Partnership's  Available
Cash in the event that quarterly  distributions  to  Unitholders  exceed certain
specified targets. In general,  subject to certain  limitations,  if a quarterly
distribution  to  Unitholders  exceeds a target of $0.605 per Unit,  the General
Partner will receive incentive distributions equal to (i) 15% of that portion of
the  quarterly  distribution  per Unit that exceeds  $0.605 but is not more than
$0.715,  plus (ii) 25% of that portion of the  quarterly  distribution  per Unit
that exceeds the quarterly distribution amount of $0.715

                           F-17




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




but is not more than  $0.935,  plus (iii) 50% of that  portion of the  quarterly
distribution per Unit that exceeds $0.935.

  To support the  Partnership's  ability to  distribute  the  Minimum  Quarterly
Distribution on all outstanding Common Units through the period ending September
30, 1997,  Enron agreed that,  if  necessary,  it would  contribute  cash to the
Partnership in exchange for APIs in the  Partnership.  The APIs are not entitled
to cash  distributions,  allocations  of taxable  income or loss  (except  under
limited  circumstances)  or voting  rights,  but the  Partnership is required to
redeem them if and to the extent that Available Cash reaches certain levels.  No
APIs have been  purchased by Enron since the inception of the  Partnership,  and
management does not expect that APIs will be required to be purchased to support
the payment of  distributions  in 1997.  KMI obtained a $10.9 million  letter of
credit from First Union to support Enron's remaining obligations with respect to
the Minimum Quarterly  Distribution  payable to the holders of the Partnership's
Common Units.

  South Cowden Lateral

  During 1996,  a lateral was  constructed  that  connects the South Cowden Unit
flood  project to the  Central  Basin  Pipeline.  The lateral is owned by Morgan
Associates,  Inc.  ("MAI"),  which  is  owned  by  William  V.  Morgan,  and was
constructed  for  MAI by the  Partnership  under  the  terms  of a  Construction
Agreement  at a cost of $1.35  million,  which  amount has been paid by MAI.  In
addition,  MAI and the  Partnership  entered  into an  Operating  &  Maintenance
Agreement  which  provides for operation and  maintenance  of the lateral by the
Partnership and a Transportation  Agreement which allows the Partnership to ship
specified  quantities of CO2 on the lateral and requires the Partnership to ship
certain minimum quantities of CO2 on the lateral.  The agreements are coterminus
and expire in 2016.  During 1996, the Partnership  charged MAI $31,250 under the
Operating & Maintenance Agreement and MAI charged the Partnership $194,648 under
the  Transportation  Agreement.  The terms of such  agreements are comparable to
those which the Partnership would make available to unaffiliated third parties.

9.  Regulatory Matters

    The tariffs charged for interstate  common carrier  pipeline  transportation
for the North System and the Cypress  Pipeline are subject to rate regulation by
the FERC under the  Interstate  Commerce Act ("ICA").  The ICA  requires,  among
other things,  that petroleum  products  (including NGLs) pipeline rates be just
and reasonable and non-discriminatory. Pursuant to FERC Order No. 561, effective
January 1, 1995,  petroleum  pipelines  are able to change  their  rates  within
prescribed  ceiling levels that are tied to an inflation  index.  FERC Order No.
561-A,  affirming and clarifying Order No. 561, expands the circumstances  under
which petroleum pipelines may employ  cost-of-service  ratemaking in lieu of the
indexing methodology,  effective January 1, 1995. In 1995 and 1996,  application
of the  indexing  methodology  did not  significantly  affect the  Partnership's
rates.

10.  Commitments and Leases

    The  primary  shipper on the  Cypress  Pipeline  has the right until 2011 to
purchase up to a 50% joint venture interest in the pipeline at a price based on,
among  other  things,  the  construction  cost  of the  Cypress  Pipeline,  plus
adjustments  for  expansions.  If the  customer  exercises  its rights under the
option, management anticipates that no loss will accrue to the Partnership.

                           F-18




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




    Under a joint tariff agreement,  the Partnership's North System is obligated
to pay minimum tariff revenues of  approximately  $2.2 million per contract year
to an  unaffiliated  pipeline  company  subject  to  certain  adjustments.  This
agreement  expires June 30, 2001,  but provides for two five-year  extensions at
the option of the Partnership.

    On October 1, 1995,  EGP assigned to the  Partnership  an EGP gas processing
contract  with Mobil  Natural  Gas,  Inc.  (the "Mobil  Agreement").  Under this
contract,  the Partnership is obligated to process  dedicated volumes of natural
gas produced by Mobil.  Also on October 1, 1995, the Partnership  subleased from
EGP a portion of the  capacity at the Bushton gas  processing  plant  located in
Ellsworth  County,  Kansas (the  "Bushton  Plant").  The leased  capacity at the
Bushton Plant enables the  Partnership to fulfill the processing  obligations it
assumed in the Mobil Agreement.  The Mobil Agreement and the sublease  agreement
are  coterminous  with primary terms ending April 30, 2005. As a result of these
transactions,  the  Partnership  receives  processing  fees from Mobil and makes
sublease payments to EGP.

    The  Partnership  has entered into  certain  operating  leases  primarily in
relation to the gas processing and coal terminaling operations.  The leases have
remaining  terms  ranging from eight to  thirty-one  years.  Future  commitments
related to these leases, including the sublease payments to EGP, at December 31,
1996 are as follows (in thousands):

           1997                    $  1,411
           1998                       1,305
           1999                       1,357
           2000                       1,505
           2001                       1,535
           Thereafter                 8,050
                                      -----
             Total minimum payments  15,163

    Total lease expenses,  including related variable charges,  incurred for the
years ended December 31, 1996, 1995 and 1994 were $1.5 million, $1.4 million and
$0.4 million, respectively.



                           F-19




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




11.  Business Segment Information

    The  Partnership's  operations are classified into three business  segments:
Liquids  pipelines  (which  includes  transportation  services  and  NGL and CO2
product sales to shippers),  coal transfer and storage,  and gas  processing and
fractionation. Financial information by business segment follows (in thousands):




                                                                         1996           1995           1994
                                                                         ----           ----           ----

                                                                                             
                  Revenues     
                        Liquids pipelines                            $54,064         $46,986         $44,753
                        Coal transfer and storage                      8,059           8,398           6,670
                        Gas processing and fractionation               9,127           8,920           3,481
                                                                     -------         -------         -------
                        Total                                        $71,250         $64,304         $54,904
                                                                     =======         =======         =======

                  Depreciation and Amortization
                        Liquids pipelines                             $7,558          $7,267          $7,173
                        Coal transfer and storage                      1,366           1,332             905
                        Gas processing and fractionation                 984             949             461
                                                                      ------          ------          ------
                        Total                                         $9,908          $9,548          $8,539
                                                                      ======          ======          ======

                  Operating Income
                        Liquids pipelines                            $13,100         $10,346         $12,916
                        Coal transfer and storage                      4,001           4,320           3,638
                        Gas processing and fractionation                (28)           3,469           1,550
                                                                    --------         -------         -------
                        Total                                        $17,073         $18,135         $18,104
                                                                     =======         =======         =======

                  Additions to Property, Plant
                     and Equipment
                        Liquids pipelines                             $7,673          $7,342          $4,171
                        Coal transfer and storage                        606             148             718
                        Gas processing and fractionation                 296             336             306
                                                                      ------          ------           -----
                        Total                                         $8,575          $7,826          $5,195
                                                                      ======          ======          ======

                  Total Assets
                        Liquids pipelines                           $247,266        $245,329        $243,505
                        Coal transfer and storage                     28,738          29,673          30,527
                        Gas processing and fractionation              12,833          14,479          14,253
                         Other (a)                                    14,766          14,183          10,986
                                                                    --------        --------        --------
                        Total                                       $303,603        $303,664        $299,271
                                                                    ========        ========        ========



         (a) Other includes cash and other miscellaneous
assets.


                           F-20




   KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




12.  Quarterly Financial Data (Unaudited)

(In thousands, except              Operating             Net Income
per unit amounts)         Revenues  Income   Net Income   per Unit
  
1994
       First Quarter      $15,137    $4,900     $2,935      $0.51
       Second Quarter      10,394     2,927      1,259       0.22
       Third Quarter       12,192     3,580      1,906       0.33
       Fourth Quarter      17,181     6,697      5,002       0.76

1995
       First Quarter      $15,708    $5,846     $3,996      $0.60
       Second Quarter      12,322     2,852      1,615       0.24
       Third Quarter       15,215     2,830        978       0.14
       Fourth Quarter      21,059     6,607      4,725       0.71


1996
       First Quarter      $18,431    $5,124     $2,810      $0.42
       Second Quarter      14,668     2,860      1,353       0.20
       Third Quarter       14,422     1,948      2,346       0.35
       Fourth Quarter      23,729     7,141      5,391       0.82




                           F-21







         REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Partners of Mont Belvieu Associates:

We have audited the  accompanying  balance  sheet of Mont Belvieu  Associates (a
Texas  general  partnership)  as of December 31, 1996 and 1995,  and the related
statements  of income,  cash flows and  partners'  capital for each of the three
years in the period ended December 31, 1996. These financial  statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial position of Mont Belvieu Associates as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the period ended  December 31, 1996 in conformity  with
generally accepted accounting principles.


                                ARTHUR  ANDERSEN  LLP


Houston, Texas
February 21, 1997



                           F-22







                  MONT BELVIEU ASSOCIATES
                    STATEMENT OF INCOME
                      (In thousands)



                                          Year Ended December 31,
                                         1996      1995        1994

Revenues                                $26,954   $25,795    $27,272

Costs and expenses
     Operations and maintenance          14,302    13,361     13,221
     Depreciation                         1,424     1,293      1,222
     Taxes, other than income taxes         634       517        502
     Amortization of organization costs      --         4          7
                                         ------    ------     ------
                                         16,360    15,175     14,952

Operating income                         10,594    10,620     12,320

Other income (expense)
     Interest expense                      (92)     (125)       (17)
     Other                                 105       329         81
                                         ------    -------     ------ 
                                            13       204         64
                                         ------    -------     ------

Net income                              $10,607  $10,824    $12,384
                                        =======  =======    =======





















   The             accompanying  notes are an integral  part of these  financial
                   statements.

                           F-23







                  MONT BELVIEU ASSOCIATES
                       BALANCE SHEET
                      (In thousands)


                                             December 31,
                                         1996          1995
ASSETS

Current assets
   Cash and cash equivalents         $      2      $    11
   Accounts receivable
     Due from partners                  1,542        3,261
     Trade                              3,510        3,595
   Advances to fractionator             1,448        1,218
                                       ------       ------
                                        6,502        8,085

Property, plant and equipment, at cost              68,609
56,926
   Less accumulated depreciation       22,643       21,219
                                       45,966       35,707

TOTAL ASSETS                          $52,468      $43,792
                                      =======      =======

LIABILITIES AND PARTNERS' CAPITAL

Current liabilities
   Accounts payable due to fractionator             $  282
$ 2,708
   Current portion of long-term debt                 2,996
399
   Accrued taxes other than income                     536
536
   Deferred revenues                      732            -
                                       ------       ------
                                        4,546        3,643

Long-term debt (Note 3)                15,022        1,019

Partners' capital                      32,900       39,130
                                       ------       ------

TOTAL LIABILITIES AND PARTNERS' CAPITAL            $52,468
$43,792








   The             accompanying  notes are an integral  part of these  financial
                   statements.

                           F-24







                  MONT BELVIEU ASSOCIATES
                  STATEMENT OF CASH FLOWS
                      (In thousands)



                                                                  Year Ended December 31,
                                                             1996           1995             1994
                                                                                     
Cash flows from operating activities
Reconciliation of net income to net cash
 provided by operating activities
         Net income                                       $10,607          $10,824            $12,384
         Depreciation and amortization                      1,424            1,297              1,229
         Changes in components of working capital
              Advances to fractionator                       (230)              92               (103)
              Accounts receivable                           1,804           (1,745)               853
              Accounts payable due to fractionator(2,426)   1,161             (475)
              Accrued taxes other than income                   -               (1)                 -
         Other, net                                           732           (1,423)               412
                                                          -------          -------             ------
Net cash provided by operating activities                  11,911           10,205             14,300
                                                          -------          -------             ------

Cash flows from investing activities
         Additions to property, plant and equipment       (11,684)          (2,089)            (1,404)
                                                          -------           ------             ------
Net cash used in investing activities                     (11,684)          (2,089)            (1,404)
                                                          -------           ------             ------

Cash flows from financing activities
         Contributions from partners                          871            1,652                252
         Issuance of long-term debt                        17,000              436              1,148
         Repayment of long-term debt                         (399)            (166)                 -
         Cash distributions                               (14,308)         (10,036)           (14,294)
         Distribution of Equity Loan
              to Enterprise                                (3,400)               -                  -
Net cash used in financing activities                        (236)          (8,114)           (12,894)
                                                             -----          -------           -------


Increase (decrease) in cash and cash equivalents(9)             2                2
Cash and cash equivalents, beginning of period   11             9                7
Cash and cash equivalents, end of period                  $     2         $     11            $     9
                                                          =======         ========            =======



Supplemental disclosures of cash flow information
     Cash paid during the year for
       interest (including capitalized interest)             $333             $125                $17





   The             accompanying  notes are an integral  part of these  financial
                   statements.

                           F-25







                  MONT BELVIEU ASSOCIATES
              STATEMENT OF PARTNERS' CAPITAL
                      (In thousands)



                                                                                                Total
                                                                         Enterprise             Partners'
                                                              KMNGL     Products Co.             Capital
                                                               -----     ------------             -------
                                                                                          
Partners' capital at December 31, 1993 (unaudited)          $ 19,174        $ 19,174             $ 38,348

Contributions                                                    126             126                  252

Net income                                                     6,192           6,192               12,384

Distributions                                                 (7,147)         (7,147)             (14,294)
                                                              -------         -------             -------

Partners' capital at December 31, 1994                        18,345          18,345               36,690

Contributions                                                    826             826                1,652

Net income                                                     5,412           5,412               10,824

Distributions                                                 (5,018)         (5,018)             (10,036)
                                                              -------         -------             -------

Partners' capital at December 31, 1995                        19,565          19,565               39,130

Contributions                                                    435             436                  871

Net income                                                     5,304           5,303               10,607

Distributions                                                 (7,154)         (7,154)             (14,308)

Distributions for equity loan                                     --          (3,400)              (3,400)
                                                           ---------         --------             --------

Partners' capital at December 31, 1996                     $ 18,150         $ 14,750             $ 32,900
                                                           =========        ========             ========











   The             accompanying  notes are an integral  part of these  financial
                   statements.

                           F-26




                  MONT BELVIEU ASSOCIATES
               NOTES TO FINANCIAL STATEMENTS




1.  Organization and Formation

    Mont Belvieu Associates  ("MBA"), a Texas general partnership formed on July
17, 1985, owns an undivided 50% interest in a natural gas liquids  fractionation
facility  (the "Mont Belvieu  Fractionator"  or the  "Fractionator")  located in
Chambers County,  Texas.  Enterprise Products Company  ("Enterprise") owns a 50%
interest in MBA and operates the Fractionator. Kinder Morgan Natural Gas Liquids
Corporation ("KMNGL") owns the remaining 50% interest and serves as the managing
general partner for MBA.

2.  Summary of Significant Accounting Policies

    Basis of Presentation

    MBA accounts for its investment in the Fractionator  using the proportionate
consolidation method of accounting, whereby MBA's proportionate share of assets,
liabilities,  revenues and operating  expenses are reflected in the accompanying
financial statements.

    The  preparation  of  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

    Cash Equivalents

    Cash  equivalents  are defined as all highly liquid  short-term  investments
with original maturities of three months or less.

    Property, Plant and Equipment

    Property,  plant and equipment is stated at cost.  Depreciation  is computed
using the straight-line method based on the estimated economic and physical life
of the assets. Effective January 1, 1994, the depreciable life was extended from
20 to 30 years to more appropriately  reflect the remaining useful life of these
assets.  This  change  resulted in a $1.6  million  adjustment  to  depreciation
expense for 1994.

    Revenue Recognition

    Revenues are recognized based on actual barrels fractionated.

    Income Taxes

    MBA is not a taxable  entity for federal  income tax  purposes.  As such, no
federal  income tax will be paid by MBA. Each partner will be required to report
on its tax return its allocable share of the taxable income or loss of MBA.



                           F-27




                  MONT BELVIEU ASSOCIATES
               NOTES TO FINANCIAL STATEMENTS




3.  Long-Term Debt

    MBA's debt at December 31, 1996  included a note payable to  Enterprise  for
expansion projects.  The original principal balance of $1.6 million is due in 48
equal monthly  payments  with the final  payment  being made in September  1999.
Interest on the note is equal to the  Eurodollar  rate plus 1.75%.  During 1995,
the  weighted-average  interest rate on this note was 7.14%. The note is secured
by MBA's partnership interest in the Fractionator.

    MBA has outstanding a $17 million promissory note which bears interest equal
to the London Interbank  Offered Rate ("LIBOR") plus a margin of .75% per annum.
The principle  amount is payable in equal monthly  installments,  except for the
final payment due December 31, 2001, based on a six year  amortization  schedule
commencing  February 14, 1997. The loan is  non-recourse  to the partners and is
secured by the borrower's rights under the Operating Agreement between the joint
owners.

       Maturities of long-term  debt as of December 31, 1996 were as follows (in
thousands):
          1997                     $2,996
          1998                      3,233
          1999                      3,054
          2000                      2,833
          2001                      5,903
         Thereafter                          -

4.   Related Party Transactions and Concentration of
Credit Risk

     Generally,  each  partner  of the  Fractionator  has the  right to  deliver
natural  gas liquids up to its  proportionate  share of  fractionator  capacity.
Approximately  92% of revenues was earned from the partners of the  Fractionator
in 1996. All billings are passed from the Fractionator to MBA for its applicable
portion.  In turn,  MBA bills each of its  partners.  All of MBA's  revenues are
derived from  fractionation  services to customers in the Gulf Coast area.  This
concentration  could  impact  MBA's  exposure to credit  risk  inasmuch as these
customers could be affected by similar  economic or other  conditions.  However,
management  believes that MBA is exposed to minimal  credit risk.  MBA generally
does not require collateral for its receivables.





                           F-28




                        SIGNATURES

   Pursuant  to the  requirements  of  Section  13 or  15(d)  of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 21st day of
March, 1997.

                              KINDER MORGAN ENERGY
PARTNERS, L.P.
                               (A Delaware Limited
Partnership)
                            By: KINDER MORGAN G.P., INC.
                                  as General Partner


                                By:/s/ Thomas B.
King
                                 Thomas B. King
                                    President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed  below by the  following  persons in the  capacities  and on the
dates indicated.

   Signature                      Title
Date

/s/ Richard D. Kinder                         Director,
Chairman and CEO    March 21, 1997             Richard D.
Kinder                 (Principal Executive Officer)

/s/ William V. Morgan                         Director and
Vice Chairman          March 21, 1997
William V. Morgan

/s/ Alan L. Atterbury                         Director
March 21, 1997
Alan L. Atterbury

/s/ Edward O. Gaylord                         Director
March 21, 1997
Edward O. Gaylord

/s/ Thomas B. King                            Director and
President        March 21, 1997
Thomas B. King

/s/ Thomas P. Tosoni                          Chief
Financial Officer           March 21, 1997
Thomas P. Tosoni               (Principal Financial and
                               Accounting Officer)



                            S-1

EX-10.2.3

                            THIRD AMENDMENT TO
                           AMENDED AND RESTATED
                    AGREEMENT OF LIMITED PARTNERSHIP OF
          ENRON LIQUIDS PIPELINE OPERATING LIMITED PARTNERSHIP


     THIS  THIRD  AMENDMENT  TO  AMENDED  AND  RESTATED   AGREEMENT  OF  LIMITED
PARTNERSHIP  OF ENRON  LIQUIDS  PIPELINE  OPERATING  LIMITED  PARTNERSHIP  (this
"Amendment"),  dated  effective as of February  14, 1997,  is executed by Kinder
Morgan  G.P.,   Inc.(formerly  Enron  Liquids  Pipeline  Company),   a  Delaware
corporation,  in its capacity as the General Partner (the "General  Partner") of
Enron  Liquids  Pipeline  Operating  Limited  Partnership,  a  Delaware  limited
partnership  (the  "Partnership"),  and  Kinder  Morgan  Energy  Partners,  L.P.
(formerly  known as Enron Liquids  Pipeline,  L.P.), in its capacity as the sole
limited partner of the Partnership (the "Limited Partner").

     The  General  Partner and the Limited  Partner  hereby  desire to cause the
Partnership Agreement to be amended as set forth herein.

                                    AGREEMENT

     NOW THEREFORE, it is agreed as follows:

     1.  Article  One,  Section 1.2 of the  Partnership  Agreement  as presently
constituted is hereby altered by deleting the first sentence of that section and
hereby adding the following sentence it its place:

         The name of the Partnership shall be and the
business of the Partnership shall be conducted under the
name of "Kinder Morgan Operating L.P. 'A'."

         All references to "Enron Liquids Pipeline
Operating Limited Partnership" throughout the Partnership
Agreement are hereby replaced with "Kinder Morgan
Operating L.P. 'A'"

     2. Article Two of the  Partnership  Agreement as presently  constituted  is
hereby altered by deleting the term "ELPC" and the  corresponding  definition in
their entirety, and the following is hereby added to Article Two (in appropriate
alphabetical order):

         "KMGP" means Kinder Morgan G.P., Inc., a Delaware
corporation."

         All  references  to "ELPC"  throughout  the  Partnership  Agreement are
hereby replaced with "KMGP".

         In  addition  the term  "ENGL"  and the  corresponding  definition  are
deleted in their  entirety and the  following is hereby added to Article Two (in
appropriate alphabetical order):






         "KMNGL" means Kinder Morgan Natural Gas Liquids
Corporation, a Delaware corporation.

         All  references  to "ENGL"  throughout  the  Partnership  Agreement are
hereby replaced with "KMNGL".

     3.  (a) Except as amended hereby, the terms and
provisions of the Partnership Agreement shall remain in
full force and effect.

         (b) This  Amendment  shall be binding  upon and inure to the benefit of
the parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

     IN WITNESS  WHEREOF,  the  parties  hereto  have  executed  this  Amendment
effective as of the date first written above.


                             2






                       GENERAL PARTNER:

                           KINDER MORGAN G.P., INC.



                           By: /s/ Thomas B. King
                               Thomas B. King
                               President


                       LIMITED PARTNER:

                           KINDER MORGAN ENERGY PARTNERS, L.P.


                           By:  Kinder Morgan G.P., Inc.,
                                General Partner


                                By: /s/ Thomas B. King
                                    Thomas B. King
                                    President




                             3

EX-10.14.1

                               FIRST AMENDMENT TO
                              AMENDED AND RESTATED
                       AGREEMENT OF LIMITED PARTNERSHIP OF
                       ENRON TRANSPORTATION SERVICES, L.P.


     THIS  FIRST  AMENDMENT  TO  AMENDED  AND  RESTATED   AGREEMENT  OF  LIMITED
PARTNERSHIP OF ENRON  TRANSPORTATION  SERVICES,  L.P. (this "Amendment"),  dated
effective  as  of  February  14,  1997,  is  executed  by  Kinder  Morgan  G.P.,
Inc.(formerly Enron Liquids Pipeline Company),  a Delaware  corporation,  in its
capacity  as the  General  Partner  (the  "General  Partner")  of Enron  Liquids
Pipeline  Operating  Limited  Partnership,  a Delaware limited  partnership (the
"Partnership"), and Kinder Morgan Energy Partners, L.P. (formerly known as Enron
Liquids  Pipeline,  L.P.),  in its capacity as the sole  limited  partner of the
Partnership (the "Limited Partner").

     The  General  Partner and the Limited  Partner  hereby  desire to cause the
Partnership Agreement to be amended as set forth herein.

                                    AGREEMENT

     NOW THEREFORE, it is agreed as follows:

     1.  Article  One,  Section 1.2 of the  Partnership  Agreement  as presently
constituted is hereby altered by deleting the first sentence of that section and
hereby adding the following sentence it its place:

         The name of the Partnership shall be and the
business of the Partnership shall be conducted under the
name of "Kinder Morgan Operating L.P. 'B'."

         All references to "Enron Transportation Services,
L.P." throughout the Partnership Agreement are hereby
replaced with "Kinder Morgan Operating L.P. 'B'"

     2. Article Two of the  Partnership  Agreement as presently  constituted  is
hereby altered by deleting the term "ELPC" and the  corresponding  definition in
their entirety, and the following is hereby added to Article Two (in appropriate
alphabetical order):

         "KMGP" means Kinder Morgan G.P., Inc., a Delaware
corporation."

         All  references  to "ELPC"  throughout  the  Partnership  Agreement are
hereby replaced with "KMGP".

     3.  (a) Except as amended hereby, the terms and
provisions of the Partnership Agreement shall remain in
full force and effect.

         (b)  This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their
heirs, executors,






administrators, successors, legal representatives and
permitted assigns.

     IN WITNESS  WHEREOF,  the  parties  hereto  have  executed  this  Amendment
effective as of the date first written above.


                      GENERAL PARTNER:

                           KINDER MORGAN G.P., INC.



                           By:  /s/ Thomas B. King
                                Thomas B. King
                                President


                      LIMITED PARTNER:

                           KINDER MORGAN ENERGY PARTNERS, L.P.


                           By:  Kinder Morgan G.P., Inc.,
                                General Partner



                               By: /s/ Thomas B. King
                                    Thomas B. King
                                    President


                             2

EX-10.40

                                      LEASE


     THIS LEASE is made and entered into this 6th day of September, 1979, by and
between  BROKEN CIRCLE CATTLE CO., a Wyoming  Corporation  of Star Route #1, Box
21, Evanston,  Wyoming 82930 (hereinafter  referred to as "Lessor") and NORTHERN
GAS PRODUCTS  COMPANY,  a Delaware  Corporation  with principal  offices at 2223
Dodge Street, Omaha, Nebraska 68102 (hereinafter referred to as "Lessee").

     WITNESSETH THAT:

     WHEREAS,  Lessor is the owner of the following  described property situated
in Uinta County, Wyoming, to wit:

     Section 35, T15N,  R120W,  6th P.M.,  Uinta County  Wyoming as described in
     Warranty  Deed dated  January 18,  1973 and  recorded in Volume 294 at Page
     368, Deed Records of Uinta County, Wyoming.


     WHEREAS,  Lessee  desires to lease a portion of  Lessor's  above  described
property  for the  purpose of  constructing,  installing,  erecting,  operating,
maintaining, inspecting, repairing, replacing and removing a natural gas liquids
and/or petroleum products storage, loading and shipping facilities including all
appurtenances and accessories thereto; and

     WHEREAS,  Lessor has stated  its  willingness  to lease to Lessee a certain
portion of Lessor's above described property; and

     WHEREAS,  Lessor and Lessee have agreed upon the terms and conditions under
which a portion of said property shall be leased to Lessee.

     NOW,  THEREFORE,  in consideration  of the mutual  promises,  covenants and
agreements of the parties herein contained, the parties hereto agree as follows:

     1. Lessor does hereby lease and demise unto Lessee the following  described
property situated in Uinta County, Wyoming, to wit:

     A tract of land out of the SW/4,  SE/4 and the SE/4,  SW/4 of said  section
     35, T15N, R12OW, 6th P.M., more particularly described and shown on Exhibit
     "A" attached hereto and by this reference made a part hereof.


(hereinafter  referred  to as  the  "leased  premises")  for  the  construction,
installation,  erection, operation, maintenance, inspection, repair, replacement
and removal of a natural gas liquids and/or petroleum products storage,  loading
and shipping






facilities,  including if necessary or desirable,  processing and/or separations
facilities and including all  appurtenances  and accessories  thereto,  together
with the right to construct,  maintain,  occupy and use a roadway,  the location
and  description of which is shown on Exhibit A attached  hereto and made a part
hereof, for access to and from the Lessee's above mentioned facilities.

     2. The  primary  term of this Lease  shall be few) a period of thirty  (30)
years commencing on the 6th day of September, 1979, and ending on the 5th day of
September,  2009,  unless sooner  terminated  as  hereinafter  provided.  At the
expiration  of the  primary  term of this  Lease (if this  Lease is then in full
force and effect) and thereafter at the end of each extended  term,  Lessee may,
at its option  exercisable in the manner  provided  below,  renew and extend the
term of this Lease for  successive  terms of five (5) years,  each upon the same
terms, conditions and covenants contained herein. If Lessee shall elect to renew
this Lease as hereinabove provided, the notice of exercise of Lessee's option to
renew shall be given to Lessor in writing  (delivered  to Lessor or mailed to it
by certified  or  registered  United  States Mail) not less than sixty (60) days
prior to the  expiration  of the primary term or any extended  term, as the case
may be, of this Lease.

     3. Lessee shall pay the Lessor a base rental of Thirty  Thousand and 00/100
Dollars ($30,000.00) per year during the period this Lease is in effect, payable
in advance.  Commencing with the second  anniversary of the commencement of this
Lease and on each yearly anniversary thereafter,  the base rental shall increase
or decrease,  as the case may be, by an amount equal to the Percentage Change in
the Consumer  Price Index.  Such rental  adjustment  shall be effective  for the
ensuing one year period until further adjusted as above provided.

     As used in this Paragraph 3:

     (a) "Consumer Price Index" shall mean that index entitled, "All Items, Wage
Earners and Clerical Workers", revised (CPI-W) (1967=100),  issued by the Bureau
of Labor Statistics of the United States Department of Labor, Washington, D.C.

     (b) "Percentage Change" shall be a percent in the amount of any increase or
decrease in the level of the Consumer  Price  Index,  as herein  defined,  as it
stands on the anniversary  date for which the adjustment is being made, from the
level of the  Consumer  Price  Index as it  stood on the  immediately  preceding
anniversary date of this Lease. In the event that the commencement  date of this
Lease  shall  occur  on any day  other  than the  first  day of the  month,  the
"anniversary  date" for  purposes of applying  the level of the  Consumer  Price
Index shall be the first day of the month in which the anniversary occurs.


                             2





     In the event that the consumer Price Index is not available,  the successor
or substitute index shall be used for the computations  herein set forth. In the
event that the Consumer Price Index or such successor or substitute index is not
published, a reliable governmental or nonpartisan  publication,  which is agreed
upon by both parties,  and which evaluates the information  theretofore  used in
determining  the  Consumer  Price  Index,  shall  be used  for the  computations
provided for above.

     The rental for the  initial  year of this Lease  shall be paid on or before
the commencement  date of this Lease,  with each succeeding  year's rental to be
paid on or within 20 days after the anniversary date of the commencement of this
Lease.

     4. During the term of this Lease, Lessee shall keep and maintain the leased
premises  in  good,  sanitary,  and  neat  order,  condition  and  repair.  Upon
termination of this Lease, Lessee shall return the property to Lessor in as near
as  practicable  as good a condition as received,  ordinary  wear and tear,  and
damage  by  fire,  explosion,  earthquake,  flood,  acts of God or the  elements
excepted.

     5. Lessee may construct,  place, install or erect any building or buildings
(and appurtenances  thereto) or other improvements,  equipment or other personal
property upon said leased premises. In this regard, Lessor and Lessee agree that
any  such   building  or  buildings   (and   appurtenances   thereto)  or  other
improvements,   equipment  or  other  personal  property,  constructed,  placed,
installed,  or erected by Lessee upon the leased premises shall be considered to
be the personal  property of Lessee and shall in no manner become affixed to the
realty in the sense of  permanent  fixtures  forming part of the  freehold,  and
Lessee  shall  have the right at any time and from time to time to remove all or
any portion of said personal property of Lessee.  In this regard,  Lessor grants
to Lessee after the  expiration of this lease the right of ingress to and egress
from the leased  premises  for a period not to exceed  ninety (90) days in order
that Lessee may remove any such personal property.

     6. Lessor  covenants  that  Lessor is seized of the leased  premises in fee
simple and has full right to make this  lease and that  Lessee  shall have quiet
and peaceable possession of the leased premises during the term hereof.

     7. Lessor  shall pay all real  estate  taxes and  assessments  which may be
levied or assessed  against the land hereby  leased.  Lessee  shall pay any such
taxes  levied  against  any  personal  property  of  Lessee  on said land or any
improvement  placed or erected  thereon by Lessee.  Both  parties  agree to make
timely payment of any such taxes in order that the respective interest of Lessee
and Lessor shall not be adversely affected.


                             3





     8.  Lessee  shall  keep the leased  premises  free and clear from any liens
arising out of any work performed,  materials furnished, or obligations incurred
by Lessee. Lessor, shall, likewise, keep the leased premises free and clear from
any liens arising out of any work performed, materials furnished, or obligations
incurred by Lessor or Lessor's tenant.

     9.  Lessee  shall  have the  right to  fence  all or any part of the  above
described  tract at  Lessee's  option.  Lessee  shall have the right to restrict
access and use of the roadway  constructed  by Lessee and described in Paragraph
1.

     10.  Lessee  shall have the right,  at Lessee's  expense,  to relocate  any
irrigation  facilities  of Lessor  or  Lessor's  tenant  that in  Lessee's  sole
discretion interfere or may interfere with Lessee's present or future use of the
above described tract.

     11. In the event that the leased  premises shall be taken for public use by
any city,  state,  federal  government,  public  authority or other  corporation
having the power of eminent  domain,  then this Lease shall  terminate as of the
date on which  possession  thereof shall be taken for such public use, or at the
option of Lessee,  as of the date on which the premises shall become  unsuitable
for  Lessee's use thereof by reason of such taking;  provided  however,  that if
only a part of the leased premises shall be so taken such  termination  shall be
at the  option of  Lessee  only.  If such a taking of only a part of the  leased
premises occurs, and Lessee elects not to terminate this Lease, there shall be a
proportionate  reduction  of the rent to be paid under this Lease from and after
the date such possession is taken for public use. Lessee shall have the right to
participate,  directly or indirectly, in any award for such public taking to the
extent that it may have  suffered  compensable  damage as a Lessee on account of
such public taking.  The term "eminent domain" shall include the exercise of any
similar  governmental  power and any  purchase or other  acquisition  in lieu of
condemnation.

     12.  Any  holding  over  after  the  expiration  of the term of this  Lease
(including any extension term),  with the consent of Lessor,  shall be construed
to be a tenancy  from year to year,  at the same  yearly  rental as  provided in
paragraph 3 above,  and on the same terms and  conditions  as  contained in this
Lease.

     13. Lessee shall have the right at any time to assign
all or any part of its interest under this Lease.

     14. If Lessor or Lessee fails in any respect to comply fully with the terms
and  provisions  of the  Lease,  either  the  Lessor or Lessee  may  notify  the
defaulting  party in  writing  of the  matters  in  regard to which  default  is
asserted.  if the defaulting  party does not either (a) cure such default within
sixty (60) days,  or (b)  utilize  due  diligence  to begin,  within such 60 day
period, to

                             4





rectify such default if such default cannot be completely  rectified within said
sixty (60) days,  then the party not in default may,  without  waiving any other
rights or remedies it may have, terminate this Lease by giving written notice to
the other of such termination.

     15. Lessee shall hold  harmless and  indemnify  Lessor from and against any
and all loss or cost  (excepting  those  caused by the  negligence  or  willfull
misconduct of Lessor,  its  employees,  agents,  invitees or licensees)  arising
directly  from  Lessee's  use or enjoyment  of said  premises and from  Lessee's
exercise of the rights and privileges granted hereunder.

     16.  Contemporaneous  with the  execution of this Lease,  Lessor  agrees to
execute and deliver to Lessee an easement,  the form of which is attached hereto
as Exhibit B, for the  construction,  operation and maintenance of a pipeline or
pipelines across the following described property of Lessor:

     Section 35, T15N , R12OW, 6th P.M.,  Uinta County,  Wyoming as described in
     Warranty  Deed dated  January 18,  1973 and  recorded in Volume 294 at Page
     368, Deed Records of Uinta County, Wyoming.


     17.  Notices  by Lessor or Lessee,  as  hereinabove  provided,  shall be by
registered or certified United States Mail,  postage  prepaid,  addressed to the
parties at their respective addresses as indicated on Page 1 of this Lease.

     18. Each and every  provision of this Lease shall be binding upon and inure
to the parties hereto and their heirs, executives, successors and assigns.

     19. Notwithstanding any other provision to the contrary,  this Lease may be
terminated by Lessee upon sixty (60) days written notice to Lessor.

     IN WITNESS WHEREOF, the parties hereto have executed this lease the day and
year first above written.

"Lessor"                        "Lessee"

BROKEN CIRCLE CATTLE CO.        NORTHERN GAS PRODUCTS
COMPANY


By   /s/Philip Myers              By    /s/ Rex Donaldson
     President                      Vice President


Attest: /s/Ken Myers               Attest: /s/S.M. Sawtell
         Secretary                       Secretary

                             5





STATE OF NEBRASKA )
                       ss
COUNTY OF DOUGLAS )

     On this  4th day of  September,  1979,  before  me, a  Notary  Public  duly
commissioned  and  qualified in and for said County,  personally  came the above
named Rex Donaldson Vice  President,  S. M. Sawtell  Secretary,  of Northern Gas
Products  Company who are  personally  known to me to be the  identical  persons
whose names are affixed to the above  instrument as Vice President and Secretary
of said Corporation,  and they acknowledged the instrument to be their voluntary
act and deed, and the voluntary act and deed of said Corporation.

     WITNESS,  my hand and  official  seal at Omaha,  in said  County,  the date
aforesaid.

                                       /s/J.H. Quinn
                                    Notary Public

My commission expires the 5th day of March, 1982


STATE OF WYOMING  )
                       ss
COUNTY OF UINTA   )

     On this  6th  day of  September,  1979,  before  me a  notary  public  duly
commissioned  and  qualified in and for said County,  personally  came the above
named Philip Myers President,  Ken Myers, Secretary, of Broken Circle Cattle Co.
who are  personally  known to me to be the  identical  persons  whose  names are
affixed to the above  instrument as ______  President and ____ Secretary of said
Corporation,  and they acknowledged the instrument to be their voluntary act and
deed, and the voluntary act and deed of said Corporation.


                                      /s/Leonard K. Defa
                                    Notary Public

My commission expires the 6th day of September, 1979.






                             6





                                          LEASE EXHIBIT A-1

                                      [MAP]









                                          LEASE EXHIBIT A-2

              C. E. Spurlock, Jr. Associates
          Consulting Engineers and Land Surveyors


C. E. SPURLOCK, JR.                              P.O. BOX O
P. E. &, L. S. LICENSE NO. 396       150 NORTH THIRD STREET
HAROLD E. O'MALLEY                    LANDER, WYOMING 82520
P. E. &, L. S. LICENSE NO. 468         PHONE (307) 332-5280

                                  July 2, 1979

                                 DESCRIPTION OF
TRACT PROPOSED TO BE PURCHASED BY NORTHERN GAS PRODUCTS CO.
     A tract of land in the SW1/4SE1/4 and the SE1/4SW1/4 of
Section 35, Township 15 North, Range 120 West, 6th P.M., Uinta County,  Wyoming,
more particularly described as follows:
     Beginning at Corner No. 1, which is on the South line
of said Section 35 and on the Southwesterly right-of-way
line of the Union Pacific Railroad and bears N. 89(degree) 53' W.
a distance of 2359.8 feet from the Southeast corner of
said Section 35; thence proceed N. 89(degree) 53' W. along said
Section line a distance of 279.4 feet to Corner No. 2.,
the South quarter corner of said Section 35; thence
proceed S 89(degree) 53' W. along said Section line a distance of
333.45 feet to Corner No. 3; thence proceed Northwesterly
along a circular curve to the right a distance of 1201.14
feet to Corner No. 4 (the curve has a radius of 3364.65, a
tangent of 607.03, and a chord of 1194.77 - the chord
bears N. 37(degree) 32.6' W.); thence proceed N. 62(degree) 41' E. a
distance of 400.0 feet, more or less, to Corner No. 5
which is on the Southwesterly right-of-way line of said
railroad; thence proceed Southeasterly along said
right-of-way along a curve to the left a distance of
1154.2 feet to Corner No. 6 (the curve has a radius of
2964.65 feet, a






                                          LEASE EXHIBIT A-3

              C. E. Spurlock, Jr. Associates
          Consulting Engineers and Land Surveyors


C. E. SPURLOCK, JR.                              P.O. BOX O
P. E. &, L. S. LICENSE NO. 396       150 NORTH THIRD STREET
HAROLD E. O'MALLEY                    LANDER, WYOMING 82520
P. E. &, L. S. LICENSE NO. 468         PHONE (307) 332-5280

                                  July 2, 1979


tangent of 584.48 feet and a chord of 1146.88 feet the
chord bears S. 38(degree) 28.1' E.); thence proceed S. 49(degree) 26.3'
E. along said right- of-way a distance of 358.06 feet,
more or less, to Corner No. 1., the point of beginning.
     This tract contains 12.447 acres.





                           P E. & L. S. WyomIng License
                                     No. 396





                                                                     EXHIBIT A-4


                                      [MAP]

EX-10.41

                                              Agreement No. ____________________


                             CONSTRUCTION AGREEMENT


     This  agreement  ("Agreement")  is made and entered into as of the 20th day
of June, 1996 (the "Effective Date"), by and between:  Morgan Associates,  Inc.,
a Kansas corporation,  hereinafter  referred to as "MORGAN",  and Enron Liquids 
Pipeline Operating  Limiting  Partnership,  a Delaware limited  partnership,  
hereinafter referred to as "ELPOLP".

                                WITNESSETH THAT:

     WHEREAS,  MORGAN desires the  performance  by an independent  contractor of
certain  Work  pertaining  to  the  engineering,  procurement,  management,  and
construction of a certain Odessa Lateral and Meter facility (the "Facilities").

     NOW,  THEREFORE,  in  consideration of the amount(s) of money to be paid by
MORGAN to ELPOLP, and other mutual covenants,  agreements and obligations of the
parties hereinafter set forth, the parties do hereby agree as follows:

1.   Scope of Work.  ELPOLP shall  furnish  and  pay  for all costs and expenses
     associated  with the  acquisition  of  MORGAN's  Premises,  and any  labor,
     supervision,  tools,  technical  capability,   transportation,   materials,
     supplies,  and all  other  items or  accessories  necessary  for  ELPOLP to
     perform and accomplish the Work defined and described in Exhibit "A" and in
     accordance  with the terms,  conditions,  and standards of this  Agreement,
     including the Plans and Specifications in Exhibit "B" (the "Work"). As part
     of the Work,  ELPOLP  shall  prepare  and  deliver  to MORGAN  all  design,
     construction,  operation and maintenance  information,  including,  but not
     limited to, "as-built"  drawings,  schematics  and flow diagrams as MORGAN
     may  reasonably  require for the ongoing  operation and  maintenance of the
     Facilities.

2.   Rights of Way.  ELPOLP  will  research  title  and  prepare  the  documents
     required to obtain and acquire on behalf of MORGAN all Work  places,  land,
     rights of way grants, permits,  easements,  surface easements, fee property
     (including all land) necessary for the Facilities (hereinafter collectively
     defined as "MORGAN's  Premises"),  which  MORGAN's  Premises shall include,
     without limitation:  (a) permanent easement rights pursuant to the Pipeline
     Easement  (the  "Southdown   Easement")   dated  November  29,  1995,  from
     Southdown,  Inc., aka Southwestern  Portland Cement Company,  over the real
     property described  therein;  (b) permanent easement rights pursuant to the
     Pipeline  Easement  (the "P&C  Easement")  dated  November 28,  1995,  from
     Pevehouse & Christensen Ranch Corporation, over the real property described
     therein, and (c) permanent real

 



     property  interests as necessary to accommodate the metering  facilities to
     be constructed as part of the Facilities (the "Meter  Easement").  ELPOLP's
     title research and document  preparation in connection with  acquisition of
     MORGAN's Premises shall be in accordance with ELPOLP's  internal  standards
     and practices for  acquisition  of similar rights of way,  easements,  etc.
     ELPOLP will supply MORGAN with information  pertaining to title  research
     and document  preparation in connection with MORGAN's Premises.  MORGAN may
     request additional title research or changes to the documents as MORGAN may
     feel necessary.  Should ELPOLP be unable to acquire the necessary rights of
     way at a reasonable cost, or if escalated,  at a cost acceptable to MORGAN,
     on or before June 15,  1996,  this  agreement  and all further  obligations
     hereunder shall terminate.  Unless otherwise approved in writing by MORGAN,
     ELPOLP  will  acquire  on  behalf of MORGAN  permanent  rights to  MORGAN's
     Premises by the payment of a one-time  lump sum amount for each  respective
     right of way,  easement,  etc.  (such lump sum payments to be included as
     part of the Contract Price  hereunder),  and there will be no requirement
     for  payment  of  periodic  fees  (e.g.,  lease or  royalty  payments)  for
     retaining rights to or use of MORGAN's Premises.

3.   Term.  This  Agreement  shall  commence  on the  Effective  Date and  shall
     automatically  terminate upon MORGAN's  acceptance of the Work and MORGAN's
     payment therefore to ELPOLP as described herein. 

4.   Price.  MORGAN as total  consideration for the Work to be performed,  shall
     pay  ELPOLP  the  total  accumulated  costs  of  supervision,  engineering,
     procurement  services,  costs  of the  acquisition  of  MORGAN's  Premises,
     materials,  costs of rights of way, rights of temporary ingress and egress,
     damages to landowners,  fees, bonds,  insurance,  losses not compensated by
     insurance,  inspection  services,  direct and  contract  and  subcontracted
     labor,  transportation  and living  expenses,  use of furnished  equipment,
     commissioning,   permitting,   project   documentation,   taxes,  supplies,
     equipment and services,  interest  incurred from initial  expenditure until
     final payment has been received,  and all other costs and expenses incurred
     by ELPOLP in the  performance  and  completion  of the Work,  not to exceed
     $2,000,000.00 (the "Contract  Price").  In the event that ELPOLP determines
     that  the  total  costs  and  expenses  which  it has or will  incur in the
     performance  and  completion  of the Work (i.e.,  in order to complete  the
     Facilities  pursuant to the  standards  defined and described in Exhibits A
     and B hereto) will exceed $2,000,000.00, ELPOLP will promptly notify MORGAN
     of such circumstance,  providing reasonable details regarding the basis for
     such  increased  costs and expenses and the total expected cost and expense
     for  completion of the  Facilities.  Upon  receiving such written notice of
     expected cost increase, MORGAN may elect to either (i) approve the cost

                                        2





     increase,  in which event the "Contract  Price" shall  thereafter  mean the
     revised  amount  that  has  been  designated  by  ELPOLP  as the  cost  for
     completing the Work, or (ii) elect not to proceed with the  construction of
     the Facilities or completion of the Work,  and in such event,  MORGAN shall
     convey to ELPOLP, without any warranties, title to MORGAN's Premises and to
     all Work in process, completed Work, supplies, and other materials produced
     or acquired for the Work,  and ELPOLP shall refund and  reimburse to MORGAN
     any and all amounts which MORGAN has paid or advanced hereunder.

     Should  MORGAN  authorize  ELPOLP to perform  additional  Work which is not
     within  the scope and  intent of this  Agreement,  such Extra Work shall be
     reimbursed in accordance with Paragraph 11 of this Agreement.

5.   General Payment Conditions.

     (a)  Following  completion of the Work (but not earlier than July 1, 1996),
     ELPOLP  shall  prepare  an invoice  (the  "Invoice")  for the total  amount
     accrued to ELPOLP for the Work (but which may not be more than the Contract
     Price unless agreed to as provided in Paragraph 4). MORGAN shall pay ELPOLP
     the amount  accrued as shown by the  Invoice,  less any amounts  reflecting
     payment that may have been made on previous  invoices,  within  thirty (30)
     days after  receipt of the Invoice by MORGAN.  Submission of the Invoice by
     ELPOLP to MORGAN shall constitute  ELPOLP's  acknowledgement  and agreement
     that the  "Initial  Transportation  Date" has  occurred  under that certain
     Transportation   Agreement   between  MORGAN  and  ELPOLP  related  to  the
     Facilities   and   that  all   conditions   precedent   to  such   "Initial
     Transportation Date" have been satisfied.

     (b) MORGAN's  payment of the Invoice or MORGAN's earlier shipment of carbon
     dioxide through the Facilities shall constitute  MORGAN'S acceptance of the
     Work.  Acceptance by ELPOLP of such final payment shall constitute a waiver
     by it of all  claims  against  MORGAN  related  to or  arising  out of this
     Agreement.  Such final  acceptance and payment by either party hereto shall
     not,  however,  release  either  party  from  any  unperformed  obligations
     hereunder.

     (c) It is understood and the parties hereto agree that the sums to be paid,
     as set forth  above,  shall be the entire  consideration  to be received by
     ELPOLP from  MORGAN for the Work  performed  hereunder,  and that said sums
     shall include any and all taxes and contributions as set forth in Paragraph
     14  hereinbelow.  ELPOLP shall,  where  applicable,  separately list on its
     invoices all valid sales taxes on services provided hereunder.


                                        3





6.   Notices. All notices, consents,  requests,  invoices or statements provided
     for or  permitted to be given under this  Agreement  must be in writing and
     are effective on actual receipt by the intended recipient or by delivery to
     the address,  or facsimile  number during  working hours (8:00 a.m. to 5:00
     p.m. CST) for the recipient listed below:

     TO ELPOLP:                     TO MORGAN

     Enron Liquids Pipeline         Morgan Associates, Inc.
     Operating Limited Partnership  Attn:  William V. Morgan
     Attn:  Russell Martin          Plaza Time Building
     P.O. Box 1188                  411 Nichols Road, Suite 225
     Houston, Texas 77251-1188      Kansas City, Missouri 64112
     Telephone:  713-853-3589       Telephone:  816-931-5750
     Fax:  713-646-5824             Fax:  816-931-9170


     All notices,  invoices, and other communications  ("Notices") shall be sent
     to the parties at their  respective  addresses  in writing and as set forth
     above.  Notices sent through the mail shall be deemed to have been received
     on the third (3rd) day after post marking.

7.   Tax Identification  Number. ELPOLP hereby designates no. 76-0380015 as its
     tax  identification  number for all  purposes  which may require  MORGAN to
     report to  taxing  authorities  moneys  paid to  ELPOLP  for Work  provided
     hereunder.

8.   Exhibits.  This Agreement consists of the following Exhibits,  all of which
     are attached  hereto and by this reference made a part hereof:

     Exhibit A -  Scope of Work
     Exhibit B -  Plans and Specifications

9.   Inspection  of the Work.  MORGAN's  Representative  shall at all times have
     access to the Work wherever it is in  preparation  or progress,  and to any
     other location  where  equipment or material for the Work, if any, is being
     fabricated or stored by ELPOLP or its  subcontractors,  provided,  however,
     that no  inspection  or  suggestion  by  MORGAN  Representative  or  MORGAN
     employees or agents shall operate to control the method of  performance  of
     the Work  hereunder,  the manner and  method of  performing  the same being
     under the sole control and direction of ELPOLP, MORGAN having interest only
     in the results obtained,  and ELPOLP shall perform all Work hereunder as an
     independent  contractor  with full control and detailed manner and means of
     performance.

                             4





10.  Representations, Warranties and Guarantees. With respect to this Agreement,
     ELPOLP covenants, warrants, guarantees and represents to MORGAN that:


     (a) The Work  will be  accomplished  in good and  workmanlike  manner  with
     approved  practices and  standards of the industry,  and with all plans and
     specifications  made a part of this  Agreement.  ELPOLP  shall  employ such
     methods,  tools,  equipment, and subcontractors in the performance of the
     Work under this Agreement as will ensure Work of reasonable accuracy.

     (b)  ELPOLP has authority to do business in the state in which the Work  is
     to be performed.

     (c) ELPOLP shall comply with all valid applicable federal,  state and local
     laws, ordinances and regulations thereunder, issued or promulgated by units
     of government and regulatory  bodies with  jurisdiction  over any aspect of
     the Work.

     (d)  Upon  completion  of the  Work,  the  site as it  relates  to the Work
     performed  by ELPOLP will comply with the  requirements  of all permits and
     all  valid  and  applicable   statutes,   ordinances,   orders,  rules  and
     regulations  of  the  federal,   state,   and  local   governments   having
     jurisdiction thereof.

     (e) During the "Warranty Period" (hereinafter defined), ELPOLP shall repair
     or correct at its expense any defects due to ELPOLP's  faulty  workmanship.
     In any event,  ELPOLP's liability therefor shall be limited to the Contract
     Price.  ELPOLP's  sole  obligation  to  MORGAN  with  regard  to  repair or
     corrective Work required of any supplier of equipment or materials provided
     by ELPOLP  hereunder and not  manufactured  by ELPOLP shall be to assign to
     MORGAN the  warranty or guarantee  of such  supplier  and to cooperate  and
     assist MORGAN in MORGAN's  enforcement  of its remedies and if requested by
     MORGAN to  perform  any such  repair or  corrective  Work at cost less such
     credits  as  are  recovered  from  such  supplier.  ELPOLP  guarantees  the
     workmanship for a period of twelve (12) months from MORGAN's  acceptance of
     the Work (the  "Warranty  Period").  EXCEPT AS  SPECIFICALLY  WARRANTED  BY
     ELPOLP UNDER THIS  AGREEMENT,  ELPOLP MAKES NO OTHER  WARRANTY,  EXPRESS OR
     IMPLIED,  INCLUDING  ANY  WARRANTY OF FITNESS OR  MERCHANTABILITY,  AND ANY
     STATUTORY  WARRANTIES  OR  REMEDIES  INCONSISTENT  WITH THIS  CONTRACT  ARE
     EXPRESSLY  WAIVED.  THE FOREGOING SHALL BE APPLICABLE EVEN IF THE LIABILITY
     ASSERTED IS BASED ON THE  NEGLIGENCE  (WHETHER  ACTIVE OR PASSIVE) OR OTHER
     FAULT OR STRICT LIABILITY OF THE PARTY TO BE INDEMNIFIED, AND REGARDLESS OF
     WHETHER THE ACTION OR CLAIM IS BASED IN CONTRACT,  TORT, WARRANTY,  STATUTE
     OR OTHERWISE.

11.  Extra Work - Changes.  MORGAN may require ELPOLP to perform work or furnish
     materials or equipment, or the use thereof, in

                             5





     connection  with  the  Work  which  are  not  included  in  this  Agreement
     (hereinafter  referred to as "Extra Work"). Extra Work may be occasioned by
     major changes in pipeline specifications or routing requiring  additional
     work or materials of a materially different nature, kind and cost from that
     contemplated  at  the  time  of  execution  of  this  Agreement,  or the
     performance  of other or additional  work incident to the completion of the
     project or facilities  herein  involved,  but not in  contemplation  of the
     parties at the time of execution of this Agreement.

     ELPOLP  shall not  perform  any Extra Work  without  first  having  secured
     written  authorization  from  MORGAN  which  shall be  signed  by  MORGAN's
     Representative.  Such authorization  shall describe the Work to be done and
     specify  the price to be paid  therefor,  or the basis on which  such price
     shall be calculated.

12.  Termination and Interruption.

     (a) In the event that the Work may be delayed due to any federal, state, or
     other regulatory  authority taking any action,  or refraining from doing an
     act, or should any other  condition arise from such  authorities  which may
     cause a delay of the Work,  ELPOLP  shall  make all  reasonable  efforts to
     resolve  such a delay.  However,  in the event such  efforts do not satisfy
     said  authorities  (or the cause of such  delay) and the Work is  therefore
     indefinitely  delayed,  which, in ELPOLP's or MORGAN's reasonable judgment,
     shall make it  unreasonable  for ELPOLP to proceed  with all or any part of
     the Work under this Agreement,  MORGAN and ELPOLP may terminate the Work by
     giving the other  party  five (5) days  written  Notice of such  partial or
     complete cancellation or termination.

     If Work is so terminated after  commencement of any Work hereunder,  MORGAN
     shall pay ELPOLP for Work which has been  satisfactorily  performed  to the
     date of  termination  for  which  ELPOLP  has not  previously  been paid by
     MORGAN,  in  accordance  with  this  Agreement,  including  ELPOLP's  costs
     associated  with  proposal  preparation,   the  purchase  of  equipment  or
     materials  or  supplies,  the  acquisition  of rights of way and  rights of
     ingress  and  egress,  the  hiring  of  Subcontractors,  and the  hiring or
     reassignment  of  employees  assigned to the Work and any other  charges or
     costs associated with the cessation of the Work.

     (b) Upon notice of termination pursuant to this Paragraph:

         1.   ELPOLP shall discontinue further Work so terminated.


                             6





         2.   ELPOLP and/or its  contractors and  subcontractors  shall have the
              right to remove its equipment,  tool sand appliances from the site
              of the Work (and in either case its personnel).

         3.   ELPOLP shall transfer title and deliver to
              MORGAN the Work in process, completed Work,
              supplies, and other materials produced or
              acquired for the Work terminated, as well as
              the completed or partially completed plans,
              Drawings, information, and other property
              that, if the Agreement had been completed,
              would be required to be furnished to MORGAN.
               "Drawings" as used herein shall mean all graphs,  depictions, and
              other visual layouts prepared by ELPOLP to describe the Work.

         4.   Morgan shall thereafter assume all
              obligations, commitments and other
              liabilities that ELPOLP has therefore
              incurred or made in connection with its
              performance of the Work and for which ELPOLP
              has not been paid and released; provided,
              however, that MORGAN shall not be required
              to make any payments to ELPOLP in excess of
              the Contract Price.

              Failure of MORGAN or ELPOLP to exercise any of the rights given it
              under this  paragraph in any  instance or  instances  shall not be
              deemed or adjudged a waiver of such right in other instances.

              Termination of this Agreement shall not relieve any party from any
              obligation  accruing  or accrued to the date of such  termination,
              nor  deprive  a  party  not in  default  of any  remedy  otherwise
              available to it. The indemnification  provisions of this Agreement
              shall  survive such  termination  relative to all claims and other
              indemnified matters,  discovered or undiscovered,  arising out of,
              in connection with, or incident to this Agreement.

     (c)  MORGAN  or  ELPOLP  may  temporarily  interrupt  or shut down all or a
     portion of the Work hereunder upon reasonable advance Notice, if any state,
     federal, or other regulatory  authority shall take any action or shall fail
     to issue or shall withhold any  authorization,  which shall make proceeding
     with the Work inadvisable or imprudent.  If all or a portion of the Work is
     thus temporarily shut down,  ELPOLP shall be paid its  unrecoverable  costs
     and expenses incurred directly applicable to such interruption.

13.  Force  Majeure.  No  delays in or  failure or  omission  in the performance
     of any  obligation  under this  Agreement by ELPOLP or  MORGAN,  other than
     payment of money, shall constitute

                             7





     default under this  Agreement if and to the extent such delay or failure of
     performance  is caused  by  occurrences  beyond  the  control  of ELPOLP or
     MORGAN,  and which by the  exercise of due  diligence  such party shall not
     have been able to avoid or overcome, including, but not limited to: acts of
     God or the public  enemy;  expropriation  or  confiscation  of  facilities;
     compliance with any order or request of any governmental authority;  fires,
     floods,  explosion,  accidents;  strikes,  walkouts or other concerted work
     stoppages. In the event that ELPOLP has not secured all easements,  permits
     and licenses required of it in order to proceed with the construction phase
     of the Work,  or in the event of any other force majeure  condition,  which
     force majeure condition prevents ELPOLP from commencing construction of the
     facilities  contemplated  herein, the construction of such facilities shall
     not begin until such easements,  permits, and licenses are secured. If such
     time delay or other force majeure  condition causes an increase to ELPOLP's
     labor, equipment, or material costs to complete the Work by the Date stated
     herein,  or such later date if force majeure causes delay to  construction,
     ELPOLP shall furnish to MORGAN  supporting  documentation  evidencing  such
     increase in costs,  and ELPOLP shall be paid such increase in costs. In the
     event  of a force  majeure  occurrence,  the  party  whose  performance  is
     prevented by such occurrence  shall notify the other party, in writing,  as
     soon as  reasonably  possible and give full  particulars  thereof and shall
     reasonably endeavor to remedy the situation as soon as possible.

14.  Taxes and Other Payments.

     (a) Sales and Use Taxes

     ELPOLP agrees that the total  consideration  to be paid for Work  performed
     under this Agreement  includes any such sales,  use, gross receipts or like
     taxes on materials, supplies, equipment or services furnished by ELPOLP and
     on services performed by ELPOLP.  ELPOLP shall obtain the necessary permits
     and  licenses to remit  sales,  use,  gross  receipts and like taxes to the
     applicable taxing authority. ELPOLP agrees to be responsible for all taxes,
     penalties and interest  resulting  from ELPOLP's  failure to properly remit
     itemized taxes to the applicable taxing  authority.  Upon written notice to
     ELPOLP,  MORGAN may elect to directly  remit sales,  use, gross receipts or
     like taxes to the taxing  authority to whom such taxes are due and directly
     payable.  If MORGAN  exercises such  election,  MORGAN shall provide ELPOLP
     with written evidence, as required by applicable taxing authority, prior to
     ELPOLP's procurement or payment of taxable purchases.

                             8





     (b) Other

     ELPOLP  assumes full  responsibility  for and agrees to pay for, and agrees
     that the price to be paid by MORGAN as set herein shall be fully  inclusive
     of, all labor, including overtime as legally required,all overhead, and all
     contributions  and taxes payable  under  federal and state social  security
     acts,   old  age  pension,   worker's   compensation   laws,   unemployment
     compensation  laws and income tax laws and any other  applicable laws as to
     all of its  employees  and agents  engaged in the  performance  of the Work
     hereunder,  and ELPOLP hereby agrees to be  responsible  for any failure by
     ELPOLP or any of its  subcontractors  to pay or withhold taxes,  charges or
     compensation due on behalf of its employees or agents involved in the Work.

15.  General  Indemnity.   ELPOLP  AND  MORGAN AGREE  TO INDEMNIFY,  DEFEND  AND
     HOLD HARMLESS THE OTHER PARTY FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS,
     LOSSES,  DAMAGES,  CAUSES OF ACTION,  SUITS AND  LIABILITIES OR EVERY KIND,
     INCLUDING ALL EXPENSES OF LITIGATION, COURT COSTS, AND ATTORNEY'S FEES, FOR
     INJURY TO OR DEATH OF ANY  PERSON,  OR FOR LOSS OR  DAMAGE TO ANY  PROPERTY
     CAUSED  BY  THE  NEGLIGENT  ACT  OR  OMISSION  OF ANY  EMPLOYEE,  AGENT  OR
     SUBCONTRACTOR  OF  THE  INDEMNIFYING   PARTY  IN  THE  PERFORMANCE  OF  THE
     INDEMNIFYING PARTY'S OBLIGATIONS  HEREUNDER.  IN THE EVENT ANY INJURY TO OR
     DEATH OF ANY  PERSON,  OR LOSS OR DAMAGE TO ANY  PROPERTY  IS CAUSED BY THE
     CONCURRENT  NEGLIGENCE OF BOTH PARTIES HERETO OR OF EITHER PARTY HERETO AND
     A THIRD PARTY,  THE  INDEMNIFYING  PARTY HERETO SHALL  INDEMNIFY  THE OTHER
     PARTY ONLY TO THE  EXTENT  ITS  NEGLIGENCE  CONTRIBUTED  TO SUCH  DAMAGE OR
     INJURY.  NEITHER PARTY SHALL HAVE LIABILITY FOR ANY CLAIM,  DAMAGE OR CAUSE
     OF ACTION  RESULTING  FROM THE WILLFUL  MISCONDUCT,  BAD FAITH OR NEGLIGENT
     ACTS OR OMISSIONS OF THE OTHER PARTY'S EMPLOYEES,  AGENTS OR CONTRACTORS OR
     SUBCONTRACTORS.

     NOTWITHSTANDING  ANY PROVISION OF THIS PARAGRAPH 15, WHERE PERSONAL INJURY,
     DEATH,  OR  LOSS OF OR  DAMAGE  TO  PROPERTY  RESULTS  FROM  THE  JOINT  OR
     CONCURRENT  NEGLIGENCE OR WILLFUL MISCONDUCT OF BOTH ELPOLP AND MORGAN, THE
     PARTIES'  DUTY OF  INDEMNIFICATION  SHALL BE IN  PROPORTION TO EACH PARTY'S
     ALLOCABLE  SHARE OF JOINT OR CONCURRENT  NEGLIGENCE OR WRONGFUL  MISCONDUCT
     EVEN IF ONE OF THE PARTIES IS MORE THAN FIFTY PERCENT (50%) AT FAULT.

16.  Limitation   of   Liability.   NOTWITHSTANDING   ANYTHING  HEREIN  TO   THE
     CONTRARY,  IN NO EVENT SHALL  ELPOLP OR MORGAN BE LIABLE TO THE OTHER PARTY
     HERETO FOR ANY LOST OR PROSPECTIVE PROFITS OR ANY OTHER SPECIAL,  PUNITIVE,
     EXEMPLARY,  CONSEQUENTIAL,  INCIDENTAL  OR  INDIRECT  LOSSES OR DAMAGES (IN
     TORT, CONTRACT OR OTHERWISE),  UNDER OR IN RESPECT HERETO HOWSOEVER CAUSED,
     WHETHER OR NOT ARISING FROM ELPOLP'S OR MORGAN'S SOLE,  JOINT OR CONCURRENT
     NEGLIGENCE.

                             9




17.  Safety   Precautions.   ELPOLP  shall  be  responsible  for  and  take  all
     necessary and proper safety precautions to protect from accident or injury,
     all persons, including its employees and its subcontractors' employees, who
     may be at or on MORGAN's Premises where the Work is being performed. ELPOLP
     shall establish and enforce adequate, reasonable, prudent and proper safety
     rules and procedures and emergency procedures necessary for safe completion
     of the Work.

18.  Compliance  With  Laws  and  Regulations.   ELPOLP  certifies  that  unless
     specifically  exempted,  all  products,  or services  furnished  under this
     Agreement  have been furnished in compliance  with all applicable  laws and
     regulations.

19.  Environmental Waste.  Notwithstanding any provisions
     contained to the contrary, in the event that the Work
     requires ELPOLP to remove or handle hazardous
     materials, waste or soils or materials contaminated
     with such materials, waste or substances ("Waste"),
     except for Wastes that are brought onto MORGAN's
     Premises by ELPOLP or its subcontracts or are present
     upon MORGAN's Premises arising from the negligence or
     willful misconduct of ELPOLP or its subcontractors or
     first generated by ELPOLP or its subcontractors at
     their own premises, MORGAN SHALL REMAIN RESPONSIBLE
     FOR SUCH WASTES AND FOR ANY POLLUTION EMANATING FROM
     MORGAN'S PREMISES AND SHALL DEFEND,INDEMNIFY AND HOLD
     ELPOLP HARMLESS FROM AND AGAINST ANY LOSS, COST,
     CLAIM, DAMAGE, LIABILITY, FINE OR PENALTY INCURRED BY
     ELPOLP WHICH RESULTS OR IS ALLEGED TO RESULT FROM
     ELPOLP'S PERFORMANCE OF SUCH WORK, HOWEVER ARISING;
     PROVIDED, HOWEVER, THAT THE FOREGOING INDEMNITY SHALL
     NOT APPLY WITH RESPECT TO ANY SUCH LOSSES, COSTS,
     CLAIMS, DAMAGES, LIABILITIES, FINES OR PENALTIES
     ARISING FROM THE NEGLIGENCE OR WILLFUL MISCONDUCT OF
     ELPOLP OR ITS SUBCONTRACTORS.  Waste as used herein
     shall include, but not be limited to, any garbage,
     refuse, sludge and other present or discarded
     material, including solid, liquid, semisolid, or
     contained gaseous materials resulting from
     industrial, commercial, mining and agricultural
     activities or from community or individual
     activities, and including all waste classified as
     "hazardous" pursuant to the Resource Conservation and
     Recovery Act, as amended; "toxic waste" pursuant to
     the Toxic Substances Control Act, as amended; or
     asbestos.  ELPOLP shall notify MORGAN of any
     discovery of any Waste associated with the Work, but
     ELPOLP shall not be required to arrange for the
     disposal or off-site removal of such Waste unless (i)
     specifically agreed upon in writing by a duly
     authorized officer of ELPOLP, or (ii) such Waste was
     brought onto MORGAN's Premises by ELPOLP or its
     subcontractors or is present upon MORGAN's Premises
     arising from the negligence or willful misconduct of
     ELPOLP or its subcontractors.


                            10





20.  Compliance With DOT Anti-Drug and Alcohol Misuse
     Regulations.  MORGAN under 49 CFR Parts 199 and 40,
     is required by law to ensure compliance with the
     pipeline safety regulations for drug and alcohol
     testing applicable to its contractors, subcontractors
     and their agents, performing operations, maintenance,
     or emergency response functions on a pipeline or LNG
     facility subject to Parts 191, 192, 193 and 195 of
     Title 49 of the Code of Federal Regulations.  ELPOLP
     agrees to comply with such requirements and will
     require compliance by its employees, agents,
     contractors and subcontractors.

21.  Independent Contractor.  The parties hereto agree
     that the Work rendered by ELPOLP in the fulfillment
     of the terms and obligations of this Agreement shall
     be as an independent contractor, and this Agreement
     does not create an employer/employee relationship
     between MORGAN and ELPOLP.  ELPOLP is not entitled to
     the benefits provided by MORGAN or its parent,
     subsidiaries or affiliates to their employees, and
     ELPOLP is not an agent, partner, or joint venturer of
     MORGAN, its parent or any subsidiary or affiliate.
     ELPOLP shall act at its own risk and expense in its
     fulfillment of the terms and obligations of this
     Agreement and agrees to employ and direct any persons
     performing any Work hereunder.  ELPOLP shall not
     represent itself to third persons to be other than an
     independent contractor of MORGAN, nor shall ELPOLP
     offer to agree to incur or assume any obligations or
     commitments in the name of MORGAN.

22.  Governing Law.  Unless otherwise specified, this
     Agreement and the rights and duties of the parties
     arising out of this Agreement shall be governed by
     and construed in accordance with the laws of the
     State of Texas, except provisions of that law
     referring to governance or construction of the laws
     of another jurisdiction.  Any action arising out of
     this Agreement or the rights and duties of the
     parties arising out of this Agreement may be brought,
     if at all, only in the courts of Texas.  Venue shall
     be proper in Harris County.

23.  Subcontracting.  ELPOLP shall cause each
     subcontractor to assume and satisfy all obligations
     of ELPOLP hereunder to the full extent same may be
     applicable to the portions of the Work
     subcontracted.  ELPOLP shall be liable for all acts
     and omissions of any subcontractor or any of their
     employees or agents, as if performed or omitted by
     ELPOLP.

24.  Contractual Rights.  The terms and provisions of this
     Agreement shall inure to the benefit of and be
     binding upon the successor, assigns and
     representatives of the parties hereto.  The
     provisions of this Agreement shall not impart rights
     enforceable by any person, firm or organization not a
     party or not bound as a party, or not a permitted
     successor or assignee of a party bound to this
     Agreement.

                            12





25.  Assignability.  Neither party may assign its rights
     under this Agreement without the prior written
     consent of the other party, which shall not be
     unreasonably withheld.  Written consent to assign
     said rights shall not be necessary when this
     Agreement is assigned in whole or in part to a wholly
     owned subsidiary or affiliate, or by:  (i) name
     change, or (ii) merger, or (iii) formation of a new
     company, or (iv) stock purchase.  If and in the event
     MORGAN desires to sell the Facilities then MORGAN
     shall give at least thirty (30) days notice to ELPOLP
     setting forth the name of the potential buyer and
     ELPOLP shall, within said thirty (30) day period,
     elect to either terminate this Agreement or to
     approve MORGAN's assignment of this agreement to the
     potential buyer.

26.  General.  The terms and provisions of this Agreement
     are intended to supersede any conflicting terms or
     conditions in any other agreement between the
     parties.  This Agreement contains the entire
     agreement between the parties and shall not be
     modified or supplemented except by written instrument
     duly executed by both parties.  If any provision of
     this Agreement shall, for any reason, be held
     violative of any applicable law, and so much of said
     Agreement is held to be unenforceable, then the
     invalidity of such a specific provision herein shall
     not be held to invalidate any other provisions
     herein, which other provisions shall remain in full
     force and effect unless removal of said invalid
     provision destroys the legitimate purposes of this
     Agreement, in which event this Agreement shall be
     canceled.  The terms and provisions of Paragraphs 2,
     10, 15, 19, 22, 23 and 27 shall survive the
     termination of this Agreement.  No waiver of any of
     the provisions of this Agreement shall be deemed or
     shall constitute a waiver of any other provisions
     hereof (regardless of whether similar), nor shall any
     such waiver constitute a continuing waiver unless
     otherwise expressly provided.

27.  Claims.  MORGAN shall assert any and every "Claim" of
     any kind or nature whatsoever under this Agreement
     ("Claim" to include, without limitation, any Claim
     relating to, associated with, arising out of or in
     any way incidental to the Work or the execution,
     inducement to enter into, performance, non-
     performance, or breach of this Agreement) exclusively
     against ELPOLP and not against any one or more of its
     partners nor the general partner, Enron Liquids
     Pipeline Company, nor their officers, directors,
     employees, or agents nor entities affiliated with it
     by common ownership or control, nor any of them
     individually or collectively; and MORGAN shall
     enforce or attempt to enforce against the assets of
     ELPOLP and not against the assets of any partner,
     general partner, affiliated entity, nor any of their
     officers, directors, employees or agents, except the
     general partner's interest in ELPOLP.


                            13





28.  Cooperation.  The parties shall take such reasonable
     further actions, execute such further documents and
     otherwise cooperate and assist one another in any
     manner reasonably necessary to give effect to and
     carry out the provisions hereof.


IN WITNESS  WHEREOF,  this Agreement is executed on the day and year first above
written, but is effective on the Effective Date.


"ELPOLP"                       "MORGAN"
Enron Liquids Pipeline
Operating Limited Partnership
by Enron Liquids Pipeline
Company, its General Partner   Morgan Associates, Inc.

By: /s/ Ray Kaskel             By: /s/ William V. Morgan

Title: President               Title: President

Witness/Attest                 Attest:

By: /s/ Thomas P. Tosoni       By:

Title: Assistant Secretary     Title:

(SEAL                          (SEAL)




                            14





- - - -------------------------------------------------------------------------
                               EXHIBIT "A"

                               OCS ROSWELL

                          PROJECT COST ESTIMATE
                                 5/2/96

- - - -------------------------------------------------------------------------

CUSTOMER COMPANY NAME: ENRON LIQUIDS
     PROJECT NAME:    6" SO. ODESSA LAT.
      W.O. NUMBER:
  PROJECT MANAGER:    JOE MILLS
  REVISION NUMBER:    ALLIANCE ESTIMATE

- - - -------------------------------------------------------------------------

                              PROJECT SCOPE

- - - -------------------------------------------------------------------------

CO2 PIPELINE: INSTALL 11.1 MILES OF PIPELINE, SIDE VALVE AND METER
STATION FACILITY
   1) PIPING WILL BE 6" AND MATCH GRADE AND WALL IN DESIGN
   2) LOCATION WILL BE BETWEEN PENWELL AND ODESSA, TX.
   3) LINE WILL TIE IN AT THE CENTRAL BASIN PIPELINE PIG LAUNCHER/RECEIVERS 
      NEAR PENWELL
   4) THE LINE PROCEEDS APPROXIMATELY DUE EAST TO A DELIVERY POINT TO
      PHILLIPS






                                       BEST         WORST      MOST PROB.






COST FOR ESTIMATE/CO2 PIPELINE    $  1,238,840  $  1,587,989  $1,402,532

















- - - -------------------------------------------------------------------------


                                Page 1





- - - -------------------------------------------------------------------------

                               OCS ROSWELL

                          PROJECT COST ESTIMATE
                                 5/2/96

- - - -------------------------------------------------------------------------

CUSTOMER COMPANY NAME: ENRON LIQUIDS
     PROJECT NAME:    6" SO. ODESSA LAT.
      W.O. NUMBER:
  PROJECT MANAGER:    JOE MILLS
  REVISION NUMBER:    ALLIANCE ESTIMATE

- - - -------------------------------------------------------------------------

                          NOTES AND ASSUMPTIONS

- - - -------------------------------------------------------------------------

   1) PROJECT IS FOR 11.1 MILES OF 6 INCH PIPELINE
   2) PROJECT REQUIRES SIDE VALVE SETTING ON PIPELINE
   3) MEASUREMENT STATION WILL BE INSTALLED WITH PIPELINE



































- - - -------------------------------------------------------------------------


                                Page 2







- - - --------------------------------------------------------------------------------------------------------------------
                                                    OCS ROSWELL

                                               PROJECT COST ESTIMATE
                                                      5/2/96
- - - --------------------------------------------------------------------------------------------------------------------
       CUSTOMER COMPANY NAME:      ENRON LIQUIDS
                PROJECT NAME:      6" SO. ODESSA LAT.
                 W.O. NUMBER:
             PROJECT MANAGER:      JOE MILLS
             REVISION NUMBER:      ALLIANCE ESTIMATE
- - - --------------------------------------------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------------------------------------------

                                           MATERIAL AND EQUIPMENT COSTS

- - - --------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          MOST
                                                                                        BEST CASE      WORST CASE       PROBABLE
                   DESCRIPTION                                                            COST            COST            COST
                                                     Qty.       Unit     Unit Cost      ESTIMATE        ESTIMATE        ESTIMATE
- - - ------------------------------------------------------------------------------------------------------------------------------------
P.U. NO.
- - - ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     
340-06     6" PIPE (E)        (.1)  (.1)(.2)(.7)     58600       FT    $ 6.37            $ 354,530       $ 410,200       $ 373,282
- - - ------------------------------------------------------------------------------------------------------------------------------------
534-01     4" METER RUN (E)   (.1)  (.1)(.2)(.7)       1         EA    $ 9,000           $   8,100       $   9,900       $   9,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
520-01     EFM (E)            (.1)  (.1)(.1)(.8)       1         EA    $ 4,500           $   4,050       $   4,950       $   4,500
- - - ------------------------------------------------------------------------------------------------------------------------------------
120-01     VSAT (E)           (.1)  (.1)(.2)(.8)       1         EA    $ 15,000          $  13,500       $  16,500       $  15,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
714-01     STRAINER (E)       (.1)  (.1)(.2)(.7)       1         EA    $ 2,700           $   2,500       $   3,000       $   2,700
- - - ------------------------------------------------------------------------------------------------------------------------------------
120-00     UPS (E)            (.1)  (.1)(.1)(.8)       1         EA    $ 4,500           $   4,050       $   4,950       $   4,500
- - - ------------------------------------------------------------------------------------------------------------------------------------
521-01     TRANSMITTERS (E)   (.1)  (.1)(.1)(.8)       4         EA    $ 1,000           $   3,600       $   4,400       $   4,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
920-04     BALL VALVES (E)    (.1)  (.1)(.2)(.7)       1         LT    $ 18,000           $ 16,000       $  20,000       $  18,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
672-00     3" CONTROL VALVE (E)(.1)  (.1)(.2)(.7)      1         EA    $ 3,600            $  3,300       $   4,000       $   3,600
- - - ------------------------------------------------------------------------------------------------------------------------------------
972-04     4" CHECK VALVE (E) (.1)  (.1)(.2)(.7)       1         EA    $ 2,100            $  1,900       $   2,300       $   2,100
- - - ------------------------------------------------------------------------------------------------------------------------------------
131-01     AIR COMPRESSOR (E) (.1)  (.2)(.1)(.7)       1         EA    $ 2,300            $  1,900       $   2,600       $   2,300
- - - ------------------------------------------------------------------------------------------------------------------------------------
086-01     BUILDING (E)       (.1)  (.2)(.1)(.7)       1         EA    $ 6,000            $  5,400       $   6,600       $   6,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
237-01     AREA LIGHTING (E)  (.7)  (.1)(.4)(.5)       1         EA    $ 1,000            $  1,000       $   1,500       $   1,200
- - - ------------------------------------------------------------------------------------------------------------------------------------
235-01     TRANSFORMER (E)    (.1)  (.1)(.2)(.7)       1         EA    $ 1,000            $  1,000       $   1,500       $   1,100
- - - ------------------------------------------------------------------------------------------------------------------------------------
104-01     TEST STATIONS (E)  (.7)  (.1)(.4)(.5)      50         EA    $    50            $  4,000       $   6,000       $   5,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
340-00     PIPELINE MARKERS (E)(.1)  (.1)(.2)(.7)     50         EA    $    20            $    800       $   1,200       $   1,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
941-06     OTHER MATERIALS (E) (.4)  (.1)(.3)(6)       1         LT    $ 9,000            $  7,000       $  10,000       $   9,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
346-00     SRINKSLEEVES (B&H) (.1)  (.3)(.2)(.5)       1         LT                       $  6,500       $  10,000       $   9,130
- - - ------------------------------------------------------------------------------------------------------------------------------------
269-01     H-BRACES (B&H)     (.1)  (.3)(.2)(.5)       6         SET                      $  1,750       $   3,000       $   2,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
269-02     GATES (B&H)        (.1)  (.3)(.2)(.5)       6         EA                       $  1,700       $   2,600       $   2,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
340-00     EXPENDABLES (B&H)  (.1)  (.2)(.2)(.6)       1         LT                       $  1,800       $   4,000       $   3,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
340-00     PIGS (B&H)         (.7)  (.3)(.3)(.4)       1         LT                       $  1,500       $   3,000       $   2,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
238-01     ELECTRICAL (E)     (.3)  (.2)(.3)(.5)       1         LT                       $  1,500       $   3,000       $   2,000
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
904-01     TAX                             7.25%                                          $ 32,435       $  38,802       $  34,975
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
903-00     FREIGHT                          4.5%                                          $ 20,132       $  24,084       $  21,709
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
MATERIALS AND EQUIPMENT COSTS SUB-TOTAL                                                   $499,947       $ 598,086       $ 539,095
- - - ------------------------------------------------------------------------------------------------------------------------------------



                                                     Page 3








- - - --------------------------------------------------------------------------------------------------------------------
                                                    OCS ROSWELL
                                               PROJECT COST ESTIMATE
                                                      5/2/96
- - - --------------------------------------------------------------------------------------------------------------------
       CUSTOMER COMPANY NAME:      ENRON LIQUIDS
                PROJECT NAME:      6" SO. ODESSA LAT.
                 W.O. NUMBER:
             PROJECT MANAGER:      JOE MILLS
             REVISION NUMBER:      ALLIANCE ESTIMATE
- - - --------------------------------------------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------------------------------------------
                                                FIELD DIRECT COSTS
- - - --------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          MOST
                                                                                        BEST CASE      WORST CASE       PROBABLE
                   DESCRIPTION                                                            COST            COST            COST
                                                     Qty.       Unit     Unit Cost      ESTIMATE        ESTIMATE        ESTIMATE
- - - ------------------------------------------------------------------------------------------------------------------------------------
P.U. NO.
- - - ------------------------------------------------------------------------------------------------------------------------------------
                                                                                        
900-00     DISTRICT LABOR (E) (.2)  (.3)(.2)(.5)      176        HR                        $  5,600       $  6,720        $  6,160
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     PIPE AND COATING INSP(.2)  (.3)(.2)(.5)                                         $  6,500       $  7,000        $  6,500
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     X-RAY (E)          (.2)  (.3)(.2)(.5)       1         LT                        $ 15,000       $ 29,000        $ 20,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     INSPECTION (E)     (.3)  (.1)(.3)(.6)      46         DAY     $   300           $ 13,200       $ 18,000        $ 13,800
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     SURVEY (E)         (.1)  (.1)(.2)(.7)      15         DAY     $   500           $ 13,000       $ 14,000        $ 18,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     ARCHY (E)          (.1)  (.1)(.2)(.7)       1         LT                        $  4,000       $  7,000        $  5,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
504-03     R-O-W (E)          (.1)  (.1)(.2)(.7)                                           $ 80,000       $ 95,000        $ 85,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
504-13     LAND SERVICES (E)  (.1)  (.1)(.2)(.7)                                           $  7,000       $  8,500        $  7,500
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     MOB. CHARGE (B&H)  (.2)  (.3)(.1)(.6)       1         LT                        $ 14,000       $ 20,000        $ 18,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     FENCES (B&H)       (.1)  (.1)(.2)(.7)       6         EA                        $  7,500       $ 13,500        $  9,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     ROW PREP (B&H)     (.2)  (.3)(.2)(.5)       1         LT                        $  9,700       $ 13,500        $ 11,600
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     DITCH (B&H)        (.6)  (.3)(.3)(.4)     58600       FT                        $ 37,000       $ 45,000        $ 41,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     HAUL/STRING (B&H)  (.2)  (.1)(.2)(.7)       1         LT                        $  6,600       $  9,800        $  8,200
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     SETUP (B&H)        (.2)  (.1)(.2)(.7)       1         LT                        $  6,400       $  9,600        $  8,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     LAY & WELD (B&H)   (.6)  (.3)(.3)(.4)       1         LT                        $ 41,000       $ 51,000        $ 44,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     COAT & LOWER IN (B&H)(.3)  (.2)(.2)(.6      1         LT                        $  7,200       $ 12,800        $ 11,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     TIE-IN (B&H)       (.6)  (.3)(.3)(.4)       1         LT                        $ 45,000       $ 60,000        $ 55,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     CLEAN UP (B&H)     (.2)  (.3)(.2)(.5)       1         LT                        $ 13,600       $ 15,400        $ 15,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     RESEED (B&H)       (.2)  (.2)(.2)(.6)       1         LT                        $  6,100       $  7,500        $  6,800
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     HYDRO-TEST (B&H)   (.6)  (.2)(.3)(.5)       1         LT                        $  8,500       $ 11,400        $  9,500
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     SPREAD BOSS (B&H)  (.1)  (.2)(.1)(.7)       1         LT                        $ 22,400       $ 28,800        $ 25,650
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     ELECTRICAL (B&H)   (.1)  (.2)(.2)(.6)       1         LT                        $  2,000       $  3,000        $  2,500
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     WELDER Q. TEST (B&H)(.4)  (.2)(.2)(.6)      8         EA                        $  2,700       $  3,600        $  3,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     FAB-3 SITES (B&H)  (.4)  (.2)(.2)(.6)       1         LT                        $  7,500       $ 10,000        $  8,700
- - - ------------------------------------------------------------------------------------------------------------------------------------
269-03     FENCE 10X10 (B&H)  (.1)  (.2)(.1)(.7)       1         LT                        $    540       $    660        $    600
- - - ------------------------------------------------------------------------------------------------------------------------------------
269-04     FENCE 100X50 (B&H) (.1)  (.2)(.1)(.7)       1         LT                        $  3,400       $  4,200        $  3,800
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
N/A        ENRON FDC COST                                                                  $144,300       $185,220        $161,960
- - - ------------------------------------------------------------------------------------------------------------------------------------
N/A        B&H FDC                                                                         $241,140       $319,760        $281,350
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00     B&H OVERHEAD                      23%                                           $ 55,462       $ 73,545        $ 64,711
- - - ------------------------------------------------------------------------------------------------------------------------------------
N/A        B&H TOTAL                                                                       $296,602       $393,305        $346,061
- - - ------------------------------------------------------------------------------------------------------------------------------------
          FIELD DIRECT COSTS SUB-TOTAL                                                     $440,902       $578,525        $508,021
- - - ------------------------------------------------------------------------------------------------------------------------------------



                                                     Page 4







- - - --------------------------------------------------------------------------------------------------------------------
                                                    OCS ROSWELL

                                               PROJECT COST ESTIMATE
                                                      5/2/96
- - - --------------------------------------------------------------------------------------------------------------------
       CUSTOMER COMPANY NAME:      ENRON LIQUIDS
                PROJECT NAME:      6" SO. ODESSA LAT.
                 W.O. NUMBER:
             PROJECT MANAGER:      JOE MILLS
             REVISION NUMBER:      ALLIANCE ESTIMATE
- - - --------------------------------------------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------------------------------------------

                                               PROJECT SUPPORT COSTS

- - - --------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          MOST
                                                                                        BEST CASE      WORST CASE       PROBABLE
                   DESCRIPTION                                            Unit            COST            COST            COST
                                                      Qty.       Unit     Cost          ESTIMATE        ESTIMATE        ESTIMATE
                                                                                                   
- - - ------------------------------------------------------------------------------------------------------------------------------------
P.U.NO.      INSTALLATION COSTS
- - - ------------------------------------------------------------------------------------------------------------------------------------
             TOTAL M&E COST                                                             $   499,947    $   598,086      $  539,095
- - - ------------------------------------------------------------------------------------------------------------------------------------
             TOTAL FD COST                                                              $   440,902    $   578,525      $  508,021
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
             PROJECT SUPPORT COSTS
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       ENGINEERING SVCS (PDI)(.1)(.15).15)(.7)                                    $    12,000    $    18,000      $   15,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
990-01       ENGINEERING RECORDS               2%                                       $    18,817    $    23,532      $   20,942
- - - ------------------------------------------------------------------------------------------------------------------------------------
990-01       OCS                  (1)(.2)(.2)(.6)                                       $     7,200    $    10,800      $    9,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
316-01       CO2 LINE PACK (E)   (.1)(.2)(.1)(.7)     10,652      MCF   $ 0.65          $     6,924    $    10,386      $    6,924
- - - ------------------------------------------------------------------------------------------------------------------------------------
990-01       PURCHASING (DUANE MOODY) (E)                                               $     2,000    $     5,000      $    2,500
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       M&H PROJ MGMT (E)   (.1)(.2)(.1)(.7)                                       $    28,000    $    39,200      $   33,600
- - - ------------------------------------------------------------------------------------------------------------------------------------
             OVERHEADS
- - - ------------------------------------------------------------------------------------------------------------------------------------
             - ELP RATE                        0%                                       $         -    $         -      $        -
- - - ------------------------------------------------------------------------------------------------------------------------------------
             - GROUP RATE                      0%                                       $         -    $         -      $        -
- - - ------------------------------------------------------------------------------------------------------------------------------------
             - AFUDC (10.58% x 3 MON)          0%                                       $         -    $         -      $        -
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
             RISK FUNDS & PROFITS
- - - ------------------------------------------------------------------------------------------------------------------------------------
             RISK FUNDS                                                                 $   135,550    $   304,460      $  214,950
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       B&H RANGE                                                                  $    87,500    $         -      $   52,500
- - - ------------------------------------------------------------------------------------------------------------------------------------
             PDI RANGE
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
              TOTAL ESTIMATED COST                                                      $ 1,238,840    $ 1,587,989      $1,402,532
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
ESTIMATED PROBABILITY OF OCCURRENCE                                                             30%            20%             50%
- - - ------------------------------------------------------------------------------------------------------------------------------------



                                                     Page 5







- - - --------------------------------------------------------------------------------------------------------------------
                                                    OCS ROSWELL

                                               PROJECT COST ESTIMATE
                                                      5/2/96
- - - --------------------------------------------------------------------------------------------------------------------
       CUSTOMER COMPANY NAME:      ENRON LIQUIDS
                PROJECT NAME:      6" SO. ODESSA LAT.
                 W.O. NUMBER:
             PROJECT MANAGER:      JOE MILLS
             REVISION NUMBER:      ALLIANCE ESTIMATE
- - - --------------------------------------------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------------------------------------------

                                                   RISK FACTORS

- - - --------------------------------------------------------------------------------------------------------------------
- - - -----------------------------------------------------------------------------------------------------------------------------------

               


SEE "RISK FUNDS"



































===================================================================================================================================



                                                     Page 6







- - - --------------------------------------------------------------------------------------------------------------------
                                                    OCS ROSWELL

                                               PROJECT COST ESTIMATE
                                                      5/2/96
- - - --------------------------------------------------------------------------------------------------------------------
       CUSTOMER COMPANY NAME:      ENRON LIQUIDS
                PROJECT NAME:      6" SO. ODESSA LAT.
                 W.O. NUMBER:
             PROJECT MANAGER:      JOE MILLS
             REVISION NUMBER:      ALLIANCE ESTIMATE
- - - --------------------------------------------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------------------------------------------

                                               PROJECT CONTACT LIST

- - - --------------------------------------------------------------------------------------------------------------------
                                                                             

          NAME                               OFFICE                        Mobile             PAGER
        Joe Mills          M&H            505/627-8153                                  800/327-9957
        Jack Moody         Enron Liquids
        Rick Miller        Enron Liquids
        Earl Chanley       Transwestern   505/625-8031








                                                     Page 7








- - - --------------------------------------------------------------------------------------------------------------------
                                                    OCS ROSWELL

                                               PROJECT COST ESTIMATE
                                                      5/2/96
- - - --------------------------------------------------------------------------------------------------------------------
       CUSTOMER COMPANY NAME:      ENRON LIQUIDS
                PROJECT NAME:      6" SO. ODESSA LAT.
                 W.O. NUMBER:
             PROJECT MANAGER:      JOE MILLS
             REVISION NUMBER:      ALLIANCE ESTIMATE
- - - --------------------------------------------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------------------------------------------

                                                    RISK FUNDS

- - - --------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          MOST
                                                                                       BEST CASE      WORST CASE        PROBABLE
                  DESCRIPTION                                                            COST            COST             COST
                                                    Qty.       Unit     Unit Cost      ESTIMATE        ESTIMATE         ESTIMATE
                                                                                                    
- - - ------------------------------------------------------------------------------------------------------------------------------------
P.U.NO.
- - - ------------------------------------------------------------------------------------------------------------------------------------
900-00       MATL. DELV. (E)   (.4)(.3)(.3)(.4)       1         LT                       $   1,000      $  12,000        $  10,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
900-00       SURVEY (E)        (.3)(.4)(.1)(.5)       1         LT                       $   1,000      $  20,000        $  10,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
900-00       SCOPE CHANGES (E) (.2)(.3)(.1)(.6)       1         LT                       $   5,000      $  20,000        $  10,000
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       ROCK (B&H)        (.9)(.3)(.3)(.4)       1         LT                       $  86,100      $ 125,460        $ 104,550
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       PAD (B&H)         (.9)(.3)(.3)(.4)       1         LT                       $  14,750      $  19,000        $  17,700
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       WEATHER (B&H)     (.2)(.3)(.1)(.6)       1         LT                       $   5,000      $  20,000        $  10,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       FIELD BENDS (B&H) (.1)(.1)(.1)(.8)       1         LT                       $     500      $   1,500        $   1,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       LABOR AVIB. (B&H) (.2)(.4)(.1)(.5)       1         LT                       $     500      $   7,500        $   5,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       REWORK (B&H)      (.8)(.2)(.1)(.7)       1         LT                       $   5,000      $  30,000        $  15,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       HYD/MATL FAIL (B&H)(.2)(.2)(.1)(.7)      1         LT                       $     750      $   7,500        $   1,500
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       GRUBBING (B&H)    (.3)(.4)(.1)(.5)       1         LT                       $     100      $  10,000        $   5,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       EXCAV. UNKNO (B&H)(.8)(.3)(.1)(.6)       1         LT                       $   1,000      $   5,000        $   2,500
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       ROAD TO METER SITE(.9)(.3)(.3)(.4)       1         LT                       $   7,375      $   9,500        $   8,850
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       ROAD TO TAKE OFF (B)(.9)(.3)(.3)(.4)     1         LT                       $   7,375      $   9,500        $   8,850
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       CON. DWG. (PDI)   (.1)(.1)(.1)(.8)       1         LT                       $     100      $   7,500        $   5,000
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTALS
- - - ------------------------------------------------------------------------------------------------------------------------------------
900-00       ENRON RISK FUNDS                                                            $   7,000      $  52,000        $  30,000
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       B&H RISK FUNDS                                                              $ 128,450      $ 244,960        $ 179,950
- - - ------------------------------------------------------------------------------------------------------------------------------------
901-00       PDI RISK FUNDS                                                              $     100      $   7,500        $   5,000
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
                                      RISK FUND                                          $ 135,000      $ 304,460        $ 214,950
- - - ------------------------------------------------------------------------------------------------------------------------------------



                                                      Page 1





                                                   JOINT LENGTH



====================================================================================================================================

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
60' VS 40' ECONOMICS
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------
                     PRICE/FT
- - - ------------------------------------------------------------------------------------------------------------------------------------
 
                                                                                                        NET             HAUL
                                                                       SHRINK          WELDING          PRICE           FROM
                     UP TO                                             SLEEVE          SAVINGS          STRUNG          ODESSA
   JT LENGTH          ROW           TO RAILYD         STRING          SAVINGS           (25%)           ON ROW          TOTAL
                                                                                                   
- - - ------------------------------------------------------------------------------------------------------------------------------------
40                    $6.37                             $0.05                                            $6.42         $2,930
- - - ------------------------------------------------------------------------------------------------------------------------------------
57                    $6.46                             $0.05                                            $6.51         $2,930
- - - ------------------------------------------------------------------------------------------------------------------------------------
57                                      $6.31           $0.11          ($0.04)          ($0.17)          $6.21         $6,600
- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

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- - - ------------------------------------------------------------------------------------------------------------------------------------

- - - ------------------------------------------------------------------------------------------------------------------------------------

====================================================================================================================================



                                                      Page 1




                                          EXHIBIT "B"

                                  Engineering Specifications


The following Index of Project  Specifications  represents,  but does not limit,
the ENRON Engineering Specifications to be used:

ELPOLP  shall  comply  with  all   applicable   Specifications.   The  following
Specifications should cover the majority of the "Work".  Engineering Standards #
7503,  4701,  4732,  4736, 4742, 4747, 4915, 6601, 6625, 6634, 6637, 6639, 6651,
6660,  6700,  6710,  6720, 8100, 8101, 8110, 8116, 8125, 8126, 8155, 8301, 8308,
8310, 8312, 8315, 8360, 8362, 8375, 8405, 8415, and 8475.

EX-10.42

                                            Agreement No. ______________________

                        OPERATING & MAINTENANCE AGREEMENT


This Agreement, ("Agreement") made and entered into as of the 20th day of June, 
1996 (the "Effective Date"), by and between Morgan Associates, Inc., a Kansas 
corporation, hereinafter  referred  to as  "MORGAN", and Enron Liquids  Pipeline
Operating Limited Partnership, a Delaware limited partnership, hereinafter 
referred to as "ELPOLP".

                                WITNESSETH THAT:

     WHEREAS,  MORGAN will own that certain  Odessa  Lateral and Meter  facility
located  in  Ector  County,  Texas,  as more  fully  described  in  Exhibit  "A"
(hereinafter referred to as the "Facility"); and

     WHEREAS, MORGAN desires that ELPOLP, as an independent contractor,  operate
and maintain the Facility on behalf of and as agent for MORGAN; and

     WHEREAS,  the parties desire to set forth their rights and responsibilities
with regard to the operation and maintenance of the Facility.

     NOW,  THEREFORE,  in consideration of the terms and conditions  hereinafter
set forth, the parties agree as follows:

                                    ARTICLE I
                                RESPONSIBILITIES


1.1  Designation of ELPOLP. This Agreement shall be effective upon the Effective
     Date   designated   above,   but  the   parties'   respective   duties  and
     responsibilities  for payment  hereunder  shall  commence upon the "Initial
     Transportation  Date" under that certain  Transportation  Agreement between
     MORGAN and ELPOLP related to the Facility (the "Commencement Date").

1.2  Responsibilities and Rights of ELPOLP. As operator of the Facility,  ELPOLP
     shall provide all operations,  maintenance,  administration,  construction,
     engineering  and emergency  services  necessary to operate and maintain the
     Facility in good operating  condition and in accordance with all applicable
     laws and  regulations  (the  "Operations  and  Maintenance").  ELPOLP shall
     operate and maintain the Facility pursuant to and consistent with (i) sound
     and prudent  carbon dioxide  pipeline  industry  practices,  (ii) the laws,
     rules,  or  regulations  of  the  DOT,  Local,  State,   Federal  or  other
     appropriate  jurisdictional  body,  and  (iii)  such  reference  documents,
     including: a) Engineering Standards Enron Gas Pipeline Group






     (Vols. I, II, III); b) Central Basin Pipeline
     Operating Procedures Manual; and c) Enron Liquids
     Pipeline Company Environmental Policy and Procedures
     Manual.  MORGAN shall provide, for use by ELPOLP,
     design, construction, operation and maintenance
     information, including, but not limited to,
     "as-built" drawings, schematics, and flow diagrams as
     applicable, as ELPOLP may reasonably request from
     time to time, to allow ELPOLP to perform its
     obligations hereunder.

1.3  Services  Provided  ELPOLP.  ELPOLP as agent for MORGAN  shall  provide the
     following services for MORGAN relative to the Facility:

     (a) Operations and Maintenance Services.  ELPOLP
         shall procure and furnish all materials,
         equipment, services, supplies, and labor
         necessary for the operation and maintenance of
         the Facility, including, but not limited to, the
         following:

         (1)  Communications, corrosion control,
              monitoring, and measurement;

         (2)  Periodic testing, adjustment,  external and internal inspection of
              the Facility, and such maintenance, reconditioning, or overhaul as
              may be necessary and  appropriate  to maintain  valves,  pipeline,
              orifice, displacement and other meters, and such other facility as
              may be required to operate and maintain the Facility;

         (3)  Cathodic protection of the Facility for the
              control of corrosion and subsequent
              monitoring as necessary;

         (4)  Equipment and facility repair, overhaul, and
              replacement, as necessary;

         (5)  Administrative and supervisory services;

         (6)  Pay and  discharge  all costs and expenses  incurred in connection
              with the operation  and  maintenance  of the Facility  pursuant to
              this Agreement;

         (7)  Protect  all  interests  in real  estate  covering  the  Facility,
              including,   without   limitation,   rights-of-way,   easements,
              leaseholds, permits, licenses, fee lands and any other real estate
              interests associated with the Facility;  comply with all the terms
              and  conditions  of  the   rights-of-way   documents;   refer  all
              rights-of-way  landowner  matters to MORGAN when received;  notify
              MORGAN of

                             2





              all  encroachments  upon the  rights-of-way  as soon as reasonably
              practical after ELPOLP discovers such encroachments, and cooperate
              fully with MORGAN in the  resolution of all such  matters;  MORGAN
              shall  timely  provide   ELPOLP  notice  of  all   correspondence,
              communications,  or other  information it receives  related to and
              any changes regarding MORGAN's interest in the rights-of-way;

         (8)  Provide all consumable supplies and
              materials necessary for the operation and
              maintenance of the Facility;

         (9)  Provide technical services as required for
              maintenance of the Facility;

         (10) Maintain logs and regulatory records relating to the operation and
              maintenance  of  the  Facility   including,   without  limitation,
              Department of Transportation  records required under the Hazardous
              Liquids   Pipeline   Safety   Act  and   regulations   promulgated
              thereunder;

         (11) Notify  MORGAN,  as  expeditiously  as possibly,  of all incidents
              relating to the Facility  which are  reportable  under the laws or
              regulations  of the Railroad  Commission  of Texas,  Department of
              Transportation, or other governmental agency with jurisdiction;

         (12) Respond to and follow as expeditiously as possible all of MORGAN's
              directions  relating to the volumes of carbon dioxide which are to
              be received into and shipped out of the Facility;

         (13) Obtain,  if  necessary,  and maintain  all required  environmental
              permits and other authorizations  (including,  without limitation,
              air   emissions,   water   use,   or  water   discharge   permits,
              collectively,  "Permits")  necessary  to operate and  maintain the
              Facility, make all required reports under the Permits, and operate
              at  all  times  in  compliance  with  all   environmental   rules,
              regulations, orders and laws;

         (14) Notify MORGAN,  as expeditiously as possible,  of all accidents or
              incidents  arising out of the  operation  and  maintenance  of the
              Facility  resulting  in death or personal  injury or damage to the
              Facility or third party property; notify MORGAN of all claims

                             3





              received by ELPOLP relating to such
              accidents or incidents;

         (15) Assure that all carbon dioxide delivered into MORGAN shall conform
              to the  minimum  specifications  established  by MORGAN (as may be
              amended from time to time) for such carbon  dioxide if at any time
              the carbon dioxide  tendered for delivery shall fail to conform to
              such  quality   specifications   and  is  not  remedied  within  a
              reasonable  length of time, ELPOLP shall notify MORGAN of the lack
              of   conformity.   The   current   version   of   carbon   dioxide
              specifications  as established  by MORGAN are attached  hereto and
              incorporated hereby as Exhibit "B";

         (16) Perform all carbon dioxide measurement activities for the Facility
              as specified by MORGAN,  and preserve all test data,  charts,  and
              other  required  data  pertaining  to the  measurement  of  carbon
              dioxide  for a period of three (3) years or such  other  period as
              may be prescribed by regulatory authorities with jurisdiction; and

         (17) Collect  appropriate  information and prepare and deliver periodic
              invoices to those  persons for whom MORGAN has, from time to time,
              any agreement for the transportation of carbon dioxide through the
              Facility.  Such  invoicing  shall be done in  accordance  with the
              terms and  requirements of the agreements  between MORGAN and such
              persons for whom carbon  dioxide is  transported,  including  such
              requirements  regarding  the  frequency of invoicing and invoicing
              for minimum transportation, "take or pay" or similar requirements.
              MORGAN will deliver copies of any such  agreements or arrangements
              to ELPOLP as may be reasonably required in order to facilitate its
              invoicing function hereunder.

     (b) Emergency Services. In the case of an explosion,  fire, storm, or other
         emergency  which might threaten life or property or render the Facility
         or any part  thereof  incapable of  continued  operation,  ELPOLP shall
         immediately  take such steps and incur such expenses as are required to
         deal with such emergency including,  without limitation,  employment of
         third  parties.  MORGAN shall  reimburse  ELPOLP each calendar year for
         expenditures incurred during such year for payment of said expenses.

1.4  DOT/Rights-of-Way Costs.  ELPOLP shall be responsible
     for payment of all periodic payments to DOT or other
     governmental

                             4





     authority  with  respect to  operation  or  ownership  of the  Facility  or
     payments due under the rights-of-way documents and all damages which may be
     due on the  rights-of-way  which arise out of the operation and maintenance
     of the Facility  (collectively the "Periodic  Costs"),  including,  without
     limitation,  the costs of moving and removing facilities as required by the
     rights-of-way  documents.  MORGAN shall reimburse ELPOLP each calendar year
     for that  portion of the  Periodic  Costs  incurred  during  such year that
     exceed  $1,000.00,  except that MORGAN  shall not be required to  reimburse
     ELPOLP for any portion of the Periodic Costs (e.g.,  rights-of-way damages)
     that are caused by ELPOLP's negligence, willful misconduct or breach of the
     requirements of this Agreement.

1.5  Additions or Modifications.  As MORGAN's agent, with no ownership  interest
     in the facility,  ELPOLP shall make no additions or major  modifications to
     the  Facility  without  the  prior  written  consent  of  MORGAN.  All such
     additions and modifications  shall be constructed in accordance with normal
     industry  standards and the requirements of 49 CFR Part 195, as applicable,
     and shall conform to MORGAN's designated  standard operating  procedures as
     provided in the  manuals  provided  ELPOLP as stated in Article 1,  Section
     1.2. ELPOLP shall be solely  responsible for the  construction,  operation,
     and  maintenance  of such  additions  during the term  hereof.  MORGAN will
     reimburse  ELPOLP the total  amount for  capital  expenditures  incurred
     during such year.

1.6  Subcontracting.  It is understood and agreed that MORGAN shall not contract
     with any third party for the  performance of ELPOLP's duties to operate and
     maintain  the  Facility  hereunder,  or any part  thereof,  nor  assign its
     rights,  duties, or obligations  hereunder,  unless mutually agree.  ELPOLP
     shall have the right to contract with third parties for routine  operation,
     maintenance,  or  construction  services  such as, and  including,  but not
     limited to, painting, x-ray, chart integration, measurement, accounting, or
     other  similar  type  services.  ELPOLP shall cause each  subcontractor  to
     assume and satisfy all  obligations of ELPOLP  hereunder to the full extent
     same may be applicable to the portions of the  Operations  and  Maintenance
     subcontracted.  ELPOLP  shall be liable for all acts and  omissions  of any
     subcontractor,  or any of their  employees  or agents,  as if  performed or
     omitted by ELPOLP.

1.7  Costs and  Expenses.  Commencing  on the  Commencement  Date,  ELPOLP shall
     provide all  operating  services  provided for hereunder in exchange for an
     annual  fee  of  $75,000,  payable  and  due  quarterly  in the  amount  of
     $18,750.00 on the first day of each quarter (calendar  quarters starting on
     January 1, April 1, July 1 and October 1). ELPOLP agrees to promptly pay

                             5





     all its vendors and  contractors  to insure that no liens are filed against
     the  Facility  for the  providing  of goods  or  services  relating  to the
     Facility,  and ELPOLP shall immediately take appropriate remedial action to
     have such liens  released if they are filed.  If ELPOLP  fails to take such
     action,  MORGAN may take  whatever  action is  necessary to have such liens
     released,  including  the payment of the claimed  indebtedness,  and ELPOLP
     shall reimburse MORGAN for all costs,  expenses,  and payments made to have
     such liens released.

                                   ARTICLE II
                      PERFORMANCE OF OPERATOR'S OBLIGATIONS


2.1  Morgan's Right to Inspect.  At all times during the term of this Agreement,
     MORGAN  shall  have the right to  inspect,  or cause to be  inspected,  the
     Facility and the performance of ELPOLP's duties hereunder, and the right to
     consult  with  ELPOLP to assure  that  ELPOLP is  properly  performing  its
     duties.  The duties to be performed  hereunder by ELPOLP shall be performed
     as  MORGAN's  agent,  and ELPOLP  shall have the right to select the means,
     methods,  and manner of performing its duties  hereunder in accordance with
     this Agreement.  MORGAN shall not have the right to direct,  supervise,  or
     control  ELPOLP or its  servants or  employees  in the  performance  of its
     duties  hereunder,  or as to the means,  manner,  and  methods in which its
     duties are performed except as required under this Agreement.

2.2  Failure  to Meet  Standards.  In the event  that  ELPOLP is  notified  of a
     failure  to meet  applicable  operating  requirements,  whether of the DOT,
     Local,  State,  Federal or other  appropriate  jurisdictional  body, and if
     ELPOLP does not correct such failure in ninety (90) days,  and continues to
     operate and maintain the Facility not in accordance with Paragraphs 1.2 and
     1.3 of this  Agreement and the standards  set forth  therein,  MORGAN shall
     have the option of (1)  requiring  such  compliance  by a suit for specific
     performance; (2) performing the required actions itself or by a third party
     subject to reimbursement  by ELPOLP;  and/or (3) terminating this Agreement
     and seeking such other relief as may be provided by law.

                                   ARTICLE III
                                     GENERAL


3.1  Independent Contractor.  The parties hereto agree
     that the Operations and Maintenance rendered by
     ELPOLP in the fulfillment of the terms and
     obligations of this Agreement shall be as an
     independent contractor, and this Agreement does

                             6





     not create an  employer/employee  relationship  between  MORGAN and ELPOLP.
     ELPOLP is not  entitled to the  benefits  provided by MORGAN or its parent,
     subsidiaries or affiliates to their employees,  and ELPOLP is not an agent,
     partner,  or joint  venturer  of MORGAN,  its parent or any  subsidiary  or
     affiliate.  ELPOLP  shall act at its own risk and  expense in its  fulfill-
     ment of the terms and  obligations  of this  Agreement and agrees to employ
     and direct any persons performing any Operations and Maintenance hereunder.
     ELPOLP  shall not  represent  itself to third  persons  to be other than an
     independent  contractor of MORGAN, nor shall ELPOLP offer to agree to incur
     or assume any obligations or commitments in the name of MORGAN.

3.2  Insurance.   ELPOLP   agrees  to   maintain   policies   and   programs  of
     self-insurance  sufficient to protect from  liabilities  that ELPOLP may be
     responsible  for under this  Agreement.  MORGAN  shall be  responsible  for
     property insurance protection coverages (e.g., fire, lightning, earthquake)
     for the Facility.

3.3  General  Indemnity.  ELPOLP AND MORGAN AGREE TO INDEMNIFY,  DEFEND AND HOLD
     HARMLESS  THE OTHER PARTY FROM AND  AGAINST  ANY AND ALL  CLAIMS,  DEMANDS,
     LOSSES,  DAMAGES,  CAUSES OF ACTION,  SUITS AND  LIABILITIES OF EVERY KIND,
     INCLUDING ALL,  EXPENSES OF LITIGATION,  COURT COSTS,  AND ATTORNEYS' FEES,
     FOR INJURY TO OR DEATH OF ANY PERSON, OR FOR LOSS OR DAMAGE TO ANY PROPERTY
     CAUSED BY NEGLIGENT ACT OR OMISSION OF ANY EMPLOYEE, AGENT OR SUBCONTRACTOR
     OF THE INDEMNIFYING  PARTY IN THE PERFORMANCE OF THE  INDEMNIFYING  PARTY'S
     OBLIGATIONS  HEREUNDER.  IN THE EVENT ANY INJURY TO OR DEATH OF ANY PERSON,
     OR LOSS OR DAMAGE TO ANY PROPERTY IS CAUSED BY THE CONCURRENT NEGLIGENCE OF
     BOTH  PARTIES  HERETO OR OF EITHER  PARTY  HERETO  AND A THIRD  PARTY,  THE
     INDEMNIFYING  PARTY  HERETO  SHALL  INDEMNIFY  THE OTHER  PARTY ONLY TO THE
     EXTENT ITS NEGLIGENCE  CONTRIBUTED TO SUCH DAMAGE OR INJURY.  NEITHER PARTY
     SHALL HAVE  LIABILITY  FOR ANY CLAIM,  DAMAGE OR CAUSE OF ACTION  RESULTING
     FROM THE WILLFUL  MISCONDUCT,  BAD FAITH OR NEGLIGENT  ACTS OR OMISSIONS OF
     THE OTHER PARTY'S EMPLOYEES, AGENTS OR CONTRACTORS OR SUBCONTRACTORS.

     NOTWITHSTANDING ANY PROVISION OF THIS PARAGRAPH 3.3, WHERE PERSONAL INJURY,
     DEATH,  OR  LOSS OF OR  DAMAGE  TO  PROPERTY  RESULTS  FROM  THE  JOINT  OR
     CONCURRENT  NEGLIGENCE OR WILLFUL MISCONDUCT OF BOTH ELPOLP AND MORGAN, THE
     PARTIES'  DUTY OF  INDEMNIFICATION  SHALL BE IN  PROPORTION TO EACH PARTY'S
     ALLOCABLE  SHARE OF JOINT OR CONCURRENT  NEGLIGENCE OR WRONGFUL  MISCONDUCT
     EVEN IF ONE OF THE PARTIES IS MORE THAN FIFTY PERCENT (50%) AT FAULT.

3.4. Limitation of Liability.  NOTWITHSTANDING ANYTHING
     HEREIN TO THE CONTRARY, IN NO EVENT SHALL ELPOLP OR
     MORGAN BE LIABLE TO

                             7





     THE OTHER  PARTY  HERETO FOR ANY LOST OR  PROSPECTIVE  PROFITS OR ANY OTHER
     SPECIAL, PUNITIVE, EXEMPLARY, CONSEQUENTIAL,  INCIDENTAL OR INDIRECT LOSSES
     OR DAMAGES (IN TORT,  CONTRACT  OR  OTHERWISE)  UNDER OR IN RESPECT  HERETO
     HOWSOEVER  CAUSED,  WHETHER OR NOT ARISING FROM ELPOLP'S OR MORGAN'S  SOLE,
     JOINT OR CONCURRENT NEGLIGENCE.

3.5  Claims.  MORGAN  shall  assert any and every  "Claim" of any kind or nature
     whatsoever under this Agreement  ("Claim" to include,  without  limitation,
     any  Claim  relating  to,  associated  with,  arising  out of or in any way
     incidental to the Operations and  Maintenance or the execution,  inducement
     to enter into, performance,  non-performance,  or breach of this Agreement)
     exclusively  against ELPOLP and not against any one or more of its partners
     nor  the  general  partner,  Enron  Liquids  Pipeline  Company,  nor  their
     officers,  directors,  employees, or agents nor entities affiliated with it
     by  common  ownership  or  control,   nor  any  of  them   individually  or
     collectively, and MORGAN shall enforce or attempt to enforce any such Claim
     (whether liquidated or unliquidated,  or by suit, lien, judgment, execution
     or otherwise)  exclusively against the assets of ELPOLP and not against the
     assets of any partner, general partner, affiliated entity, nor any of their
     officers,  directors,  employees  or agents,  except the general  partner's
     interest in ELPOLP.

3.6  Environmental  Waste.  Notwithstanding  any  provisions  contained  to  the
     contrary,  in the event that the Operations and Maintenance requires ELPOLP
     to  remove  or  handle  hazardous  materials,  waste or soils or  materials
     contaminated with such materials, waste or substances ("Waste"), except for
     Wastes  that  are  brought  onto   Morgan's   premises  by  ELPOLP  or  its
     subcontractors  or are present  upon  Morgan's  premises  arising  from the
     negligence or willful  misconduct of ELPOLP or its  subcontractors or first
     generated by ELPOLP or its  subcontractors  at their own  premises,  MORGAN
     SHALL REMAIN  RESPONSIBLE  FOR SUCH WASTES AND FOR ANY POLLUTION  EMANATING
     FROM MORGAN'S PREMISES AND SHALL DEFEND, INDEMNIFY AND HOLD ELPOLP HARMLESS
     FROM AND AGAINST ANY LOSS, COST, CLAIM, DAMAGE,  LIABILITY, FINE OR PENALTY
     INCURRED  BY ELPOLP  WHICH  RESULTS OR IS ALLEGED TO RESULT  FROM  ELPOLP'S
     PERFORMANCE OF SUCH OPERATIONS AND MAINTENANCE,  HOWEVER ARISING; PROVIDED,
     HOWEVER,  THAT THE FOREGOING  INDEMNITY SHALL NOT APPLY WITH RESPECT TO ANY
     SUCH  LOSSES,  COSTS,  CLAIMS,  DAMAGES,  LIABILITIES,  FINES OR  PENALTIES
     ARISING  FROM  THE  NEGLIGENCE  OR  WILLFUL  MISCONDUCT  OF  ELPOLP  OR ITS
     SUBCONTRACTORS.  Waste as used herein shall include, but not be limited to,
     any  garbage,  refuse,  sludge  and  other  spent  or  discarded  material,
     including  solid,  liquid,   semisolid,   or  contained  gaseous  materials
     resulting from industrial,  commercial,  mining and agricultural activities
     or from community or individual

                             8





     activities,  and including all waste classified as "hazardous"  pursuant to
     the Resource  Conservation  and  Recovery  Act, as amended;  "toxic  waste"
     pursuant to the Toxic Substances Control Act, as amended; or asbestos.  The
     Operations and Maintenance provided hereunder shall in no event include the
     disposal or off site removal of Waste unless (i)  specifically  agreed upon
     in writing by a duly authorized  officer of ELPOLP,  or (ii) such Waste was
     brought on to  Morgan's  premises  by ELPOLP or its  subcontractors  or are
     present  upon  Morgan's  premises  arising from the  negligence  or willful
     misconduct of ELPOLP or its subcontractors.

3.7  Force  Majeure.  No delays in or failure or omission in the  performance or
     any obligation under this Agreement by ELPOLP or MORGAN, other than payment
     of money,  shall  constitute  default  under this  Agreement  if and to the
     extent such delay or failure of performance is caused by occurrences beyond
     the control of ELPOLP or MORGAN, and which by the exercise of due diligence
     such party shall not have been able to avoid or  overcome,  including,  but
     not  limited  to:  acts  of  God  or  a  public  enemy,   expropriation  or
     confiscation  of  facilities;  compliance  with any order or request of any
     governmental  authority;  fires,  floods,  explosion,  accidents;  strikes,
     walkouts  or other  concerted  work  stoppages,  breakage  or  accident  to
     machinery or lines of pipe,  the  necessity  for making  repairs,  tests or
     alterations  to  machinery  or lines of  pipe,  freezing  of lines of pipe,
     inability to obtain necessary material, supplies, permits, or right-of-way.
     If such time delay or other force majeure  condition  causes an increase to
     ELPOLP's  labor,  equipment,  or material costs to operate the  Facilities,
     ELPOLP shall furnish to MORGAN  supporting  documentation  evidencing  such
     increase in costs,  and ELPOLP  shall be  entitled to a fair and  equitable
     adjustment to ELPOLP's  total price for operating the  Facilities as stated
     herein.  In the  event  of a force  majeure  occurrence,  the  party  whose
     performance is prevented by such  occurrence  shall notify the other party,
     in  writing,  as soon as  reasonably  possible  and give  full  particulars
     thereof and shall  reasonably  endeavor to remedy the  situation as soon as
     possible.  It is  understood  and agreed that the  settlement of strikes or
     lockouts  shall be entirely  within the  discretion of the party having the
     difficulty,  and the  above  requirement  that any force  majeure  shall be
     remedied with all  reasonable  dispatch shall not require the settlement of
     strikes or lockouts by acceding to demands when such course is  inadvisable
     in the discretion of the party having the difficulty.

3.8  Ownership of Records and Materials. All records, materials and documents of
     whatever  kind or nature,  including  but not limited to,  reports,  plans,
     designs,  studies,  data,  maps,  drawings,  specifications,   construction
     records, engineering

                             9





     records,  accounting  records,  right-of-way and easement  records,  permit
     records,  and purchasing records,  relating to the Facility and prepared or
     obtained by ELPOLP as agent in performing the  Operations  and  Maintenance
     hereunder,  shall be the  property of MORGAN and shall be held in temporary
     custody by ELPOLP.  Upon the  request of MORGAN,  all or any portion of the
     aforesaid records, materials,  documents,  including documents, records, or
     materials previously provided to ELPOLP by MORGAN (and all copies thereof),
     shall be  delivered to MORGAN in a manner  reasonably  requested by MORGAN;
     such obligation shall survive  termination of this Agreement.  The records,
     materials,  and documents  provided to ELPOLP as agent for MORGAN hereunder
     or prepared or obtained by ELPOLP in performing the services  hereunder and
     all information  which ELPOLP receives or becomes familiar with relating to
     the operation and maintenance of the Facility,  shall be kept confidential,
     and shall be  disclosed  to third  parties  only with the prior  consent of
     MORGAN.  ELPOLP's  obligations as regards  confidential  material shall not
     apply to (a)  information  already  in the  possession  of  ELPOLP  and not
     subject to a  confidentiality  obligation at the time of execution  hereof;
     (b) information which, at the time of disclosure,  was in the public domain
     or which, after disclosure,  becomes a part of the public domain through no
     fault of ELPOLP;  and (c) information  which was acquired by ELPOLP without
     violation  of any  confidentiality  obligation  from a  source  other  than
     MORGAN.

3.9  Safety.  ELPOLP shall be responsible  for and take all necessary and proper
     safety  precautions  to  protect  from  accident  or injury,  all  persons,
     including its employees and its subcontractors' employees, who may be at or
     on  MORGAN's  Premises  where  the  Operations  and  Maintenance  is  being
     performed. ELPOLP shall establish and enforce adequate, reasonable, prudent
     and proper safety rules and procedures and emergency  procedures  necessary
     for safe completion of the Operations and Maintenance.

3.10 Compliance With DOT Anti-Drug and Alcohol Misuse Regulations. MORGAN, under
     49 CFR Parts 199 and 40, is required by law to ensure  compliance  with the
     pipeline safety  regulations for drug and alcohol testing applicable to its
     contractors,   subcontractors  and  their  agents,  performing  operations,
     maintenance,  or emergency response functions on a pipeline or LNG facility
     subject to Parts 191,  192,  193 and 195 of Title 49 of the Code of Federal
     Regulations.  ELPOLP  agrees to  comply  with  such  requirements  and will
     require   compliance   by   its   employees,    agents,   contractors   and
     subcontractors.

3.11 General.  The terms and provisions of this Agreement
     are intended to supersede any conflicting terms or
     conditions in

                            10





     any other agreement between the parties. This Agreement contains the entire
     agreement  between the  parties  and shall not be modified or  supplemented
     except  by  written  instrument  duly  executed  by  both  parties.  If any
     provision of this Agreement shall, for any reason, be held violative of any
     applicable law, and so much of said Agreement is held to be  unenforceable,
     then the invalidity of such a specific  provision  herein shall not be held
     to invalidate any other  provisions  herein,  which other  provisions shall
     remain in full force and effect  unless  removal of said invalid  provision
     destroys the  legitimate  purposes of this  Agreement,  in which event this
     Agreement  shall be canceled.  Termination  or expiration of this Agreement
     shall not  relieve  or  release  either  party  from any  breach or default
     occurring  prior to such  termination  or  expiration;  and the  terms  and
     provisions  of  Paragraphs  1.5,  3.3,  3.16 and  3.13  shall  survive  the
     termination of this  Agreement.  No waiver of any of the provisions of this
     Agreement  shall be  deemed  or shall  constitute  a  waiver  of any  other
     provisions  hereof  (regardless  of  whether  similar),  nor shall any such
     waiver constitute a continuing waiver unless otherwise expressly provided.

3.12 Descriptive Headings.  The descriptive headings of
     the provisions of this Agreement are formulated and
     used for convenience only and shall not be deemed to
     affect the meaning or construction of any provision.

3.13 Governing Law. Unless  otherwise  specified,  this Agreement and the rights
     and duties of the parties arising out of the Agreement shall be governed by
     and  construed in  accordance  with the laws of the State of Texas,  except
     provisions of that law referring to governance or  construction of the laws
     of another  jurisdiction.  Any action  arising out of this Agreement or the
     rights and  duties of the  parties  arising  out of this  Agreement  may be
     brought,  if at all, only in the courts of Texas.  Venue shall be proper in
     Harris County.

3.14 Non-waiver  of  Future  Default.  No waiver by any party of any one or more
     defaults  by the  other in  performance  of any of the  provisions  of this
     Agreement  shall operate or be construed as a waiver of any other  existing
     or future default or defaults, whether of a like or different character.

3.15 Contractual  Rights.  The terms and  provisions  of this  Agreement shall
     inure to the  benefit of and be binding  upon the  successor,  assigns  and
     representatives  of the parties  hereto.  The  provisions of this Agreement
     shall not impart rights enforceable by any person, firm or organization not
     a party or not bound as a party,  or not a permitted  successor or assignee
     of a party bound to this Agreement.

                            11





3.16 Assignability.  Neither  party may assign its rights  under this  Agreement
     without the prior  written  consent of the other party,  which shall not be
     unreasonably  withheld.  Written consent to assign said rights shall not be
     necessary  when  this  Agreement  is  assigned  in  whole  or in  part to a
     wholly-owned  subsidiary  or  affiliate,  or by: (i) name  change,  or (ii)
     merger, or (iii) formation of a new company, or (iv) stock purchase. If and
     in the event MORGAN desires to sell the  Facilities  then MORGAN shall give
     at least thirty (30) days' notice to ELPOLP  setting  forth the name of the
     potential buyer and ELPOLP shall, within said thirty (30) day period, elect
     to either  terminate  this Agreement or to approve  MORGAN'S  assignment of
     this Agreement to the potential buyer.

                                   ARTICLE IV
                                      TERM


4.1  Term. Subject to all other provisions and conditions contained herein, this
     Agreement shall be deemed  operative and in full force and effect as of the
     Effective  Date and shall  continue for a primary term of twenty (20) years
     from the  Commencement  Date,  and shall extend forward from month to month
     thereafter,  unless and until  terminated  by either  party giving at least
     ninety (90) days' prior written notice to the other party.  Notwithstanding
     anything  herein to the contrary,  Morgan shall have the right to terminate
     this  Agreement at any time  effective  upon notice of such  termination to
     ELPOLP  in the  event of the  termination  or  expiration  of that  certain
     Transportation Agreement between Morgan and ELPOLP related to the Facility;
     and  Morgan  may elect to extend  this  Agreement  upon the same  terms and
     conditions  provided herein (excepting  prices) in the event that ELPOLP or
     its successors or assigns elects to extend or require that Morgan transport
     any Carbon  Dioxide for ELPOLP or its  successors or assigns  following the
     "Primary Term" of the Transportation Agreement.

                                    ARTICLE V
                                     NOTICES


5.1  Notices. All notices, consents, requests, invoices or statements provided
     for or  permitted to be given under this  Agreement  must be in writing and
     are effective on actual receipt by the intended recipient or by delivery to
     the address,  or facsimile  number during  working hours (8:00 a.m. to 5:00
     p.m. CST) for the recipient listed below:

                            12






     To ELPOLP:                      To MORGAN:

     Enron Liquids Pipeline          Morgan Associates, Inc.
     Operating Limited Partnership   Attention:  William V. Morgan
     Attention:  Russell Martin      Plaza Time Building
     P. O. Box 1188                  411 Nichols Road, Suite 225
     Houston, Texas 77251-1188       Kansas City, Missouri 64112
     Telephone: 713-853-3589         Telephone: 816-931-5750
     Fax: 713-646-5824               Fax: 816-931-9170

     All notices,  invoices, and other communications  ("Notices") shall be sent
     to the parties at their  respective  addresses  in writing and as set forth
     above.  Notices sent through the mail shall be deemed to have been received
     on the third (3rd) day after post marking.

     IN WITNESS  WHEREOF,  this  Agreement is executed on the day and year first
above written.


"ELPOLP"                             "MORGAN"

Enron Liquids Pipeline Operating     Morgan Associates, Inc.
Limited Partnership

by Enron Liquids Pipeline Company,
its General Partner

By: /s/ Ray Kaskel                  By: /s/ William V. Morgan

Title: President                    Title: President


Witness/Attest

By: /s/ Thomas P. Tosoni            By:_____________________________

Title: Assistant Secretary          Title:__________________________

(SEAL)                              (SEAL)






                            13





                                   EXHIBIT "A"

                        Odessa Lateral and Meter Facility


The 6 inch  pipeline  with its origin at mile marker 98.15 on the Central  Basin
Pipeline  running  easterly,  approximately  11.2  miles in  length,  and  meter
facility, with its terminus at the delivery point of Phillips' South Cowden Unit
enhanced oil recovery project,  all located in the T. & P. RR Co. Survey,  Block
42, 43, and 44, all Township 3 South, Ector County, Texas.







                                   EXHIBIT "B"


Product   delivered  at  the   Origination   Point  shall  meet  the   following
specifications, which herein are collectively called "Quality Specifications":

     (a) Water.  Product shall contain no free water, and shall not contain more
         than thirty (30) pounds of water per MMcf in the vapor phase.

     (b) Hydrogen Sulphide.  Product shall not contain
         more than twenty (20) parts per million, by
         weight, of hydrogen sulphide.

     (c) Carbon Dioxide.  Product shall contain at least
         ninety-five mole percent (95%) of molecules
         containing one (1) atom of carbon and two (2)
         atoms of oxygen.

     (d) Total Sulfur.  Product shall not contain more
         than thirty-five (35) parts per million, by
         weight, of total sulfur.

     (e) Temperature.  Product shall not exceed a
         temperature of one hundred twenty degrees
         Fahrenheit.  (120(degree)F).

     (f) Nitrogen.  Product shall not contain more than
         four mole percent (4%) of nitrogen.

     (g) Hydrocarbons.  Product  shall not contain  more than five mole  percent
         (5%) of hydrocarbons and the dew point of Product (with respect to such
         hydrocarbons)   shall  not  exceed  minus  twenty  degrees   Fahrenheit
         (-20(degree)F).

     (h) Oxygen.  Product shall not contain more than ten
         (10) parts per million, by weight, of oxygen.

     (i) Other.  Product shall not contain more than 0.3 (three tenths)  gallons
         of glycol  per MMcf and at no time  shall  such  glycol be present in a
         liquid  state  at  the  pressure  and  temperature  conditions  of  the
         pipeline.

EX-10.43

                                                 Agreement No.:_______________

                            TRANSPORTATION AGREEMENT
                                     PART I

               GENERAL UNDERTAKINGS AND OBLIGATIONS OF THE PARTIES


     THIS  AGREEMENT  is  made  and  entered  into  as  of  this  20th day  of
June, 1996 (the "Effective Date"), by and between MORGAN ASSOCIATES,
INC., a Kansas corporation ("Transporter"), and ENRON LIQUIDS PIPELINE OPERATING
LIMITED PARTNERSHIP, a Delaware limited partnership ("Shipper").

                                WITNESSETH THAT:

     WHEREAS, Shipper intends to acquire title to Product from Shell Western E&P
Inc.  ("Shell")  and from  Mobil  Producing  Texas & New Mexico  Inc.  ("Mobil")
pursuant to written  contracts  with Shell and Mobil ("Carbon  Dioxide  Purchase
Contracts"),  and  to  deliver  the  Product  to  Transporter  at the  point  of
interconnection  between  Shipper's Central Basin Pipeline ("CBPL") Mainline and
Transporter's Odessa Lateral; and

     WHEREAS,  Transporter  will own  facilities  known as the  Odessa  Lateral,
capable of  transporting  Shipper's  Product  from the point of  interconnection
between Shipper's CBPL Mainline and Transporter's Odessa Lateral to a point of
interconnection of Transporter's Odessa Lateral and Phillips Petroleum Company's
("Phillips")  Injection  Project at the South Cowden Unit, Ector County,  Texas;
and

     WHEREAS,  Shipper  intends to  re-sell  Product  transported  on the Odessa
Lateral to  Phillips  pursuant  to a written  contract  with  Phillips  ("Carbon
Dioxide Sale Contract"); and

     WHEREAS,  Shipper and Transporter now desire to enter into an Agreement for
the  transportation  of  Shipper's  Product  through  the Odessa  Lateral to the
Destination Point of the Injection Project.

     NOW, THEREFORE,  in consideration of the premises and the mutual covenants,
promises,  and  undertakings  herein  contained,  the  parties  hereto  agree as
follows:

1.   Injection Project.  "Injection Project" shall mean an
     enhanced oil recovery project in Sections 7, 8, 17
     and 19 of the T&P RR Co. Survey, Block 42, Township
     03S, located in Ector County, TX of the South Cowden
     Unit.  All of Shipper's Product to be transported
     hereunder will be for resale by Shipper only to
     Phillips (which for purposes hereof shall include
     Phillips successors and assigns in interest with
     respect to the Injection Project) and for use by
     Phillips at the Injection






     Project and may not be sold by Shipper or  Phillips to any other  person or
     used by Shipper or Phillips at any other location.

2.   Lateral.  "Lateral" shall mean Transporter's Odessa
     Lateral, being of 6 inches nominal diameter,
     originating at the CBPL Mainline Milepost 98.15.

3.   Origination Point.  "Origination Point" shall mean
     the insulating flange connection between Shipper's
     Central Basin Pipeline Mainline and Transporter's
     Odessa Lateral located in Ector County, Texas.

4.   Destination Point.  "Destination Point" shall mean
     the insulating flange connection between
     Transporter's Odessa Lateral and Phillips' Injection
     Project.

5.   Daily Transport Quantity.  "Daily Transport Quantity"
     or "DTQ" shall mean the maximum daily quantity of
     Product, as measured at the meter located near the
     Destination Point ("Metering Point"), which Shipper
     has the right to have redelivered by Transporter
     hereunder.  The DTQ shall be:

         Contract    Est. Calendar    DTQ    Annual Quantity
           Year          Year        Mcf/d      Bcf/Year

             1           1996        10,411      3,800
             2           1997        10,411      3,800
             3           1998         7,123      2,600
             4           1999         6,575      2,400
             5           2000         6,140      2,241
             6           2001         6,030      2,201
             7           2002         5,586      2,039
             8           2003         5,203      1,899
             9           2004         4,877      1,780
            10           2005         4,699      1,715
            11           2006         5,510      2,011
            12           2007         5,627      2,054
            13           2008         4,907      1,791
            14           2009         4,151      1,515
            15           2010         3,942      1,439
            16           2011         3,904      1,425
            17           2012         3,636      1,327
            18           2013         3,710      1,354
            19           2014         3,164      1,155
            20           2015         2,556        933

     and, if applicable, certain quantities of Carbon
     Dioxide including the Additional Quantity and Excess
     Deliveries,

                             2





     subject to the provisions of Sections 6 and 7 of Part
     I herein below.

6.   Additional Quantity.  Shipper shall also have the
     right to have redelivered by Transporter hereunder,
     an Additional Quantity of Carbon Dioxide in excess of
     the then effective Daily Transport Quantity, which
     shall be deemed "Additional Quantity", at maximum
     rates not to exceed twenty percent (20%) of Shipper's
     then current Daily Transport Quantity for the
     applicable contract year.  Before or within ninety
     (90) days after the Primary Term of this Agreement,
     Shipper may elect to extend Shipper's rights to
     transport any remaining quantities of Additional
     Quantities on the Odessa Lateral for Phillips'
     Injection Project at the South Cowden Unit only.  If
     Shipper makes such election, such Additional
     Quantity's maximum daily rates shall not exceed four
     thousand (4,000) Mcf per Day and the obligation to
     transport such remaining Additional Quantities shall
     continue only for a period of time not to exceed
     three (3) years after expiration of the Primary Term
     of this Agreement.  Any Additional Quantities not
     requested within 90 days after expiration of the
     Primary Term of this Agreement will be deemed
     released from any quantities that the Transporter may
     be responsible for as described herein.  In the event
     Shipper elects to extend its transportation rights
     herein beyond the Primary Term of this agreement to
     transport remaining Additional Quantities, Shipper
     agrees to increase the Transportation Rate, if
     required, to allow Transporter to break even on a
     cash flow basis.  Transporter agrees to provide
     Shipper with all applicable information to determine
     the applicable rate which will allow Transporter to
     operate the lateral on a break even cash flow basis.

7.   Excess Deliveries.  At Shipper's request, Transporter
     may, at Transporter's option, transport on any given
     Day a quantity of Product in excess of the then
     currently effective maximum Additional Quantity.

8.   Minimum Transport Requirement.  During the first
     twelve (12) years of the term of this Agreement or
     until Shipper has transported a cumulative quantity
     of Product equal to 14.27 Bcf, whichever occurs
     earlier, Shipper shall have a minimum transport
     requirement (the "Minimum Transport Requirement" or
     "MTR") being that percentage of Shipper's DTQ upon
     which Shipper's minimum monthly payment is computed:
     MTR:  50%, subject to the provisions of Section 10 of
     Part I, and Sections 9 and 11 of Part II herein.

     In any month in which the minimum  monthly amount  hereunder (as determined
     in Section 9(a) of Part II) is greater than the actual  monthly  amount (as
     determined in Section 9(b) of Part

                             3





     II),  Shipper's payment to Transporter of such minimum monthly amount shall
     be subject to Phillips'  payment to Shipper of the "Minimum Monthly Amount"
     and/or "Minimum Purchase  Requirement"  pursuant to Sections 5.2 and 5.3 of
     the Carbon Dioxide Sale  Contract.  Notwithstanding  the foregoing,  to the
     extent that any failure or refusal by Phillips to make full payment for any
     "Minimum Monthly Amount" or "Minimum Purchase Requirement" under the Carbon
     Dioxide Sale Contract is based on any claim or right of offset  asserted by
     Phillips  against  Shipper  and such claim or right of offset  pertains  to
     matters or arrangements between Shipper and Phillips other than any claim
     in any way related to or arising out of the Carbon Dioxide Sale Contract or
     this Agreement  (whether in contract,  tort or  otherwise),  then Shipper's
     obligation  to make  payment  for  the  full  minimum  monthly  amount  (as
     determined in Section 9(a) of Part II) shall be absolute and  unconditional
     notwithstanding  such  nonpayment  by  Phillips.  In the  event of  partial
     payment by Phillips of the "Minimum  Monthly  Amount" or "Minimum  Purchase
     Requirement,"  Shipper shall pay to Transporter an equal proportionate part
     of the minimum  monthly amount  hereunder (as determined in Section 9(a) of
     Part II) as the amount actually  received by Shipper from Phillips bears to
     the full "Minimum Monthly Amount" or "Minimum Purchase Requirement" under
     the Carbon  Dioxide  Sale  Contract,  and Shipper  will  thereafter  pay to
     Transporter  its  proportionate  share of any additional  "Minimum  Monthly
     Amounts"  or  "Minimum  Purchase  Requirement"  received  by  Shipper  from
     Phillips.

9.   Total Contract Quantity.  The "Total Contract
     Quantity" shall be the result obtained by multiplying
     the DTQ (as applicable for the particular year) times
     the number of days in such year, and summed for all
     years from the Initial Transportation Date to the
     Expiration Date, for purposes of this Agreement,
     computed:  Total Contract Quantity:  39.48 Bcf.

10.  Term.  This agreement shall be effective as of the
     Effective Date specified above, but the parties'
     respective duties and responsibilities for payment
     and performance hereunder shall commence upon the
     Initial Transportation Date as defined hereinbelow.
     If Shipper does not acquire the rights to buy Carbon
     Dioxide under the terms of the Carbon Dioxide
     Purchase Contracts and the right to sell Carbon
     Dioxide under the terms of the Carbon Dioxide Sale
     Contract by January 1, 1997, this Agreement shall
     automatically terminate.  The term of this Agreement
     shall remain in full force and effect for a primary
     term of twenty (20) years from the Initial
     Transportation Date (the "Primary Term"; and the last
     day of the Primary Term shall be the "Expiration
     Date"), and month to month thereafter, provided,
     however, that either party may terminate this
     Agreement on or after the Expiration Date by
     providing written

                             4





     notice of  termination  to the  other  party at least  thirty  (30) days in
     advance after the Expiration Date,  provided however,  this Agreement shall
     automatically  terminate at any time upon written notice, if for any reason
     Shipper's  Carbon  Dioxide  Purchase  Contract  with  Shell  or  Mobil  are
     terminated or if for any reason Shipper's Carbon Dioxide Sale Contract with
     Phillips is terminated.  In the event of such  termination,  the respective
     rights and  obligations  of Shipper and  Transporter  hereunder  shall also
     terminate,  subject however,  to the settlement of all duties,  obligations
     and liabilities incurred prior to such termination.

11.  Initial Transportation Date.  The "Initial
     Transportation Date" or "ID" shall mean the date on
     which (i) all facilities of Shipper and Transporter
     required for the implementation of this Agreement are
     operational, (ii) any requisite authorizations have
     been received and accepted, (iii) Shipper has the
     right to purchase Product from Shell and Mobil under
     the terms and conditions of the Carbon Dioxide
     Purchase Contracts, and (iv) Product is first
     transported hereunder or Phillips becomes obligated
     to begin making payment of the "Phillips Demand
     Charge" (as hereinafter defined).

12.  Transport Rate.  The transport rate (the "Transport
     Rate" or "TR") in cents per Mcf payable by Shipper to
     Transporter for Product hereunder transported through
     the Odessa Lateral shall be as follows:

         If the Total Cost to Construct the Odessa Lateral
         pursuant to Shipper's and Transporter's
         Construction Agreement is:

          Less Than                         $ Tariff/
         or Equal To   But, Greater Than    Mcf Will Be

          1,200,000                0         $0.0250
          1,300,000        1,200,000         $0.0340
          1,400,000        1,300,000         $0.0435
          1,500,000        1,400,000         $0.0525
          1,600,000        1,500,000         $0.0615
          2,000,000        1,600,000         $0.0710

     Shipper's  obligation to pay Transporter for transportation  services shall
     accrue upon the ID, and shall continue  until the  Expiration  Date of this
     Agreement and, if extended,  until the end of any extension hereof,  unless
     suspended  or  nullified  due  to  a  condition  of  force  majeure  or  of
     termination of this Agreement, as provided herein.  Shipper's obligation to
     pay  Transporter  for  transportation  services  shall  also be  subject to
     Phillips' payment to Shipper of the applicable "Unit Price"

                             5





     (as  determined in paragraph 5.1 of the Carbon  Dioxide Sale  Contract) for
     each Mcf of Carbon  Dioxide  delivered to Phillips  (i.e.,  for each Mcf of
     Carbon Dioxide for which Phillips pays the applicable  Unit Price,  or part
     thereof,  to  Shipper,  Shipper  agrees to make  payment at the  applicable
     Transport  Rate,  or an equal  proportionate  part  thereof in the event of
     partial  payment  by  Phillips,  for  transportation  of an Mcf of  Product
     hereunder).  Notwithstanding the foregoing,  to the extent that any failure
     or  refusal  by  Phillips  to make  full  payment  for all  Carbon  Dioxide
     delivered  is based on any claim or right of offset  asserted  by  Phillips
     against  Shipper  and such claim or right of offset  pertains to matters or
     arrangements between Shipper and Phillips other than any claim in any way
     related  to or arising  out of the Carbon  Dioxide  Sale  Contract  or this
     Agreement  (whether  in  contract,  tort  or  otherwise),   then  Shipper's
     obligation to make payment for transportation of Product through the Odessa
     Lateral shall be absolute and unconditional notwithstanding such nonpayment
     by Phillips.

13.  Demand Fee.  In addition to the other fees and
     compensation to be paid by Shipper to Transporter
     hereunder, Shipper shall pay Transporter a demand fee
     (the "Demand Fee") in an amount as specified in the
     table set forth below:

     If the Total Cost to Construct the Odessa Lateral
     pursuant to Shipper's and Transporter's Construction
     Agreement is:

     Less Than or But, Greater    Demand Fee        Monthly
       Equal to       Than         Amount         Installment

      1,700,000            0    $2,800,000.30     $29,166.67
      1,800,000    1,700,000    $3,016,000.30     $31,416.67
      1,900,000    1,800,000    $3,240,000.00     $33,750.00
      2,000,000    1,900,000    $3,456,000.00     $36,000.00

     Shipper's obligation to pay Transporter the first installment of the Demand
     Fee shall  commence upon the ID, and shall continue until the Demand Fee is
     paid in full.  Shipper shall pay  Transporter  the Demand Fee in ninety-six
     (96) equal monthly  installments in the amount set forth in the above table
     (the "Monthly Installments").  Except as hereinbelow stated in this Section
     13, from and after the ID, Shipper's  obligation to pay the entirety of the
     Demand Fee, shall be absolute and  unconditional and such obligation to pay
     the Demand Fee shall survive any termination of this Agreement,  including,
     without limitation,  termination  pursuant to Section 10 of Part I, Section
     20 of Part II, Section 15 of Part II and/or Section 28 of Part II.

                             6





     Notwithstanding  anything herein to the contrary,  Shipper's  obligation to
     pay the Demand Fee (in Monthly Installments as provided for in this Section
     13) will be suspended if:

              (a) either (i) Phillips does not make any payment of the "Phillips
         Demand Charge" (hereinafter defined), or (ii) the Odessa Lateral is not
         available  for  transportation of Product,  including any periods of
         Transporter's  events  of force  majeure,  or  Transporter  refuses  to
         transport Product as required hereunder, and

              (b) the  aggregate  amount of the Demand Fee  theretofore  paid to
         Transporter  then  exceeds  (or with such  payment  would  exceed)  the
         aggregate  amount of the Phillips  Demand  Charge  theretofore  paid to
         Shipper. In such event, the Demand Fee payment will be suspended in the
         amount that the Demand Fee which would  otherwise be due and payable in
         accrued  Monthly  Installments  exceeds  the  aggregate  amount  of the
         Phillips Demand Charge  theretofore  paid to Shipper.  However,  if any
         payment of the  Phillips  Demand  Charge is not made by  Phillips  as a
         result of  Shipper's  inability  to  transport  Carbon  Dioxide  on the
         Central Basin Pipeline or if any failure or refusal by Phillips to make
         any  payment  of the  Phillips  Demand  Charge is based on any claim or
         right of offset  asserted by Phillips  against Shipper and such alleged
         claim or right of offset  pertains to matters or  arrangements  between
         Shipper  and  Phillips  other  than any claim in any way  related to or
         arising  out of the Carbon  Dioxide  Sale  Contract  or this  Agreement
         (whether in contract, tort or otherwise),  then Shipper's obligation to
         make each Monthly  Installment  of the Demand  Charge shall be absolute
         and unconditional  notwithstanding such nonpayment by Phillips.  If any
         failure or  refusal by  Phillips  to make any  payment of the  Phillips
         Demand  Charge  is based on any claim or right of  offset  asserted  by
         Phillips  against  Shipper and which relates to the Carbon Dioxide Sale
         Contract  or this  Agreement,  then  Shipper and  Transporter  agree to
         cooperate  in good faith to  determine  the  validity of such  asserted
         claim or right of offset (through negotiation,  arbitration, litigation
         or  otherwise)  and to  collect  amounts  which are  properly  due from
         Phillips;   and  Shipper  shall  be  responsible  to  make  payment  to
         Transporter  of the Demand  Charge in question to the extent that it is
         agreed or determined (through negotiation,  arbitration,  litigation or
         otherwise)  that Phillips has a valid claim or right of offset  against
         Shipper and such  alleged  claim or right of offset does not arise from
         any act or omission by Transporter  hereunder.  In the event payment of
         any part

                             7





         of the  Demand  Fee has been  suspended  hereunder  as a result  of any
         nonpayment of the Phillips Demand Charge, Shipper shall make payment to
         Transporter  of such  suspended  Demand Fee to the extent that Phillips
         makes  payment  of the  Phillips  Demand  Charge,  and upon  receipt by
         Shipper  of  full  payment  of  the  Phillips  Demand  Charge,  Shipper
         unconditionally  agrees to pay  Transporter the Demand Fee. If any part
         of the Demand Fee  payment is  suspended  hereunder  because the Odessa
         Lateral is not available for transportation of Product,  this Agreement
         shall  continue  in full  force and  effect  and the  Demand  Fee shall
         thereafter  be paid in full  without  reduction or offset if the Odessa
         Lateral becomes  available to resume  transportation  of Product within
         120 days  following such  occurrence.  If after such 120 day period the
         Odessa  Lateral  becomes  available for  transportation  of Product and
         Shipper and  Transporter  mutually  agree that shipment of Product will
         resume hereunder,  the Demand Fee shall thereafter be paid as agreed by
         the parties.  If after 120 days the Odessa Lateral is not available for
         transportation of Product,  this Agreement shall  terminate.  As used
         herein the term "Phillips Demand Charge" shall mean the "Demand Fee" to
         be paid by  Phillips  to Shipper  pursuant to Section 5.6 of the Carbon
         Dioxide Sale Contract.

     To the  extent  that  payment of the  Demand  Fee is  suspended  hereunder,
     Shipper shall be released and relinquished  from its obligation to pay that
     portion of the Demand Fee,  except to the extent the Phillips Demand Charge
     is thereafter collected or received.

14.  Points of Delivery and Pressure.  Shipper shall
     deliver to Transporter, or cause to be delivered,
     Product at the Origination Point at a pressure
     sufficient to allow such Product to enter
     Transporter's system; but within 1600 psig and 1800
     psig.  Transporter shall redeliver for Shipper's
     account, or cause to be redelivered, Product at the
     Destination Point at a Minimum pressure of 1500
     psig.  Pressures in excess of 1500 psig are not
     guaranteed.

15.  Obligations to Third Parties.  Transporter agrees
     that if Shipper should default under this Agreement
     and not remedy such default pursuant to Section 20 of
     Part II herein, and such default could adversely
     affect Phillips' ability to obtain Carbon Dioxide for
     the Injection Project, then upon Phillips' request,
     Shipper will assign all of Shipper's rights under
     this Agreement to Phillips, provided that Phillips
     assumes Shipper's obligations from the date of such
     take over forward including payment of the Demand Fee
     and payment for

                             8





     transportation  services  as  provided  for  herein.  In the  event of such
     assignment,  Phillips will be  responsible  to pay  Transporter  all monies
     accrued and owed to  Transporter  under this  Agreement  at the time of the
     assignment and which may thereafter accrue or become due hereunder.

16.  Shipper's Additional Covenants.  As provided in this
     Agreement, Transporter has agreed that certain
     payments from Shipper shall be conditioned upon the
     receipt by Shipper of certain payments from Phillips
     pursuant to the Carbon Dioxide Sale Contract.  In
     order to induce Transporter to accept such
     conditional payment, Shipper hereby covenants that
     unless otherwise provided under the terms of the
     Carbon Dioxide Sale Contract Shipper will not
     hereafter consent to or cause any change, amendment,
     modification or termination of the Carbon Dioxide
     Sale Contract or waive any requirement for strict
     performance thereof by each party in accordance with
     its terms in any way that would impact or harm
     Transporter, unless Transporter has provided its
     advance written consent to such action which consent
     shall not be unreasonably withheld by Transporter.

     IN  WITNESS  WHEREOF,  this  Agreement  is  executed  as of the date  first
hereinabove written.

                                "TRANSPORTER"
                                MORGAN ASSOCIATES, INC.

ATTEST:
BY:____________________________ BY: /s/ William V. Morgan

TITLE:_________________________ TITLE: President


                                "SHIPPER"
                                ENRON LIQUIDS PIPELINE
                                OPERATING LIMITED PARTNERSHIP
                                By: Enron Liquids Pipeline
                                    Company, General
                                    Partner

ATTEST:
BY: /s/ Thomas P. Tosoni        BY: /s/ Ray Kaskel

TITLE: Assistant Secretary      TITLE: President




                             9





                            TRANSPORTATION AGREEMENT
                                     PART II
                          GENERAL TERMS AND CONDITIONS


1.   Product.  "Product" shall mean that mixture of
     compounds meeting the specifications set forth on
     Exhibit "A," consisting predominantly of Carbon
     Dioxide (CO2), which shall be transported hereunder
     while in the liquid, gaseous, or supercritical phase.

2.   Title.  Shipper warrants unencumbered title to the
     Product delivered to Transporter hereunder and that
     the same was produced and/or purchased in accordance
     with all applicable laws and regulations.  Title to
     Product shall never pass to Transporter and shall
     remain with Shipper at all times.

3.   Scheduling. On or before the twentieth (20th) day of each month, Shipper or
     its designee  shall  furnish  Transporter  or its designee  with  schedules
     showing the daily quantity of Product Shipper  desires to have  transported
     during the month immediately following.

4.   Losses.  In the event a loss of quantity of Product
     occurs on the Odessa Lateral, as estimated or
     calculated using the best available information, from
     the time the Product is delivered to Transporter at
     the Origination Point until the Product passes
     through the Destination Point ("Loss"), such Loss
     shall be the responsibility of the Transporter.
     Losses accountable to Shipper will be determined by
     the ratio of Shipper's Destination Quantities to the
     destination quantities of all shippers on the Odessa
     Lateral.  Transporter agrees to replace such losses
     within 60 days.

5.   Off-Spec Product. Shipper shall be responsible for replacing any quantities
     of Product vented from  Transporter's  lateral as a result of deliveries of
     Product  made by Shipper at the  Origination  Point which do not conform to
     the Quality Specifications set forth on Exhibit "A.".

     If,  at  any  time,  Product  tendered  for  delivery  by  Shipper  at  the
     Origination  Point  shall fail to conform to said  Quality  Specifications,
     Transporter may, at its option,  suspend all or a portion of the receipt of
     such off-spec Product and be absolved of any further  obligation to perform
     under this  Agreement  with  respect to the  non-conforming  Product.  Such
     suspension by Transporter  shall not relieve Shipper of its minimum payment
     obligation  hereunder  pursuant to Section 9 of Part II.  Transporter shall
     notify Shipper of the non-

                            10





     conformity to specifications as soon as possible
     after occurrence.

6.   Commingling.   Product   delivered   by  Shipper  may  be   commingled   in
     Transporter's  Odessa  Lateral with Product  owned by others and  Shipper's
     Product  will be subject to such changes in quality as may result from such
     commingling,  but will not be of a lesser  quality  than that  described in
     Exhibit "A".

7.   Measurement.  The unit of measurement for Product
     delivered hereunder shall be pounds-mass converted to
     cubic feet of gas under standard conditions of
     fourteen and sixty-five hundredths (14.65) psia and
     sixty degrees Fahrenheit (60(degree)F).  All fundamental
     constants, observations, records, and procedures
     involved in determining and/or verifying the quantity
     and other characteristics of Product delivered
     hereunder shall be in accordance with accepted
     industry practice.  The molecular weight of the
     metered stream of Product, calculated from the
     compositional analysis, shall be the basis for
     conversion of pounds-mass measurement to standard
     cubic feet measurement units.

8.   Meters.  At the Metering Point, Transporter or its
     designee shall operate and maintain a meter station
     which is in accurate working order.  Transporter
     shall cause this measuring equipment to be tested
     monthly.  The atmospheric pressure at the Metering
     Point shall be based upon fourteen and seventy-three
     hundredths (14.73) psia at sea level corrected to the
     actual elevation of each location, and may be assumed
     a constant for calculation purposes.  Shipper shall
     have the right to witness all meter provings.
     However, readings, calibrations and adjustments
     thereof and changing of charts shall be done by the
     employees or agents of Transporter or its designee.

     Transporter  shall  keep its  measuring  equipment  at the  Metering  Point
     accurate  and in  good  repair.  Shipper  may  challenge  the  accuracy  of
     Transporter's  measuring  equipment,  and, when  challenged,  the equipment
     shall be tested and repaired, if necessary, by Transporter.  The expense of
     such special test, if requested by Shipper shall be borne by Shipper if the
     measuring  equipment  is found by such test to be  inaccurate  (based  upon
     measured  pounds-mass)  by two percent (2%) or less. If, upon any test, any
     measuring equipment is found to be inaccurate to the extent that it affects
     the  measurement  accuracy  (based upon measured  pounds-mass) by an amount
     exceeding two percent (2%),  registration  thereof shall be corrected for a
     period extending back to the time such inaccuracy occurred, if such time is
     ascertainable, and if not

                            11





     ascertainable,  then back  one-half of the time elapsed since the last date
     of calibration.

     If, for any reason,  any of Transporter's  facilities are out of service or
     out of repair so that the amount of Product delivered or redelivered cannot
     be  ascertained  or computed from the readings  thereof or corrected  under
     this  Section,  Product  delivered  during the period  such meter is out of
     service or out of repair shall be estimated  and agreed upon by the parties
     on the basis of are best data available.

9.   Product Transportation - Billing.  The total
     compensation (but excluding the Demand Fee) to be
     paid by Shipper to Transporter for transportation
     services hereunder for each month shall be the
     greater of:

     (a) a minimum monthly amount determined by the
         following formula:

              DTQ (x) MTR (x) TR (x) days in month; OR

     (b) an actual monthly amount determined by the
         following formula:

              monthly metered quantity of Product at
              Metering Point (x) TR.

     The minimum  monthly  amount as  determined  in (a) above shall be adjusted
     each month for (i) any  periods in which  actual  deliveries  were not made
     wholly or in part,  due to Transporter's  force  majeure  as  defined in
     Section  15 of  Part  II and  (ii)  failure  by  Transporter  to  transport
     quantities of Product up to Shipper's DTQ when and as requested.

     For any month in which Shipper makes payment to Transporter  based upon the
     minimum  monthly  amount as  determined  pursuant to part (a),  above,  the
     difference between Shipper's net payment as calculated pursuant to part (a)
     and the actual monthly  amount as calculated  pursuant to part (b) shall be
     credited  ("Deficiency  Credit") against subsequent monthly billings due by
     Shipper under this Agreement. The Deficiency Credit shall be applied in the
     first subsequent month(s) during which the calculated actual monthly amount
     exceeds the minimum monthly  amount,  to the extent that the actual monthly
     amount  exceeds the minimum  monthly  amount for such  subsequent  month or
     months.  Shipper may carry forward  Deficiency Credit balances for a period
     not to exceed 36 months after the  expiration of this  Agreement,  at which
     time all Deficiency Credits hereunder shall automatically terminate without
     further obligation of Transporter.

                            12





     At any time after the  cumulative  quantity  of Product  shipped  hereunder
     exceeds the Total  Contract  Quantity,  then Shipper shall have the option,
     notwithstanding  the other  provisions  of this  Agreement,  to reduce  the
     applicable  DTQ to any level  chosen by Shipper,  to become  effective  the
     month  immediately  following  Transporter's  receipt of Shipper's  written
     notice,  and  shall  remain  in  effect  until  the  Effective  Date of any
     subsequent exercise by Shipper of its option pursuant to this Section,  but
     in no event for a period of less than twelve (12) months.

     Transporter  shall  invoice  Shipper  monthly  and  Shipper  shall  pay  to
     Transporter the amount shown as due by such statement,  by wire transfer of
     immediately available U.S. funds within twenty (20) calendar days following
     the date of such statement.

10.  Demand Fee - Billing.  The total Demand Fee to be
     paid by Shipper to Transporter hereunder shall be the
     monthly amount as listed in Section 13 of Part 1
     herein.

     Shipper shall  automatically  pay to Transporter the Demand Fee amount due,
     by wire  transfer  of  immediately  available  U.S.  funds  within ten (10)
     calendar days of the end of each Month commencing with the month of the ID.

11.  Shipper's Obligation for Payment.  If either party
     fails to pay any amount payable to the other party
     when due, interest thereon shall accrue at the lesser
     of (1) the Prime Rate then charged by Citibank, N.A.
     of New York, New York, or (2) the highest legally
     permissible rate, with such interest computed from
     the due date to the date of actual payment.  If
     Shipper fails to pay and such failure to pay
     continues for forty-five (45) days after payment is
     due, Transporter, in addition to any other remedy it
     may have hereunder, may suspend further receipt
     and/or delivery of Product for Shipper until such
     amount is paid.  In the event of any dispute as to
     the amounts payable hereunder, payment shall be made
     as provided in this Section 11 of Part II; but such
     payment shall not be deemed a waiver of Shipper's
     right to recoup any amounts in dispute.  Any such
     disputed amounts refunded to Shipper by Transporter
     shall bear interest at the above specified rate from
     the date of Shipper's initial payment of such
     disputed amounts to the date of refund to Shipper.

     If, as  provided  in this  Agreement,  Shipper is not  required to make any
     payment to Transporter (whether of the charges for transportation services,
     the Demand Fee, or the minimum monthly amount) because of the nonpayment by
     Phillips under the Carbon Dioxide Sale Contract,  then Shipper shall assign
     to

                            13





     Transporter  Shipper's  right,  title and  interest to receive such amounts
     which  have not been  paid by  Phillips  (up to the  amount of the fees and
     charges which have accrued but have not been paid to  Transporter).  Except
     as  otherwise  provided  in  Section  13 of Part I,  Shipper  shall  not be
     responsible  for payment to Transporter of amounts in dispute with Phillips
     unless and until receipt and  collection  thereof.  Shipper will obtain any
     and all consents to the assignment of its interest to Transporter as may be
     required  for  Transporter  to pursue  payment  and all  appropriate  legal
     remedies  with respect  thereto.  In the event that Shipper has not secured
     all such required consents,  Shipper will, at Transporter's  request and at
     no out-of-pocket cost to Shipper, act as the party plaintiff to pursue such
     amounts that have accrued in favor of  Transporter,  such  litigation to be
     under the sole  direction  and at the sole cost of  Transporter;  provided,
     however,  that to the extent that Phillips asserts any claim,  counterclaim
     or right of offset in any such proceeding brought by or at the direction of
     Transporter, and such claim, counterclaim or right of offset does not arise
     from any wrongful act or omission by  Transporter  hereunder,  then Shipper
     shall  be   responsible   for  the  costs  of  defending  any  such  claim,
     counterclaim  or asserted right of offset and for any judgment  obtained by
     Phillips  in  connection  therewith.  The  parties  will take such  further
     actions,  execute such further documents and otherwise cooperate and assist
     one another as may be reasonably  necessary to give effect to and carry out
     the provisions  hereof.  To the extent that Shipper receives any payment or
     recovery  from Phillips for any amounts which  previously  caused  payments
     otherwise  due  to  Transporter  hereunder  to be  withheld,  Shipper  will
     immediately make the corresponding appropriate payment to Transporter.

12.  Successors and Assigns.  This Agreement shall extend
     to and be binding upon the respective successors and
     assigns of the parties hereto.

     The rights  and  obligations  of a party  hereunder  shall not be  assigned
     without the prior  written  consent of the other party,  except that either
     party  may,  without  the  consent  of the other  party,  assign all of its
     interest,  rights and  obligations  hereunder to a parent,  an affiliate or
     subsidiary or to an entity with which it is merged or consolidated. Consent
     to an  assignment  of the rights  and  obligations  hereunder  shall not be
     unreasonably withheld.

     Nothing  contained in this provision  shall in any way prevent either party
     from  pledging  or  mortgaging  its rights  hereunder  for  security of its
     indebtedness.

                            14





     Any entity which shall  succeed by purchase,  merger,  consolidation, or
     otherwise as Shipper or  Transporter  herein shall be subject to the duties
     and obligations of its  predecessor in interest under this  Agreement.  Any
     actual or attempted assignment, transfer or conveyance of this Agreement or
     of said duties and obligations  shall expressly  require that the assignee,
     transferee  or grantee  shall assume and agree to discharge  the duties and
     obligations  of its assignor under this  Agreement,  and any such actual or
     attempted assignment, transfer or conveyance hereof shall be ineffective as
     between the parties hereto unless such express requirement shall therein be
     contained,  and unless each assignee,  transferee or grantee shall agree to
     impose an identical requirement upon any subsequent assignee, transferee or
     grantee. No such assignment, transfer or conveyance of this Agreement or of
     any  interest of either  party herein shall be binding upon the other party
     against its wishes until such party has been notified,  in writing, of such
     assignment,  transfer or conveyance  and furnished  with a true copy of the
     same. No such actual or attempted assignment,  transfer or conveyance shall
     in any way operate to enlarge, alter or modify any obligations of the other
     party or parties hereto.

13.  Notices.  Any notice or  communication  required  or desired to be given to
     either party under this  Agreement  shall be in writing and shall be deemed
     to have been  effectively  given  when  faxed or  mailed  by United  States
     certified mail postage prepaid, to:


TRANSPORTER
NOTICES AND            Morgan Associates, Inc.
CONTRACTS MATTERS:     Attn.: William V. Morgan
                       Plaza Time Building
                       411 Nichols Road, Suite 225
                       Kansas City, Missouri 64112
                       Telephone:  816-931-5750
                       Fax: 816-931-9170

PAYMENT AND            Morgan Associates, Inc.
ACCOUNTING MATTERS:    Attn.: William V. Morgan
                       Plaza Time Building
                       411 Nichols Road, Suite 225
                       Kansas City, Missouri 64112
                       Telephone:  816-931-9750
                       Fax: 816-931-9170


                 15







SHIPPER
NOTICES AND            Enron Liquids Pipeline
CONTRACT MATTERS:      Operating Limited Partnership
                       P.O. Box 1188
                       Houston, TX 77251-1188
                       Fax No.: 713-646-3708 (Houston)
                       915-686-0220 (Midland)

ACCOUNTING MATTERS:    Enron Liquids Pipeline
                       Operating Limited Partnership
                       P.O. Box 1188
                       Houston, TX 77251-1188
                       Attn.: ELPOLP Accounting Dept.


14.  Taxes.  Shipper shall pay all taxes, levies and
     assessments, except income taxes imposed on
     Transporter, including without limitation, excise,
     severance, sales, and occupation taxes and other
     taxes of like nature levied on or in respect to the
     Product and the transportation and handling thereof.
     Transporter shall pay all ad valorem and property
     taxes assessed on its pipeline system.  If any new or
     additional tax is levied by any governmental
     authority after the Effective Date of this Agreement,
     Transporter and Shipper agree to negotiate in good
     faith the sharing of such tax.

15.  Force Majeure.  If either party is rendered unable,
     wholly or in part, by force majeure to carry out its
     obligations hereunder (except obligation herein to
     pay the Demand Fee as set forth in Section 13 of Part
     I, and except obligations to pay money which have
     already been incurred), then upon such party's giving
     notice and reasonably full particulars of such force
     majeure in writing, or by telex, or by facsimile or
     other equivalent means, to the other party within a
     reasonable time after the occurrence of the cause
     relied on, the obligations of the party giving such
     notice, so far as they are affected by such force
     majeure, shall be suspended during the continuance of
     any inability so caused, but for no longer period,
     and such cause shall so far as possible be remedied
     with all reasonable dispatch.

     The term "force  majeure" as used in this  Transportation  Agreement  shall
     mean any cause not  reasonably  within the  control  of the party  claiming
     suspension and which, by the exercise of due diligence such party is unable
     to prevent or  overcome.  In addition,  such term shall  include but not be
     limited to: acts of God;  acts,  omissions  or delays in action of federal,
     state  or  local   government  or  any  agency  thereof;   compliance  with
     enforceable   recommendations,   rules,  regulations  or  order  of  any
     governmental authority or any office, department, agency or instrumentality
     thereof; strikes,

                            16





     lockouts, or other industrial disturbances; acts of the public enemy; wars;
     blockades;   insurrections;   riots;  epidemics;   landslides;   lightning;
     earthquakes;   fires;   storms;   floods;  high  water;   washouts;   civil
     disturbances;  explosions,  breakage or accident to machinery or pipelines;
     freezing of  pipelines;  and any other  causes,  whether of the kind herein
     enumerated  or  otherwise,  affecting  the  equipment or property of either
     party  and  not  reasonably  within  the  control  of  the  party  claiming
     suspension.  Such term shall likewise  include (i) in those instances where
     either  party  hereto  is  required  to obtain  servitude's,  rights-of-way
     grants, permits or licenses to enable such party to perform hereunder,  the
     inability  of such party to acquire or the delays on the part of such party
     in  acquiring,  at  reasonable  cost and after the  exercise of  reasonable
     diligence, such servitude's, rights-of-way grants, permits or licenses, and
     (ii) in those  instances  where  either party hereto is required to furnish
     materials  and  supplies  for the purpose of  constructing  or  maintaining
     facilities  or  is  required  to  secure  permits  or  authority  from  any
     governmental  agency  to  enable  such  party  to  perform  hereunder,  the
     inability of such party to acquire, or the delays on the part of such party
     in  acquiring,  at  reasonable  cost and after the  exercise of  reasonable
     diligence, such materials and supplies, permits and authority.

     It is understood  and agreed that the  settlement of strikes or lockouts or
     other labor  dispute shall be entirely  within the  discretion of the party
     having the  difficulty,  and that the  requirement  that any force  majeure
     shall be  remedied  with all  reasonable  dispatch  shall not  require  the
     settlement of such dispute by acceding to the demands of an opposing  party
     when such course is  inadvisable  in the discretion of the party having the
     difficulty.

16.  Limitation of Liability.  Neither Transporter nor
     Shipper shall be liable for any special,
     consequential, indirect or punitive damages of any
     kind or character arising out of or related to a
     breach of this Agreement.

17.  Waiver.  No waiver by Transporter or Shipper of any
     default of the other party under this Agreement shall
     operate as a waiver of any subsequent default,
     whether of a like or a different character.

18.  Headings.  The heading of, and index to, the various
     Sections of this Agreement are not part of this
     Agreement, but are only labels to assist in locating
     and reading those Sections and shall be ignored in
     construing the terms and provisions thereof.


                            17





19.  Laws and  Regulations.  This  Agreement  is subject  to the  receipt of any
     required or appropriate  authorization to deliver and transport Product and
     is further subject to all present and future valid orders, statutes, rules,
     laws, and regulations of any  government,  court, or regulatory body having
     jurisdiction.

20.  Termination Upon Default.  If either Transporter or
     Shipper should default in the performance of any
     material obligation imposed hereunder, the other
     party may terminate this entire Agreement by giving
     written notice to the defaulting party of such
     election.  The defaulting party shall have one
     hundred twenty (120) days after receipt of such
     notice in which to remedy such default or to
     indemnify the other party to the other party's
     reasonable satisfaction in which event this Agreement
     shall continue in force and effect.  In the event
     Shipper defaults in the performance or any material
     obligation and if such remedy or indemnity is not
     timely made, this Agreement shall, at the end of said
     one hundred twenty (120) day period, become null and
     void except for (i) Shipper's payment obligation for
     transportation services theretofore received by
     Shipper, including all accrued monthly minimum
     payments (sse Section 9(a) of Part II), (ii)
     Shipper's right to assign this Agreement to Phillips
     as specified in Section 15 of Part I, and (iii)
     Shipper's continuing obligation to pay the Demand
     Fee, to the extent required in Section 13 of Part I.

     In the  event  Transporter  defaults  in the  performance  of any  material
     obligation  and if such  remedy  or  indemnity  is not  timely  made,  this
     Agreement  shall,  at the end of said one hundred  twenty (120) day period,
     become  null and void  except  for (i)  Shipper's  payment  obligation  for
     transportation  services  theretofore  received by Shipper,  including  all
     accrued  monthly  minimum  payments  (see  Section  9(a)  of  Part  II) and
     Shipper's  obligation  to pay the Demand  Fee,  to the extent  required  in
     Section 13 of Part I, except to the extent any such payment obligations may
     be offset by the  amount of  damages  caused to  Shipper  by  Transporter's
     default,  or the amounts of claims brought  against  Shipper as a result of
     Transporter's  default,  including,  but not limited to, claims  brought by
     Phillips  pursuant to the Carbon  Dioxide  Sale  Contract,  (ii)  Shipper's
     receipt of transportation  previously paid for, or a refund of such prepaid
     amounts,  and (iii) Shipper's right to assign this Agreement to Phillips as
     specified in Section 15 of Part I.

     Any such  termination  shall be  without  waiver of any remedy to which the
     party not in default may be entitled for violation of this Agreement.

                            18





21.  Applicable Law.  ALL QUESTIONS CONCERNING THE
     VALIDITY OR MEANING OF THIS AGREEMENT OR RELATING TO
     THE RIGHTS AND OBLIGATIONS OF THE PARTIES WITH
     RESPECT TO PERFORMANCE UNDER THIS AGREEMENT SHALL BE
     CONSTRUED AND RESOLVED UNDER THE LAWS OF THE STATE OF
     TEXAS EXCEPT TO THE EXTENT SPECIFICALLY REGULATED BY
     FEDERAL LAWS, EXCLUDING ONLY ANY RULE OR PRINCIPLE
     CONCERNING CONFLICT OF LAWS WHICH MIGHT REFER TO THE
     LAWS OF ANOTHER JURISDICTION.

     If and to the extent that any court of competent jurisdiction determines it
     is impossible to construe any provision of this Agreement consistently with
     any law or public  policy  and  consequently  holds  that  provision  to be
     invalid,  such  holding  shall in no way affect the  validity  of the other
     provisions of this Agreement, which shall remain in full force and effect.

22.  Liability and Indemnity.  SHIPPER SHALL BE
     RESPONSIBLE FOR THE PRODUCT, INCLUDING RISK OF LOSS,
     AND ANY CLAIMS, LIABILITIES OR DAMAGE TO PRODUCT
     UNTIL THE TIME IT IS DELIVERED TO TRANSPORTER AT THE
     ORIGINATION POINT.  TRANSPORTER SHALL BE RESPONSIBLE
     FOR THE PRODUCT, INCLUDING RISK OF LOSS, AND ANY
     CLAIMS, LIABILITIES OR DAMAGE CAUSED TO PRODUCT FROM
     THE TIME IT IS DELIVERED TO TRANSPORTER AT THE
     ORIGINATION POINT UNTIL THE SAME PASSES THROUGH THE
     DESTINATION POINT.  THE PARTY RESPONSIBLE FOR THE
     CARBON DIOXIDE SHALL INDEMNIFY, DEFEND, AND HOLD
     HARMLESS THE OTHER PARTY WITH RESPECT TO ANY CLAIMS
     (INCLUDING REASONABLE ATTORNEY FEES AND COURT COSTS),
     LIABILITIES OR DAMAGE TO CARBON DIOXIDE WHILE THE
     CARBON DIOXIDE IS IN SAID PARTY'S RESPONSIBILITY.

     EACH OF THE  PARTIES  HERETO  AGREES  THAT  IT WILL  ASSUME  ALL  RISK  AND
     LIABILITY FOR ANY INJURY,  INCLUDING  DEATH, OR DAMAGES TO PROPERTY (EXCEPT
     CARBON  DIOXIDE)  RESULTING  FROM THE CONDUCT OF ITS AGENTS OR EMPLOYEES IN
     CONNECTION WITH THE SALE AND PURCHASE OF CARBON DIOXIDE HEREUNDER, AND WILL
     SAVE AND HOLD  HARMLESS,  DEFEND AND  INDEMNIFY THE OTHER PARTY FOR ANY AND
     ALL LOSSES, SUITS, CLAIMS OR ACTIONS,  COSTS, DAMAGES,  DEMANDS OR EXPENSES
     RESULTING  AT ANY TIME FROM ANY AND ALL CAUSES DUE TO ANY ACT OR  OMISSION,
     INCLUDING ANY NEGLIGENT ACT OR OMISSION,  OF EITHER ITSELF OR ITS AGENTS OR
     EMPLOYEES.  IT IS THE PURPOSE OF THIS PROVISION TO INDICATE THAT EACH PARTY
     SHALL BE RESPONSIBLE FOR ITS OWN ACTS AND THE RESULTS THEREOF.

     NOTWITHSTANDING  ANY PROVISION OF THIS PARAGRAPH 22, WHERE PERSONAL INJURY,
     DEATH,  OR  LOSS OR OF  DAMAGE  TO  PROPERTY  RESULTS  FROM  THE  JOINT  OR
     CONCURRENT,   NEGLIGENCE   OR  WILLFUL   MISCONDUCT  OF  BOTH  SHIPPER  AND
     TRANSPORTER  HERETO,  THE  PARTIES'  DUTY OF  INDEMNIFICATION  SHALL  BE IN
     PROPORTION  TO  EACH  PARTY'S   ALLOCABLE  SHARE  OF  JOINT  OR  CONCURRENT
     NEGLIGENCE

                            19





     OR  WRONGFUL  MISCONDUCT  EVEN IF ONE OF THE  PARTIES  ARE MORE THAN  FIFTY
     PERCENT (50%) AT FAULT.

23.  Limitation of Liability.  NOTWITHSTANDING ANYTHING
     HEREIN TO THE CONTRARY, IN NO EVENT SHALL SHIPPER OR
     TRANSPORTER BE LIABLE TO THE OTHER PARTY HERETO FOR
     ANY LOST OR PROSPECTIVE PROFITS OR ANY OTHER SPECIAL,
     PUNITIVE, EXEMPLARY, CONSEQUENTIAL, INCIDENTAL OR
     INDIRECT LOSSES OR DAMAGES (IN TORT, CONTRACT OR
     OTHERWISE) UNDER OR IN RESPECT HERETO HOWSOEVER
     CAUSED, WHETHER OR NOT ARISING FROM THE SHIPPER'S OR
     TRANSPORTER'S SOLE, JOINT OR CONCURRENT NEGLIGENCE.

24.  Exhibits.  Each exhibit referred to in this Agreement
     hereby is incorporated in this Agreement by
     reference.  All obligations of any party under any
     such exhibit shall be considered as obligations under
     this Agreement.

25.  Amendments.  Any modification of terms or amendment
     of provisions, either to this Agreement or to its
     exhibits, shall become effective only by supplemental
     written agreement duly executed by the parties hereto.

26.  Entire Agreement.  This Agreement, including its
     exhibits, contains the entire agreement between the
     parties and supersedes all prior or contemporaneous
     discussions, negotiations, representations or
     agreements relating to the subject matter covered
     herein.

27.  Compliance with Laws and Regulations.  Unless
     exempted by Federal law, rule, regulation or order,
     the following clauses contained in the Code of
     Federal Regulations are incorporated herein by
     reference, the full text of which will be made
     available upon request:  48 C.F. Sec. 52.222-35
     (Disabled and Vietnam Veterans); 48 C.F. Sec.
     52.222-36 (Handicapped Workers); 48 C.F. Sec.
     52.222-26 (Equal Opportunity); 48 C.F. Sec. 52.219-9
     (Utilization of Small and Small Disadvantaged
     Business Concerns); 48 C.F. Sec. 52.219-13
     (Utilization of Women Owned Business Concerns).  Each
     party hereto agrees and covenants that none of its
     employees or employees of its subcontractors who
     provide service pursuant to this Agreement are or
     shall be unauthorized aliens as defined in the
     Immigration Reform Control Act of 1986.

28.  Subsequent Restrictions on Transportation.  If at any
     time during the term hereof, any governmental
     authority having jurisdiction or control over the
     parties, their facilities or operations, this
     Agreement or any provision thereof, shall take any
     action whereby the transportation of Product as
     contemplated hereunder or the rates charged therefor
     shall be proscribed or subject to conditions or
     restrains that in the

                            20





     sole  reasonable  judgment of the party  affected are unduly  burdensome to
     that party,  such party may  terminate  this  Agreement,  and neither party
     shall have further  liability to the other except for (i) Shipper's payment
     for transportation  services  theretofore received by Shipper including all
     accrued  monthly  minimum  payments  (Section  9(a) of Part  II),  and (ii)
     Shipper's  continuing  obligation  to pay the  Demand  Fee,  to the  extent
     required in Section 13 of Part I. Any such  election to so  terminate  this
     Agreement shall not be made without first  contacting the other party in an
     attempt to arrive at another accommodation which would leave this Agreement
     intact.  Such termination shall be effective when ninety (90) days' advance
     written notice thereof is received by the other party.

29.  Confidentiality.  Shipper and Transporter agree that
     this Transportation Agreement shall be a confidential
     document, the contents of which shall not be
     disclosed without the prior written consent of the
     other party (which will not be unreasonably withheld)
     to third parties except for affiliates and
     subsidiaries of Shipper and Transporter, and except
     for Shell, Mobil, and Phillips.  Shipper and
     Transporter shall have the duty to exercise the same
     standard of care with respect to the nondisclosure of
     this Agreement as they would exercise with respect to
     their proprietary business information.

30.  Claims.  Transporter shall assert any and every
     "Claim" of any kind or nature whatsoever under this
     Agreement ("Claim" to include, without limitation,
     any Claim relating to, associated with, arising out
     of or in any way incidental to the Transportation
     of Product or the execution, inducement to enter
     into, performance, non-performance, or breach of this
     Agreement) exclusively against Shipper and not
     against any one or more of its partners nor the
     general partner, Enron Liquids Pipeline Company, nor
     their officers, directors, employees, or agents nor
     entities affiliated with it by common ownership or
     control, nor any of them individually or
     collectively; and Transporter shall enforce or
     attempt to enforce any such Claim (whether liquidated
     or unliquidated, or by suit, lien, judgment,
     execution or otherwise) exclusively against the
     assets of Shipper and not against the assets of any
     partner, general partner, affiliated entity, nor any
     of their officers, directors, employees or agents,
     except the general partner's interest in Shipper.




                            21




                                   EXHIBIT "A"


Product   delivered  at  the   Origination   Point  shall  meet  the   following
specifications, which herein are collectively called "Quality Specifications":

     (a) Water.  Product shall contain no free water, and shall not contain more
         than thirty (30) pounds of water per MMcf in the vapor phase.

     (b) Hydrogen Sulphide.  Product shall not contain
         more than twenty (20) parts per million, by
         weight, of hydrogen sulphide.

     (c) Carbon Dioxide.  Product shall contain at least
         ninety-five mole percent (95%) of molecules
         containing one (1) atom of carbon and two (2)
         atoms of oxygen.

     (d) Total Sulfur.  Product shall not contain more
         than thirty-five (35) parts per million, by
         weight, of total sulfur.

     (e) Temperature.  Product shall not exceed a
         temperature of one hundred twenty degrees
         Fahrenheit.  (120(degree)F).

     (f) Nitrogen.  Product shall not contain more than
         four mole percent (4%) of nitrogen.

     (g) Hydrocarbons.  Product  shall not contain  more than five mole  percent
         (5%) of hydrocarbons and the dew point of Product (with respect to such
         hydrocarbons)   shall  not  exceed  minus  twenty  degrees   Fahrenheit
         (-20(degree)F).

     (h) Oxygen.  Product shall not contain more than ten
         (10) parts per million, by weight, of oxygen.

     (i) Other.  Product shall not contain more than 0.3 (three tenths)  gallons
         of glycol  per MMcf and at no time  shall  such  glycol be present in a
         liquid  state  at  the  pressure  and  temperature  conditions  of  the
         pipeline.

EX-21

1) Kinder Morgan Operating L.P. "A", a Delaware limited partnership

2) Kinder Morgan Operating L.P. "B", a Delaware limited partnership

3) Kinder Morgan Natural Gas Liquids Corp., a Delaware corporation